Innovation Isn’t Just About New Products

Originally posted on the Harvard Business Review website, excerpts below:

The innovation mindset isn’t just about product innovation. Some organizations have focused on product innovation for so long they don’t know how to innovate in any other areas.

Most organizations focus on building short-term product innovation engines. However, most products have little sustainable competitive advantage and never generate a profit; those that do are often quickly copied by the competition, negating any long-term advantage. The result: a significant investment in product development, without a commensurate return on investment.

To achieve sustainable growth, companies must better integrate product innovation with business model, process, and service innovations. Transforming a company requires a dedicated process for nurturing and commercializing valuable ideas. This type of commitment to innovation — the surest way to achieve meaningful and lasting differentiation — requires a dualistic mindset: the organizational ability to deliver near-term results and also prepare for perpetual results year after year.

Barriers and Risk

Based on our field work with Global 2000 size companies, we have identified five barriers to organizations achieving the dualistic mindset:

1. Absence of a required mindset to harvest and manage great ideas.

2. Lack or misalignment of resources available for investment in innovations.

3. Human capital assets which are under-utilized and disengaged from an organization’s creative capacity. When organizations become huge, their pace of change and pace of action often slows down. This leads to lack of urgency. Larger organizations with many people focused on execution can be slow to take risks and design new experiments.

4. Broad product and delivery capabilities which dilute focus on emerging and disruptive opportunities.

5. Organizational orthodoxies that hold on to the past and discourage risk-taking.

Large organizations have more resources, more talent, and more market reach than the smaller players. But we often see new start-ups coming in, and in due time, dominating an industry. Why does this occur? Because the large-organization leaders have done little to remove the barriers and risks above. They lack clear innovation intent.

Innovation Intent

Innovation intent answers the question, “What will innovation give me that nothing else will?” It clarifies strategic direction for your innovation focus and efforts. It is top management’s directional mandate on how the firm is going to win using innovation, articulated by organizational leaders and the senior executive team (and sometimes the Board).

Here are five indicators of authentic innovation intent:

1. Innovation is considered as a clear differentiator for long-term growth and success.

2. Innovation is already part of the strategic vision and value-defined, and there is a strong desire to make it part of everyone’s job.

3. There is clear, authentic sponsorship from the C-Suite for innovation and strategic investments.

4. There is balance between the innovation and performance engines.

5. Senior leaders are committed to role-model innovation behaviors – in spite of pressure to stay focused on the performance engine.

To help clarify innovation intent, pose these questions to your most senior leaders:

1. How much more cost savings can we squeeze out of our current business? Are the incremental savings worth the time spent by managers?

2. How much more top-line growth can we achieve out of our current business? Is the cost of new-customer acquisition going up?

3. To generate real wealth, how many share-increasing-tactics remain to be tested beyond the ones already tried, such as buy-backs, spin-offs, and other forms of financial engineering?

4. To achieve scale, how many more mergers and acquisitions can be absorbed before altering the business model and losing strategic focus?

5. How different is the business model and the value proposition it offers compared to others in the marketplace?

Innovation intent must be vividly clear for everyone in your organization, especially at the top. The intent must be concise to help drive alignment to business initiatives and must help articulate specific employee behaviors necessary at all levels for an innovation climate to take root. When designed correctly, innovation intent is clearly linked to and driven by the business strategy.

Click HERE to read the entire article from the Harvard Business Review website.