Innovation: 5 things you’re doing wrong. #5 You’re missing something.

About this series: We know how important innovation is to long term performance. Yet many companies still struggle to capture value from innovation investments. A brand new CSIRO-UQ report ‘Thriving through innovation: Lessons from the top’ identifies the top factors driving real-world financial performance in ASX firms. The report was recently written up in the AFR.

#5 You're missing something

“An innovation system is a coherent set of interdependent processes and structures that dictates how the company searches for novel problems and solutions, synthesises ideas into business concepts, product and service designs, and selects which projects get funded.” – Gary Pisano

Innovation as a system

As you might’ve guessed, today’s blog is about innovation systems. It’s about how you strategically manage the innovation value chain, starting from new ideas all the way through to products. Make no mistake, serial innovators like 3M have a system. A robust system. They execute that system to generate continual market successes.

Does your innovation system look like this?

What are the components of an innovation system?

Glad you asked. A robust innovation system is one where clear strategic priorities are set, regular customer feedback is present, and multiple commercial pathways are considered and tested with the market. In isolation, these components are ineffective. Together they sing.

You can split hairs about this all day long (there is a lot of nuance), but there are essentially 5 pillars to any good innovation system. No part of an innovation system operates in isolation and the process is iterative (not linear).

1. Strategy

This establishes where you want to play and why, which is then articulated as specific innovation challenges. This is nontrivial and requires bespoke analysis of trends and customer research, to arrive a very narrow innovation problem needing a solution (or an opportunity needing unlocked). The result of this strategy making is a narrow focus on priority innovation areas for the business. Unfortunately, a lot of companies skip this step. The best don't.

2. Solution seeking

From here things can broaden out as you look to generate ideas (ideation) that could solve the problem / unlock an opportunity. There are many ways to go about this including crowdsourcing. However, these need down-selected into a portfolio of diverse options that can be stress-tested.

3. Acceleration

This is all about rapidly finding winning solutions out of the portfolio of options, and learning from those that don’t work. This is done fast these days through sprints, accelerators, and prototyping of minimum viable products (MVPs). The point is to find out – as quickly as possible – whether the potential solution has legs. If it does not, teams must pivot , or the concept is killed, in which case resources should be quickly allocated to the other viable options in the portfolio.

4 Scale-up

This is about applying more serious engineering resources to the development effort, through applied R&D, lab and pilot scale efforts. This is the work that needs done to validate the investment decision to go all in on the commercialisation and deployment of the innovation.

5. Deployment and commercialisation

Deployment of the business model, operating model, and complementary innovations that will capture and sustain value from the innovation investments.

Innovation systems and our findings

Multiple parts of the report point to the role of a strong innovation system to deliver consistent results. As we wrote:

'Having innovation processes that span functions of the organisation (across research and development, formal training, design and marketing) reflect a sophisticated, embedded innovation system.'

'This is not to be overlooked as a source of success for the top 10%. An innovation system embedded in multiple parts of the organisation is the antithesis of the lone innovation lab and other ‘innovation theatre’ like just looking around for innovations which we know don’t work.'

'A strong innovation system provides the scaffolding to determine which innovation projects get ushered through the innovation funnel, and helps to transition them into the core business for commercialisation.' - page 28

The top four innovation factors are the connective tissue that bind together any successful innovation system. These factors build on each other from the bottom up in a pyramid: corporate entrepreneurship allows companies to identify new opportunities > which collaborators are engaged to help unlock > leading to novel outcomes which are > capped off with business model changes to protect returns.

These factors directly mesh with the components of well-functioning innovation system, here's how:

But let’s be very clear: corporate entrepreneurship does not mean trying everything.

Corporate entrepreneurship is great, if it's strategically focused on solving only the best innovation problems

Corporate entrepreneurship means that that a company is always looking for the next opportunity (we called this proactiveness). It also means they are prone to doing something about it – most often through innovation, as they strive for technology leadership (called innovativeness). Finally they also have the risk appetite to try new things and chase opportunities down.

But let’s be very clear: corporate entrepreneurship does not mean trying everything. The most effective businesses develop strong strategy to identify the right opportunities, at the right time. Strategic focusing of this entrepreneurial spirit is essential for success. It must be harnessed and directed. Strategy helps locate the best opportunities, which can then be tackled by unleashing the entrepreneurial spirit of the organisation.

In a functioning innovation system the organisation is therefore taking calculated risks on a suite of opportunities, some with high potential payoffs.

Example: This type of innovation strategy is exactly what CSIRO Futures does. Many of their reports are public, meant to help develop important new industries like hydrogen. But a fair share of their work is bespoke research pieces for top companies that are trying to navigate uncertainty around harnessing emerging technology. From my personal experience building and delivering these insights to clients, there is almost always an 'aha' moment, or a new angle to pursue. That's why the best companies don't skip this step.

Collaborations increasingly support the entire innovation system because 'open' innovation is how the best do it

Today’s innovation systems are open to the outside world and this explains why collaborative breadth (multiple, innovation-focused partnerships) matter so much.

Research partners help locate new strategic opportunities through basic science, and help find novel solutions to innovation problems. Customers provide feedback on prototypes during acceleration. Market partners provide the scaffolding for sale-up and rapid commercialisation. Success today hinges on a well-functioning innovation system that is strongly connected to (and anticipates) the external environment.

This is why formal innovation collaboration matters so much to top line growth - it is lifeblood of todays more successful 'open' innovation systems.

Note: CSIRO does thousands of collaborative projects a year and is actively making moves to ensure its future is based on even more industry collaboration, for instance through our Missions Program and our SME connect team which I mentioned in an earlier blog.

Innovation novelty, arguably the point of any well-functioning innovation system

Robust innovation strategy, entrepreneurial spirit, and collaborations all work together to create the conditions for delivering market-leading innovations, i.e. those that are new to Australia or the world. 

This endpoint, novelty, is the express purpose for best in class innovators like 3M. That's why they purposefully set new product revenue targets in order to ensure that the company is being sustained by new products, and that they are not resting on their laurels.

Example: CSIRO's recent spinouts and commercialisations like Hovermap and NextOre represent world-leading novel technology developed in the research sector that is being deployed into new markets and solving tough customer challenges.

Triple threats: Not just deploying an innovation. This is sophisticated commercialisation.

The icing on the cake, the cherry on top - whatever you want to call it, this is what successful commercialisation looks like: an innovation that is surrounded by new back end processes, complementary products, and revamped new business models. This is how top performers capture and sustain value from innovation investments, which I covered in some detail the last blog (#4 You are not building moats).

This 'triple threat' sophistication is a clear signal that top companies don't just introduce single innovations, they commercialise a suite of innovations to capture the full value of their investments and new business models make it hard to imitate.

Example: in the first blog, I mentioned V2 foods, a CSIRO alt protein company that was built on CSIRO science into a company almost overnight through a strategic market channel partnership with Hungry Jacks to deliver the first product in the market the Rebel Whopper. It's now in your local grocer and soon going global. Rapid capital raising off the back of the initial product success means this business is scaling fast and will be very hard to beat. It's world leading technology, coupled with a killer business model, and rapid speed to market. We call this venture science.

In sum

• Innovation is a system. If you are missing any of the key pieces it won’t function well and it will not be capable of creating a parade of new products leading to long term growth.
• Corporate entrepreneurship, collaboration, novelty and complementary innovations are the connective tissue behind any successful innovation system.
• CSIRO is open for business

Download the full report here

Read more by visiting the rest of the blogs in this series:

#1 You’ve got the wrong attitude – Corporate Entrepreneurship

#2 Your innovation process is too closed – Collaboration

#3 You are a follower, not a leader – Innovation Novelty

#4 You are not building moats – Triple Threats

#5 You are missing something – Innovation Systems

 Thanks for reading. Opinions (errors and omissions) are exclusively my own.