Wednesday, January 23, 2013

Prioritization, funding and scope: Where management fails innovation

For those of you who follow this blog and our company (OVO Innovation), you'll know that we think the phase "innovation strategy" is an oxymoron.  Innovation isn't by itself strategic.  Innovation is a tool or an enabler to strategic goals like growth, differentiation, product or market leadership or the intentional disruption of an adjacent market.  Innovation for innovation's sake is worthless, innovation for the sake of corporate goals is invaluable.

So why write about "innovation strategy" if we don't believe innovation is "strategic"?  A recent McKinsey survey will tell you why.  McKinsey just released a new survey entitled Understanding the Drivers of Innovation Performance.  In it there is much to learn, especially about the leaders and laggards in the innovation space.  But what really caught my eye in the document wasn't discussed until page 6.  There, the survey turns to Exhibit 3, entitled "top innovators lead most on vision, strategy".  The chart compares innovation leaders to laggards in a number of categories.  The two areas where even innovation leaders do the worst are notable:
  • In each business or market where we are active, we invest enough in innovation to hit our targets for market share.  Leaders agreed with this statement 62% of the time, laggards 32%
  • The prioritization and scope of our projects reflect our innovation strategy.  Leaders agreed with this statement 71% of the time, laggards 43% of the time.
Note that less than 2/3rds of innovation leaders invest enough in innovation to hit targets, and barely more than 2/3rds of innovation leaders think their priorities and scoped projects reflect innovation strategies and goals.  These are the LEADERS in innovation, and their poor showing reflects the confusion and lack of clarity and purpose around innovation in their own companies, much less the confusion and disarray in the laggards.

What's more disappointing is that these factors - making investments, setting targets, prioritizing projects - these are management activities that should be familiar and common to executives.  There's nothing strange or unusual about these actions and decisions, no reason to claim that inexperience with innovation leads to poor or unclear decisions.

What is "strategy"

Michael Porter describes strategy as:   defining a company's position, making trade-offs and forging fit among activities.  That is, defining who the company is and where it plays in a market, determining the tradeoffs that sustain it in its position or create new positions, and structuring the organization to achieve these goals.  If it is a senior executive team's job to define and implement strategy, then why is there a gap between these actions and what is necessary for innovation to thrive?  Because the gaps mentioned above - investing (making choices or tradeoffs) and prioritization and scope (defining investments and aligning the business) are strategic requirements to help run a business effectively.

True innovation, especially innovation targeted at introducing new products to the world or disrupting adjacent markets, requires clear strategic goals, alignment, buy-in across the organization and trade-offs.  Innovation activities and tools are often unusual or unfamiliar, not tools and methods that teams regularly exercise.  When the tools and methods are unfamiliar, the priorities, scope and funding needs to be crystal clear in order for innovation teams to work effectively.

When the innovation leaders demonstrate a lack of ability to prioritize innovation, to fund it effectively, to prioritize the activities to achieve goals, there's clearly a gap.  Is that a gap in the definition of the strategic goals, or a lack in the commitment and belief in the reality of those goals, or are the goals and strategies poorly communicated?  Or, is there such built up inertia that while everyone agrees to the strategic goals, no one is willing to make the changes necessary or commit to the longer term energy necessary to make the changes happen?

No strategy, no clarity, no prioritization, no innovation

If your company can't innovate, look first at the business strategies you create, and how they are defined, communicated and reinforced.  If strategies aren't clear, or they aren't urgent, if they aren't shared collectively across the executive team, it's difficult to create project to achieve those goals.  When goals and objectives aren't clear, or innovation isn't prioritized or funded, all innovation becomes incremental, which, while important, won't move the needle to support strategic goals, or create compelling new products or services.  This isn't a question of competency of the teams, their innovation tools or methods, but a lack of commitment and urgency for innovation that is understood at the mid-management and lower levels.  When that lack of commitment is perceived, innovation is strangled in the crib, or confined to very small, very safe changes.

Recently I asked a client "who prioritizes the list of innovation projects that are possible" and I received a blank stare in reply.  While teams were preparing innovation initiatives for approval and review, there were no clear guidelines for prioritizing the projects, determining which ones should proceed and consume limited resources.  Further, there was no clear linkage between the projects and strategic goals.  While innovation is emphasized, it is not aligned to strategic goals, and the investments reflect that lack of alignment.

Executive teams must lead

Funding, prioritization, scope and alignment are management activities and responsibilities.  Innovation teams need this clarity in order to determine the scope and objective of the projects, and to carry on in the face of business as usual and corporate inertia.  If the executives don't provide clarity and guidance, if they aren't aligned, the tools and methods and commitment of the innovation teams won't matter.

It's not enough to train teams, adopt innovation methods and encourage everyone to dream up wild ideas.  There needs to be a clear link between corporate goals like growth or differentiation and the innovation projects which work to help achieve those goals.  If those projects aren't funded, prioritized and supported, they will fail.  That failure isn't based on the skills of the team or the innovation tools, but the lack of leadership and clarity from executives.
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posted by Jeffrey Phillips at 5:53 AM


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