Wednesday, January 20, 2016

What the GE Innovation Barometer really tells us

Like many of you I look forward to the annual reports about innovation that a number of larger corporations and consulting firms publish.   It's interesting to get a large, multinational examination of the state of innovation, and to see how the data is interpreted.  Each year BCG and other consulting firms release an innovation report.  From the business perspective,  GE does a nice job every year of interviewing a large number of executives around the globe, and analyzing the data for insights

Before I drill into what I believe the data tells us, remember a couple of factors.  First, how a question is asked matters, as well as which questions were asked and which were not asked.  There may be as much to learn from what wasn't asked as their is in what was asked.  Second, analyze the analysis.  Look at the data itself and how it is presented.  There are connections in the data that seem interesting to me that GE does not call out.  GE may refrain from calling these out because the data or conclusions differ from what GE is interested in presenting. Or, GE simply took a different perspective than I did.  There are many reasons why the analysis from the same data set may be slightly different. 

It's clear what's important to GE - examining the report suggests a couple of areas that GE wants to highlight, including business to business collaboration, data analytics and support for innovation from governments.  GE also covers a wide array of innovation topics, and the overall report and analysis they provide is reasonably good.

My analysis

Here's my analysis of their report and the subsequent data they provided (charts/figures noted by page number).  This analysis is based on the 88 page PowerPoint I downloaded from the main Barometer site:

Page 5 - 2016 Key Findings.

GE presents four key findings (Welcome Revolution, Embracing new models, Disruptive Innovation and Everybody's starting up).  Within these findings two concepts caught my eye.  First, while executives recognize the need for "disruptive" innovation (never really defined as far as I could see), 81% worry about being left behind, or have fear of becoming obsolete (a new acronym:  FOBO).

But here's the question:  does this "fear" translate into any action?  Do executives communicate this fear to their organizations?  More importantly, do the executives allocate resources or investments based on these concerns?  We don't know from the research.

Second, the research states that "Inertia and risk aversion are growing".  God help us if this is true.  Inertia and risk have traditionally formed some of the biggest barriers to innovation.  If inertia and risk aversion are growing, as the report states, then together we face an immense struggle to innovate.  Large corporations face enough challenge to innovate without an increase in inertia and risk aversion.  The report says nothing about how to overcome these issues.

Page 22 - Increased Financial Return

According to this slide, firms in leading innovation countries are recognizing growing innovation return from collaboration.  Almost 90% of the firms surveyed are growing innovation collaboration, with the global average at 77%.  While innovation is growing and collaboration is increasing, this data is overstated or does not represent the average company in the countries where the research was conducted.  In our experience "open innovation" is still a buzz word for many companies, and while collaboration and open innovation can be game changers, the vast majority of companies are not actively collaborating for innovation success.

Page 25 - Being disruptive is the gold standard

Again, other than defining disruption in the previous slide as "creating a market that didn't previously exist" we don't have a good definition of disruption.  Moreover, 60% of the companies surveyed have difficulty coming up with radical and disruptive ideas.  47% say the development of new products and services "contributed" to business performance, but doesn't mention what the contribution was.  Companies can label any new product and its associated revenue as "innovation", and this statistic doesn't equate to "disruption", merely to new products or services.

The entire analysis argues for more disruption, but doesn't address how difficult it is or what firms are doing to grow the skills necessary to innovate effectively.  Later we'll see another conundrum, the concern about working on disruptive projects versus the need to get to market quickly.  Conversely, the report doesn't talk much about what's causing industry and segment disruption.  Disruption is increasing - look no further than Airbnb or Uber for examples - but many industries don't understand the disruptive forces or how to defend against them.  Most larger corporations would be better served to learn to understand the potential disrupters and purchase, block or co-opt them.  If inertia and risk are big barriers to every day innovation, what kind of barriers will larger corporations encounter when they try to "disrupt" something?

Page 31 - The majority of business executives continue to favor a "safer" approach

Here's research that simply confirms what we already knew.  Executives prefer innovation that doesn't interfere with day to day operations.  But what we actually need is a "both/and" approach:  the ability to conduct excellent day to day operations to drive revenue and profits while simultaneously conducting innovation to create new products.  Currently, almost two-thirds of the respondents note that they intend to protect the core business as much as possible, which will starve innovation activities.

Page 32 - Many businesses innovate incrementally...

On this slide we see what appears to be a logical tradeoff:  63% of respondents favor incremental innovation because they want safety and low risk, while recognizing they need to get to market quickly.  What they miss is that innovation can be disruptive AND rapid, they just don't have the processes or skills to conduct innovation in that way. And, when new entrants with the ability to be both disruptive and rapid emerge (look at Zara, or Uber, for example), there will be disruption in their markets and industries.  It's not enough to recognize what the disrupters are doing, corporations have to adopt these skills and capabilities or they will be disrupted.  Corporations must become more capable innovators, must become more agile, more able to make quick decisions and become proactive rather than react to market conditions or competitive actions.

Page 36 - Having an innovation strategy...

This slide suggests that two thirds of the firms surveyed have a "clear innovation strategy", which is probably true but almost certainly irrelevant.  What is relevant is having a clear strategy, that is regularly and capably communicated to the entire organization, and is backed by executive commitment, new funding, project prioritization and other factors which ensure innovation is actually done.  You can see how little having a clear innovation strategy matters when you read that 62% of those firms with a clear strategy "struggle to come up with radical and disruptive ideas".  Ultimately this chart tells us that over 60% of the firms that responded (62% of 68% and 57% of 32% = 60%) struggle to come up with radical and disruptive ideas.  This is further reinforced by the next slide...

Page 37 - We see polarized views in approach to innovation strategies

France, Indonesia and India lead the way in responding to the question:  Does your company have a clear innovation strategy, yet I think few experts would claim that these countries or the preponderance of firms in these countries are excellent innovators.  On the flip side, Japan is noted earlier in the research as an innovation champion, and we can easily toss in Israel and Sweden, all three at the opposite end of the scale, lacking clear innovation strategy.  Either having a clear innovation strategy doesn't matter (which it does) or it is not enough (having a clear strategy is useful only if other conditions, like executive commitment, funding, resources and other factors are also put in place).  Further, we need to move away from the reliance on countries and governments.  Too often governments create incentives and hope to pick winners and losers, rather than simply creating conditions where the best ideas and industries succeed.

Page 41 - Identifying best practices and integrating them...

I especially like this chart, but I think the developers of the material missed a key opportunity here.  If we look from left to right we can identify key factors that become barriers to innovation. They are:
  • a lack of PROCESS (to have a clear process and structure in place)
  • a lack of PEOPLE (to encourage and reward innovative people)
  • a lack of innovation CULTURE (to create a connected culture) and (to reward those...)
  • a lack of GOVERNANCE (to create a set of metrics..)
  • a lack of CUSTOMER INSIGHT (to rely on consumer research...)
These factors have been innovation challenges for years.  To see them show up in this research is almost reassuring, but ultimately damning.  For these to show up in this way, in this order means that for over a decade corporations have known what the challenges are and haven't moved the needle very much.  We know these are problems.  When will leaders arise who will focus on them and fix them?

 Page 42 - The Informed Public think internal inertia and lack of leadership...

Here's a real conundrum.  The factors that keep firms from innovating effectively (business models, integration, inertia, lack of investment, lack of skill sets) are all factors that are internally controllable.  None of these arise from external competition or are unobtainable or unchangeable.  All of them are within the purview of the executives who were interviewed to change!  Let's get to it!


GE has once again done a great job surveying a broad population of executives, who have indicated that innovation is important and who recognize that their companies must get better at doing innovation consistently and in a more disruptive fashion.  Yet these same executives, who recognize the key challenges and skill gaps, don't have answers to basic changes necessary in order to innovate.  In this regard, there's nothing new under the sun.  We are still faced with issues like risk, uncertainty, the tradeoffs between day to day operations and innovation, and everyone recognizes the skill gaps, cultural barriers, inertia and other innovation blockers.

The real problem identified by this report is how uncomfortable most corporations are with the types of innovation they need to be doing.  The report confirms that most respondents are uncomfortable with radical or disruptive innovation, while recognizing that these factors pose significant challenges to their current business prospects.  Change is accelerating and disruption is accelerating.  Executives understand this but don't seem to have plans to address them.  At a minimum, larger firms should be paying close attention to potential disrupters, and taking a proactive yet defensive stance to block the disrupters, delay the disrupters or create conventions or regulations that stymie them.  Better yet, the corporate leaders could learn from or acquire the disrupters.  The best possible scenario is that larger corporations become far more proactive, creating new solutions and identifying emerging markets and needs before the disrupters do.  But this will require a change in culture, rewards, focus, business model and ultimately, leadership.

This should be a wakeup call to new managers and junior executives who are climbing the corporate ladder.  Now is the time to build these skills, to put new processes and mechanisms into place.  The pace of change is accelerating.  Disruption is occurring.  FOBO (obsolescence) won't occur on the current management watch.  It will occur just as you reach the top, unless you are prepared to make changes to the way your company operates.

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posted by Jeffrey Phillips at 6:15 AM


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