While everyone agrees that companies need to innovate to succeed, actually doing it is often quite challenging. While most successful companies can lay credit to some innovations, most have occurred by chance and the companies actually lack an orderly, reliable way to innovate regularly. A recent article in the Harvard Business Review, “Build an Innovation Engine in 90 Days” by Scott Anthony and two of his colleagues, does a great job of laying out a tactical plan to help your company to innovate.
While some companies address this problem by building large—and expensive—innovation centers or R&D facilities, Anthony shows there is a middle way that almost any company can pursue regardless of resources. In many ways, what Anthony describes (and the term he uses) is the equivalent of the minimum viable product (MVP), from lean start-up fame. In this case, it is a minimum viable innovation system (MVIS). There are four phases to building such a system, and it takes about 90 days.
Phase 1: Define your innovation buckets
There are two types of innovation: improving existing products or operations, and generating growth by reaching new customer segments or markets. For an innovation program (including an MVIS) to be successful, everyone involved must understand the two types of innovation. If your team fails to make this distinction, you increase the likelihood that you either discount the importance of innovations that strengthen the ongoing business or demand too much revenue from the new-growth initiatives too early. Innovations meant to improve the core business (the former of the two innovation categories) should be tied to the current strategy and managed mostly with the primary organizational structure. The return on these projects will be relatively quick with high initial returns and thus should be funded at scale.
While all of your innovation projects may be focused on core activities, they you are probably missing preparing for the future and reaching your long-term goals. New growth initiatives, the latter category, should fill this gap. These new growth initiatives push the frontier of your strategy by offering new or complementary products to existing customers, moving into adjacent product or geographic markets, or developing something utterly original, perhaps delivered in a novel way.
During this phase, you should spend up to two weeks developing rough but real numbers for the revenue and profits your current business will bring in five years and see how that compares with your five-year plan. This exercise will show you how much time and resources to devote to core innovation and what percentage to dedicate to new-growth efforts, and how ambitious the latter should be.
If the gap between your estimates and your plan is large, you should consider subdividing your new-growth initiatives so that you can map them to possible different directions for future growth. Overall, the first phase of creating an innovation plan is having everyone involved understand the two types of innovation and then analyzing the allocation of resources between innovating on the core business and innovating on new opportunities.
Phase 2: Zero in on a few strategic opportunity areas
From days 20-50, you should focus your innovation efforts on a small number of strategic opportunity areas. These are areas that fit within your new-growth buckets and seem large enough to impact significantly the growth gap identified in phase 1.
Given the limited time and the overall goal of creating a MVIS, rather than spending months or years on analysis, spend three weeks having key executives (ones who will be involved in leading your innovation efforts) conduct research, from meeting with customers (and potential customers) to investigating new initiatives in your industry and related ones. Make sure you also look at new-growth efforts currently bubbling up internally.
After finishing the research step, meet with the leaders who conducted the research and have them identify three strategic opportunity areas that each combine the following:
- A job that many potential customers need to do that nobody is currently addressing well.
- A technology that will enable customers to do that job much more easily, cheaply, or conveniently, or a change in the economic, regulatory, geo-political, technologic or social landscape that is greatly intensifying the need for the job.
- A unique capability of your company that competitors cannot easily replicate that will give you an advantage in seizing the opportunity.
By combining all three criteria, you avoid some of the common innovation mistakes, including pursuing a phantom opportunity only because it seems so big that there must be money in it somewhere, or wandering into a new market where you have no competitive advantage.
Identifying strategic opportunity areas will direct the energies of forward-thinking leaders at your company who might be playing with ideas at the fringes of your company. It also helps highlight where people might be wasting their time, as this phase also defines what you are not going to do.
Phase 3: Form a small, dedicated team to develop the innovations
In days 20 to 70, you need to form small teams dedicated to innovation. As Anthony points out, about 75 percent of VC-backed startups fail to return any of their investors’ money and half never reach four years old … and these companies are dedicated to innovation. Thus, how can you realistically expect to innovate if your team members are only dedicated to it part-time?
There are two situations that usually block companies from dedicating resources to innovation. The first is an overall lack of resources and the second is an absence of people with the pertinent experience to staff the MVIS.
If your issue is a lack of resources, the first step to offset this problem is to bring visibility to all innovation initiatives. You may have zombie initiatives, “walking undead that shuffle along slowly but are not promising. You may also have redundant teams pursuing the same core initiatives. There may also be efforts underway not sanctioned by leadership (or consistent with your strategy).
To identify these initiatives, list all the innovation efforts that have the equivalent of at leas one half-time employee working on them. Then try to identify which market each idea targets. Estimate the size of the opportunity and the resources currently devoted to it. Once you finish this effort, you should be able to identify the projects that are not enhancing your core strategy or creating strategic initiatives, then cancel these efforts and more the resources to your MVIS (innovation program). To facilitate dropping projects, ensure you do not blame people personally for initiatives that are being cancelled and explain that you are focused on allocating resources most efficiently so they can make the greatest contribution.
If the constraint you are facing is an insufficient number of team members with experience leading innovation efforts, the goal is to train your team quickly. Have them read literature on innovation best practices and create a checklist for your team members. Anthony gave eleven best practices than can serve as your checklist or the foundation of one:
- Is innovation development being spearheaded by a small, focused team of people who have relevant experience or are prepared to learn as they go?
- Has the team spent enough time directly with prospective customers to develop a deep understanding of them?
- In considering novel ways to serve these customers, did the team review developments in other industries and countries?
- Can the team clearly define the first customer and a path to reaching others?
- Is the team’s idea consistent with a strategic opportunity area in which the company has a compelling advantage?
- Is the idea’s proposed business model described in detail?
- Does the team have a believable hypothesis about how the offering will make money?
- Have the team members identified all the things that have to be true for this hypothesis to work?
- Does the team have a plan for testing all those uncertainties, which tackles the most critical ones first?
- Are fixed costs low enough to facilitate course corrections?
- Has the team demonstrated a bias toward action by rapidly prototyping the ideas?
Team members will understand and learn how to innovate by immersing themselves in the MVIS, while a checklist like the one above will ensure they stay on course.
Phase 4: Create a mechanism to shepherd projects
The final phase in creating an innovation program (MVIS) lasts from days 45 to 90. Create a team of senior leaders who have the autonomy to make decisions about starting, stopping or redirecting new growth innovation projects. This is not a copy of your existing executive team (if it was, people would just revert to their existing roles) but a leadership team focused on new innovation. In the HBR article, Anthony points to three practices VCs use that you should replicate for your MVIS:
- Every project should have a senior executive sponsor or champion who believes in it deeply, but you should NOT require approval from the entire group to move forward.
- Corporate innovation shepherds should set a threshold investment amount that project teams can spend themselves without asking for leadership approval.
- You should make decisions quickly and as needed; don’t wait for a regular meeting or budget cycle.
Leaders of the innovation initiatives also need to be responsible for helping strengthen their whole organization’s innovation capabilities. An MVIS requires senior leaders to get involved with budgeting, performance management, supplier management and other company systems since the overall corporate functions are not part of the minimally viable innovation system (hence the minimally viable).
Innovate smartly … or die
While the phrase “innovate or die” may be true, what is important is to innovate smartly. You need to innovate in areas that will have the most benefit to your company. You effectively need to optimize your innovation efforts to reach your growth goals.
To implement this system successfully, you also must remember it is a system. If you do not follow the four steps, you will fail and are better off not starting the project. You also need to ensure you dedicate sufficient human resources, i.e. people, to the project. Finally, do not worry about (or encourage people to hide) failure, the key is rewarding success.
- Innovation is critical to the success of any company. By creating a four-step minimally viable innovation system (MVIS), you can jump start your innovation initiatives.
- There are two types of innovation. The first focuses on improving the core of your company, your existing products or systems. The second focuses on identifying new opportunities.
- When you follow the four steps to building an innovation system, ensure you staff it adequately and focus on successes rather than failures.