Organizing for innovation
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"Innovation that does not align with company strategy and does not provide it a distinctive position in the market has little value from a strategic perspective." Today's businesses are under constant pressure to innovate and stay relevant to their customer or lose their market share to other competitors. In this presentation I will be looking to answer the following three questions about how businesses can organise for innovation: 1- How to organise to innovate within the scope of existing businesses? 2- How to organise to radically innovate beyond the scope of existing businesses into new markets? 3- How to go about implementing an Innovation Governance Process to achieve business objectives?
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Organizing for innovation
- 1. “The organisational designs that support innovation are very different from those that support delivery of current performance.” John Roberts, Stanford Graduate School of Business Organising for Innovation Shoaib Shaukat Iteration Manager – Customer Systems REA-GROUP @shoaibshaukat | shoaibshaukat.com
- 2. Today You Will • Get an overview about the innovation process • How companies can define an innovation governance model? • How companies can organise for performance and growth? • How companies can organise for radical innovation?
- 5. Amazon vs Barnes Noble
- 7. Invention vs Innovation • Invention is the process • Innovation is the act of of discovering something introducing that idea new or come up with an into the market and idea commercialising it • an idea
- 10. What is your Purpose? • Understand your business strategy • Its not just a matter of being better at what you do; it’s a matter of being different at what you do • Good strategy makes the company different and gives it a unique position
- 11. Define Innovation Governance Model Where and When to Why Innovate? Innovate? And How Much Innovation? Ne ation Cr gy w e ate Bu s tr sin ain ess ch lue Va • How? • Processes Creativity • Portfolios With whom? • Skills • Commercialisation • Values • Performance Measurement Who? • Mindset/Behaviours
- 12. Kinds of Innovation Exploit Explore • Achieve maximum • Develop new performance delivering opportunities the current strategy • High degree of • Requires focus and uncertainty precise execution • Radical innovations • Focus on continuous outside the current innovation in current business landscape business • Requires some slack
- 13. Organising for Performance EXPLOITATION
- 15. Advantages Disadvantages • Predictable • Innovation does not • Focus on value creation change the scope of • Easy to measure business • No radical innovation
- 16. Organising for Breakthrough Innovation Exploration
- 17. What is required? • Imagination • Thinking outside the box • Willingness to take significant risk • Accept failures (celebrate them) • Openness to the new and untried • Slack resources to generate and develop ideas
- 18. How to do it? Organisational norms supporting Organisational models innovation • Establish multiple R&D groups supporting innovation • Do not attempt to coordinate and rationalise activity across • Innovation Project Team them • Encourage direct (e.g. IBM) communication among the • Expert Network groups • Give them the freedom and • Shared Services autonomy to decide how and Organisation what to work on • Performance measures & • Innovation Community of rewards: subjective evaluations Practice or milestones achieved (not • Ambidextrous financial numbers generated) Organisation • Innovation Council
- 19. Limitations • Not easy to realise benefits • Highly risky • Suitable for universities but difficult to implement in corporates • Difficult to measure
- 20. Combining Top Down and Bottom Up Innovation Top Down innovation Somewhere Here … Bottom Up innovation
- 21. Key Learning … Develop an innovation governance system that allows to: • search for new opportunities • select among identified opportunities • build new businesses • run existing ones • exit others … all at once
Editor's Notes
- Hi everyone, Lets start this session of Last Conference. I am Shoaib Shaukat and I work for REA Group as an iteration manager. I have a back ground in software product development and I am interested in the overall process of innovation.
- In today’s session I want to share my thoughts about the innovation process, in particular about how companies should go about defining an innovation model. how they can organise for performance and growth? and how they should approach radical innovation if that is required.
- Over last 25-30 years, rapid liberalisation in trade and financial markets along with technological advances (particularly in ICT) has reduced geographic and other trade barriers that previously protected domestic industries from international competition. The new reality for businesses is that they must continuously innovate, adapt and create new products and services to compete beyond their regional borders. The technological advancements specially since the advent of internet and related technologies have created many new businesses with new and dynamic business models which solves customer problems in new ways. As a consequence many large and established businesses around older business models either disappeared or have to make an unwanted and painful transition. However the innovative companies embrace these advances and bring new ways of problem solving to their customers. They also align their business models to the changing market realities.
- But is this as easy to innovate. About 17 years ago in USA there was a high stake war happening in the books retail industry. Several big players namely Borders, B&N, big departmental chains e.g. Walmart, Kmart were fighting for an increasing market share at the expense of independent book stores. One of the big book retailer Barnes and Noble was pursuing a growth strategy and came up with a books super store model and was aggressively opening new super stores. These super stores covered a large area, provide huge collection (175000 in store, 1mil by order), cheaper prices, family entertainments, private reading areas etc. Looks like approach is working for B&N, given this choice people were really coming to its stores and sales were rapidly increasing. As of 1997, B&N operates 483 super stores 528 B Dalton stores in 49 US states is opening around 70+ stores every year. It had $2.8b in revenues as of 1997 with ROE = 14%. Border , another large bookstore chain was also following B&N and opening up its own superstores. While B&N was aggressively pursuing a brick and mortar strategy, it was also responding to the threats from online sellers such as amazon.com and book.com (among several other online sites). B&N also launched its own online books channel. It had a great network of physical book stores as well as a good customer base. B&N also aggressively pursued an alliance and endorsement strategy. NYT recommended books generally are best sellers in US and B&N was its pick as a reliable platform in US. In short B&N had a focused and aggressive growth strategy. They were looking to grow into the online books retailing channel while growing sales in brick and mortar category too. Lets have a look how Amazon.com and B&N performed since 1998 and what returns the shareholders received.
- You can see the difference. If you bought a share of Amazon.com in 1998 for $2 it is now worth about $220. Giving you a 100 times increase in your net worth If you bought a share of B&N in 1998 for about $30, you share is now about half in value. You have lost 50% of your worth Why a company like B&N which was worth more than billion $ succumbed to this fate and why Amazon.com became what it is today? B&N 2011 $7.1b in revenues Amazon FY2011 $51.4b in revenues
- Fascinating stuff. But this presentation is not about Amazon.com or B&N. Rather we want to understand the process which guides companies to perform in an innovative way and be able to bring innovative products to markets. We will discussing how companies should approach innovation and make it at the heart of the company so that all different functions of the organisations work with an innovative rhythm in a disciplined and coordinating manner to deliver innovations to the doorsteps of the customers. To start, I would like to highlight the difference between invention and innovation.
- Invention is the process of discovering something new or come up with an idea. Any one can come with a unique and good idea. Innovation is the act of introducing something new into the market, commercialising it and making it part of customer’s life. And to be successful to get some profit out of it. Introducing a new innovative product into the market without making any money is a business failure. The idea of a hydrogen car is not new. The technology is available for quite some time and some companies have produced some vehicles too. But the biggest challenge is to be able to sell it to customers, you need them to be able to fill their cars with hydrogen at-least as easily as they can fill gasoline. This is the hard because these deals with hard choices about availability and supply chain issues which are external to a business’s capabilities and skills.
- So, in simple words I can describe the innovation as a cross functional activity which needs a deeper understanding of customers or users, a deep understanding of the available technologies and an understanding of marketplace and competition.
- Lets start how an organisation can start moving towards becoming more innovative i.e. it starts thinking about how to successfully introduce new products into the market for commercial success. How can companies effectively steer and manage a complex, cross-functional and multidisciplinary activity like innovation? Most companies are organised to manage business units, regional operations and functions. Many have gone further by allocating specific responsibilities and setting up dedicated mechanisms to manage cross-functional processes, for example new product development. But how can they stimulate, steer and sustain innovation, an ongoing transformational endeavour that is increasingly becoming a corporate imperative? Certainly, innovation consists of several cross-functional processes from generating ideas to taking technologies to market, but there is more to it. It deals with “hard” business issues like growth strategy, technological investments, project portfolios and the creation of new businesses. But it also relates to “softer” challenges, like promoting creativity and discipline, stimulating entrepreneurship, accepting risk, encouraging teamwork, fostering learning and change, and facilitating networking and communications; in short, it requires a special type of organisational culture. Like marketing, innovation is a mindset that should pervade the whole organisation.
- So once you have answered the above questions, it means you have define the parameters or scope of innovation for your organisation. It is important to understand that strategy (and I am talking about business strategy) is just about making choices based upon the opportunities available in the market. In today’s global marketplace and global customer audience, you have to create a niche place for your products and that is only possible if you are different from your competitors and you have a unique position in the market you compete. Obviously by just have a different product and unique position will not guarantee success and therefore it is also important that you understand what are your customer needs and how you execute your go to market functions.
- Based on research by Professor Jean Phillippe (IMD School of Business, Lausanne, Swiss) Published by innovationmanagement.de (Mar-July 2012) - What is innovation governance? Definition and Scope - Mar 2012 - 9 Different models in use for innovation governance - Apr 2012 - Innovation governance, how well does it work - June 2012 (out of scope) - Governing innovation in practice - Role of board of directors - July 2012 (out of scope) Notes: The innovation journey in an organisation starts with defining an innovation governance model which addresses the core issues. There are three key building blocks. Build Vision and Strategy for Innovation As a first step organisations want to develop a vision and strategy for the innovation process. There are three key questions involved. 1- Why Innovate? Does everyone in the organisation have the same clear understanding of the mission, purpose and objectives of innovation for the company? Does everyone know the reasons why you need to innovate and how this relates to your corporate vision and objectives? Answers will vary from company to company, and for the same company from time to time depending on economic, competitive and environmental circumstances. For example, companies in a strategic stalemate position, with few opportunities to compete effectively, may look at innovation as a way to generate a totally new business, and hence to grow profitably. Others may expect innovation to reinforce their current businesses to win a sustainable advantage. Still others will see innovation as a powerful means to build a winning brand reputation and attract and motivate top talent. There are, indeed, many reasons to innovate. 2- Where do you innovate? Where should you focus and what should be your priorities? What does your strategy call for? Do you need more and better new products? Are you mainly looking for lower costs? Are you searching for better service and attractive customer solutions? Do you need to develop more robust business models? Are you ready to build new ventures that will expand the scope of your business? Management cannot escape the responsibility of determining priorities for innovation, and these may change with economic and competitive circumstances. 3- How much? There are two very different types of “how much” questions. The first deals with the intensity or ambitiousness of your innovation efforts and your innovation risk portfolio, while the second refers to the issue of innovation funding. Defining how much innovation you want is important in determining the risk you are ready to bear to meet your objective – be it building a revolutionary new market category or developing an advantage over competitors – and the sustainability of the anticipated reward. In other words, are you searching for breakthroughs, and hence accepting a high level of uncertainty? Or do you instead favour a more prudent approach by encouraging a series of incremental innovation moves? Or do you expect both and, if so, in what proportions and for what objective? Breakthrough innovations should not be pursued unless you are ready to commit the necessary resources to implement them fully and market them aggressively. It is not uncommon to see companies having to shelve promising radically new product or service concepts simply through lack of resources, given the current demands of their existing business. Developing Capabilities Depending upon the strategy, it is important to understand the softer side of innovation. How do you promote creativity, develop necessary skills and foster the values which are necessary for the kind of innovation you are hoping for. Steering Execution In this phase the key processes are developed which aid the innovation processes. Processes around communication and reporting, project portfolios, commercialisation are addressed. Key measurement matrices are defined. Some companies for example have a measurement criteria to have 25% of their revenues coming from the products which are launched in last 3 years. There are three questions around processes: 4 - How do you innovate? How can you innovate more effectively? These questions which are at the heart of any innovation governance initiatives, deal with process issues, i.e. What process will take you most time and cost-effectively from new market needs and ideas to successful market introductions? What organisational design does this require? What tools should you use for implementation? What measures to track? But they also raise a number of cultural challenges which management needs to address despite their complexity. How do you foster a climate which fosters creativity and discipline? A culture in which sensible risk is encouraged? An environment that facilitates networking and communication in all directions? A compensation system that encourages entrepreneurship and teamwork? 5 - With whom should you innovate? “ open-source innovation” – building on ideas and technologies from third parties (adopted by prominent innovative companies like P&G). It is the responsibility of your management team to define its purpose – why do you engage in open innovation? Its scope – what are you looking for and how far are you ready to go in your partnership and alliance strategy? And its implementation process – how should you proceed to create win-win opportunities? Companies that have embraced the open innovation challenge, like P&G and Philips among many others, have clearly included it in their innovation governance agenda. 6 - Who is going to be responsible for innovation? It deals with the definition and allocation of specific innovation management responsibilities at all levels. As part of it, management needs to choose the overall governance model or mechanism that will stimulate and orchestrate all innovation activities in the company. It will identify the owners of all key innovation processes and help in deciding whether or not to allocate innovation responsibilities to a dedicated group of managers, as opposed to current business and functional managers. In summary if sustaining innovation is an important corporate objective for your company, make sure that you explicitly address the six questions listed above – three on “content” and three on “process”.
- Generally the businesses are faced with two kinds of challenges. Either they are at a stage where they already have a business and there is still potential to grow and the objective is to increase efficiency and become more competitive against the competitors. Lets call it exploit. Or it may be that either the business has exhausted all growth potential within its existing markets and therefore it needs to focus in new areas for growth. Lets call it explore.
- The key idea is to design the organisation to provide as focused, intense incentives as possible within the constraints implied by corporate form and the interdependencies that it both creates and is meant to control. Doing so necessitates a variety of choices of architecture and routines, supported by cultural changes.
- Companies need to redraw the horizontal and vertical boundaries of the firm to increase strategic focus, creating relatively small subunits with in organisation in which significant decision rights are granted. And decreasing the number of management layers and extend of centralised staff. These subunits are held responsible to deliver on performance while linking them together by various means to manage the interdependencies among them. Finally cultural norms are developed that facilitate the pursuit and realisation of improved performance.
- Based on research by John Roberts, Professor at Stanford GSB The Modern Firm Note: Keep in mind as a reference for discussion Organising for Innovation Organisational models that support strategic innovation for most organisations, the ability to deliver innovative solutions on a sustainable basis requires them to look within and to renew the fabric of the business itself. There are three aspects of this internally-focused innovation: · Culture – the mindset and norms that allow individuals and teams to think imaginatively, to take prudent risks, and to seek out, create and introduce innovative solutions · Process – the general business processes and practices that enable functional groups to operate effectively and collaborate toward a common goal – as well as a robust set of innovation methodologies and tools · Structure – organisational structures and supporting technologies that enable collaboration across functional lines ----------------------------------- Note: (skip if time not available) Organisational Models Innovation Project Team This is a multi-disciplinary virtual team that works together for a finite period – perhaps to identify innovation opportunities and/or to deliver a specific project. The team is comprised of (1) different functions (e.g., consumer insights, R&D, marketing, brand management, manufacturing, channel management, sales, and from outside the sponsoring business unit or geography, etc.), (2) different levels and perspectives (decision makers, subject matter experts and implementers), and (3) different mindsets (strategic thinkers comfortable with an ambiguous, exploratory process, and pragmatic, operational thinkers. Expert Network This is a set of individuals inside an organisation with specialised expertise/knowledge who are known as the “Go To” persons on that topic. Typically, these individuals do not often interact with each other, but are called upon independently as needed. However, some combination of the network may be brought together on an “event” basis to address a specific issue. As these experts become more actively involved with each other, an Expert Network might evolve to become a Community of Practice. Sometimes a set of content experts from outside the organisation may be formed as an external Advisory Board. Shared Services Organisation Some enterprises establish corporate-level functional groups to provide specialised services (e.g., “Corporate Marketing”, “Corporate Market Research”, “Central R&D”) that act as a resource to their counterpart functions in the business units. These groups often offer specialised skill sets not available at the BU level. They may conduct ongoing research (e.g., scanning for emerging technologies, large-scale trend analysis) or short-term projects, or seek out and contract with specialised third party resources. These shared services groups are tightly aligned with the needs of the business units, so that they can deliver explicit value. At the same time, part of their charter is to “push the envelope” of BU-level thinking, by engaging in activities and explorations that are not on the business unit’s radar screen. Example: 3M. Innovation Community of Practice A “Community of Practice” is a self-governing, multidisciplinary virtual community focused on learning, generating knowledge and building capability around a specific topic – in this case, Innovation. One goal of such a community is to gather “tacit knowledge” so it can be leveraged as “explicit knowledge” that becomes more accessible across the organisation. Supported by a technology platform with online collaborative tools, an Innovation Community of Practice might share several types of information: market research, consumer insights, “work-in-progress thinking”, specific new product platforms and concepts, procedures, templates, best practices/“next practices”, and an “idea bank”. Over time the goals, levels of formality and participant roster of the community will change. After initially focusing on information sharing, the community may evolve so that members collaborate in real time on specific projects. A successful community is not viewed as a “rogue activity”, but is acknowledged and supported by senior management as a critical enabler and driver of innovation across the organisation. Ambidextrous Organisation This is a small, autonomous, multi-disciplinary group, whose role is to drive rapid implementation. This cohesive group typically has its own staff, a physically distinct location, separate funding, discrete performance metrics, and often a highly entrepreneurial culture, etc. This relatively independent operating structure is intended to allow the group to effectively manage its own destiny without interference from the larger organisation. With “starved resources” a reality at many large organisations, functional managers are often reluctant to allocate funding and staff, especially to projects they perceive as risky, or that don’t help them meet their own performance metrics. The ambidextrous approach establishes strong operating agreements that protect fragile start-ups or experimental ventures, especially in the area of financial and human resource allocation. The ambidextrous organisation draws upon selected corporate resources (both initially and over time) and may in some cases have special provisions that facilitate better access to resources or quicker turnaround. Example: 8th Continent, a joint venture by DuPont and General Mills. Corporate executives must constantly look backward, attending to the products and processes of the past, while also gazing forward, preparing for the innovations that will define the future. This mental balancing act is one of the toughest of all managerial challenges, and it's no surprise that few companies do it well. But as every businessperson knows, there are companies that do. What's their secret? These organisations separate their new, exploratory units from their traditional, exploitative ones, allowing them to have different processes, structures, and cultures; at the same time, they maintain tight links across units at the senior executive level. Such "ambidextrous organisations," as the authors call them, allow executives to pioneer radical or disruptive innovations while also pursuing incremental gains. Of utmost importance to the ambidextrous organisation are ambidextrous managers--executives with the ability to understand and be sensitive to the needs of very different kinds of businesses. They possess the attributes of rigorous cost cutters and free-thinking entrepreneurs while also maintaining the objectivity required to make difficult trade-offs. Almost every company needs to renew itself through the creation of breakthrough products and processes, but it shouldn't do so at the expense of its traditional business. Building an ambidextrous organisation is not easy, but the structure itself, combining organisational separation with senior team integration, is not difficult to understand. Innovation Council Composed of senior personnel from various functions (e.g., an executive sponsor for enterprise innovation, R&D, business line executives, marketing, finance, HR, etc.), the Innovation Council’s role is to establish corporate priorities for new ventures, and to sponsor and support entrepreneurial efforts that may drive growth in new areas. A “venture team” (or an individual) with an unfunded idea or business concept presents a proposal to the Council. The Council provides feedback, funds the most promising ventures, provides a variety of resources and facilitates introductions to external parties that can provide support. Examples: Intel, HP, IBM, 3M, Shell. First steps Several of these models (as well as the usual informal interactions between functional groups) may exist within an organisation at the same time. All help an enterprise drive growth by taking a strategic approach to innovation. Some models arise and evolve spontaneously, while others need to be intentionally created and managed. As seen below, increasing levels of complexity are accompanied by increasing commitments in terms of cost, time and maintenance. At the same time the organisation will benefit from the “social capital” that drives sustainable innovation, namely personal networks, cross-functional trust and shared values. There is no typical “migration path” that an enterprise would follow. When exploring alternative organisational structures the first steps are to understand what kinds of structures currently exist within the enterprise, and then to assess the extent to which these structures are aligned with and support the organisation’s strategic goals. The key is to choose the organisational model(s) that best supports strategy execution. Too little organisation results in poor execution, while too much results in excessive cost.
- Combining “top-down” and “bottom-up” innovation Thinking about innovation broadly raises the question of its origin or mode of occurrence. Innovation can indeed be a spontaneous bottom-up phenomenon, driven by the creativity and entrepreneurial spirit of your staff. But it can also result from a visionary and ambition-led, top-down initiative introduced by management. The two modes of occurrence are of course not mutually exclusive. Some companies have a strong tradition of bottom-up innovation. They rely on initiatives from staff and give them the necessary freedom to come up with new ideas and concepts, which may lead to new business opportunities. In these companies, management sees its role as promoting and supporting front-end innovators, shielding them from possible “idea killers.” It also focuses its intervention on filtering ideas and funding the best ones. Archetypal innovators like 3M and Google probably exemplify bottom-up innovation at its best. Their management has set up systems and rules to support it, notably giving individuals the freedom to work on their own ideas (15% of their time at 3M and 20% at Google). Creating these innovation-enhancing systems and rules is an important part of innovation governance duties. But relying on bottom-up innovation alone may be insufficient, particularly when circumstances or opportunities require the launch of major costly or complex innovation initiatives in a top-down mode. This type of management-inspired innovation is often found in Asian companies, particularly in technology-intensive industries requiring major R&D and capital investments. It requires the ability to build and share a vision; a talent for mobilising the organisation behind that vision; and determination to persevere in spite of possible initial problems. So, understanding the conditions under which bottom-up and top-down innovation will prosper; determining the right balance between them; and adopting management attitudes that will facilitate the two innovation modes are essential elements of innovation governance.