Innovation In The Age of R&D

We are witnessing the acceleration of technology development like never before! In fact, for the first time in history, we reached a point where technology acceleration is faster than our ability as humans to adapt to it. The progress in technology is indeed growing at fast pace.

According to PwC Global Innovation 1000 survey, the surveyed companies have spent $702B on R&D development projects in 2017. Despite that this figure represents a 3.2% R&D spending increase from the earlier year budget, the surveyed companies had a 2.5% decline in revenues in 2016. The top ten companies alone represented 20% of that spending with a tech company, Amazon, on the top of the list for the first time.

And despite all that spending, According to a recent McKinsey & Co survey on global innovation, only 6% of the top management are satisfied with their innovation efforts despite that most of the surveyed companies understand the importance of innovation.

Why is that happening? I believe there are four main reason why is this happening.

1.Mistake Traditional R&D For Innovation

Traditional R&D = Something New with potential (good RoI)

Let us first define what is Traditional R&D. It is the investigative activities a company performs to improve its existing products and procedures or to lead to the development of new products and procedures. New products and procedures are being developed with the purpose of creating something with potentially high return on investment. 

“Innovation = Creativity + Delivery”

Now lets define innovation; according to McKinsey & Company, innovation is creativity and delivery. In other words, innovation is applied creativity, the application of original ideas. It is not just the “what” but also addresses the “how” as well. How you take an original idea and investigate whether it made sense to the customer and cents to the business.

“Innovation = Something New + Sustainable Business Model”

Another definition I like, according to The Corporate Startup book by Dan Toma et al., innovation is something new and sustainable business model. It is more or less the same definition, however, it emphasizes the importance of creating a successful business model around an original idea in order to turn it into a successful innovation.

I believe that, in today’s world, true innovation happens when original ideas are used to address real world challenges and delivered in a manner that is intuitive and reliable to the customer. By creating value for the customer, we are actually half way there. The second half should be all about investigating value creation for the innovation provider, i.e., the business model.The delicate balance between both sides is business model innovation. Innovation should be about creating value for the customer and value by the customer.

What is the role of technology R&D in innovation?

Technology R&D is not the beginning of innovation and should not be confused with innovation. Technology R&D is in fact the scientific process of turning original ideas into working original ideas. Adding the customer into the equation transforms the working original idea into a value proposition. Embedding this value proposition in a repeatable and scalable business model is what turns the working original idea into a commercial and potentially profitable endeavor. 

“Innovation = Impactful Creativity + Sustainable Business Model”

I like to define innovation as impactful creativity and sustainable business model.

Thus, the components of successful innovation could not be simply reduced to just tech R&D. Innovation can not be simply defined as the act of creating new tech. What we should aim for is the creation of Value Tech. Value Tech happens when we apply technology to amplify a validated value proposition in terms of intuitive usability and reliability. So technology is nothing more than a way of transforming ideas into a tangible value propositions. 

We need something else to help us define/understand better the components of a successful innovation. As Alex Osterwalder describes it in his blog, I would like to introduce you to the concept of Business R&D.

Business R&D is “the search for value propositions that create value for a specific customer and that is embedded in business models that can profitably grow & scale.”

These new value propositions and business models could, but don’t have to, be based on new technologies.

Innovation is not R&D or Technology. Hence, innovation should not be correlated with the amount of R&D spending nor the number of patents registered by companies. 

Innovation is about creating value for the customer and value by the customer while solving a problem/challenge that matters.

2.Turning Innovation To A Risky Destination! 

When mistaking R&D for innovation, companies focus on delivering a solution, a tangible new product or service. With the destination becoming a fixation at the beginning of the process, creating the solution tends to become a relatively linear approach of sophisticated and expensive series of action that creates an inflexible process and a kind of “all in” mindset. The typical “Waterfall” approach. This Russian roulette approach, diminishes the flexibility while it increases related expenses substantially. It turns innovation into a very risky destination!

What If we were to break this long process into a simpler and more flexible approach? What if we are to consider the validity of the original idea before we so actively working on transforming it into a technology? What if we simply and cheaply investigate the “why” and the “what” before the “how”!! 

What if we consider the process as a mapless journey and we are here and now trying to discover the landscape of the problem of the customers before we try and force them into using a solution? What if we just try and focus on the journey and not the destination? We can start with a multiple early customer validation touch points to open the possibility to learn more than what we can assume. It will serve as a reliable guide within the uncertainty that usually comes with creating something new. It will also help in reducing unnecessary spending and time waste associated with fixing and adapting a bad solution to an uninterested customer, discovered very late. 

Innovation requires a lot of humility and contemplative actions. I hear a lot of executives saying that we can create the product and then create the need for it!! I believe this to be uniformed optimism at best and arrogance at its worst. 

If we are going to build solutions based on our assumed understanding of a problem, perhaps we can also come up with assumed customers who will buy it with assumed money because the real life audience will most probably not. Fall in love with the problem, not the solution.

Innovation is a learning investment, a learning journey!

3.They Leave Innovation Out Of Strategy!

Your business model is your fort 

And like any fort, at times it needs to be protected, expanded and prepared for the future! Every business wants to create value in the “now” as well as to ensure making value in the “future”! This requires a more holistic view of the business, a big picture sort of speak.To understand the company’s potential from known business models to unknown business models.

Three horizons H1/ H2/ H3 = Now / Tomorrow / Future!

H1 -> Hold The Fort? can we hold the fort for current business models

H2 -> Grow The Fort? how can we expand on the current business models

H3 -> Create a New fort? how can expand from current business models and create genuinely new ones.The real challenge for the leadership of any company is how they can “simultaneously manage the present and invent the future” as Yves Pigneur and Alex osterwalder state in their latest article “Letter to the CEO”! 

Hold / Grow / Create: The business R&D Spectrum 

H1-> Hold The Fort:

Questions to ask: How can we hold the fort? How can we defend and improve the company's core business?

Our focus here will be mostly on the left hand side of the canvas. How can we defend & improve core business model? By:

• Improve existing products
• Secure resources
• Increase efficiencies by improving processes
• Forge partnerships that will ensure the business model fortification and reach.

All that while making sure our costs are in check or reduced. 

H2-> Grow The Fort:

Questions to ask: How can we Grow the fort? How can we take what we already have, and extending it into new areas of revenue driving activity? How can we expand and upgrade current business models?Our focus here will be mostly on the right hand side of the canvas. How can we expand & upgrade current business models? We already have a proven business model, working and doing well.

How can we expand on that? By:

• By expanding geographically 
• By introducing new product lines that serve whiten the current value propositions. 

We are mostly talking about Product Innovation (or incremental innovation) targeting existing or new customers. It can be based on current R&D or on new R&D. 

H3-> Create New fort:

Questions to ask: How can we create new forts? What is today telling us about the future? How can we create genuinely new business models?

We are talking about completely new business models. 

We investigate the four dimensions of business design: Desirability, Feasibility, Viability & Adaptability.

Desirability is the is the human factor, the market risk, we ask ourselves should we do it?

Feasibility is the technical factor, the technology risk, we ask ourselves can we do it?

Viability is the business factor, the financial risk, we ask ourselves is it worth it?

Finally, Adaptability, the external factor, the environment risk, will it adapt?

Our strategy ranges from known business models to unknown business models.

Hold, Grow, Create = the Now, the Tomorrow, and the Future

Going from execution mindset (applied with known business models) vs the innovation mindset (applied with unknown business models)

Innovation is about strategizing for the future

4.Wrongly Apply Execution Mindset to Innovate!!

When you execute a known business model, you are actually performing in a high predictability environment. On the other hand, when you are exploring unknown business models for the future, you are in a very low predictability, highly uncertain environment. It is counter intuitive to use typical execution mindset when innovating.

Are You Ready To Innovate?

Innovation is a learning journey and a mindset. Are you ready to innovate?