Note: This is part of a series of posts explaining the individual parts of The Innovation Matrix. See this post for a description of the full model and what can be done with it.
Organisations that are Thinking About Innovation have two directions they can take. Ideally, they will improve their Innovation Competence, which moves them up to the Fit For Purpose Category. This is a good outcome. The other direction is more dangerous. The other option is to look at the increase in they’ve made in their Innovation Commitment, realise that they are still not getting the results that they want, and so they increase commitment some more. But in doing so, somehow they still fail to improve their Innovation Competence.
This leaves the firms Bewildered.
Bewildered firms share all of the characteristics that identify firms that are Thinking About Innovation – they just have more of everything – except actual innovation. These firms have full processes to in place to support innovation. This can include things like a stage-gate process to manage new product development, a well-funded R&D department, or an extensive and well-documented idea management system.
They have tried to integrate innovation with their overall strategy, they have some sort of innovation metrics, they’ve got everything you can think of, really.
And yet, to their immense frustration, the are still not very successful at innovating.
This might sound like an improbable situation to you, so let’s look at some examples.
This is bad place to be, and the firms that find themselves tend to be very frustrated. They understand the need for innovation, they have invested time and money into building processes to support innovation, and they are committed to doing it successfully. And yet, for some reason, they can’t.
Most of the time, this is due to some kind of fundamental error, such as:
- Mistaking ideas for innovations: this is by far the most common error I see from firms in this situation. When this happens, all of the process that has been put in place to support innovation is organised around generating ideas, or collecting them from people in the firm. If you believe that innovation is all about having great new ideas, then your high level of commitment to innovation will result in you having a lot of great new ideas. The problem is that they still need to have some sort of selection process to identify the best ones, which will require time and money to develop, and then more time and money to diffuse.
One great example of a firm that was in this position was Procter & Gamble prior to the introduction of their open innovation Connect & Develop initiative. I’m going to talk about this as a case study, but briefly, the story is that around 1999, P&G evaluated the outcomes from a major increase in R&D spending over the previous five years. What they found was that they had greatly increased the number of patents (ideas!) that they held, but that less than 10% of these patents were being used in commercial products. They weren’t executing. Their commitment to innovation was enormous, but their success rate was unusually low.
- Your main problem actually isn’t innovation: another mistake is to not recognise what your main problem is. Often, the reason that the high levels of Innovation Commitment are not paying off is because the people in the firm are completely disengaged. This is Nilofer Merchant’s Air Sandwich at its worst. When you’re in this situation, you keep asking people for ideas, but you never get any good ones. Why? Because people don’t care.
If this is the case, you face a much bigger problem than innovation. And the management issues must be addressed before you can make any progress with innovation.
- The processes you have aren’t working right: a while ago now I was in charge of the stage-gate process in the firm for which I worked. We had just introduced it. For the better part of a year, I dutifully applied the screens that we had put in place to the new ideas that came in. And for all that time, not one single new initiative advanced to the testing and development stage.
Our problem is that we had completely screwed up the stage-gate process. The hurdles were set too high, especially the required potential financial return. So it was impossible for any new project to get up.
Once we realised this, we changed the system, and then things started to work a lot better. But for most of that year, we were Bewildered.
All of the strategies that we discussed in the Thinking About Innovation section apply here as well. You need to focus on improving your Innovation Competence as soon as possible – by doing things like managing innovation as a process, getting rid of your air sandwiches, and devoting resources to idea execution and diffusion.
However there are two other things that you need to do here that are probably even more important. The first is that you need to correctly diagnose the problem. Are you making one of the mistakes that I just outlined? Or have you made a new mistake? The next step to take will be different depending on what is causing the failure to innovate.
The second thing that you will almost certainly need to do is to dismantle and then rebuild part of your innovation processes. This is hard to do. You already have a lot of processes in place to support innovation. Taking them apart and rebuilding them require time, effort and money. Worse, it means that you’ll be publicly admitting to a mistake.
The critical point though is that these processes aren’t working. P&G became a leader through open innovation only after they radically changed their R&D process – particularly the steps around innovation testing and diffusion. Connect & Develop was designed to do this in partnership with smaller, more dynamic firms, rather than managing it all internally as P&G had been doing.
This was a huge step. But it was very successful. These were the outcomes after six years:
The model works. Today, more than 35 percent of our new products in market have elements that originated from outside P&G, up from about 15 percent in 2000. And 45 percent of the initiatives in our product development portfolio have key elements that were discovered externally. Through connect and develop—along with improvements in other aspects of innovation related to product cost, design, and marketing—our R&D productivity has increased by nearly 60 percent. Our innovation success rate has more than doubled, while the cost of innovation has fallen. R&D investment as a percentage of sales is down from 4.8 percent in 2000 to 3.4 percent today. And, in the last two years, we’ve launched more than 100 new products for which some aspect of execution came from outside the company. Five years after the company’s stock collapse in 2000, we have doubled our share price and have a portfolio of twenty-two billion-dollar brands.
That’s not bad.
And it shows how The Innovation Matrix is really about dynamics. P&G started out Bewildered, and in six years they became a World Class Innovator.
So wherever you are in The Innovation Matrix right now, you won’t necessarily be there forever. Which is pretty good news if you’re currently Bewildered.