Q&A: Innovation - An Imperative for Growth
1. How does one glean ideas? And how do you sort them without losing good ones that may not 'fit' the existing model but would be disruptive?
Normally, most development processes are constructed as a funnel that eventually lead into a Stage-Gate® process for product development. Mature organizations have frameworks and support systems in place for administering the ideation process as well as the development process.
In the ideation process, it is of crucial importance that the innovation board assigned to evaluate the ideas has both the operational and strategic scope in mind when evaluating incoming ideas. The organization must ensure that the process in place takes responsibility for both sustaining (to make revenue “tomorrow”) and disruptive (to make revenue the “day after tomorrow”) types of innovation and there are several collaboration tools in the market to assist in addressing this, such as Sopheon’s Accolade.
2. If our business is in a particular stage of the Innovation Life Cycle (especially “decline”), can we actually move our business leftwards? In other words, does this life cycle only move in one direction? What can we do to reverse the trend especially if we are in a B2B model?
In relation to lifecycles it is, from a single product/market perspective, difficult to go “left” on the curve. What organizations typically do is that they try to prolong the maturity stage for as long as possible. This could be achieved by insertion of cost-reducing, sustaining innovations (process), smaller product adjustments, etc.
As it is hard to reverse the trend (the product/service decline is driven by trends in the market, competitors, etc.), one needs to look for disruptive opportunities. If a product or service has already passed the decline stage, it is likely that the company in question has already been disrupted by a competitor or that the product/service has become obsolete. During the early phase of the decline stage, it is crucial to start looking for disruptive opportunities (there are several methods of doing this).
3. Could you give examples of alternative funding channels?
There was a follow-up question in the survey asking for the different types of alternative funding methods outside of the formalized channel within your organizations. 25% of the respondents reported that there was a parallel formal process for obtaining alternate funding (perhaps for disruptive innovations); 25% said their orgnaization had a parallel informal process; and 25% reported that they had a both a parallel formal process and a parallel informal process.
These percentages indicate that the formalized process in effect is inefficient. All in all, one could conclude that in a majority of organizations, there are innovation initiatives outside management’s view. How many? Difficult to answer but it makes follow-up and decision making difficult for management since they apparently do not have the full picture. From a strategic perspective, this becomes even more alarming!
4. Given the incentive structure, is disruptive innovation impossible for an incumbent?
No, it does not have to be impossible, but the incumbent must have an understanding of the drivers in the marketplace and must be prepared to change its business model and culture to respond to changes in the market. They should do this for two reasons: 1) To identify new markets/opportunities but also to 2) identify potential threats from competitors or new entrants. Deloitte has models available to help your organization get to those insights.
5. Can you comment on the cultural differences between Europe and US? My experiences are that European's do embrace disruptive innovation but are more humble about describing projects as disruptive whereas US companies overstate what is truly disruptive with most of focus being on sustaining.
Our view is that “overstating” the expectations on disruptive innovation might be one explanation for higher expected returns from disruptive innovations. In other words, the American corporate culture perhaps regards the future a bit more positively than its European counterpart. The experience from working with Swedish companies is that we perhaps are a bit more realistic and restrictive in our forecasts.
In general, we agree with your view, but it is difficult to draw any conclusions regarding the differences on how to communicate disruptive innovations to the market in different places of the world.
6. What are the elements of a centralized innovation function?
As so many organizations claim to list innovation as a one of its top-three strategic priorities for the coming three years (93% in our survey), it is remarkable that most organizations still fail to have a clear and communicated innovation role. What other strategic initiative lacks ownership in the organization?
The elements for a centralized innovation function are close linkage with top-management; a full view of all active innovation initiatives (as of today, many disruptive innovation projects are operated “under the radar”); a strategic approach to innovation, especially the ability to look at projects with 3+ years time horizons; and a technical AND commercial focus, as opposed to a mainly technical focus (R&D).
7. Your fourth remedy seems at odds with other information presented recently. In particular, Don Laurie and Yves Doz have argued that teams chartered for disruptive innovation are more successful when separated from the teams working on 'routine' sustaining innovation. Comments?
We are aware of previous statements on separating different types of innovation initiatives and we both agree and disagree. Sustaining and disruptive initiatives should be kept apart. They should have different Stage-Gate® criteria, evaluation criteria, etc.
What we mean by “one structure” is that management should be aware of all innovation initiatives within the corporation. Most companies that we’ve come across are running several projects “under the radar”, indicating that top-management is unaware of these projects. All projects should be made visible and measurable regardless of their nature, but with different sets of evaluation methods. (It is somewhat remarkable that CEO’s claims X% growth in the coming quarter/year without having the full picture!)
Without a complete picture of all innovation initiatives within the organization, it is difficult to kill undesirable projects in time and to support desirable projects that fit with the corporate strategy. Many claim that by forcing disruptive ideas into a formalized process, it kills the creativity of designers and engineers. The challenge then lies in forcing creativity within the organization.
8. Do you have any insights on how to monitor trends? Monitoring what may be gaining favor in the future can be a prerequisite to innovation.
Fully agree. Deloitte’s view is that this is one of the main challenges in bringing new products/services to market. Without deep understanding / insights into the future, it is difficult to serve the customers of tomorrow. The traditional methods of monitoring trends in the marketplace have several limitations, among them:
1) The marketing department defines the market (read the “current market”). Analysis and trends are produced based on the current corporate culture, current product line, current resources, etc. In other words, market surveys are produced to get the answers you “want” – not necessarily what you “need” for the future.
2) Surveys are too focused on current customers and how to improve product features or service offerings to meet their needs. This is good, of course, but most often results in limited growth opportunities. If true growth is to be achieved, it is more interesting to look for the customers that you don’t have – what is it about your market offering that does not appeal to them?
3) Classic segmentation divides the market into geographical areas and age groups instead of addressing life-styles that are indifferent to their geographic location.
There are methods for finding tomorrow’s markets. Deloitte works from a “jobs-to-be-done” method, identifying the “job” the consumer desires. This results in both new segmentation data and information on what “job” customers want the product/service to solve. For example, if the “job” you want to solve is hanging a picture on the wall, you wouldn’t pay for a drilling machine because there are alternative methods to drilling a hole, such as attaching a hook, pounding in a nail, etc. Deloitte has several tools available that allow customers and non-customers to define the market (as opposed the market being defined by the internal marketing department).
9. Do you have any suggestions for suitable systems and tools to measure success in innovation?
Firstly, the organization needs to define what it means by “innovation”. In our experience, this definition is many times organization-specific.
The classical method for measuring is ROI which is closely related to R&D initiatives, which might work well for sustaining innovation but not so for disruptive innovation. This is because it is so fundamentally different in nature from sustained innovation and therefore, it is more difficult to measure.
When designing KPI’s for disruptive innovation, it is crucial to decide what kind of behavior that you are trying to get with your measurement/incentive model. It is clear that the ultimate goal is to become more innovative and eventually to be able to market new products / services. But looking at the risks involved in the lifecycle model, it is apparent that the period before entering into development is difficult and the risk of making the wrong decisions is at its peak at this stage in the model. Hence, one measurement of success is how well you manage your ideas in the pipeline before they enter into development. There are two ways of increasing the number of products/services to enter into development:
1) By increasing the total number of incoming ideas (Deloitte has methods for this).
2) By improving the ideation process resulting in the “right” ideas being pursued (Deloitte has methods for this as well).
Ideally, one should improve both these points. Contact me directly if you would like to get more information on the topic.
10. How do we get a copy of all of the survey results?
Contact Ulf Björnemark at email@example.com. I can send you the survey results either through conventional mail or electronically.