The right timeframes for innovation
With that catharsis, I thought it would be interesting to peel back the excuses that we hear about the lack of innovation and what is the "right" timeframe for innovation. The timeframes we'll consider are: next quarter, next year, in three years, in the distant future.
Far too often on this blog and in most business writing we decry the drum beat of the quarterly report. The quarter was invented by business people long ago because yearly reports didn't provide enough granularity to what was occurring in the business. People wanted more insight and information about a business, so quarterly reporting was created. This is yet another example of unintended consequences. With quarterly reporting came quarterly achievement - the need to achieve growth quarter on quarter, and to achieve quarterly goals. What's difficult to accomplish on a yearly basis is exceptionally difficult to accomplish on a quarterly basis. Businesses have hoist themselves on their own petard, and created a vicious cycle that's difficult to break, because we are now measured on an almost irrelevant time period. Quarters are forever in a real-time, Bloomberg data driven environment, and quarters are like stopwatches when it comes to measure time to make significant change in an organization. I was speaking recently with senior members of a large organization which replaced it's CEO. The listening tour to understand what wasn't working was 90 days - it took that long just to decide what was wrong, and another year to implement the changes.
While we'd like to work on innovation in this quarter, it simply isn't possible given the need to achieve short term goals. It would be awesome to get to work on innovation in the next quarter, but doubtful, so innovation is rarely a short term objective, unless it is a very small change that can be implemented quickly. In the case of the quarter, we are held hostage to a measuring device that is archaic and directs too much management thinking without real results.
This is the most common refrain - we didn't budget for an innovation effort in this year's budget, and all the funds are accounted for, so we'll need to plan for innovation in the annual plan and allocate funds, which will allow for innovation next year. I love this argument. It assumes that all other competitors and potential disrupters are willing to work to your timeframes. Since we didn't bother to set aside resources or funds for innovation in 2011, we'll simply have to wait until 2012. Do you honestly believe that other firms will restrict their innovations based on your funding cycles? The annual planning cycle is another fiction thrust upon us by financial reporting and the agrarian calendar. Why don't most businesses create plans with more continuity over a longer period of time? What's worse, the timeframe from idea to commercialization for many firms is far longer than one year, so commercializing a new idea may have to span several budgeting cycles, each of which is an opportunity to re-prioritize the funding and resources. All you can really do is start innovating next year, and hope that the benefits will accrue several years down the road.
In Three years
Having an innovation objective three years from now is actually a far more reasonable goal than it might appear. If a firm starts out with little innovation capability internally and has a typical product development cycle of 18 months to 24 months, then a three year goal for innovation is very realistic. But when you talk about a three year investment window in this market, that sounds like forever. To create a consistent investment over that time and wait for any potential returns over that period seems almost impossible. Realistically, any really interesting and valuable innovation will require this amount of time - for the idea to be generated and evaluated, converted to a new product or service and launch effectively. A three year window for most firms is almost a concrete requirement, but few firms want to commit to that timeframe or investment. They would prefer to conduct a few brainstorms to generate some ideas and then see what happens, or use "open" innovation to extract ideas from customers. What they often fail to realize is that people and funds are required to convert those ideas into new products, which means adding staff or taking people away from other important tasks. Additionally, it takes time to vet the ideas, convert them into viable products and prepare the market for the new products. For many firms, three years is actually the best timeframe when thinking about an innovation commitment, but almost impossible to consider given the other constraints.
In the distant future
A major Chinese figure was once asked in the 1960s about his assessment of the French Revolution in the late 18th century. His response: too soon to tell. Our sense of time is out of proportion to what we can understand and accomplish in the given timeframes. The fact that many firms dismiss the future more than a handful of years out is an indication that we abdicate thinking about and proactively planning for the future, when all the really interesting innovations will occur.
Just two years ago, in 2008, if I had suggested that the US Government would soon own a significant portion of General Motors, many people would have laughed me out of the room. Now, it's an article of faith that the government saved GM. Change happens, and actions that we think impossible to conceive will occur in that "distant" future. Too many firms are so caught up with the short term that they neglect the long term, and fail to invest for innovation or even attempt to understand what will happen. So they are constantly surprised by market conditions, new product introductions and disruptions that were somewhat predictable. In a corporate culture where many people hold their roles for 18 to 24 months then move on to another role, it's paramount to accomplish something while in the role, which means that little gets done that can't be accomplished in a year or less. For many reasons stated here, big innovation can't be accomplished in a year, from idea to product, so innovation is often pushed off to that hazy distant future.
The real answer is that innovation should happen in all of these timeframes. Incremental innovation should happen continuously, through factors like Six Sigma, lean and suggestion programs. Firms should build into their plans the goals to implement four to six incremental ideas each quarter, to establish a demand for ideas and demonstrate capability to implement them.
Innovation should be a key component of an annual plan. If the annual plan is the blueprint for the coming year, and innovation isn't defined, budgeted and resourced, then it won't happen without an emergency. Adding innovation to the annual plan demonstrates organizational commitment and intention.
Innovation should be planned for outside of the annual plan, to recognize the timeframes that span multiple budgeting years. The plans should be at least as long as the idea to commercialization cycle, and in most businesses that would suggest at 3 year innovation planning horizon at a minimum.
Finally, any business that expects to compete and grow in the future needs an active program to understand what will happen in the "distant" future - those dimly viewed years more than three years from today. Trend spotting and scenario planning can help shape your view of that time, and help the organization understand how to act on a proactive basis to attack emerging opportunities.
The right timeframe for innovation
The right timeframe for innovation is: next quarter, next year, in three years, and in the "out" years, and I've attempted here to define what your firm can, and should, be doing in each of those timeframes. Don't let the excuses pile up - start executing innovation work in each timeframe, and doing the work that aligns to each timeframe.