Corporate Innovation

Corporate Innovation HamidHoushmand

Barriers to Innovation in Corporate • If Innovations risks to cannibalize the existing businesses • If current customers are not clamouring for the innovation • If executives are instinctively oriented to reducing risks and variability • If executives become complacent after years Of success • If executives seek to retain power by remaining focused on their areas of greatest competence

Successful Innovation Management Means Managing the Losers • Three common issues that create dissatisfaction with Innovation management • Metrics: inappropriate metrics result in misplaced expectations. The metrics must highlight the innovation process • Project initiation: • Innovation process

Metrics in Innovation Management • Most companies measure innovation based on the outputs. For example, a common benchmark demands that 20% of company revenues are generated from products/services launched in the last three to five years. This may be an appropriate strategic goal, but it does not measure the effectiveness of the innovation process. • Effective metrics provide actionable insights to the process of innovation • Revenue return/dollars invested: including both headcount and hard costs of innovation. This measure provides an indicator as to how well you are allocating resources. Actions derived from this metric could include a change in the project staffing model or changes to the timing of the hard costs • Average number of projects/innovation employee: often companies take the approach that “every idea is a good idea.” So many development projects are started that the staff cannot devote sufficient resources to any to effectively move them forward. “Addition by subtraction” can result by limiting, or even capping, the number of development projects allowed in the pipeline at any time • Average project duration–companies that struggle with innovation have trouble saying “no.” The slimmest glimmer of hope is enough for the sponsor (often an executive) to keep the project alive. The pipeline remains clogged, and the best bet opportunities cannot receive the critical mass of resources they require to move forward. A metric to address this issue is a hard target for average project duration. This metric results in more frequent and disciplined project review.

Relationship Between Innovation and Market Needs • Historically, companies tended to take an “inside out” approach to innovation (i.e., “let the inventors invent”). The result was that the vast majority of projects had little direct relation to a market need. While these projects often resulted in neat new ways to use new technologies, they were usually considered ahead of their time. (A good example is a mainstream technology used in warehousing and distribution today–RFID (radio frequency identification). When introduced in the mid 1980′s, they were generally met with market indifference.) • As the “market driven” buzzword took hold, many companies moved to the other extreme. Every development project has to have justification from the marketplace. While hit rates on innovation did improve, this approach lost the “quantum leap” advances–too many of the projects resulted in small incremental improvements in features/benefits. These were certainly welcomed, but not market changing. • The most appropriate approach is a combination of the above extremes. We use a benchmark of 75%–75% of the projects initiated should be market driven. These projects are targeted from the outset to deliver a specific benefit to a specific market segment. The desired competitive advantage for the innovator is stated as part of the justification for the project. Effectively, these 75% of projects are sponsored by the marketing/sales organizations. The remaining 25% of projects are less constrained. Sponsorship can come from anywhere within the organization.

World Class Innovation Process Management • State of the art today is the “stage gate” process: • Development projects are managed through a series of stages. • Each stage culminates in a review and “go/no go” decision. • Only those projects that pass through this gate are funded to the next stage. • Stage One: Concept Definition–the purpose here is to articulate the logic behind the development concept, as well as the assumptions that justify the project investment • Stage Two: Proof of Concept–the purpose of the proof of concept gate is to provide evidence that validates the concept behind the development project. Broad financial metrics are introduced to begin to flesh out the potential return on the innovation • Stage Three: Commercial Viability–at this stage, the purpose is to assure the concept has “scalability” • Stage Four: Commercial Positioning–the purpose of this final development stage is to define the most viable positioning of the product/service prior to launch. This stage serves as the bridge to the commercialization steps • Stage Five: Launch–the launch stage represents the handoff of ownership of the project from the development group to the mainstream organization. Product or market segment management takes ownership. Business plans are developed, including revenue goals, operational strategies, sales/marketing/channel strategies, etc. to bring the innovation into the mainstream of the business

Formulas for Innovation • Innovation process: Generating ideas, refining ideas, selecting ideas, implementation: thus innovation = ideas Result: ideas are more than they can possibly move forward • The innovation = ideas + motivation, which can generate thousands of small initiatives but cannot support major projects. No breakthrough innovation rather continuous improvement through motivating the grass-roots • The innovation = ideas + process, which can efficiently crank out innovation after innovation (launching new tractor with cutting-edge technology at Deere & Co) • In innovation = ideas + leaders formula, a talented leader is supposed to be able to overcome whatever barriers

Genius is 1 percent inspiration, 99 percent perspiration Thomas Edison • The real innovation challenge lies beyond the idea • It lies in a long journey from imagination to impact • Crux of the innovation challenge is that business organization is not designed for innovation. • Organizations are designed for ongoing operations (“Performance Engines“) • There are deep and fundamental conflicts between the two (innovation initiatives and operations) • Performance Engine, with its focus on what is predictable and repeatable, can not single-handedly take on innovation, which is by definition non-routine and uncertain

Corporate optimal organization for Innovations • Every innovation initiative requires: • A innovation leader • A dedicated team with a custom organizational model • A plan that is revised through a rigorous learning process • In other words: a formula like: Idea + leader + team + plan • Performance engine • Partnership between the dedicated team and the Performance Engine product development group may be capable of handling all, some or none of the product development tasks (Deeres, MBW, Electrolux) • Combination of dedicated asset and the asset of the Performance Engine • The partnership, not just the dedicated team, executes the initiative

Creating the dedicated team • Identify the skills that is needed • Hire the best people that you need • Match the organization model to the dedicated team’s job • The most common pitfall is choosing too many insiders and too few outside hires • Pride, familiarity, comfort, compensation norm • Success of the team once the team is able to overcome the organizational memory • Create a separate physical space for the dedicated team • Create new titles and write new job descriptions for everyone in the team • Assess the performance in line with the team’s objectives, not the Performance Engines • The dedicated team should define its own metrics, processes and culture

Managing the Partnership • Always a partnership between the dedicated team and a shared staff of the Performance Engines • The most critical characteristic of successful innovation leaders is that they take a positive, persuasive, and collaborative approach in their interaction with the Performance Engine • Conflicts with the PE is frequent and can be intense. The leader need help from the above • Resources are allocated to the innovation initiative through a single process, by which the resource conflict with PE is resolved • Maintaining a healthy partnership is difficult, as the two units are quite different and unlikely to naturally work together

Ten innovation myths

Accountability of Innovation Management • Holding managers strictly accountable to plan can be extremely powerful • But this positive benefit is only available in environment in which it is possible to make reliable prediction • The predictions that guide innovation initiatives, of course are anything but reliable

Corporate Innovation