After three years of obsession with cost control and outsourcing, there are some mixed indications that business might once again be realizing that you can’t cut your way to greatness, and that companies can only survive by continuous innovation, developing brilliant, creative new technologies that solve important human needs. That innovation will hopefully be directed at solving the root causes of disease, crime, violence, mental illness, waste & pollution, urban decay, bio-degradation, unemployment and inequitable distribution of wealth, rather than the design of yet another sneaker.

An annual survey by Boston Consulting Group is the latest indicator. The survey of 236 executives in 30 countries found that 20% rated innovation their #1 priority and 90% listed it in their top five priorities. Technology plays a role, but its role is in enhancing and enabling the innovation process, rather than serving as an engine of innovations per se. Expect to see a lot more discussion of what this ‘innovation process’ is (the charts above and below are three depictions of the process that I have personally found useful), well before you start to see an uptake in actual investment in innovation. And expect to see businesses thinking more broadly about innovation than just new products and services. As customers become both more demanding and more savvy — and recognize incremental improvements and ‘sequel’ products for what they are — not innovations — companies will realize that innovating their internal business processes, their delivery channels, the technologies they use in operations, collaboration and connection, and even innovating the very business model that determines how the business operates and makes decisions, are at least as important as innovating the things the company actually produces.

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And in this age of corporate scandals, greed, hostility to customers, disenchantment with untrammelled corporatism, and recognition that corporations are inherently psychopathological, we might even see some innovative new forms of business.

Another recent BCG article from James Andrew & Kermit King entitled Boosting Innovation Productivity looks at some of the frustrating obstacles to innovation — long lead times, high failure rates, preference of risk-averse executives to ‘buy’ rather than ‘build’ innovations — and ascribes these obstacles mainly to lack of discipline in both the process and measurement of innovation itself.

BCG’s study of existing innovation processes and track records suggest that:

  • companies invest too much in incremental improvement and not enough in true innovation
  • investment in innovation is often misdirected into unsuccessful and unproductive projects
  • the best innovation ideas come from outside the company, not from within
  • companies let fatally flawed ideas drag on too long before killing them
  • innovation budgets aren’t directed to the most promising projects, but to the ones with key sponsorship
  • innovations are not properly prioritized, and resource allocation doesn’t match priority even when they are

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The authors’ advice follows naturally, and is fairly obvious: Add discipline to the process, and especially to the evaluation, prioritization and measurement process. Make the innovation team cross-disciplinary, and make innovation people’s full time job. Draw on top outsiders both to feed the idea database and to provide expertise in evaluation and development of innovations. The authors select one of the traditional project screen/hurdle models to ensure ill-conceived and premature ideas are caught and stopped early. In my experience, however, there is a huge danger in such screen/hurdle models — they tend to block the boldest innovations and encourage ‘creeping incrementalism’.

In what I think is the most useful section of the article, several innovation ‘traps’ are outlined:

  • The Denominator Trap — believing an innovation can capture 100% of an existing product’s market from competitors
  • The Sustainability Trap — underestimating the costs of sustaining market share for the product in years after the initial launch
  • The Substitution Trap — not anticipating how an innovation can cannibalize the market for the company’s existing products
  • The Uniformity Trap — not treating every new product launch as unique, requiring different approach and sustenance
  • The Tactical Trap — short range thinking, not assessing the strategic impact of the new product, competitors’ likely response, and the ‘fit’ of the product with the rest of the company’s line, image etc.

Some additional ideas that I suggest in my Innovation Incubator process:

  • Consider having your core innovation team in a separate, autonomous business unit or company. Creative minds are often very entrepreneurial, and flourish when they are relatively free from bureaucracy, and when they have some of their own skin in the game.
  • Use ‘pathfinder’ customers on your advisory team — the select few existing customers who always seem to be a step ahead of the pack, open to new ideas, but solidly aware of marketplace realities
  • Learn the process of ‘thinking customers ahead’. Through scenarios, iterative ‘what if’ exercises, future state visioning and other practices, you can help your customers imagine where their own business will be and could be three or five years from now, and hence what they might want to buy from you by that time to stay ahead of the competition.
  • Don’t leave valuable knowledge on the table. An understanding of how consumer tastes are changing in completely different areas from those in which your business operates, an understanding of where the economy is going, and an understanding of demographic changes can provide enormous insight into the potential market for your innovations.
  • In assessing ideas, don’t overlook aspects other than customer enthusiasm: deliverability, quality assurance, sourcing of materials, strategic ‘fit’ with your other products, your company’s image and your corporate ‘culture’, the ‘packagability’ of the product (easy to explain, distribute and use), possible alternatives, and possible conflicts (competing with your customers, regulatory hurdles). Some wonderful ideas have crashed and burned for reasons that had nothing to do with market acceptance.
  • There’s no such thing as too much testing. Small, continuous testing of every aspect of your innovations — checking and rechecking the market, product quality, timing, ease-of-use, perceived value, life cycle, competitors’ offerings, and many other things will allow you to ‘fail fast and fail early’, so that the probability of a successful launch is maximized.

For the accompanying Figures 2 & 3 of Peter Drucker’s innovation process, please see my earlier article. The innovation process at the top of this post is from Credit Suisse First Boston and is explained in more detail in my longer innovation paper. The Innovation Incubator is one of the service offerings of my new enterprise, Meeting of Minds.

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