Right concepts, wrong goals

Thanks to the Corante Innovation Hub, I have found more innovation information and sources, and a new set of colleagues. One of those colleagues, Brent Edwards, wrote yesterday about a new innovation survey from IBM Global Services. Thanks, Brent, for pointing out the survey.

As a person who is very interested in innovation and active from a consulting and writing point of view, I am always interested to see new surveys about innovation, since a survey can take the pulse of a large number of executives in many industries and, combined with other surveys and information can indicate trends in a topic or market. In this case, the survey of over 700 senior executives worldwide reinforces some existing knowledge and highlights some of the same trends as we've seen recently in innovation.

Some of the concepts the survey reinforces are:

- The importance of senior executive involvement and sponsorship of innovation
- How collaboration is becoming more and more important as an enabler of innovation
- How important employees are in idea generation (consistently the number 1 source of ideas)

IBM chose to break innovation up into three "types" - product/service innovation, operational innovation and business model innovation. While I am not certain they meant to, it seems that IBM favors the business model innovation approach and places a lot of emphasis on changing business models. Operational innovation is seen as an approach only relevant for those firms that haven't already improved their systems and processes through Six Sigma or other approaches. Product/Service innovation is considered a key component of innovation, but not the area for emphasis that business model innovation can be. These three types of innovation help stratify the different areas of focus, and of course most firms will eventually pursue two or even all three of them, sometimes simultaneously.

What surprised me about the survey, however, is what the senior executives expect the results of innovation will provide in terms of benefits to the company. I generally think that innovation will help a firm capture a larger share of its market, driving higher margins and profits. This viewpoint would suggest that innovators are market leaders and gain significant marketing benefits as well, which should lead to greater market power and the ability to pick and choose collaboration partners. I guess I'm thinking Intel as a model here.

However, almost uniformly the CEOs indicated that cost reduction was the number one benefit they expected to receive from innovation. The firms that the CEOs represented were divided into product/service innovators, business model innovators and operational innovators. As you'd expect, the operational innovators ranked the top five benefits as:

- Reduced cost
- Higher customer satisfaction
- Speed and flexibility
- Access to markets
- Increased revenue

What was striking about the responses from product/service innovators and from business model innovators was that the lists looked very similar. Cost reduction was also the first benefit selected by business model innovators, while high customer satisfaction was selected first by product/service innovators.

Increased revenue was third on product/service innovation, fifth on operational innovation and sixth on business model innovation, and it does not appear that any questions were asked about improved margins or increased market share.

OK, so what's the point? Over 700 senior executives across the world were asked about their innovation focus and priorities. Many of them recognize how important innovation is, yet consistently report that they need to lead but have "difficulty in getting employees to act". The CEOs need to play an important role in establishing an innovation culture but "are not always certain how to go about it". The results of the survey (page 30) show that the two biggest obstacles to innovation remain 1) unsupportive culture and climate and 2) limited funding, both of which are under the control of the senior executive team.

The survey ranks the best source of innovative ideas:

- Employees (#1)
- Business partners (#2)
- Customers (#3)
- Consultants (#4)
- Competitors (#5)

Where's internal R&D? 8th, or next to last in the list.

So, what is also reinforced in the survey is that CEOs recognize the importance of innovation, but are not changing the corporate culture and opportunities for innovation. Sponsoring ideas from employees is clearly important, as is improved collaboration with business partners and customers, yet the majority of funding for new technologies and ideas is directed to the organization the CEOs seem to rank very low in idea output. Little investment is being directed toward the disciplines and capabilities necessary for collaboration and partnering.

Additionally, CEOs are still biased towards cost savings and operational efficiency as outcomes, rather than improving margins or increasing revenue. I recognize that this is what the financial markets value, but innovation should be more than simply the next opportunity for cost reduction and right sizing. Innovation should produce benefits that are measured in terms of increased revenue, increased market share and increased profits. Until CEOs think in those terms, innovation will not receive the cultural change or investment that it needs. Until CEOs think in those terms, collaboration and partnering will not have the focus or discipline it needs to produce real change.