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.

Potential Stars

Some firms have a high level of Innovation Commitment, and they also have a reasonably high level of Innovation Competence.

They have all of the processes and structures in place that need to be outstanding innovators, but they aren’t quite great. I call them Potential Stars.

Characteristics

These firms have everything in place that they need for innovation success – their Innovation Commitment is high. This means that they have innovation as a core value, and it is integrated into their strategy. They have resources committed to innovating, including high-level management time and attention. They have tools, systems and processes in place to support innovation, and they have good metrics for measuring innovation success.

And with all of this in place, they are pretty good at executing ideas, so their Innovation Competence is about average. This might be viewed as a problem, though, since they are investing a lot into innovation. They want to be stars but they’re not quite there yet.

What is missing?

Typically, firms in this category will be very good at executing one particular kind of idea, but not a broad range of ideas. They’ll be pretty good at all of the components of the idea management process – generating ideas, selecting the best ones, executing these and then getting the to spread. If they have a weakness here it will usually be either in their selection process or in idea diffusion.

The area that prevents them from being World Class Innovators is their breadth of innovation. Maybe they are only good at product innovation, but don’t do anything with services, ways of doing things or business models. Or they are great at incremental innovation, but not very good at executing bigger ideas. Or perhaps risk aversion has crept in so they are not very good at learning from failure.

One way or another, they have a gap in their Innovation Competence that prevents them from getting a full return from their Innovation Commitment.

Examples

John and I ran into a great example of a firm in this category recently. They have adopted Lean principles whole-heartedly, and the consequences of this have been very good. They have a great participatory culture (in an industry that is not known for this at all), and they are exceptionally good at executing incremental innovations. The outcome has been that they have been able to use this innovation to drop their operating costs by about 20% over the past three years.

So what’s the problem?

The main problem for this firm is this: they are terrible at executing big ideas that might be potentially disruptive innovations. They have tried multiple times over that same three year period to execute ideas that could change their industry, and they have failed each time. Normally, this might not be a big issue. However, their industry is in flux right now, which means that they really do need to succeed with some of these bigger ideas.

Otherwise, they will end up getting increasingly efficient at executing a business model that is no longer relevant.

They are an example of a firm that has become a Potential Star by building up their innovation capability. They still have some gaps to address, but their success to date suggests that they will. You can also end up in this box when your innovation capability is in decline. Often, this is the where World Class Innovators end up when they start to lose it.

When that happens, they still have all of the infrastructure in place that made them great – their Innovation Commitment remains high. The problem is that their results are starting to slip. This can happen for a few reasons. Often, this is a result of business model lock-in. If you stop innovating business models, it is difficult to continue to be world class. This can come about through a decrease in experimentation, or by an increase in fear of failure.

For example, think about Nokia. They were highly innovative, and on top of their market not that long ago. However, they have not adapted well to the rise of smart phones (business model lock-in), so even though their Innovation Commitment is just as high as it was when they were dominant, their Innovation Competence has slipped.

Innovation Strategies

There are two very different prescriptions for firms in this category. The first thing that you have to do is figure out if your innovation capability is on the rise, or in decline.

If you are on the rise, then you have to identify the remaining gaps in your Innovation Competence. Once you have done this, you need to try to fill in these gaps. One of the tricky parts here is that this often requires you to build management skills. In the example of the firm that is great at Lean, they need to build the skills that support projects that do not fit into the Lean methodology. The skill sets are different, which is one of the reasons that there are plenty of tensions in managing high-level innovative firms.

If you here because your innovation capabilities are declining, it’s a different story. This requires some forensic work to figure out what went wrong. What has caused the reduction in Innovation Competence? The first place I would look is the breadth of innovation that you are undertaking.

Whether you are on the rise, or slipping a bit, firms in this category still have the potential to be World Class Innovators. In both cases, the biggest obstacle that you have to fight is complacency. The firms on the rise are usually doing well, so why should they worry about improving their innovation? On the other hand, the firms that are slipping are coming from a position of strength, which makes it hard to find the urgency you need to change.

This is why Stephen Elop at Nokia sent the “Burning Platform” memo – to try to shake the firm out of its comfort zone.

In either case, this isn’t a bad place to be. Your innovation capability is good, you just have to figure out the last few steps that you need to make it better. That’s why firms here are Potential Stars.