Four Key Issues in Innovation Management

Co-authored by Tim & Ralph

What are the key innovation issues facing the business community right now?

When we met up in person recently we had a great talk about this question.  We’ve continued the discussion over email, and these are the four innovation management issues that we believe people need to be thinking about right now.

Differentiated and integrative innovation concepts

Sustainable innovation cannot be achieved by one-size-fits-all and one-sided approaches. It requires a common understanding of what innovation is, classifying concepts in order to assure individual assessments as well as differentiated approaches for firms to strengthen their innovation capabilities and performance. Further, innovation is about balancing complementary, and often opposing, variables. Therefore, integrative frameworks may help to gain a more holistic perspective and direction of impact. Examples:

  • The Innovation Matrix is supposed to help assigning firms to one of nine types of innovative organizations. Depending on the characterization, a tailored approach can be developed in order to define where innovation should sit in the business model and how to drive growth.

 

InnovationMatrix

 

  • The Three Horizons Model integrates a short, middle and long term view of innovation, often being in tension to each other. It enables generating a balanced innovation portfolio, consisting of activities with different time horizons. This model can be of great benefit when it comes to mixing incremental and radical innovation activities with regard to risk and strategic alignment.
  • As outlined previously, firms need to ensure a balance of exploiting existing businesses with exploring new opportunities, i.e. they need to become ambidextrous in order to thrive sustainably. As each direction of impact requires dedicated culture, metrics, leadership, mindset and organizational setup, this is another tension to be managed. An integrative framework (below) can be useful to determine a firm’s inclination and how to move towards a balanced innovation capability. It’s important to note – particularly for leaders: Exploration and exploitation are different, but equally important!ralphmatrixStartups, typically positioned in the upper left quadrant need to move to the right direction for increased exploitation and optimization of new businesses. Bigger, established companies, in turn, aim at strengthening their exploration capabilities by moving from the bottom right box upwards. One of the main challenges for organizations to attain ambidexterity is to simultaneously enable separation and integration of both directions. While novel opportunities flourish best when they don’t interfere with core business, they must be linked to the firm’s core in order to scale successfully after validation.

A more detailed discussion of this issue is planned for an upcoming post. On a personal level, sustainable innovation requires integrative instead of either-or thinking. In order to be able to manage ambidexterity, Roger Martin suggests to balance reliability with validity by developing a design thinking mindset.

 

Walking through Lausanne, talking innovation

Walking through Lucerne, talking innovation

Reinvention and business model innovation

As the life times of business models steadily decrease and more radical innovation activities are about to enter the pipelines of most firms, the business model is the new unit of design. Indeed, research has confirmed that business model innovators outperform traditional innovators over time.

One key issue here is to establish systematic approaches to business model innovation. While most companies have proven processes for product innovation in place, only few follow process models for innovating business models. Steve Blank has recently pointed out that generation of novel and reinvention of existing business models is imperative for corporations to succeed in the time to come. Some of his points are:

  • For companies to survive in the 21st century they need to continually create a new set of businesses, by inventing new business models.
  • Most of these new businesses need to be created outside of the existing business units.
  • The exact form of the new business models is not known at the beginning. It only emerges after an intense business model design and search activity based on the customer development process.

Unlike execution of existing business models, the invention and validation of new business models is based on a scientific and emergent approach: defining and testing hypotheses through rapid iterative experimentation. This is what the Lean Startup approach is about. It also implies designing and testing solutions on a minimum viable basis to gain a high iteration and learning frequency through customer feedback.

To develop the ever more important (re-) invention and search capabilities into new fields, existing companies are challenged to consider to implement the lean startup concept. Or as Eric Ries puts it: Entrepreneurship is the new corporate function.

 

bmg

 

Another key issue for existing, in particular larger companies, will to build a structure, capable of successfully combining search (= generation and validation of new business models) and execution (= scaling and improvement of existing business models).

Co-creation through open and social approaches

Facing growing complexity, organizations are finding it increasingly impossible to be successful when entirely operating on their own. To move innovation forward more effectively and efficiently, they aim at building appropriate networks and partnerships. Findings of a recent IBM study confirm outperformers to be more inclined to innovate with external partners – including customers. It suggests a clear tendency to leverage openness, connectedness and co-creation.

Combining internal and external capabilities is becoming crucial for organizations to survive and thrive. Interorganizational partnerships and distributed value networks can be formed to pursue open business models and complementary capabilities. One interesting example is the intensified partnering between startups and larger firms to achieve sustainable innovation by combining their natural strengths. There is one simple reason behind: customer value and continuous disruption don’t care about silos and boundaries.

There is also a growing awareness of the benefits to make organizations more social. According to Nilofer Merchant, becoming social is about connecting things, people and ideas. Networks of connected people with shared interests and goals create ways that can produce returns for any company that serves their needs. This refers to both the organizational and the individual level. As for organizations, it’s all about moving from isolation to communities.

Here is Nilofer again:

The social era will reward those organizations that understand they can create more value with communities than they can on their own. Communities of proximity, where participants share a geographic location (Craigslist is an example but co-working locations are another) will allow people to organize work differently. Communities of passion who share a common interest (photography, or food, or books) can inform new product lines. Communities of purpose will willingly share a common task to build something (like Wikipedia) that will carry your brand and its offer to another level. Communities of practice, where they share a common career or field of business, will extend your offer because it extends their expertise (like McAfee mavens). Communities of providence that allow people to discover connections with others (as in Facebook) and thus enable the sharing of information, products and ideas.

On the people level, connecting individual stakeholders through social business design – particularly involving customers – is on the rise. In social organizations, people are seen as most valuable asset to make a difference. As discussed here, a higher degree of connectedness in combination with making interaction workers more effective and efficient, seems to be a prerequisite for strategic advantage over industry peers. Moreover, social designs bear significant potential to help organizations in better tackling the complexity of business model innovation, adaptability and strategic reinvention.  

Building a culture of experimentation

One of the best tools to use to improve innovation capability is experimentation.  We often think that great businesses are built on great ideas.  But the fact of the matter is that great businesses are usually built by tinkering until their great idea emerges – this is the story told in Little Bets by Peter Sims.

Experimentation is an organisational skill that underlies all of the other issues that we have raised here.  While there is no one-size-fits all innovation tool, experimenting is pretty close to being a one-size-fits all innovation skill.  It is an approach that works best when it is used to test hypotheses - so that it enables structured learning.  Experiments and hypothesis testing are an essential part of business model innovation.  If we are trying to embed lean start-up principles into larger organisations, this is a capability that must be there.  Experimenting is also central to co-creation and other social approaches.

Start-ups and smaller organisations often experiment naturally.  The issue that we would like to raise is that this skill must also be nurtured in larger organisations as well.  If you’re a manager, this means building experimenting into your organisational structure and routines. If you are reporting to someone, it means figuring out how much you can get away with, and using that scope of action to support experiments.

 

Other people may well come up with other innovation issues that are important, but these are the ones that seem most interesting to us right now. Now we just need to start making progress on them! Therefore, we’ll try to elaborate on these issues in the time to come, in order to provide further ideas to help make innovation more successful.

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Experienced innovation, technology and product management professional. Looking at the intersection of organizational and personal innovation capabilities. Integrative thinker. Boundary spanner. Author of the Integrative Innovation blog. You can follow him on Twitter @ralph_ohr.

Please note: I reserve the right to delete comments that are offensive or off-topic.

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17 thoughts on “Four Key Issues in Innovation Management

  1. What a pity for separate walking tours through Lucerne!
    Because what stands out, by not standing out in your list is the absolute need to build innovation capabilities, capacity and competences across the organizations, from top to bottom to capture and develop growth we all desperately need to kick start global economies.

    I think this should make it to your key issue list- surely?

    • Thanks for the response Paul. I agree that this is a big issue – I think that it represents the reason that we are all reading and writing about innovation in the first place. So I think that it’s implicit in the post.

      Ralph & I did discuss the great work that you and Jeffrey are doing with the Innovation Work Mat as well. In the end we decided to focus on the issues that are front of brain for us.

      However, this gives me two ideas for potentially interesting follow-ups – so watch this space!

    • Damn traffic jam around Lucerne!

      I too agree with you that a holistic capability view is very important. This, by the way, has also been highlighted again in BCG’s new innovation report – I’m sure you have already seen it:
      https://www.bcgperspectives.com/content/articles/growth_innovation_the_most_innovative_companies_2012/

      As Tim already mentioned, you and Jeffrey are doing great work in elaborating on your framework in this regard! I think the dynamic capability view is kind of underlying to our ideas here. For instance, ambidexterity is defined as dynamic capability – the ability to reconfigure assets and resources in order to compete in existing AND emerging businesses. I think this differentiation is crucial in order to approach innovation successfully and sustainably.

      And it seems to me that this is pretty close to what you have written in your today’s post which is great!

  2. Tim regarding Paul’s comments its not implicit in the post. Organizations who want sustainable innovation must develope a measurable capability to innovate.

  3. A very good article, Ralph and Tim. One issue I don’t think has been cracked is a relatively basic one – how should innovation be organized within large companies? Most are still vertically structured with a mix of corporate, function and geography, it is very rare to see an innovation based structure. Accountability for innovation is diffuse, often for straightforward incremental innovation, so trying to build experimentation in a valid representative way is even tougher. I may be biased, but it is a source of competitive advantage waiting to be seized by first movers.

    • Thanks Kevin. I agree that that is a critical issue. It’s one that I’ve touched on a couple of times here, but agree that it is a very hard one to crack.

    • Thanks Kevin! This is another challenging issue indeed! I agree with you that an innovation based organization is a source of competitive advantage. This was a major reason to stress ambidexterity as an important issue. First, it needs to be understood that optimization of core business and creation of new opportunities are different, but equally important. If this is a common understanding, the next question is: what does a corporate structure look like in order to support both and to lead to sustainable innovation. I think, as mentioned in post, one key point here is to simultaneously enable separation and integration of both directions.

      I recently came across some interesting research on this issue – let me know if you’re interested in taking a look at it.

  4. One hallmark of my company’s work in India is explaining to companies here that, while structure is essential to make innovation happen consistently, there is no one-size-fits-all, ideal structure. We present various structures used by top innovators around the globe, and we assist each client to develop an innovation structure suitable for its own company using our innovation process.

    At Pitney Bowes, where I worked years ago, innovation was a high priority, yet the principal structure they established for innovation was a small laboratory. This laboratory, Advanced Concepts & Technologies, produced outsized profits and strategic assets for the firm.

    While I agree with Paul that ideally, innovation should happen at all levels and in every corner of the business, not every management team is willing or able to commit the necessary resources to make that happen. In such cases, it’s better to establish an innovation structure that is sustainable within the constraints of risk appetite, personality, culture and performance pressures, even if it limits innovation to a few nodes or an occasional campaign.

    • That’s a great point David – thanks for the comment. I agree that you need to work with what is available, whatever your position happens to be.

  5. Indeed, i was, i think, in a similar position as what David described. Was responsible for the Innovation teams/program/strategy of a CE business, but the real product development division and Management was not so much in Innovation … their focus was on next quarterly results and sales.
    I cannot agree more with the idea of ambidexterity and have been trying it for years to create that in our organization, but rather unsuccessful i have to say

    • Thanks for your comment, Frank.

      I think you describe an experience which is common for many of us. It’s a major reason why we want to emphasize this issue and integrated approaches to it more in the time to come.