For organisations globally, R&D and innovation is becoming an increasingly important strategic weapon in their fight for success. Research and development is not just about building new products, or even about creating new processes and services. It’s increasingly about finding new ways to do business – new ways to create value, to collaborate, to work, and to make money. In an increasingly complex and fast-moving world, it’s about innovation.
It sounds simple enough. Everyone wants to be more innovative. But in reality, innovation is hard. It’s hard to do well. It’s hard to do consistently and repeatedly, regardless of who’s doing it, regardless of organisational structure.
The challenge is not just to do innovation well, but to do it well for the long term. To create a culture that values innovation and one that delivers consistently.
Innovation is a complex subject, with many different aspects and angles to consider. So, we’ve decided to take a look at it from a slightly different vantage point. One that we’ve found to be particularly useful in our own work: the Innovation Accountability lens.
Innovation is a journey. A journey that takes us from point A to point B, but one that’s full of unexpected twists and turns, detours, and diversions. And if we’re not careful, we can end up a long way from our destination, or we find that we get stuck in the service station.
Innovation is an accountability journey. It’s a journey that requires us to take accountability for the innovation we do, the outcomes we create, and the impact we have. When we map innovation to this accountability lens, we see a very different picture emerging.
With the accountability lens, we start to see the need for different people to take accountability for different elements. We see the need for innovation to be embedded in the work of the business. We see the need for a structure that supports innovation, not just through the work of the innovation team, but through the work of the entire business.
Innovation is a journey, but it’s not a linear one. It’s a cycle. Or more accurately, it’s a linear journey with a lot of roundabouts. It’s not about doing one thing and then moving on to the next. And it’s not about going in a straight line. It’s about going in a straight line, but one that meanders, goes off in a tangent, backtracks, and loops back on itself. Innovation is a journey of discovery. It’s a journey of exploration. It’s about gathering knowledge, exploring possibilities, and testing assumptions. And it’s only by doing this that we can truly understand what the right path to our mission is.
Innovation follows a predictable and unfortunate pattern.
We have seen this same pattern repeating itself in many different companies, but it usually takes several years to play out, so it’s very difficult for innovation leaders to recognize while they are in it. The pattern looks something like this:
1) Innovation Catalyst and Kick-off:
Successful companies often experience a major catalyst event that motivates them to make a big push with innovation. This could be the result of an existing competitor’s latest move, the emergence of a new competitor, or the notable results of a competitor’s big innovation. No matter what the catalyst, company leaders decide that the status quo and current business trajectory are not good enough and that innovation is the key to changing the trajectory. They will often create a new innovation team or re-task an existing team to lead innovation for the company. However, this is often when businesses make a fatal mistake. They start without knowing their goals for innovation, and without clear and measurable objectives. Nevertheless, they will demonstrate their commitment to innovation by making an announcement and displaying it publicly.
2) The Honeymoon Phase:
The Innovation team is up and running, and the initial focus is on ideation – collecting, filtering, sorting, and prioritizing innovative ideas from within the company, outside the company, or both. The innovation leaders and senior executives know that the process of invention is somewhat of a numbers game and that there will be failures along the way, so they are excited to see the number of ideas and eagerly invest in several promising concepts.
Ideas for innovation are the easiest part of the innovation cycle, but often get more focus and attention than they deserve because they are easy to quantify, even if the quantity is not a direct indicator of successful outcomes.
3) Initial Scepticism
After one year, some of the initial concepts will have failed or been rejected; but there will be a few that are gaining traction and showing promise. However, as the realities of executing on the complex concept are realized, the timelines may start to slip, or the size of the opportunity may be scaled back as adoption rates get more realistic with better data from early market testing. It might be expected, but established corporations or departments may also claim better potential returns from similar investments.
If this is the case, then the innovation leaders are realizing that they can’t just rely on the front-end of the pipeline, so they are putting some energy into more ideation to keep the pipeline going. Now, simultaneously undertaking front-end exploration as well as projects in later stages results in stretching the available resources.
In the first two or three years, the results of these initiatives are likely to be quite limited in comparison to the established core business, and none of the innovation projects has yet proved to be the game-changing home run that everyone was expecting. Innovation leadership asks for patience, but investment or funding support may get scaled back to a more manageable level, or some projects with lower potential may get cut so that greater investment may be allocated to the few projects that still seem promising. Despite the executive sponsorship, the results are not as significant as they should be, and the process is taking too long. They begin to explore and invest in alternative strategies.
After the third year, the executives get disappointed with the results. Some of the projects have gained traction and are moving in a positive direction, but the success is not significant enough to make a noticeable impact on the company’s bottom line. So, the innovation team gets disbanded and the established business groups oversee driving their own innovation. To accomplish more in less time, management changes the approach to innovation to focus on external strategic investment in small, nimble start-ups or potential acquisitions.
While this is a generalisation, and the circumstances and rationale may be different, the general pattern is remarkably similar. In some cases, the decision to cut investment may be the most appropriate course of action to take, but the real underlying problem is that the innovation effort is not being governed well. The right objectives and success metric for the innovation initiatives from the beginning and appropriately aligned expectations with the level of risk and constraints can ensure that the project is not prematurely cut short.
The Myth of Innovation Metrics
There are some advocates and leaders in the innovation space who believe and say innovation cannot and should not be measured. One of their arguments is that creativity is the driving force of innovation, inspiration, and free association. These qualities can be encouraged or enabled, but they cannot be measured or managed scientifically. Innovation requires experimentation, trial, and error, and errors are to be expected and constitute sources of discovery and learning opportunities. These arguments are all valid, but they do not justify innovation without a disciplined approach or in the face of clear success measurements.
Innovation is important but should not be measured the same way as an established business or operation. However, innovation should be managed with discipline and accountability to appropriate metrics.
Innovation is not magic. It’s not the result of genius visionaries or a cool work environment. It’s the result of skills and methods developed and practiced for the task. When used properly, it’s a combination of the scientific method (hypothesize, experiment, and gather evidence) combined with economic investment discipline (evaluate risk-adjusted potential return vs. investment required and acceptable loss). Each one of those fields can be managed with great discipline and clear metrics. If it is important to your business, it should be quantifiable and thus measurable. To invest resources, the business should generate a positive return, not necessarily in direct bottom-line impact, but in some explicitly defined and quantifiable metric.
How to Measure and Manage Innovation Accountability
Innovation is unpredictable, but so are many traditional business practices. You can’t always predict what competitive alternatives may emerge or how the market will behave and evolve, but companies are constantly adjusting to those changes. You may not be able to control the timing or scope of diversification, but you can define an acceptable level of risk to invest in developing options. You can measure the return on the risk-adjusted value of those options and selectively invest them based on the potential increase in an option value, net of investment required.
Start with your innovation objectives. Why are you doing it? What’s the catalyst? What are you trying to accomplish? Identify the point where you will be satisfied and then work your way back to identify the milestones that must be met before you will be satisfied. But be careful – it’s important that you measure the right things. We often see metrics like the number of innovation ideas or concepts, but at best, that’s a very indirect measure of something more important and meaningful, like actual value created. The wrong metric can be worse than no metric because it can drive behaviours that are actually counter to your goals.
Don’t attempt to finalize your metrics in one sitting or meeting. It’s worth the time and effort to do it properly. Take a first crack at defining your key metrics, then let them sit for a week or two before re-evaluating them. Can they be practically measured? Can they potentially create any negative consequences? It’s also good to schedule in advance some planned review points quarterly or semi-annually to make sure that your metrics are guiding the right behaviour towards your goals and adjust them if needed. There are many other metrics beyond the creation of option value. Some examples include how much time and investment is required to reach a preliminary option value, avoiding wasted investment, or limiting the downside risk for failed projects.
In business innovation, metrics will often come back to some form of top or bottom-line financial impact. However, there are other values that come from innovation that are not easy to quantify into dollar value, such as learning and discovery, which are quantified based on how much you are willing to invest to obtain them via innovation or by alternative means.
An Innovation Accountability Partner provided by Innovolo will enable leaders to set clear objectives and success metrics for innovation initiatives and ensure that the progress is tracked. In addition, they will ensure that the appropriate level of resources, time, and funding are allocated to innovation efforts.
It is important to have a partner, like Innovolo, to manage your innovation efforts for you. You need to stay focused on your core business and not get distracted by the details of managing innovation processes, metrics, and controls. You can outsource that to Innovolo and focus on running your business.