Tony Davila, Marc Epstein & Robert Shelton – Making Innovation Work

Profitable innovation doesn’t just “happen.” It must be managed, measured, executed on — and few companies
do that well. Making Innovation Work: How to Manage It, Measure It and Profit From It offers the first real solution: a start-to-finish process for driving growth from innovation.

Here are three new, important perspectives for senior managers:

  1. Innovation, like many business functions, is a management process that requires specific tools, rules and discipline — it is not mysterious.
  2. Innovation requires measurement and incentives to deliver sustained, high yields.
  3. Companies can use innovation to redefine an industry by employing combinations of business model innovation and technology innovation.

A fundamental tenet of innovation says how you innovate determines what you innovate. The elements of innovation: leadership, strategy, processes, resources, performance metrics, measurement and incentive rewards and how they are arranged — organizational structure and culture — have a huge effect on the quantity and quality of innovation that an organization achieves.

The 7 rules of innovation

  1. Exert strong leadership on the innovation strategy and portfolio decisions. Clear direction from the top of the organization must permeate throughout the organization to motivate, support and reward the activities that encourage innovation as well as the innovations themselves.
  2. Integrate innovation into the company’s basic business mentality. Innovation must be an integral part of the way a company operates every day.
  3. Align the amount and type of innovation to the company’s business. Innovation may or may not be the key to success for your overall business strategy; you have to determine the types and amounts of innovation needed to support the business strategy — and more is not necessarily better.
  4. Manage the natural tension between creativity and value capture. A company needs strength in both.
  5. Neutralize organizational antibodies. Innovation necessitates change, and change stimulates explicit routines and cultural norms that act to block or negate change.
  6. Recognize that the basic unit (or fundamental building block) of innovation is a network that includes people and knowledge, both inside and outside the organization. A successful organization excels at fusing its internal resources with selected portions of the vast resources of the world’s capitalist economy.
  7. Create the right metrics and rewards for innovation. People react to positive and negative stimuli, and your company’s innovation is no exception.You will never achieve the level of innovation that you need if people do not have the proper rewards.

These innovation rules are interdependent: Mastering one or two of them is a step in the right direction but
won’t take the organization far enough.

Choose an innovation strategy

There are two classes of innovation strategies: Playing-to-Win (PTW) and Playing-Not-to-Lose (PNTL). The goal of the PTW approach is to produce significant competitive advantages that its competitors will not be able to easily match. Sometimes less-than-optimum external and internal conditions do not allow a company to adopt a PTW approach. For example, if the external competitive environment is extremely intense or uncertain, it is advisable to adopt a PNTL strategy. PNTL is a strategy that typically includes more incremental innovation in the portfolio than a PTW strategy and aims to ensure the company can stay in the game by moving quickly, taking calculated risks — sometimes moving first or by matching or surpassing any moves by competitors.

Factors to Consider

The following internal and external factors affect the choice of the innovation strategy and the shape of the
portfolio:

  • Internal Factors.These include technical capabilities, organizational capabilities, success of the current business model, funding and top management vision.
  • External Factors. These include capabilities in the external network, industry structure, competition and the rate of technological change.

The best process for balancing creative and commercial processes includes five steps:

  1. Develop innovation platforms for the different types of innovation you want to pursue.
  2. Create portfolios of projects in each platform.
  3. Form internal and external partnerships and networks.
  4. Ensure that markets for creativity and commercialization are open and transparent.
  5. Guard against organizational antibodies that may limit or destroy your rejuvenated creative markets and processes.

Management and culture

Management systems are managerial facilitators; they are not always solutions.They fill three roles, as follows:

  • Plan: Define and communicate strategy. Make assumptions about the sources of value explicit and clear, select the intended strategy and clarify expectations about strategy throughout the organization.
  • Monitor. Track the execution of innovation efforts to assess changes in the environment; intervene only if necessary and evaluate performance.
  • Learn: Identify new opportunities. Learn about new solutions to achieve performance. The key to learning is not to avoid making mistakes but to learn from them.

Incentives are designed before an innovation effort starts, and they link performance measures and rewards. In contrast, recognition is a reward that occurs after the outcomes of the project are available, even if there was no prior contract in place linking performance to rewards. Recognition rewards are based on subjective assessments of the value generated.

Layered on top and spread throughout the organization, a company’s systems and processes are a network of social interactions — the organizational culture. Culture, comprised of unwritten rules, shared beliefs and mental models of the people, affects the effectiveness of the innovation tools.

Get started

There are three initial activities that the leadership team should undertake to set the context for any change to innovation:

  • Leadership must define the innovation strategy and link it to the business strategy.The leadership team  should design the innovation portfolios and identify the role of business models and technology change to lead to truly significant value creation.
  • Innovation must be aligned with the company business strategy, including selection of the innovation strategy. here again, the leadership team plays a pivotal role.
  • Leadership must define who will benefit from improved innovations. It is leadership’s responsibility to make it very clear to the team who are the targets for value creation from innovation.Otherwise, the company will not be aligned.

Conclusion

There is no silver bullet for innovation, no one formula or structure for innovation that will work for every organization.The Seven Innovation Rules provide the basis for executing improved innovation that creates
value and growth.