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 indeed 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 is understanding some basic principles of applied innovation.
What Is Innovation?
In a world constantly evolving, what is innovation if not the daring leap into the unknown, transforming dreams into tangible realities? Countless articles define innovation academically, and most organizations also have their own way of defining it. However, something simple and elegant underpins all of them: ‘What is innovation?’ “Innovation is the process of creating value by applying novel solutions to meaningful problems.”In my view, innovation is more than just coming up with new ideas or products. It's about creating value by effectively implementing those ideas to positively impact the organization, its customers, or society. This involves a blend of creativity, problem-solving, and strategic thinking, often thriving in an environment that encourages experimentation and learning from failures. In my writings, I emphasize the importance of an organizational culture that supports innovation – one that is agile, lean, and adaptive, fostering collaboration and continuous improvement. This culture is about generating new ideas and transforming them into tangible outcomes that deliver real benefits.3 simple questions 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 three questions is "Yes," you are Innovative!
Why Is Innovation Important?
Innovation is crucial for several reasons, particularly in an Agile context:
Adaptation and Survival
In a fast-paced, ever-changing market, innovation is key to survival. Businesses must continuously evolve to meet new challenges, customer needs, and technological advancements.
Competitive Advantage
Innovation can distinguish a company from its competitors. It often leads to unique products and services, improved processes, and new business models, which can create a substantial competitive edge.
Customer Value
By focusing on innovation, companies can better meet customer needs and expectations, often surprising them with solutions they hadn’t even considered. This increases customer satisfaction and loyalty.
Efficiency and Productivity
Innovation often leads to more efficient processes and improved productivity. This can result in cost savings and better resource utilization.
Growth and Expansion
Innovative ideas and approaches can open up new markets and opportunities for growth. They can also create new revenue streams, thus expanding the business.
Long-term Success
While short-term gains are important, innovation is often key to long-term success and sustainability. It helps businesses stay relevant and grow in an increasingly complex and dynamic environment.In the context of Agile, this underscores the importance of fostering an environment where creative thinking and experimentation are encouraged. Rather than sticking to rigid methodologies or detailed estimates, Agile practices should be flexible enough to adapt to new ideas and approaches. This is why I advocate for methodologies that emphasize adaptability and learning, such as Kanban and Lean-Agile, over more prescriptive methods like Scrum or SAFe. These approaches promote a culture of continuous improvement and learning, which are essential for innovation.
Modelling Innovation as a Portfolio
Our definition of innovation is comprehensive and can apply to anything, from a simple new shade of color for an existing product to a transformative new technology (such as digital photography). Many companies need to understand the spread of risk/reward in innovation initiatives. 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 to maximize business value generation while maintaining a desired level of risk. A wide variety of innovation models define 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. Source: https://hbr.org/visual-library/2012/05/the-innovation-ambition-matrix
What Is Core Innovation?
Core Innovation Capital draws on the company's assets, serving existing markets to grow its 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
What Is Adjacent Innovation?
Adjacent Innovation leverages something the company does well and expands into new spaces, such as new products/services or markets. This allows a company to draw on existing assets, capabilities or markets and put them to use further. Indeed, Adjacent Innovation requires proper insight into customer needs and market /competitive/ technology trends to succeed. 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.
What Is Transformational Innovation?
Transformational Innovation (also known as disruptive innovation, 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 still need to be mature. They create new products, serving new markets & customer needs and often requiring organizations to transform to integrate them 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: Comparison of company spending and returns by innovation category. Source: HBR 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 spending and is individually unlikely to succeed, one success can have massive financial gains for an organization.
Innovation Investment Strategy
Having an effective innovation investment strategy is just the start. Given the organization's context, the real challenge is how to implement this strategy effectively. 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 frameworks can I use to understand my customers better 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?
Conclusion
In wrapping up this exploration of applied innovation within a corporate context, it's clear that the journey towards embedding innovation into the fabric of an organization is multifaceted and requires more than just a cursory understanding of the concept. As we've navigated through the principles of applied innovation, the importance of fostering an environment conducive to creative thinking and the strategic implementation of innovation as a portfolio, several key themes have emerged. Firstly, innovation is not just about the newness of ideas or products; it's fundamentally about creating value by solving meaningful problems in novel ways. This requires a culture that supports experimentation, embraces failure as a learning opportunity, and promotes agility and adaptability. Such a culture is essential for organizations looking to thrive in an ever-changing landscape, providing them with a competitive edge, enhancing customer value, and driving growth and long-term success. Moreover, the discussion around modeling innovation as a portfolio emphasizes the importance of a diversified approach to innovation investment. By balancing the risk and reward across core, adjacent, and transformational innovation, organizations can maximize business value while maintaining a sustainable level of risk. This strategic approach ensures that innovation efforts are not just experimental ventures but integral components of the company's growth strategy. As we move forward, the articles ahead will delve deeper into the practical aspects of fostering the right mindset and culture for innovation, structuring organizations to effectively execute innovation initiatives, utilizing frameworks to uncover and address meaningful problems, and navigating the funding process to support a thriving innovation ecosystem. Each of these elements plays a critical role in making innovation a real, value-generating practice within the corporate setting. In conclusion, the journey towards true innovation is continuous and requires a concerted effort across all levels of an organization. By understanding the principles of applied innovation, fostering the right cultural environment, and strategically investing in innovation, companies can transform their approach to problem-solving and value creation, positioning themselves for success in today's dynamic business environment.
Further Reading
If you'd like to read more deeply on the subject, here are a few great links:
