Innovation is not innovation… …It’s strategy

The problem with chasing Eureka! Innovation

In late 2016, with great fanfare, a large multi-national mining company began an innovation effort to re-invent mining. The goal was to fully transform the mining process—from exploration to extraction—where drones would identify new deposits, machines would do the digging, and humans would stay above ground. And then, in 2018, the corporation abruptly shut down the whole effort.

In a similar way Target, in 2017, abruptly shuttered its ongoing “store of the future” innovation effort, stating: “We recently made some changes to the innovation portfolio to refocus our efforts on supporting our core business, both in stores and online, and delivering against our strategic priorities.”

Many other corporate innovation efforts with broad aspirations—at companies like Ogilvy, Disney, Coca Cola, New York Times, and even Facebook—have also been halted in recent years.

In a world filled with “disruption” and where innovation seems to be an overarching priority, why would corporations shut down these bold innovation efforts?

Many factors might explain why corporations tire of innovation programs—from a lack of progress, to poor leadership, to bad processes.  But in our experience, failure is often a matter of philosophy.

The problem with conventional innovation efforts is they are designed to drive, well, innovation  With this philosophy, innovation is itself the goal. Innovation, so the theory goes, is inherently unknowable, impossible to plan for and can’t be linked too closely to business objectives.  The task is to create conditions for great innovations to spring into being. When it does, “We’ll know it when we see it;” if it’s strong enough, it will naturally find a way into the business and drive improvements.  We call this “Eureka! Innovation.”

As well-intentioned (and widespread) as it is, Eureka! Innovation isn’t well aligned with the management approaches of most corporations.

First, it is hard for corporations to absorb Eureka! innovations. Eureka! Innovation programs tend to be set up as idea factories—often operating separately and acting in a vacuum. The job of innovators in these factories is to conjure up (or discover), vet, and “sell” new ideas to the core businesses. But more often than not, new ideas (even when good) aren’t able to ford the chasm back into the core business. Either the businesses can’t immediately see the value the innovation will bring, they reject new solutions as “not invented here,” or (more often) they may simply be too busy operating the business to integrate new solutions. While it may be romantic to think so, we find it rare for Eureka! innovations to turn into value on their own.

Second, failure is magnified—and corporations aren’t structured to weather too much failure.  We all know the story of how Thomas Edison iterated through ~1000 versions of the light bulb before arriving at the winning concept.  For him each failure was a productive step on the road toward a focused goal. But when innovation is pursued for its own sake—without grounding in business objectives—failure is just failure. When individual failures stack up, corporations come to view the entire innovation effort as a failure.  

Most importantly, Eureka! Innovation activities generally don’t articulate a path to revenues or business impact from the solutions they’re pursuing. Instead, they believe returns will be self-evident after the right innovation is discovered (we’ll know it when we see it).  The problem with this philosophy is something Xerox learned way back in the late 70’s. The graphical user interface (GUI) was invented at the Xerox Parc innovation center and it forever changed the way humans interact with computers.  But as many people know, Xerox didn’t commercialize it, Apple and Mircosoft did. In a now famous statement, the former Chief Scientist and Director at Xerox PARC John Seely Brown spoke of the innovation work at Parc in this way: “Not everything we start ends up fitting with our business later on…we must work particularly hard to find the ‘architecture of revenues’…there has been a growing appreciation for the struggle to create a value proposition [from] our research output, and for the fact that this struggle is as valuable as inventing the technology itself.” Xerox (as perhaps the Google of its day) had the financial wherewithal to continue to pursue Eureka! Innovation for its own sake. But for most corporations with limited resources, an inability to define the ‘architecture of revenues’ and commercial impact of innovation means innovation programs will, sooner or later, be put on the top of the chopping block.

What should corporations do? The philosophy change we recommend is to weave innovation directly into strategy.  There is a role for Eureka! Innovation in the world, but most corporations will do better by letting strategy guide it. Corporations should do three things differently:

Shift from idea-push to strategy-pull Successful corporations view innovation efforts as an explicit enabler of corporate strategic plans, and they operate their innovation programs accordingly. During the long-term planning cycle, these corporations agree on strategies and growth objectives and identify areas where new technologies, products, capabilities, cost-saving processes, etc will be required to reach strategic goals. They then tailor innovation programs to close gaps. open up strategic opportunities and hedge against future market changes.

This isn’t about creating a shopping list for new innovations or technologies (often the best new innovations are indeed discovered). But it is about linking innovation activities specifically to growth strategy objectives. With this approach, innovation programs don’t operate in a vacuum, they operate together with strategy as an integrated whole.

This single philosophical change is perhaps the greatest step corporations can do to make to their innovation programs successful. It focuses both innovators and business operators on the same objectives and fosters collaboration between them. It enables the corporation to articulate the financial value-at-stake driven by innovation and therefore unlocks the right financial resources, in the right amounts, over the right amount of time (see below). Most of all, it forces the corporation to contextualize and regard innovation not as optional, but as a strategically imperative endeavor.

Pursue solutions and businesses—not technologies   A strategy-pull philosophy leads to the next hallmark of success: the pursuit of innovation at the solution or business level. Emerging technologies like artificial intelligence (AI), internet of things, (IOT), or augmented reality are not objectives themselves, but puzzle pieces in a greater effort to change the business. This shift in thinking enables corporations to ground innovation firmly in mission-critical business objectives and adopt a higher-purpose, “Edison-like,” perspective regarding failure. One corporation we worked with recognized the strategic opportunity to launch a new digital analytics business alongside its traditional businesses. Innovation here was defined at a business-level. It recognized the technology gaps and pursued a mix of internal R&D, open innovation, and corporate venture capital to build the new business. The effort was slow at first; some open innovation efforts stalled and some venture investments failed. But because the corporation was committed to the broader strategic opportunity, it kept at it and eventually launched the new business.

Link to economics The economic impact of innovation can be estimated and even planned for—and should be. To illustrate this, just look at startups. Successful startups link innovations together into a business view (“businesses, not technologies”) and they articulate the value to be created by the business.  Indeed, it is only the ability to articulate the value-at-stake (however imprecise estimates may be early on) that wins them investment.

Successful corporations approach innovation and manage it the same way startups do. They articulate the long-term value to be gained from a new solution or business.  They ascribe metrics to measure the progress of innovation in a way that fine-tunes understanding of the future value to be gained.  And they estimate time-to-cash flow and forecast the growth profile of the business. When innovation is linked to an economically-strong business case, corporate funding is not only made available, but abundant and far less susceptible to being shut down.

Idea factories and Eureka! Innovation are sometimes fruitful, but for most corporations, grounding innovation in strategy is a better move.

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