Corporations around the world are investing in innovation hubs, hackathons, agile training and design thinking workshops. Why? So that they can learn to innovate, become more agile, customer-centred, purpose-driven, profitable, efficient or disruptive.
I'm interested in how corporations make sense of the sometimes vague topic of innovation — how they manage innovation initiatives, and how they allocate funding. In my interviews with employees at innovation hubs, I noticed that many struggled to describe what type of innovation methodology they follow, and why they use one particular method over others. I believe this lack of clarity is due to the absence of a single model for reference. Moreover, the growing number of methodologies is adding to the confusion. If you check ask-flip.com, you'll see there is a categorisation of 565 distinct frameworks and tools for innovation. In this article, I outline the specifics of the framework I’ve developed for defining innovation initiatives. The different manifestations of corporate innovation initiatives lie in focus area (internal vs external) and innovation creation (problem-focused vs opportunity-driven).
I wrote this to help — to guide your innovation efforts or sharpen the value proposition of your innovation hub. It can also further serve as a model to create value streams by applying a portfolio approach to innovation. I'll talk more about this in a follow-up post.
Do you care more about the the inner workings of your organisation or about your customers?
Organisations with an internal focus typically aim at increasing efficiency by optimising processes and internal operations. Fast, repeatable processes are a prerequisite for quality and growth as they allow organisations to scale production or service delivery reliably. This is not new; many organisations participated in optimisation programs (Lean Management, Lean Manufacturing, Total Quality Management) during the mid-80s and 90s. Over the last ten years, the optimisation focus shifted towards digitalisation and digital transformation, while currently, artificial intelligence and process automation fuel optimisation approaches.
When it comes to reinventing your business model, one of the most significant barriers is the dominant industry logic and the things everyone takes for granted. It's likely for an industry outsider or a challenger brand to come up with a game-changing business model.
Organisations with an external innovation focus aim at improving either the customer experience, or they try to create new products/services that increase revenue. Currently, their organisations are undergoing a strategic shift — from an internal perspective towards one that is more customer-centric. They now apply customer journey mapping and focus on designing services, touchpoints and experiences with the end-user in mind.
Creating original product, service or business model innovations is more complicated than merely improving upon products and services that already exist. This is because it's intellectually challenging, and it requires long-term orientation. Few organisations are able and willing to take a radical perspective on product innovation. Take Fujifilm, for example. Their innovation had nothing to do with digital photography but with skincare products. Fujifilm recognised that ageing film and ageing skin have a lot in common and that they could build on their expertise to introduce innovative Fujifilm skincare products.
Innovation always has risk association, with an uncertain and often distant payoff. Most organisations are just not patient enough: a study of innovation at Xerox showed that over 35 years, its most successful product extensions took an average of 7.5 years to generate an acceptable return on investment. However, the innovation programs that produced those spin-offs survived an average of only four years before they were shut down and replaced by new ones.
Are you solving problems or are you creating something new?
The horizontal axis looks at how an organisation creates innovation. The majority of corporates focus on improving the status quo by solving problems. Those can be problems the organisation faces internally, or it can be problems or needs their customers have — this is a great starting point. The right issues provide an area of focus, and your customer or employee advocates investment in finding a solution is high. There are a plethora of well-documented methods to approach innovation this way, with Design Thinking being the most prominent Human-Centred Design method (HCD). While I believe it's possible to come up with innovative solutions through HCD, Design Thinking is not an exact innovation method; instead, it's an excellent approach towards creative problem-solving.
On the contrary, you have opportunity-driven approaches — creating something new! Few corporates actively explore this radical field of innovation — because there is no problem to be solved, it’s harder to do well. Risk and ROI are often the deciding factors in pursuing a new product or service.
The opportunity-driven approach combined with an internal focus (War Gaming, Build Your Own Enemy) can lead uncover questions that can impact the very core of the organisation: 'How might we reinvent our own business or industry?', or 'How might we create a new company that puts us out of business'? Of course, problem-solving and customer-focused design methods don't provide answers to those questions. While there are methods available for radical business model innovation or industry disruption, in-house expertise on how to apply those methods and overall adoption of radical innovation methods is low or non-existent.
What method should you apply for innovation? It depends on where you sit in the framework.
Let's look at the methods and tools you can apply to drive innovation initiatives in each quadrant.
The top-left quadrant (internal & problem-solving) — Optimise is your efficiency and optimisation toolbox. If the problem is well understood (and defined!) methods like Six Sigma, Lean Management, and Process Improvement do the job well. If the problem is ill-defined and confusing, and impacts people, consider a HCD approach.
The bottom left quadrant (problem-solving & external) — Improve. Here, your goal is to improve the experience your customers have. An excellent way of tackling this is to focus on the most common pain points or problems your customers currently experience, and to find solutions by following an iterative HCD approach.
The bottom right quadrant (external & opportunity-driven) — Create, is for those corporates who are creating value for customers and the organisation - from scratch. Unfortunately here, there may not be any pain points or customer problems to guide you. Thus, Human-Centred Design methods are of limited value. Your tools of choice are Foresight and Futures Thinking as well as Hacking Cultural Beliefs and Innovation of Meaning.
Few organisations dare to explore the top right quadrant (internal & opportunity-driven) — Reinvent, because looking inwards at ways to improve your company can be uncomfortable, challenging and disruptive. Change is difficult. There are only a few methods available to help you rethink your organisation. Build Your Own Enemy, Wargaming, Business Model Innovation and Hacking Cultural Beliefs help you to go beyond the dominant logic of your industry.
How can you use this framework?
Having a clear understanding of the purpose and direction of corporate innovation endeavours helps you to communicate your why. It also supports course corrections and acts as a north star when facilitating strategic shifts of focus for your organisation.
The final thing you should take away from this is that the four quadrants of this innovation framework are (hopefully obviously?) different in nature and execution; therefore, they require specific team arrangements and ways of working. Success metrics, budgets et al need adapting to the characteristics of the quadrant you want to explore.
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Posted by Dr. Sebastian Vetter