Ideas are not a coincidence!

Strategic Renewal with a Holistic Innovation Management System: Processes & Methods

This article is part 4 of an article series about building an innovation management system for strategic renewal. This article was originally published in German at the?Haufe Group ?New Management Magazine together with Lucas Sauberschwarz . You can find the introductory article here . ?

To continuously adapt to today's uncertain and dynamic environment, companies need the organizational capabilities for continuous and effective innovation. These capabilities can be developed through a holistic innovation management system. The individual levers of this system are discussed in this series of articles. After the basic introduction , this article focuses on the "processes & methods" lever.

Innovation is 1 percent inspiration and 99 percent perspiration

This quote from serial inventor Thomas Edison (over 10,000 patents!) shows: Contrary to popular myth, good ideas are not the result of a flash of genius in the shower or a coincidence, but rather the product of hard work. And hard work is necessary indeed, because companies cannot rely solely on random inspirations and serendipity for their future - although these may occur from time to time. Instead, they must systematically identify relevant problems, develop appropriate solutions, and successfully bring them to market if they want to gain strategic value from their innovation efforts.

In the last century, traditional research and development (R&D) divisions were established for this purpose. Like Edison, these are able to produce patents continuously with hard work. Bosch, for example, registered almost 4,000 patents in the year 2022 alone.

With the goal of not only bringing technical innovations to market, but also developing new solutions in a customer-oriented, targeted, and iterative manner, many other methods of systematic innovation development have been added today. In particular, convergent and divergent thinking are combined to achieve the best innovations step by step.

• Divergent thinking focuses on expanding the range of possibilities, for example, by generating as many problems, solution ideas, or implementation variants as possible.
• Convergent thinking then specializes in identifying and selecting the best option(s).

The sensible combination of various methods, taking divergent and convergent thinking into account in a systematic process, then increases the chances of successful innovations with a relevant strategic value contribution for the company. But what exactly does such a systematic innovation process look like?

Systematic Innovation Process

The answer to this question is not so simple. Innovation is not only uncertain, it is also complex. The required combination and iteration of analysis and creativity cannot simply be mapped onto one general process. Nevertheless, it can be helpful to follow a basic development process to channel the hard work required in the most efficient way. While innovation development is rarely linear in the sense of a process, certain steps have proven to be successful and can be considered iterative - i.e., it may be necessary to go back a step or repeat it several times. The following steps, briefly summarized here, have given us good guidance in more than 100 projects in more than 40 industries.

The hardest part of innovation development is often getting started. Do you need a good idea that can be further developed? A new trend or technology to build on? Or an interesting customer problem to solve? Many innovation processes rely on such starting points. Unfortunately, they do not necessarily lead to innovation with a relevant strategic value contribution. New ideas, technologies, or trends can be used as opportunistic opportunities, but systematic innovation development is not possible in this way. This requires a planned innovation logic instead of (or in addition to) an opportunistic one (see figure).

Four Steps to Innovation Development

The planned innovation logic is based on the company's objectives and fundamental strategy in order to close any gaps in the achievement of objectives and to further develop the innovation portfolio in a targeted manner. Accordingly, a systematic development process for strategic innovation should always be preceded by the definition of the strategic framework ("scoping") and the innovation portfolio ("configuring"), as this is the only way to ensure, together with the key stakeholders, that the subsequent innovation development process is heading in the right direction at an early stage. Once these aspects have been fulfilled as described in the previous articles, and the strategy for the innovation portfolio has been defined, the following four steps can be used to develop specific strategic innovations.

1.From Strategic Opportunities to Innovation Potentials

"Think outside the box" is often said in the context of innovation to stimulate creativity. In the logic of planned innovation, however, this mantra is more of a hindrance. After all, the goal is not to come up with just any ideas, but to develop the most relevant innovations with the defined target contribution. This requires "thinking inside the box" in order to clear the field for a targeted search for ideas.

The classic approach is to first conduct a broad, external analysis to identify all the social, technological, political, and economic trends and changes that may be relevant to the company and to evaluate them, for example, according to time horizon and expected impact.

But this is not the end of the story. At the same time, an internal analysis must be conducted to identify the current strengths and weaknesses of the company, for example, based on the business model or the value chain.

Only the combination of internal strengths or weaknesses and external trends can lead to possible innovation potentials, each of which represents a field for further development. Since there is usually a large number of possible innovation potentials, these should be assessed with the key stakeholders on the basis of the defined objectives and classified in the defined portfolio framework in order to enable a focused selection in the sense of convergent thinking (see the previous articles in this series). In a simple example, the trend towards electromobility and a current strength in engine development can lead to the need for an automotive supplier to address electric drives as a new innovation potential. (Today, this realization would probably not even require an analysis but a decade ago it could have saved some automotive suppliers some headaches today ??. )

2. From Customer Needs to Innovative Ideas

Even if the area for innovation “inside the box” has been defined with a selected innovation potential, there are still a large number of possible ideas. In fact, there is an infinite number, because mathematically speaking, there are just as many possibilities between 0 and 1 (i.e., in a defined area) as there are between 0 and infinity!

It is therefore important to identify the most relevant problems within the innovation potential, which can then be solved with innovative ideas. The mantra "no problem is no solution" was coined by the Design Thinking methodology, which relies heavily on identifying new customer needs. Translated into a systematic process, this means first looking for specific unmet customer needs (pain points) rather than ideas. Qualitative research methods such as observation, ethnography, or interviews are typically used for this purpose, while the possible pain points can then be validated using quantitative methods such as surveys and prioritized from the perspective of possible target groups. In addition, an assessment should be made as to which problem can be addressed in a targeted and solvable manner for the company.

Once a relevant problem in the defined innovation potential has been selected in this way, it needs to be solved. However, it is not always necessary to reinvent the wheel. Instead, the first step is to look for existing solutions that can potentially be applied to the specific problem and to one's own company. In addition to best practices from the competitive environment, new start-ups, and existing patents or concept studies, also analogies often play a key role. Here, individual elements from existing solutions in other areas are transferred to the defined problem. For example, the pit stop in Formula 1 racing can inspire a drive-in in a fast-food restaurant, the folding wheels of airplanes can be used for baby carriages, or the anti-vibration design of Stradivarius violins can be used for skis.

Equipped with these solutions and inspirations, the most creative part of the development process can take place: ideation. Here, as many new solution ideas as possible are generated based on the inspirations and using various creative techniques in the sense of divergent thinking. Once the ideas have been sorted, clustered, and developed into meaningful potential solutions, they can be evaluated by potential customers to get an initial prioritization from a market perspective. In this step, however, the most relevant solution ideas need to be re-evaluated against the company's defined objectives and classified in the portfolio framework to select the idea(s) to be pursued and developed into concrete solutions in the next step.

3. From Innovative Ideas to Validated Solutions

Once a promising solution idea has been selected, there is still a long way to go before it is implemented as an innovation in the market. This is because the idea is usually not yet mature enough to be implemented and marketed directly; for example, the exact functionality and business model still need to be designed. When developing selected ideas into concrete solutions, the motto is "Fail fast, learn faster". As described in the Lean Startup methodology, for example, ideas cannot simply be developed into concrete solutions in a linear fashion because they are still subject to too many uncertain assumptions. These must first be made transparent by creating an initial concept and formulating hypotheses about market appeal, feasibility, and profitability. These can then be ranked by their evidence (certain - uncertain) and importance (important - unimportant) to select the most critical - uncertain and important - hypotheses for testing.

Equipped with the critical hypotheses, multiple "build - measure - learn" cycles take place, in which individual aspects of the idea are implemented and tested in the simplest possible experiments in order to learn from them and iterate the concept until the critical hypotheses are validated (or the concept is discarded). In the best case, this results in a validated solution that works, is in demand by paying customers, and can be implemented profitably. On this basis, the previous evaluation and classification on the portfolio matrix can be updated to make a final implementation decision and resource allocation depending on the results.

The solution can then be implemented and marketed under this premise. In most cases, an agile, step-by-step approach to the project is recommended so that the solution can be iterated and adapted as needed. But sooner or later, the time has come for the innovation to prove itself in the marketplace – and thus make the innovation development process a success!

As described, the process now passed different phases of divergent and convergent thinking, from understanding and defining relevant customer problems to generating and selecting relevant solutions for the subsequent implementation (see figure). While methods and processes can vary, the basic concept of following such a “double diamond” is by now well-established in innovation theory and practice.

Impact on dynamic capabilities

The processes and methods of a systematic development process have a positive impact on the creation and application of the "dynamic capabilities " required for strategic innovation. Together, these enable the organization to (continuously) integrate, build, and reconfigure internal and external resources and capabilities to create new competitive advantage.

In particular, the so-called "sensing" and "seizing" capabilities are influenced. These describe the organization's ability to systematically develop new, targeted ideas for relevant customer needs and to implement them through appropriate solutions. The steps presented in a systematic innovation process make it possible to develop and apply precisely these capabilities.

However, the further development of innovation capabilities also requires the consideration of other levers, which can be found (or will be found) in the other articles of this series. Do you want to know where your company stands on the road to continuous strategic innovation? The "Capability Check " provides a free, quick self-assessment of all dynamic capabilities using a scientific questionnaire.

The next articles in this series will continue with the next lever of the innovation system: interlinked organizational structures for innovation. #follow and stay tuned to not miss out and get an overview of the complete innovation management system!