Do we really think we are innovating?

I recently read an old McKinsey & Company report about the eight essentials of innovation. I was struck by how "contemporary" this approach and indicators looked. The truth is, in the last 10-15 years, it has been challenging for well-established companies to innovate and avoid being disrupted by new small competitors.

For example, let's recall the case of Netflix and Blockbuster. In this case, Blockbuster proved to be an extraordinary executor and operator, rather than innovator, and that established its expiration.?

In that sense, I want to share some ideas. One of which is what can other organizations learn from these approaches and attributes??

This question formed the core of a multi-year study comprising in-depth interviews, workshops, and surveys of more than 2,500 executives in over 300 companies. The study includes performance leaders and laggards in a broad set of industries and countries.?

McKinsey mentioned a set of eight essential attributes that are present -either in part or in full - at every big organization that is a high performer in product, process, or business-model innovation.

Since innovation is a complex, company-wide endeavor, it requires a set of cross cutting practices and processes to structure, organize, and encourage it. In addition, let's keep in mind that innovation, more than a technological phenomenon, is essentially a human phenomenon.?

Innovation is not just about creating new products or services; rather, it is about understanding how humans have changed their habits, preferences, and ways of living/existing based on that it needs changes, new models, new processes, new products, and more natural, human, efficient, intelligence that is exactly on a par with modern society, and new economies with its shortcomings and virtues.?

Let’s review these eight essentials:

?

Aspire

Do you regard innovation-led growth as critical? Do you have cascaded targets that reflect this??

Underlying elements: Innovation vision and model, Required growth contribution from innovation, Cascaded targets and accountabilities?

President John F. Kennedy’s bold aspiration in 1962 to “go to the moon in this decade” motivated a nation to unprecedented levels of innovation. A far-reaching vision can be a compelling catalyst, provided it’s realistic enough to stimulate action today.?

But in a corporate setting, as many CEOs have discovered, even the most inspiring words often are insufficient, no matter how many times they are repeated. It helps to combine high-level aspirations with estimates of the value that innovation should generate to meet financial-growth objectives.?

Quantifying an “innovation target for growth” and making it an explicit part of future strategic plans helps solidify the importance of and accountability for innovation.?

Establishing a quantitative innovation aspiration is not enough, however. The target value needs to be apportioned to relevant business “owners” and cascaded down to their organizations in the form of performance targets and timelines. Anything less risks encouraging inaction or believing that innovation is someone else’s job.?

?

Choose?

Do you invest in a coherent, time-and risk-balanced portfolio of initiatives with sufficient resources to win??

Underlying elements: Clarity of innovation themes, Portfolio balancing time and risk, Resources sufficient for initiatives to win, Portfolio governance?

?Fresh, creative insights are invaluable, but in our experience, many companies run into difficulty less from a scarcity of new ideas than from the struggle to determine which ideas to support and scale.?

This can be particularly problematic at larger companies during market discontinuities, when supporting the next wave of growth may seem too risky, at least until competitive dynamics force painful changes.?

Innovation is inherently risky, to be sure, and getting the most from a portfolio of innovation initiatives is more about managing risk than eliminating it. Since no one knows exactly where valuable innovations will emerge, and searching everywhere is impractical, executives must create some boundary conditions for the opportunity spaces they want to explore.?

During this process, companies should set in motion more projects than they will ultimately be able to finance, making it easier to kill those that prove less promising.?

Without a doubt, the key point here tends to be how many new ideas the company can test in the shortest amount of time without resorting to large investments. In that sense, part of the innovation, from my point of view, lies in how we can repeatedly test ideas from an early stage.?

I remember speaking a few years ago about a concept similar to MVP but related to design (very preliminary stage to MVP). It was like creating an MVD (minimum valuable design) in that sense; we could go together with our users/consumers and present our idea through a simple prototype that showed the idea's true core.?

In my experience, I always try to think of how to present an initial idea on a simple napkin. Doing so allows you to start learning about its feasibility, relevance, traction, etc. In this sense, it is vital to give the design teams a hierarchy in the innovation process.

Once the opportunities are defined, companies need transparency into what people are working on and a governance process that constantly assesses the expected value, timing, and risk of the initiatives in the portfolio and its overall composition. There’s no single mix that’s universally right.?

Most established companies err on overloading their innovation pipelines with relatively safe, short-term, and incremental projects that have little chance of realizing their growth targets or staying within their risk parameters. Some spread themselves thinly across too many projects instead of focusing on those with the highest potential for success and resourcing them to win.?

These tendencies get reinforced by a sluggish resource-reallocation process. Our research shows that a company typically reallocates only a tiny fraction of its resources from year to year, thereby sentencing innovation to a stagnating march of incrementalism.?

?

Discover?

Do you have differentiated business, market, and technology insights that translate into winning value propositions??

Underlying elements: Customer orientation, Multiple-lens insight generation, Differentiated value proposition?

Innovation also requires actionable and differentiated insights—the kind that excites customers and brings new categories and markets into being. How do companies develop them? Genius is always an appealing approach if you have or can get it. Fortunately, innovation yields other approaches besides exceptional creativity.?

The rest of us can look for insights by methodically and systematically scrutinizing three areas: a valuable problem to solve, a technology that enables a solution, and a business model that generates money from it. You could argue that nearly every successful innovation occurs at the intersection of these three elements.?

Companies that effectively collect, synthesize, and “collide” them stand the highest probability of success. If you get the sweet spot of what the customer is struggling with while gaining a deeper knowledge of the new emerging technologies and find a mechanism for how these two things can come together, then you will get good returns.

It’s important to avoid working only on the ideas or projects where we feel capable and comfortable working because the know-how, our current resources, and many other reasons that block our research and discovery capability bring us a real new approach to work over.

Can you imagine that innovation is only about working on what you know how to do? This is a HUGE mistake from well-structured organizations, where the value is assigned to the people with 5, 10, or 15 years in the company rather than the new hires with fresh ideas, energy, and approaches. I’m not saying the experience and know-how are not a good value; of course they are. Actually, the foundation and basement should support the new ideas, but there is the key. We always need to have new playmakers with new visions and allow them to test and explore. How can we find new results if we only do the same thing?

The insight-discovery process, which extends beyond a company’s boundaries to include insight-generating partnerships, is the lifeblood of innovation. We won’t belabor the matter here, though, because it’s already the subject of countless articles and books.??

One thing I can add is that discovery is iterative, and the active use of prototypes can help companies continue to learn as they develop, test, validate, and refine their innovations. Moreover, I firmly believe that large organizations probably won’t innovate successfully without a fully developed innovation system encompassing the other elements described in this article, no matter how effective their insight-generation process is.?

?

Evolve?

Do you create new business models that provide defensible and scalable profit sources??

Underlying elements: Exploration of new business models, Changing value-chain economics, Diversifying profit streams, Delivery-model changes and new customer groups.?

Business-model innovations—which change the economics of the value chain, diversify profit streams, and/or modify delivery models—have always been a vital part of a strong innovation portfolio. As smartphones and mobile apps threaten to upend old-line industries, business-model innovation has become all the more urgent: established companies must reinvent their businesses before technology-driven upstarts do. Why, then, do most innovation systems so squarely emphasize new products? The reason, of course, is that most big companies are reluctant to risk tampering with their core business model until it’s visibly under threat. At that point, they can only hope it’s not too late.?

Amazon does a particularly strong job extending itself into new business models by addressing the emerging needs of its customers and suppliers. In fact, it has included many of its suppliers in its customer base by offering them an increasingly wide range of services, from hosted computing to warehouse management.?

?

Accelerate?

Do you beat the competition by developing and launching innovations quickly and effectively??

Underlying elements: Planning and execution rigor, Cross-functional project culture, Customer- and market-based learning?

Virulent antibodies undermine innovation at many large companies. Cautious governance processes make it easy for stifling bureaucracies in marketing, legal, IT, and other functions to find reasons to halt or slow approvals. Too often, companies simply get in the way of their own attempts to innovate. A surprising number of impressive innovations from companies were actually the fruit of their mavericks, who succeeded in bypassing their early-approval processes.?

I really think this is a clear self-innovation because you are certainly disrupting your own process that blocks your ideation process, testing process, connection with reality, and customers. Clearly, there’s a balance to be maintained: bureaucracy must be held in check, yet the rush to market should not undermine the cross-functional collaboration, continuous learning cycles, and clear decision pathways that help enable innovation.?

Are managers with the right knowledge, skills, and experience making the crucial decisions promptly so innovation continually moves through an organization in a way that creates and maintains competitive advantage without exposing a company to unnecessary risk??

Companies also thrive by testing their promising ideas with customers early in the process, long before internal forces impose modifications that blur the original value proposition. This is kind of crazy but true. Sometimes during early-stage validation, we detect opportunities, and we validate. Before we go to the market, marketing rules, stakeholders’ POVs, or other “process factors” affect the value proposition.?

This is so bad, but it happens a lot. It’s necessary to knock down the barriers between a great idea and the end-user to end up with the innovation initially envisioned. Companies need a well-connected manager to take charge of a project and be responsible for the budget, time to market, and key specifications—a person who can say yes rather than no.?

Cross-functional collaboration can help ensure end-user involvement throughout the development process. At many companies, marketing’s role is to champion the interests of end-users as development teams evolve products and help ensure the final result is what everyone first envisioned. But this responsibility is honored more often in the breach than in the observance.?

Meanwhile, other companies rationalize that consumers don’t necessarily know what they want until it becomes available. This may be true, but customers can certainly say what they don’t like. And the more quickly and frequently a project team gets—and uses—feedback, the more quickly it gets a great end result.?

?

Scale?

Do you launch innovations in the relevant markets and segments at the right scale??

Underlying elements: Go-to-market planning, Launch management, Operations ramp-up?

Some ideas, such as luxury goods and many smartphone apps, are destined for niche markets. Others, like social networks, work on a global scale. Explicitly considering the appropriate magnitude and reach of a given idea is important to ensure the right resources and risks are involved in pursuing it.?

The seemingly safer option of scaling up over time can be a death sentence. Resources and capabilities must be marshaled to ensure a new product or service can be delivered quickly at the desired volume and quality. Manufacturing facilities, suppliers, distributors, and others must be prepared to execute a rapid and full rollout.?

?

Extend?

Do you win by creating and capitalizing on external networks?

Underlying elements: Strategic external networks, Collaboration skills, Partner of choice.?

?In the space of only a few years, companies in nearly every sector have conceded that innovation requires external collaborators. Flows of talent and knowledge increasingly transcend company and geographic boundaries. Successful innovators achieve significant multiples for every dollar invested in innovation by accessing the skills and talents of others. They speed up innovation and uncover new ways to create value for their customers and ecosystem partners.?

Smart collaboration with external partners, though, goes beyond merely sourcing new ideas and insights. It can involve sharing costs and finding faster routes to market. Famously, the components of Apple’s first iPod were developed almost entirely outside the company. By efficiently managing these external partnerships, Apple moved from an initial concept to a marketable product in only nine months.?

High-performing innovators work hard to develop the ecosystems that help deliver these benefits. Indeed, they strive to become partners of choice, increasing the likelihood that the best ideas and people will come their way, requiring a systematic approach.?

Moreover, companies that make the most of external networks have a good idea of what’s most useful at which stages of the innovation process. In general, they cast a relatively wide net in the early going. But as they come closer to commercializing a new product or service, they become narrower and more specific in their sourcing since, by then, the new offering’s design is relatively set.?

?

Mobilize?

Are your people motivated, rewarded, and organized to innovate repeatedly??

Underlying elements: People priorities, Enabling structure, Supportive culture, Learning and adaptive organization.?

How do leading companies stimulate, encourage, support, and reward innovative behavior and thinking among the right groups of people? The best companies find ways to embed innovation into the fibers of their culture, from the core to the periphery.?

Let's start back where we began with aspirations that forge tight connections among innovation, strategy, and performance. When a company sets financial targets for innovation and defines market spaces, minds become far more focused. As those aspirations come to life through individual projects across the company, innovation leaders clarify responsibilities using the appropriate incentives and rewards.?

Organizational changes may be necessary, not because structural silver bullets exist—we’ve looked hard for them and don’t think they do—but rather to promote collaboration, learning, and experimentation. Companies must help people share ideas and knowledge freely. They can accomplish this by locating teams working on different types of innovation in the same place, reviewing the structure of project teams to make sure they always have new blood, ensuring that lessons learned from success and failure are captured and assimilated, and recognizing innovation efforts even when they fall short of success.?

Internal collaboration and experimentation can take years to establish, particularly in large, mature companies with strong cultures and ways of working that, in other respects, may have served them well. Some companies set up “innovation garages” where small groups can work on important projects unconstrained by the normal working environment while building new ways of working that can be scaled up and absorbed into the larger organization.?

As I am talking about people, it is truly important to have a clear global strategy from multiple verticals: marketing strategy, product strategy, business strategy, etc. Those strategies MUST be shared, discussed, analyzed, and understood by the whole team. You need to create the necessary mechanisms for an efficient strategy distribution and allow the team to learn and adopt the strategy. Believe me; it is easy to reach out to the innovation process you are looking for as soon as the whole team is aligned with the strategy to follow.?

Sometimes organizations “believe” they have a clear strategy, and when you ask some key team players about it, you may discover bad news. This is because they don’t understand the problem they are trying to solve or how to approach the situations, or even worse, they have another totally different idea regarding strategy.

To be honest, I’m not sure how this could happen. How can it work without a well-defined strategy or agreement or strategic commitment and no long-term vision?

For example, I can visualize this situation as a soccer game where you as a player are not sure what your role is and how you need to play. It is defense, it is attack, it is slow in the midfield, it is vertical passes, or simple “Tiki-Taka”. It’s crazy, but it happens.?

My recommendation is to at least start with your team level, trying to evangelize as much as possible and as soon as possible about the mission, the vision, the limitations, the process, and the north. Plus, to have a clear team strategy on a granular level, then try to share that vision with other teams and motivate them to follow that approach. Even doing workshops or motivational activities to clarify things from a “partner's” style to what we are looking for, why we are doing “this”, what is the goal, and how is our North Star vision? By the way, we need to have one! If not, how do you know what the road is?

Final Idea:

It is not easy for all big organizations to reinvent themselves as leading innovators. There are too many fixed routines and cultural factors. For those that do make an attempt, innovation excellence is often built in a multi-year effort that touches most, if not all, parts of the organization: products, processes, strategies, leadership, teams, culture, and more.?

In my experience and based on multiple sources, we may see how any organization looking to make this journey will maximize its probability of success by closely studying and appropriately assimilating the leading practices of high-performing innovators. Together, these form an essential operating system for innovation within a company’s organizational structure and culture.?

I hope these ideas inspire you to think about your innovation and bring you some resources to analyze and discuss with your team. If you have any questions or valuable thoughts and feedback about this article, please don’t hesitate to reach out, as I’m so happy to talk about it.