(By Vijay Govindarajan & Jatin Desai)
“Transforming a company requires a dedicated process for nurturing and commercializing valuable ideas. This type of commitment to innovation — the surest way to achieve meaningful and lasting differentiation — requires a dualistic mindset: the organizational ability to deliver near-term results and also prepare for perpetual results year after year.“
The innovation mindset isn’t just about product innovation.
Some organizations have focused on product innovation for so long they don’t know how to innovate in any other areas. For example, in 2010, Microsoft —one of the world’s best product innovators for the last two decades — launched a social phone called Kin. The product was a complete disaster. Within six weeks of the launch, the entire product group was shut down, and, according to their earnings reports, Microsoft took at least a $240 million write-off.
How could such a great product innovator strike out so fast? In today’s climate, it happens to the best.
Most organizations focus on building short-term product innovation engines. However, most products have little sustainable competitive advantage and never generate a profit; those that do are often quickly copied by the competition, negating any long-term advantage. The result: a significant investment in product development, without a commensurate return on investment.
To achieve sustainable growth, companies must better integrate product innovation with business model, process, and service innovations.
Transforming a company requires a dedicated process for nurturing and commercializing valuable ideas. This type of commitment to innovation — the surest way to achieve meaningful and lasting differentiation — requires a dualistic mindset: the organizational ability to deliver near-term results and also prepare for perpetual results year after year.
Barriers and Risk
Based on our field work with Global 2000 size companies, we have identified five barriers to organizations achieving the dualistic mindset:
Absence of a required mindset to harvest and manage great ideas: Sony had the ideas and engineering competence to build the first iPod equivalent, but it couldn’t commercialize those ideas because of its own internal battles.
Lack or misalignment of resources available for investment in innovations: In a matrix environment, many organizations compete for the same funds, which leads to duplication of resources and results in inefficiencies and waste. The challenge is not that an organization has insufficient resources to invest in innovation; the challenge, instead, lies in where to most effectively funnel those resources, and how to do it.
Human capital assets which are under-utilized and disengaged from an organization’s creative capacity: When organizations become huge, their pace of change and pace of action often slows down. This leads to lack of urgency. Larger organizations with many people focused on execution can be slow to take risks and design new experiments.
Broad product and delivery capabilities which dilute focus on emerging and disruptive opportunities: In the financial services industry, since the mid-1980’s the typical company has gone from handful of delivery channels (branches, relationship managers) to 15-20 channels (branches, direct mail, internet, national sales force, affinity marketing, etc.) while expanding its product offerings tenfold. “Anytime, Anywhere” banking has become the price of entry as providers strive to meet the need of large and diverse customer bases.
Organizational orthodoxies that hold on to the past and discourage risk-taking: Every organization has organizational memory which can create complacency and prevent forward progress. When memory becomes a way of life, it obstructs innovation and out-of-the-box solution development.
Large organizations have more resources, more talent, and more market reach than the smaller players. But we often see new start-ups coming in, and in due time, dominating an industry. Why does this occur? Because the large-organization leaders have done little to remove the barriers and risks above. They lack clear innovation intent.
Innovation intent answers the question, “What will innovation give me that nothing else will?” It clarifies strategic direction for your innovation focus and efforts. It is top management’s directional mandate on how the firm is going to win using innovation, articulated by organizational leaders and the senior executive team (and sometimes the Board).
Here are five indicators of authentic innovation intent:
Innovation is considered as a clear differentiator for long-term growth and success.
Innovation is already part of the strategic vision and value-defined, and there is a strong desire to make it part of everyone’s job.
There is clear, authentic sponsorship from the C-Suite for innovation and strategic investments.
There is balance between the innovation and performance engines.
Senior leaders are committed to role-model innovation behaviors – in spite of pressure to stay focused on the performance engine.
To help clarify innovation intent, pose these questions to your most senior leaders:
How much more cost savings can we squeeze out of our current business? Are the incremental savings worth the time spent by managers?
How much more top-line growth can we achieve out of our current business? Is the cost of new-customer acquisition going up?
To generate real wealth, how many share-increasing-tactics remain to be tested beyond the ones already tried, such as buy-backs, spin-offs, and other forms of financial engineering?
To achieve scale, how many more mergers and acquisitions can be absorbed before altering the business model and losing strategic focus?
How different is the business model and the value proposition it offers compared to others in the marketplace?
Innovation intent must be vividly clear for everyone in your organization, especially at the top. The intent must be concise to help drive alignment to business initiatives and must help articulate specific employee behaviors necessary at all levels for an innovation climate to take root. When designed correctly, innovation intent is clearly linked to and driven by the business strategy.
“Opinion pieces of this sort published on RISE Networks are those of the original authors and do not in anyway represent the thoughts, beliefs and ideas of RISE Networks.”