Innovation - the basics

Innovation is an excellent tool for gaining and sustaining a competitive advantage in current and future markets. In today's flat and ever-evolving world, lagging behind in innovation or focusing innovation on the wrong paths can be fatal for business enterprises. Example - Kodak, Nokia.

This article aims to present the basic components of Innovation Management that can be applied to any business organization. This article is based on knowledge acquired from the "Innovation Management" course by the University of Rotterdam and based on my observations from a bottom-up view of innovation management while working in the construction industry.

What is Innovation?

Professor Melissa Shilling from New York University defined innovation as the act of introducing a new device, method, or material for application to commercial or practical objectives.

Innovation is not just coming up with a novel idea, it's about the implementation of the idea. And the end result of implementation has to be of some use. In a business context, innovation is the commercialization of an idea

The journey of innovation begins with an idea. The ability to generate novel and useful ideas is called creativity. The creativity of an individual or a group needs the presence of three qualities - technical expertise, motivation to innovate, and critical thinking ability. While expertise takes time to develop, and motivation is best when it comes from within and is therefore difficult to improve easily. The low hanging fruit in these three parameters is critical thinking skills. There are available structures that force us to think critically and that can be easily learned and implemented. Example design thinking, SCAMPER, SIT - Systematic, inventive thinking, etc.

Innovation strategy and portfolio management

Innovation serves all: short, medium, and long term goals.

Therefore before deploying innovation programs, organizations need to understand what they want in the near, medium, and long term. How do they see their customers, suppliers, and vendors evolving? What are the current, emerging technologies inside and on the periphery of their business ecosystem? And how they see the government regulations and international geo-politics evolving?

After the organizations have a perception of the future, then they can look into how to deploy innovation most effectively. They can determine how much focus is needed on incremental innovation, how much on radical innovation; and what areas should radical innovation focus on. This prioritization of innovation can then be translated into budget allocation to different innovation buckets.

Some organizations lack in this regard and run innovation programs without proper guidance and budget allocation. As a result, their innovation program turns reactive, that is they install "suggestion boxes" and hope to find some "good suggestions", without thinking and or communicating enough that what is a good suggestion that organization needs.

Idea Management and Project Evaluation

After the organizations have an innovation strategy and budget allocations as per innovation strategy, the organizations can guide their employee's attention to innovation focus areas and start collecting ideas.

Two challenges idea management program face are - not getting enough ideas and not getting quality ideas. To keep getting ideas, it is important to give feedback - acceptance or rejection, so as to keep employees motivated to submit ideas. I have observed organizations often lack in this area, where ideas stay under review for months, if not years with no feedback. To improve the quality of ideas, organizations can create real or virtual platforms where motivated employees can be mixed with technically expert employees and guided to use critical thinking tools on innovation focus areas.

At the inception stage, the ideas will not be fully developed to assess feasibility, gauge customer feedback, and run financial calculations. At this stage, the ideas can be selected based on their fit with the innovation strategy. As decisions are made with a lack of knowledge, it is important to understand, it is possible to miss good ideas and select bad ideas.

Idea development and implementation

The selected innovation ideas can then be passed through "Staged Gates". The ideas go through various development and pre-implementation stages, after each stage the idea is evaluated for its perceived benefit, and accordingly, the idea is allowed to go to the next stage / dropped from the innovation program / parked for future consideration.

The development stages can vary based on the types of innovation and the way organizations work. But the basics are first to develop the scope of the idea, develop prototypes, gather customer feedback, and improve, prepare for launching the product/service/process and launch.

As the idea moves through development stages, investment in the idea increases, therefore the intention in the development phase is to start developing prototypes and gathering customer feedback early, fail early, to keep the cost of failures low, learn from failure early, and therefore keep the cost of incorporating learning into the idea also low.

The human factor in the adoption of innovation

The adoption of innovation brings change to the status quo, this change may bring some improvement from the status-quo and some compromises. The improvements and compromises will be evaluated by the customers based on their point of reference.

Therefore it important to understand a general bias that most humans have: the status-quo bias. We, humans tend to assign more value to what we will lose and less value to what we will gain in the change of status quo. Therefore for us to adopt an innovation, we need to feel that the innovation will deliver more gains with fewer compromises.

This does not mean the organization has to always follow customer perceptions, an organization can also stimulate customers' perceptions - as Henry Ford famously said “If I had asked people what they wanted, they would have said faster horses.”

Summary

Organizations need to have a perception of the future and understand what role they want to play in that future. Accordingly, identify what to innovate and allocate budgets. This innovation focus needs to be communicated to employees, organization also need to stir up employees' creativity by mixing expertise and motivation, and by guiding creativity by critical thinking tools. The ideas collected from employees can be initially selected based on ideas' strategic fit, later on as ideas develop, the ideas need to be evaluated at each step to minimize developing wrong ideas or right ideas at the wrong time. In idea development, the key is customer feedback and failing early. And in the end, the adoption of innovation by customers depends on their own perception. Customers need to feel that they gain more and lose less with the change.