Avoid These Common Pitfalls of Corporate Innovation Management

October 2, 2019 Focus area: Continuous Innovation

Since the invention of capitalism, companies are forced to innovate to stay ahead of competitors and to meet changing customer needs. Most established companies have proven to be successful in keeping up with their competitors in the past. However, rapid technological developments and the transformation of global demographics and politics over the past two decades have significantly raised the pace of innovation 1,2. These substantial changes provide us with a new league of cross industry competitors and simultaneously with raised customer expectations.

In the past, customers compared companies like insurers or banks with other insurers or banks. Nowadays, customers expect their bank to provide them with the same fully integrated service as they receive from an Amazon or from much more flexible start-ups. Due to these fast changing customer needs and technological developments, companies that have been around for more than a decade bend over backwards to meet customer expectations. They struggle to combine their innovation processes with their day-to-day business. The ways in which these companies typically pursue corporate innovation management, e.g. by introducing innovation labs, by experimenting with start-ups and spin-offs or by setting up an innovation department, contribute only in a small subset to the successful integration of innovations. At the core of many of the less successful attempts to organize corporate innovaton management lie some commonly made mistakes. This article elaborates on important aspects of corporate innovation management to help you avoid making the same mistakes with your organization.

1) Operational employees are key in identifying valuable innovative ideas

It often seems easier to organize fast paced innovation processes in isolation from regular, slower paced operational activities. As a result, companies frequently set up dedicated, full-time innovation teams to create, validate and develop innovations. Undoubtedly, many of the ideas produced by these teams are highly valuable. Unfortunately, due to the isolated nature of the teams, many of these ideas will never find their way back to the regular organizational processes. The ideas do not scale to their full potential or are added next to the existing business processes because the day-to-day operations are not ready to (fully) integrate them. Companies that organize their innovation in such a way often forget that change needs to be carried out within, and not added to, current activities.

Since innovation is typically driven by tangible problems or annoyances, isolation of your innovation process can be avoided by identifying innovation opportunities together with people working in the daily operation. Internal problems or inefficiencies that have no obvious solution are key drivers of innovation. Employees that encounter them every day will be able to single them out. It is sensible to take these problems or efficiencies as a starting point to organize your innovation flow, as they engage employees and resolve pressing issues. Subsequent idea sharing sessions among employees stimulates entrepreneurial behavior and contributes to the creation of a continuous flow of innovative ideas from which the best ideas can be selected for further development.

2) Clearly formulate how innovation goals align with your business strategy

Organizations regularly define their overall business strategy and specify how this strategy should be translated in operational processes, marketing activities and financial decision-making. However, organizations are often more hesitant when it comes to aligning their business strategy with their innovation efforts. Business strategies usually refer to innovation in broad terms, e.g. we are going to reach goals by working together and innovate, or use it as adjectives, e.g. we will develop innovative products. These descriptions fail to provide an answer to the question of how to balance the existing operations with the changes required to achieve the stated goals.

Generally, the lack of a guiding strategy results in aimless innovation through which available budgets are spend on an array of ideas that do not contribute to a focused goal. To avoid fragmented innovation, organizational leadership has to clearly communicate their strategic drivers for innovation and describe how they co-exist alongside the existing operations. These drivers can be major themes, technological developments or business model disruptions, and are guiding in idea generation. Strategic drivers are the main motivation for an organization to innovate, they represent the ‘why’, and their guidance contributes to an environment in which the organization itself is equipped to determine the ‘how’.

3) Innovation potential should be determined by business value, technical feasibility and financial estimates

As discussed, an important first step in stimulating successful innovation is the creation of a continuous flow of innovation ideas that are in line with a company’s strategy. Companies that have successfully taken this step often subsequently demand detailed financial underpinning of innovation as a measure for potential and feasibility. To prioritize your innovations some financial estimates are required. However, at this stage, the innovation idea still has to shape into the product or service it will eventually become. Therefore, it is typically only feasible to make a rough estimate of the actual cost of development and (potential) value to customers. Focusing on financial indicators at an early stage introduces the risk of losing sight of strategic potential which often results in a short-term focus on quick hits rather than long-term opportunities that will help your company stay relevant on the long run.

Avert this financial focus by concentrating on the strategic aspects of successful innovations. A key starting point for objectively prioritizing which ideas are worthwhile to pursue is validating them against the company’s value goals and focus areas. Value goals represent the business values a company pursues to improve the long-term well-being of the company, like employee value, customer value, and societal value. In addition, focus areas like new product lines, new markets or business models, provide guidance in where to target innovation efforts and resources. The framework of strategic drivers, value goals and focus areas, can help prioritize which innovative ideas are aligned with your business strategy. Finally, formulate an initial business case and asses the potential business value and technical feasibility of an idea. This information combined with an estimate of the required resources and a first hypothesis to validate the most important assumptions, allows management to efficiently determine which innovative ideas deserve their resources and attention.

4) Involve business leaders early in your innovation process to create commitment

The topics discussed above are key aspects of an efficient framework6 with which your organization can swiftly identify, assess and validate innovations. Efficient and rapid innovation is critical to stay ahead of competitors and to meet and exceed changing customer needs in today’s fast-paced business environment. However, incremental innovation is only succesfull if innovation efforts eventually change day-to-day operations. It is in the integration phase that we encounter the biggest killer of innovation in organizations across industries – bureaucracy. Validated innovations are frequently put on the shelf or are deconstructed, because an organization’s leadership is incapable of agreeing on how and where to scale the innovation. At the origin of these discussions typically lie competing key performance indicators on which leadership is unwilling to compromise, capacity issues that ask for re-prioritization and fixed yearly budgets.

To get ahead of unproductive and even harmful discussions, organizational leadership teams need to be actively involved from the start of the innovation process. Leaderships needs to fully support the development and integration of innovative ideas and new business models. The entire innovation process should be geared towards transferring ownership of an innovation from a small innovation team to business leaders in the operation. This can only be accomplished if business leaders commit to scaling successful innovation early in the innovation process.

To conclude, successful innovation is not something that happens overnight. It is an ongoing process of trial and error where teams should celebrate successes and learn from their failures. To avoid making the same mistakes as others, we encourage you to identify innovation ideas together with operational employees, align innovation efforts with your strategy, validate innovations by more than numbers alone and involve business leaders early in the innovation process.

Use our Continuous Innovation Framework to avoid even more pitfalls

There are many more practical and cultural aspects to successful corporate innovation management. However, hopefully the topics discussed in this article will guide you around some of the common pitfalls and help your organization stay on the path to success. To support companies in organizing their corporate innovation we developed the Continous Innovation Framework (COIN). Interested in reading more details about this framework? Take a look at www.continuousinnovation.net