Innovation! One of those buzzwords that I’ve heard over and over in countless strategy sessions, but most of the time there is little understanding of what it truly implies. Throughout the following collection of articles we will be exploring the ideas and framework around innovation and how it can be applied in a corporate setting.
The intent of these articles is not to argue about the nuanced definitions and academic concepts around innovation (there’s plenty you can read on that) but to highlight how to make them real. The first step: understanding some basic principles.
Innovation: A Definition
There are countless articles defining innovation academically, and most organizations also have their own flavour of how they define it. However, there is something simple and elegant underpinning all of them:
“Innovation is the process of creating value by applying novel solutions to meaningful problems.”
There are 3 simple questions that can help us determine if we are innovating:
- Is it new to the organization and/or market?
- Is it solving a meaningful problem?
- Is it creating business value?
If the answer to these 3 questions is “Yes,” you are Innovating!
Modelling Innovation as a Portfolio
Our definition of innovation is very broad and can apply to anything, from a simple new shade of colour for an existing product all the way to a transformative new technology (such as digital photography). Many companies invest in innovation initiatives without understanding their spread of risk/reward. A traditional investment approach includes focusing on specific projects selected by executive interests, which are then abandoned at the first sign of failure or – even worse – used as PR stunts rather than focusing on generating business value.
Just like creating a financial investment portfolio, organizations should craft an innovation investment strategy following a diversified approach that aims to maximize business value generation while maintaining a desired level of risk.
There are a wide variety of innovation models defining areas, horizons, types, etc. However, most of them usually converge around similar principles. The one I leverage most often (and is widely used) is the model made popular by Bansi Nagji and Geoff Tuff: The Ambition Matrix.
Core Innovation draws on assets the company already has in place, serving existing markets to grow their market share.
- New packaging: Nabisco’s 100-calorie packets of Oreos for on-the-go snackers
- Reformulations: Dow AgroSciences launching one of its herbicides as a liquid suspension rather than a dry powder
Adjacent Innovation leverages something the company does well and expands it into new spaces, such as new products/services or new markets. This allows a company to draw on existing assets, capabilities or markets and put them to new use. Adjacent Innovation requires proper insight into customer needs as well as market /competitive/ technology trends in order to be successful. As such, it is riskier than Core Innovation.
- Procter & Gamble’s Swiffer: Used a novel technology to challenge the customer assumption that cleaning had to be done with a mop. This new product reached a new customer segment, generating a new revenue stream.
Transformational Innovation (also known as disruptive, game-changing or breakthrough innovation) follows the principles of the Disruption Innovation Theory. It creates new offerings that require the organization to call on new or unfamiliar assets to serve markets that are not yet mature. They create new products, serving new markets & customer needs and often requiring organizations to transform in order to integrate them back into their core. When successful, these are the ones that make the headlines.
- iPhone & iTunes
- Starbucks in-store experience
Investing Across the Spectrum
The Ambition Matrix can help us visualize how much investment is assigned to each area of innovation. An HBR publication showcased how companies that outperform the S&P 500 usually shared a pattern of innovation investment:
Interestingly, the return on investment for the innovation area was equal to the inverse of the resource allocation! While Transformational Innovation may represent a small portion of a company’s overall spend and is individually unlikely to succeed, one success can have massive financial gains for an organization.
Putting it all Together
Having an effective innovation investment strategy is just the start. The real challenge is how to implement this strategy effectively given the context of the organization. In future articles, we will be exploring the following areas:
1. The Right Mindset and Culture
Why are continuous experimentation and psychological safety foundational principles/ mindsets that drive the organization to tackle innovation as an enterprise value?
2. The Right Organizational Model
How do I create an ecosystem of agile teams equipped with the right support model that can effectively execute innovation initiatives while maintaining a healthy product roadmap?
3. The Right Frameworks
What kind of frameworks can I use to better understand my customer and find meaningful problems that derive business value?
4. The Right Funding Process
How can I fund initiatives in a way that can help my ecosystem thrive while avoiding traditional bureaucratic pitfalls that may stale the teams?
If you’d like to read more deeply on the subject, here are a few great links: