After the decade of innovation, the pursuit of successful innovation execution is still not easy. As reported by McKinsey (2018), 84 percent of executives feel innovation is critical for growth, yet only six percent are satisfied with their innovation efforts. What many executives are finding is that the context of an organization’s environment is so complex that what works for one organization may not work for another.
Even standard approaches of innovating based on customer needs provides no guarantees in highly competitive markets. As a result, terms representing the new lexicon for innovation success such as “freedom to fail,” pivoting, and “idea generation” are still just words for many.
This blog has excerpts from the article “The Decade of Innovation: From Benchmarking to Execution” by C. Brooke Dobni and Mark Klassen, in the Journal of Business Strategy, Feb. 5, 2020. Manuscript ID JBS-11-2019-0209.
Dobni and Klassen suggested to executives that 2010-2020 would be ‘the decade of innovation’ not because of any single development, but due to the massive prescription if innovation from industry, academia, and governments. No one has disagreed. A lot has been discovered in this decade. For example, we know that there is no one best approach to innovation, that innovation is tangible, and that it can be systematically managed and measured. As well, innovation does work, and it provides above average returns on investment. Now the focus is on the execution of innovation. In other words, what methods and technologies are used by highly innovative organizations?
Although executing innovation is messy, the benefits of innovation remain undisputed. The PWC Global Innovation Survey (2018) reports that high innovators outperform their industry peers on gross profit, sales growth, and market capitalization by a multiple of 2.1, 2.6, and 2.9 times respectively over a five-year period. These findings are now mainstream and are consistent with other consulting and research studies (KPMG, 2016; Crossan and Apaydin, 2010).
Unleashing innovation is not a matter of simply increasing the expenditures in research and development. PWC (2018) also found that “there is no statistically significant relationship between how much a company spends on its innovation efforts and its sustained performance.” The predominant PWC conclusion is that what matters is how companies strategically use their resources to advance innovation.
We at InnovationOne® agree with these conclusions. We have focused our research on over the past decade on understanding and measuring holistic drivers of organizational innovation. The cultural assessment approach to innovation that we have invoked goes beyond analyzing simple measures such as the investments of research and development or output measures such as patents or number of products. Instead, it allows for meaningful insights into innovation context rivers such as leadership, process, knowledge management and resource investments.
Of equal interest, executives want to understand what methods and technologies are being used in support of innovation. With practices such as design thinking, big data, and innovation management software becoming commonplace, there is increasing interest to determine how these contribute, if at all, to innovation efforts.
Based on the use of the empirically developed InnovationOne Health Index© and our research from the 2013 Fortune 1000 Innovation survey, The 2017 Global Innovation Survey with The Conference Board, and a 2011 Canadian Study, we have learned insights into where organization’s innovation efforts are improving and where they are still struggling.
Below are Ten Key Insights from a decade of research on what is improving and where companies still struggle with innovation execution and success.
Key Insight No. 1: Innovation culture is Improving
The innovation scores from the three surveys increase from 65 percent in 2011, to 69 percent in 2013 and 72 percent in 2017, indicating a positive and upward trend in innovation culture. Since the 2011 survey includes a Canadian sample, the increase is more accurately stated as a North American improvement. The 2017 global Innovation Survey also provides interesting geographic perspective. There were few statistically significant differences between US and non-US firms. US firms are more apt to leverage or redirect resources to support innovation whereas non-US firms were better positioned to move more quickly to test new ideas.
Key Insight No. 2: Processes to drive innovation are stubbornly challenging
Longitudinally, innovation improved in leadership, resource investment, and knowledge management. Notably, absent was material changes in the process innovation drivers, and in particular idea management and innovation performance metrics. To further explore relationships, Dobni and Klassen statistically compared 2013 and 2017 surveys on each innovation construct. From a ‘what’s working’ perspective, there are improvements in the level of trust and respect towards innovation between leaders, managers and employees.
Organizations have also improved their strategic infrastructure (strategic planning) by making it more opportunity orientated and agile to support large business process change. Although strategic infrastructure improved, it remains one of the most challenging innovation drivers for organizations. Organizations are also doing at leveraging their employees’ creativity and directing employees’ skills towards innovation.
Collaborating with value chain partners to advance innovation (open innovation) significantly improved an organization’s ability to search out new ideas. From a ‘what’s not working’ perspective, idea management and innovation performance measures are not improving. In addition, organizations have not shown an ability to improve communication and collaboration internally. This impedes innovation by reducing the ability to spread innovation knowledge amongst employees.
Key Insight No. 3: Execution is strategic, structured innovation works.
One of the primary findings from the 2017 Global Innovation Survey is evident in the comprehensive variance between high and low innovators for every factor considered. High innovators are using methods and technologies more than low innovators. That is, with more frequency and more success. They have designed structure into their organizations to advance innovation agendas. Qualitative comments supporting the analysis indicated high innovating organizations are either implementing new methods or realigning existing methods around innovation.
Key Insights No. 4: Leaders think “culture first” before methods.
Executives were adamant to include culture management in the list of methods and technologies to survey. Their argument, which is academically and pragmatically justified, is that culture can be managed, and it is up leadership to create the desired cultural context to support innovation platforms. Decisions made every day in an organization can impact culture and systematically choosing a course of actions will, over time, shape the innovation culture. Not surprisingly, this attitude was found in our survey as culture management was the highest ranked construct as well as the largest variance between high and low innovators.
Key Insight No. 5: Measuring innovation produces results.
High innovators use innovation measures successfully; almost 2:1 compared to low innovators. This is likely bound to high innovators sophistication with, and maturity of their innovation processes. It also supports the adage of “what gets measured gets done.” Complexity in measuring innovation is real and often misguided. (Kristiansen and Ritala, 2018). Qualitative responses towards measurements of innovation pointed to a trifecta measurement approach of financial (net present value, ROI), output/process (time to market, the various measures of product success) and cultural (survey orientated towards market potential, employee engagement to innovation and collaboration measures).
Key Insight No. 6: Design thinking has legs.
High innovators are using design thinking at a rate higher than any other innovative method or technology. Design thinking is both an ideology and a process concerned with solving complex problems in a highly user centric way. It’s fair to say that design thinking comes in many shapes and sizes but dubbing it as a dad would be a mistake. Design-led companies such as Apple, Pepsi, Proctor and Gamble and SAP have outperformed the S&P 500 by 211 percent over a ten year period (Naiman, 2019). Accordingly, consulting firms McKinsey, Accenture, PwC, and Deloitte have acquired design thinking companies to better arm their strategy and innovation practices. The key message is that innovative organizations are successfully using design thinking.
Key Insight No. 7: Innovation technology matters.
There was a significant variance related to information technology in relation to data analytics and innovation management software between high and low innovators. There are many examples of effective organizational deployment of big data variants in the areas of predictive analytics, cognitive learning, geo-spatial or the internet of things. However, the reality of this is that adoption rates illustrate a gap. Forbes (2019) estimates big data adoption at 59 percent in 2018. Our qualitative data revealed that even if data analytics is being used, challenges remain to effectively deploy it to drive innovation. The most common challenges that higher innovators face relate to data integration, security and privacy, data science talent, and a general lack of investment to support these technologies.
Key Insight No. 8: A baseline of innovation is needed.
It’s safe to say that low innovators are struggling at the start line. Either leaders have not effectively implemented the methods and technologies, or the organization context is so entrenched in the status quo that any innovation initiatives face a serious disadvantage right from the get-go. Our experience at InnovationOne suggests that innovation initiatives, including methods and technologies, have a higher probability of failure in low scoring innovation culture organizations (e.g. overall culture score on the InnovationOne Health Index© at less than 65 percent). Although they may be trying, until an organization achieves a certain level of innovation culture, innovative implementations are difficult.
Conversely, “the rich get richer” principle is true for high innovators. Simply put, innovation behaviors become further embedded into the culture of the organizations. In these organizations, employees are comfortable with innovation to the point where they can relate/connect their own personal behaviors and actions to innovation outcomes. Further, the qualitative survey responses suggested higher innovators are now concerned with speed of existing innovation processes (execution) whereas low innovators were concerned with being more empathetic and systematic to innovation activities.
Key Insight No. 9. Flow low innovators—start with the basics.
One of the questions asked by many organizations who fell into the low innovators cluster is, “where should we start?” In short, focus on these three basics: leadership, open innovation, and measuring innovation for improvement. Culture management was significant which suggests that leadership activities focused on innovation culture matter. Measuring innovation and open innovation are moderately correlated to innovation culture for low innovators suggesting these also make a difference to improve and manage innovation culture over time. Leadership activities, open innovation, and innovation measurement systems are more manageable, affordable, and less risky than starting with potentially new and unfamiliar methods such as design thinking, crowd sourcing, or an advanced analytics platform. The general recommended strategy would be to start with the basics, raise your innovation culture and experience, then move towards more advanced methods.
Key Insight No. 10: Open innovation is a safe bet.
Open innovation was highly correlated to innovation culture for high innovators and moderately correlated for low innovators. It represented one of the highest correlation coefficients for both innovation clusters. Open innovation is not a new concept, and industries have begun to culturally embrace sharing ideas with suppliers, competitors, and customers to advance innovation. The culture shift in our economy to more open relationships helps fuel success for open innovation. Developing collaborative cultures, internally and externally, was one of the top responses highlighted by executives in qualitative responses in the survey.
The evolution of innovation is consistent and palpable. Innovation is not a passing ship. It is the belief of Dobni and Klassen that many organizations were standing on the sidelines, with a wait and see approach. Many of these organizations continue to use old practices in a competitive dynamic which demands new approaches. For these organizations, it will be more of the same—below average growth, reactionary competitive thrusts, and benign culture. Innovation is becoming the new competitive advantage for those that pursue it with passion. Innovation has become part of the corporate fabric, and continues to embed as employees make the connection between innovation and their own behaviors and actions that relate to organization success.
2021-2030: The decade of execution. Our initial view was that the past ten years was the decade of innovation, and this is supported by research. Organizations are quickly learning what works and does not work and therefore innovation investments will become even more strategic and focused. Carte blanche innovation plans will not be tolerated by markets. Focused execution will be the norm for the next ten years.
Leveraging existing methods and technologies and abandon that that no longer provide value. Quite often organizations will plunge into implementing a new method or technology without even considering adapting an existing method or technology. The attractiveness of the new initiative needs to be rationalized against the likelihood of successful implementation over the medium to longer term. In this vein, it is also important to rid yourself of practices and approaches that no longer yield desired value.
Disrupt the disruptive thinking. Although Twitter, Facebook, and Uber grab much of the innovation attention due to their disruptive business models, real innovation can be systematically managed and occur in smaller increments throughout the organization. Companies with innovative cultures can realize tangible gains and competitive advantage without ever revolutionizing the industry. Leveraging methods and technologies can make this happen. Innovation can be something as simple as focusing on better execution of existing strategy. That is a good place to start.
To read the full article, “The Decade of Innovation: From Benchmarking to Execution” by C. Brooke Dobni and Mark Klassen, go to The Journal of Business Strategy, Manuscript ID JBS-11-2019-0209.
Victor Assad is the CEO of Victor Assad Strategic Human Resources Consulting and managing partner of InnovationOne. He works with companies to improve their recruiting, HR operations, and develop extraordinary leaders, teams, and cultures of innovation. His new book is Hack Recruiting: the Best of Empirical Research, Method and Process, and Digitization. Subscribe to his weekly blogs at www.VictorHRConsultant.com.