IEX #195: Golden Rules of Innovation III - The Organisation
10 'Rules' for Companies Looking to Improve their Innovation Performance
There is arguably not a single organisation that does not want to innovate. Open any annual report and it's likely you'll see the word innovation prominently in the CEOs message and direction. At the same time, there are very few organisations that would give themselves top marks for successful innovation. Especially outside of the core-tech sector. This gap is fascinating. It means that thousands of companies truly want to innovate but aren't able to. Why is this? Having worked with a few dozen companies on innovation initiatives of various shapes and sizes, here is my Part III of the series of 'Golden Rules for Innovation'. Part I was about the individual, and Part II was about teams. This one is for the organisation as a whole.
INNOVATION RULES FOR ORGANISATIONS:
Innovation Strategy: You need to articulate an innovation strategy even if it's just a 1 page document. It should answer why the business wants to innovate, and what kind of outcomes you want from your innovation efforts. New products? IP? Cost savings? New markets? It should also articulate your funding commitments to the innovation effort, and and call out the alignment with the overall business strategy. You also want to define clearly what innovation means to you - new technologies? Cutting edge or bleeding edge technologies? New to your business vs new to the world? How is your innovation strategy helping you navigate an uncertain terrain?
Innovation Structure: this is probably the most contentious point in this list. Should you have a team for innovation? Or should it be distributed across the business? A lot of business leaders have told me that innovation is ‘everybody’s job’ and should not be restricted to a team. I believe that the answer should be both. It's everybody's job to be financially prudent, and look after employees, but you still have a finance and HR department. In much the same way, you need a core innovation team that owns the innovation strategy and operating model, and acts as a catalyst and enabler for all your teams and departments. The innovation team of course needs to be a cross-functional and cross-skilled team to be effective.
Innovation Operating Model: An innovation operating model in its simplest form has 3 broad components (a) an ability to continuously scan the environment and generate new ideas for improvement (and hoover up internal problem statements) which can populate a funnel (b) a POC factory which continuously convert the most promising ideas into working proof of concepts and test key hypotheses (c) a governance model which is good at evaluating the POCs for scale / pivot / kill. At TCS we call this operating model an Agile Innovation Cloud (AIC).
Organisational Funding: Build a funding model for evaluating ideas and building an appropriate, milestone based funding model. Create the right metrics for these efforts. Connect the CFO's office to innovation initiatives. Some businesses use venture funding models, others allocate funds across 2-3 horizons. Probably the worst thing you can do is to evaluate innovation projects against traditional ROI and cost-benefit metrics, and let them compete with other mainstream projects for funding. One of the most interesting areas I'm currently interested in, is how the CFO views innovation.
Investment and Reward: Ensure there is allocation of effort and reward mechanisms for the risk involved in innovation. Promote positive and managed failure. To keep things distinct from the point above, this is a culture issue, not a funding one. I can distinctly recall half a dozen conversations with clients who have loved an idea or expressed interest in an initiative but somehow couldn’t fit it into their current planning cycle, or prioritise it over existing initiatives which were locked in for 12-18 months.
Technology radar / future gazing - build a strong technology and socio/economic radar to spot signals and inflexion points as early as possible and create timely action around them. As the world becomes more volatile and socio-political changes come as fast as technology acceleration, this becomes more vital. Every organisation should have a radar prominently displayed, which captures technologies and trends that should be on watch, or being acted upon. This links back to your strategy and operating model.
Talent: Every organisation needs to create the right innovation talent model. Often these people may be very different from the rest of the organisation and will need need nurturing and occasional protection they will also need a growth path which will be based on different metrics from the rest of your teams. Your CTO has a critical role to play in innovation but innovation must not become only about technology. You need creatives, futurists, experimenters, entrepreneurs, and designers in the mix as well.
IP & Competence: Identify your own research and IP focus. Every organisation needs some commitment to research, in your area of competence. Long term value beyond business cycles and transient opportunities depends on IP and competence development. You can work with universities or external research organisations to kick start your work but these can't be substitutes for your own capability development in the long term.
Portfolio: You need to work with a live and regularly updated innovation portolio of innovation projects. For example you can build a "clay-map" - we use them to categorise innovation ideas based on how disruptive vs marginal they are, based on multiple axes. The portfolio is critical to shaping resource allocation and the choices between chasing big disruptive ideas and simple everyday or ‘marginal’ innovations, that can keep ticking over.
Ecosystem: Build your innovation ecosystem. Innovation is fundamentally collaborative and involves building on each others ideas. All the history of innovation is based on one good idea enabling another. Start ups, VCs, universities, alliance partners, supply & distribution chain, regulatory bodies, and even competition should be a part of your ecosystem.
A lot of these principles are embedded at TCS - here’s a quick overview of Innovation @ TCS.
What have I missed? Let me know.
Reading This Week
Healthcare - Life extension: 3 different projects - Vaika, Loyal, and the Dog Ageing Project are studying the ageing process for dogs, with a view to exploring how it can be delayed or reversed. Ultimately the lessons learned about DNA could be useful for human life-extension as well. (MIT Technology Review)
Autonomous Vehicles: There are some interesting shifts in the world of autonomous driving initiatives. On the one hand, Argo, the initiative from VW and Ford has been shut down, as the company wants to focus on Level 2 and 3, and not go after Level 4 autonomous for now. On the other hand, MobileEye, Intel's Autonomous Vehicle start up based out of Israel just went public and did very well, increasing 17% in value. VW has decided to work with MobileEye. (Autoweek/ Autoblog/ WSJ)
EV Batteries: One of the unanswered questions around EV has been around end of life plans for batteries. Now circular economy comes to EV Batteries. Here's how Northvolt is setting up to ensure that its gigafactories use recycled batteries for raw material for its industrial scale production of EV Batteries. (Economist)
Advertising Slowdown: there seems to be a shift in online advertising away from the major social media platforms. Facebook and Google have both reported declines in their revenues to the detriment of their share price. It might be one of the drivers for Meta's push into the metaverse, as it needs to create new revenue streams. Marketers are also spending more on bottom of the funnel advertising so ad models of retailers like Walmart & Amazon are doing well. (FT/ WSJ)
Space Tech: Why you should consider a space strategy - companies need to look at Space Tech as a market, as a research area, as a source of data and connectivity, for materials, and even for manufacturing. These are early days for the $300bn (and growing) industry. (HBR)