How important is innovation to your business strategy?

How important is innovation to your business strategy? What does innovation look like within your organisation and who is involved? Professor Keith Goffin, masterclass speaker on our Leading Innovation and Competitive Advantage program, shares his insight.

“Innovation is a word used frequently, but often without much clarity,” Keith acknowledges. “In surveys of thousands of CEOs in larger companies, they state that innovation is of greater importance for growth than a strategy of merger and acquisition. But many consider it extremely challenging, so why is that? And do the same challenges apply in small and medium-sized businesses which, after all, comprise most of the UK economy? 

“A good starting point is to try and define what we mean by innovation. I describe three types: incremental, improving existing products in known markets; breakthrough, developing significant new features for products in known and adjacent markets; and radical, completely new products and business models in new markets. It’s this final category, radical innovation, that those CEOs found challenging because their organisations do not have the necessary capabilities.” 

The Golden Ratio 

Each type of innovation carries a degree of uncertainty about how the market will respond, how much investment is required, how it will affect your bottom line and how staff will react. After all, the more radical the innovation, the greater the change potentially required from employees; change management has many implications for leadership and employee engagement within an organisation. Finding the appropriate balance between these three types of innovation is all about context, says Keith.  

“There is no ideal ‘Golden Ratio’ for innovation, every company needs to make an appropriate choice about how much time and money they devote to each innovation type. I’d suggest leaders consider the appropriate ratio for their business. A ‘heavyweight’ innovator might invest 20% or more in breakthrough and radical innovation. A ‘significant’ innovator may set aside 5-19% for investment in breakthrough or radical innovation. Others may find themselves caught in the ‘incremental trap’, investing less than 5% in breakthrough and radical innovation.” 

Innovation-killers 

Whatever type of innovation a business is pursuing, Keith’s experience shows there are three innovation killers, that must be avoided. 

“Simply asking people to ‘think outside the box’ is really ineffective. Creativity research shows that giving people more direction is vital. There are excellent cases of highly effective innovation programs that set out clear goals with lots of examples of innovation, so that people can contextualise the thought process. Stena Line, one of the largest ferry operators in the world, has a hugely successful innovation programme that involves and engages staff at all levels. (Google ‘Stena line innovation video’ to see how they explain innovation to their staff.)   

“Innovation-killer number two is relying on the ‘voice of the customer’ focus groups. As Henry Ford is famously believed to have said, “If I had asked people what they wanted, they would have said ‘faster horses’.” So, be careful about market research based on focus groups, for a few reasons. First of all, the quality of moderation and analysis must be excellent, but it’s very easy for subjective points of view or bias to slip in to the way they are facilitated. There may be ‘hidden needs’ that people are simply unconscious of, which they may struggle to conceive or articulate. Research also shows that people don’t always behave in the way that they tell people they will. For these reasons, it’s better to use multiple methods of research to identify ‘hidden needs’. 

“Killer number three is an over-reliance on ‘net present value’ (NPV) when determining which innovative projects to fund. In very basic terms, NPV is a calculation of the income you expect to make in future from your innovations, which is compared to what could be earned from simply investing the R&D funds. The danger is that NPV calculations tend to kill off radical or breakthrough ideas because they are less certain.” 

A model for innovation 

While every business will have its own systems and processes, Keith’s research has led him to develop a model of the key elements of innovation management, which he calls the ‘Pentathlon Framework’. 

“There’s a sequence that is common to most innovators that moves from idea generation – a funnel of ideas – through the selection phase, into new product development which will have many stage-gates to decide which few make it through to fully formed new products or services. 

“Importantly, the ideas, selection and implementation process should sit within a clear innovation strategy. It must also be supported by a real culture of innovation. This includes being customer-centric, open to new ideas, having effective cross-functional teams, well-defined and supportive processes, reward and recognition, a tolerance to risk and, of course, appropriate leadership. 

“So, if you’re in a senior role within your business have you considered how your leadership style will impact your organisation’s innovation performance?” 

How can I learn more? 

Read Innovation Management by Keith Goffin & Rick Mitchell, published by Palgrave, 3rd edition, 2017. It’s full of interesting case studies plus management tips and recommendations. 

This article first appeared in Issue 3 of the QuoLux™ Leading magazine, November 2017. Keith has made the subject of innovation a focus of his work in, and with, some of the world’s most innovative firms. For more than 20 years he’s been researching and writing about what he’s discovered, currently as Innovation consultant and Emeritus Professor at Cranfield School of Management, and Adjunct Professor at Mannheim Business School and Stockholm School of Economics. Keith also conducts a masterclass on the topic for owner-managers, leaders and senior managers on the QuoLux™ innovation and competitive advantage program, GAIN™.

 

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