Thursday, May 30, 2013

Corporate Innovators at the cusp of the next iteration

The more I read innovation surveys and comments from analysts and executives, the more I wonder about management thinking.  Recently Accenture published a nice survey of 519 executives in firms in the US and in Western Europe.  The survey repeats what many of us have known for years:  executives recognize the importance of innovation and are frustrated with the results.  According to the survey 93% of the executives surveyed felt their firms would depend on innovation for growth, but less than 20% believe their innovation strategy is delivering a competitive advantage.  These two critical points identify what is perhaps the most significant trap in corporate innovation:  the unrealistic expectations of return on innovation.

If we were to stop for a minute and contemplate the timescales for innovation, things might become a bit more clear.  For many firms, regardless of when the idea is generated, it will take several years to develop a new product, prepare it for launch and provide it to customers.  Then, after the launch, it may take another year or two before the new product reaches break even and begins to generate real profits.  So, from the generation of a new idea till the recognition of profits and differentiation from the new product or service, it's reasonable to expect the timeframe to span three, four or even five years for fast turn products, and even up to seven or eight years for products with longer development cycles.

Add to this the fact that many companies don't "bet the farm" when they start innovation activities, for several reasons.  First, no one wants to take on too much risk on unfamiliar and untried innovation tools and systems.  There's always an argument for "low hanging" fruit as the first innovation initiative.  Second, many firms single thread innovation activities, due to resource constraints, budgetary issues and general change management.  This means that for many organizations, their first foray into innovation is by definition a line extension.  Further, many innovators conduct serial innovation activities rather than attempt to run several innovation activities in parallel, due to the constraints mentioned above.  This means that not only are the first attempts line extensions, but due to the limited number of initiatives, few products are developed.  Add to these the fact that it can take several years for even simple line extensions to move through a tightly constrained organization, and three to five years on the CEO may be scratching his or her head, wondering where all the innovations are that they demanded and were promised.

From the tiny acorn mighty oaks grow

There's absolutely nothing wrong with incremental, controlled experiments to test new philosophies and methods, and the innovation results we are seeing now are simply the first harvest of careful innovation activities.  What will be telling for future innovation is whether or not executives recognize the fruit of their planting, and decide to extend and expand the activities, and hopefully accelerate them, or deem the whole activity a failure.   The limited supply and constrained result of innovation activities to date is entirely predictable.  After all, the vast majority of corporations have spent 30 years building highly efficient business processes, cutting costs and eliminating risk and uncertainty.  Over the last few years some executives have planted tenuous innovation programs or activities that have trouble grafting on to the efficient working and activities of modern streamlined business models.  It's not unreasonable or shouldn't be unexpected that the first innovation harvests are small.  But, as the old saying goes, mighty oaks grow from tiny acorns.  All it will take is time.

Compare these results to the people who examined the possibilities of some of our most important inventions.  After the luster of manned flight by the Wright brothers wore off, I'm sure there were many people who argued that the plane only flew a couple of hundred yards and could barely carry a single person that distance.  A good horse could cover the same ground in less time!  What those naysayers failed to see, and what corporations are at risk of today, is that the first harvests are always thin, but continued investment and development can lead to far greater results and outcomes. 

From furtive experiment to critical capability

Corporate innovation is simply in its initial phases, in many cases as furtive, inexpensive experiment in one small corner of the business, underfunded and poorly resourced.  Expecting miracles from this small experiment is unreasonable, but not surprising.  Executives are realizing that while their organizations are exceptionally efficient, they cannot cut their way to growth and differentiation.  Innovation is vital because it adds to the top portion of the income statement, rather than cutting away at the bottom end.  What's important now is a continued investment, a growing investment and engagement in innovation, to shift the concept from a furtive experiment tucked away in a corner to a central, critical, consistent capability.  Just as a few Six Sigma "black belts" entered organizations years ago and now dominate corporate philosophy and thinking, innovation is a nascent experiment that must be expanded and must become a cultural phenomenon.

Many writers and analysts, this one included, hold up Apple as the arbiter of good innovation practice.  What people forget is that Apple was near bankruptcy in 1997, and had no other choice but to cut product lines and develop new innovation strategies for survival.  Today, Apple progressed through a series of innovation maturity phases, and is a relatively mature innovator.  Of course they should be good at innovating.  Apple has had almost 15 years of innovation experience to build on.  When executives look at Apple and wish their organizations could innovate like Apple, they fail to see the challenges, investments and time it took for Apple to become a viable innovator. 

Out of sight of the shoreline

The real question for many corporate innovators is this:  now that the first attempts have demonstrated some limited benefit, will they take the next step and expand their innovation efforts?  Will they define larger opportunities, provide more resources, funds and time?  Will they shift innovation activities from the periphery to the center of their organization?

Early sailor never sailed out of sight of the shoreline, because they lacked navigational skills and weren't sure what was out in the deeper ocean.  Sailing near the shoreline was safer but ultimately limiting.  It was only when they took the next step that new lands were discovered.  The same analogy applies for corporate innovation.  Small attempts have been made and they've been moderately successful.  More significant results await if the resources are available and if the organization continues to develop innovation skills and capabilities. 

Many corporate innovators stand at the cusp of important decisions.  In one direction is additional investment to build innovation capabilities and expand the breadth and depth of innovation projects.  In the other direction is the safe and familiar efficient business model, where cutting costs and achieving greater efficiencies lie.  Successful firms will recognize that both capabilities are required, and will invest in developing and maturing an innovation capability.  These firms recognize that corporate capabilities don't grow overnight, and investment is required for multiple years before significant results are achieved.  Many executives will blanch at the investment and decide to "acquire" innovation by purchasing smaller, more nimble competitors or seeking out third party technologies, not realizing the bidding war that will unfold as the number of firms choosing these options increases.
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posted by Jeffrey Phillips at 7:05 AM


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