Innovation Management: Realizing The Value Of Innovation

Transcription

1 White Paper Innovation Management: Realizing The Value Of Innovation In a world of constantly evolving customer expectations, heightened and disruptive competition, more restrictive regulatory requirements, and Wall Street s unrelenting demand for earnings growth, organizations of all types have acknowledged the importance of innovation to their success. Realizing the benefits of innovation, however, requires not only talking but walking the talk. The walk is a systematic approach to the continuous development and implementation of value-adding ideas to increase competitive advantage. This systematic approach, or Innovation Management, involves the establishment of a cross-enterprise model, championed by senior executive leadership. To help jumpstart the design of your institutions unique Innovation Management approach, this article provides a high-level view of the what, how, and who of creating shareholder value consistently.

2 About the Author Courtney Wood Courtney Wood is a Director in TCS' Global Consulting Practice, focusing on Business Transformation and Innovation Management. Courtney has spent the bulk of her 25-year career in tier one consulting firms providing business transformation, process improvement, innovation, and new venture development services. Prior to consulting, Courtney earned an M.B.A. from the Columbia Business School and a B.A. in Economics from DePauw University; as well as worked in the areas of commercial lending and investment banking. 2

3 Table of Contents 1. What is Innovation Management? 4 2. How is Innovation Managed? 4 3. Who Contributes to and Manages Innovation? 9 4. Conclusion 12 3

4 What is Innovation Management? These days, given the increasing velocity of change and the expanding number of change drivers (e.g., customer expectations, technology, regulation, emerging market growth, political instability, natural resource availability, and environmental health), you cannot go far without the topic of innovation being raised. Branding agencies, marketers, corporations from all industries, the public sector, and academia all bandy the term around, talking about how innovation is essential to the success and sustainability of their institutions. But what does innovation really mean? And, more importantly, how is the value of innovation realized? First, innovation is not the same as creativity. Creativity is the process by which one identifies / invents something new or renews something that already exists. Innovation is the process by which the value of the creation or idea is realized. For purposes of this article, innovation spans ideation to value realization ; and Innovation Management (1) is the cultivation of an environment where lightning can strike twice. While realizing the value of an idea, let alone coming up with a continuous pipeline of ideas, is not easy, it is not impossible. Surmounting the challenge requires a systematic, senior executive-sponsored, cross-enterprise approach that incorporates the right processes, people, operating model, tools, and culture. How is Innovation Managed? Innovation Management is a value ring, i.e., a continuous cycle of strategy setting, ideation, selection, implementation, and value realization. Full Launch Results Management Portfolio Management Pilot Investment Proposition Screen Innovation Culture Investment Proposition Lite Screen Early Idea Screen Collect Invent Scan 4

5 Innovation Strategy and Success Measures Definition In a world of having to do more with less and where time is of the essence, innovating for the sake of innovating is an unnecessary distraction and waste of valuable resources. Therefore, the first phase in the Innovation Management process is starting with the end in mind. The definition and declaration of the Innovation Strategy is the critical first step to value-adding ideation; and is the responsibility of the organizations most senior leadership the CEO, CIO, COO, CFO, Chief of HR, and business unit heads. Without the unwavering intellectual, emotional, and financial commitment to and involvement in the innovation management process, an organization might as well give up the ghost. The Innovation Strategy should be based on what is driving the enterprise s need for innovation (e.g., evolving customer expectations, disruptive competition, and more restrictive regulations) and business imperatives (e.g., revenue growth, cost reduction, and operating risk containment). The Innovation Strategy supports an enterprise s corporate strategy, which answers such questions as the following: What are our growth, size, and profitability goals? In which geographies, markets, and businesses will we compete? What is our primary value proposition, i.e., product leadership, customer intimacy, or operational excellence? (2) The purpose of the Innovation Strategy is to provoke creativity within certain boundaries. Note, this is not to say that ideas which fall outside these boundaries will not be entertained; but building the case to pursue such ideas requires further justification. Value-adding ideas are not limited to new products or services, nor are they the domain of only R&D. They can include, for example, new and/or renewed business models, internal processes, customer interactions, branding & marketing campaigns, operating models, supplier relationships, and partnerships. Success measures of an innovation management program should be in keeping with the organization's innovation strategy and any specific innovation objectives. They should be refreshed as the enterprise s overall strategy and objectives change in response to new and evolving challenges and opportunities. Further, the success measures should be focused on the value delivered by the Innovation Management effort, as opposed to the number of ideas. Ideation Once the strategy and objectives for the organizations foray into innovation is defined and communicated across the enterprise, the second phase is Ideation, which is broken down into three steps. The first step in Ideation is Scanning, which is Looking outside your organizations four walls at such things as customer needs / dis-satisfiers, competitor moves, new technology, and regulatory changes Peeling back the onion to understand the drivers of such things as enterprise's performance gaps, high costs, and operating efficiencies 5

6 Scanning may be the purview of a dedicated group at the enterprise, business unit, and/or regional levels, dependent upon the Innovation Management operating model the organization has adopted (see the explanation of the "Innovation Management Office in the below section, Who Contributes to and Manages Innovation?). Scanning also may be done by individual employees. At this level, however, scanning is less likely to be a deliberate activity, rather the accumulation of insights drawn from the every day at work, home, and play. The second step in Ideation is Invention. Invention is the act of formulating ideas that potentially add value and create sustainable competitive advantage. Invention may occur in the following ways: Within dedicated groups or ad hoc collections of experts (internal and/or external) focused on a particular issue or area of opportunity With groups of people, the invention approach could range from a very open-ended brainstorming session to a targeted, highly-facilitated, collaborative, interactive working session Multiple techniques are available to use in both the more open-ended and targeted forums, e.g., Six Thinking (3) Hats and Lateral Thinking Through informal groups and/or social networks leveraging collaboration and knowledge management application At the individual level The third and final Ideation step is Collection or the gathering of ideas into a single repository. The idea repository can range from something as simple as a Microsoft Excel spreadsheet to an idea management tool or component of a larger collaboration and knowledge management application. Selection The third phase of the process is ultimately about identifying and approving a select few ideas to enter the Implementation phase. Selection is a gated process through which an increasingly smaller number of ideas pass, based on an increasingly tighter set of criteria applied against an increasingly more detailed idea. The minimum number of gates is three. The first gate is a screening of the early stage ideas, or what might be more realistically called concepts, in the repository. The concepts are qualified based on a high-level set of criteria such as the below: Strategic fit - the degree to which the idea is consistent with the company's direction/vision and creates a competitive advantage that is difficult to copy or surpass Financial impact - the degree to which the idea will have a net financial benefit Ability to execute - the degree to which resources and skills are available and the right technology is in place, i.e., leverages the organizations existing assets Organizational impact - the degree to which the idea requires change in roles & responsibilities, capabilities, and culture Hewlett Packard ( HP ), for example, typically receives 1,000 idea submissions on a yearly basis from a variety of sources, both internal and external (see the below section, Who Contributes to and Manages Innovation?). Through HP s first gate, which is a set of five key questions consistent with the criteria above, approximately 200 of these submissions are qualified and move to the next gate. Once an idea goes through the qualification process, which is (4) done in 30 days or less, HP s Innovation Program Office provides feedback to the idea originator. 6

7 Ideas that pass the test of the first gate are fleshed out into what this writer calls Investment Proposition Lites, which outline the following: The opportunity and associated drivers Key benefits and investments Current vs. target state, i.e., how big the gap is between where the organization is today and where it wants to be Key gap closers, i.e., what the major things are that need to be done to implement the idea Critical assumptions and key risk factors The Investment Proposition Lites ( IVP Lites ) are screened against a more detailed set of sub-criteria within the four major categories listed above. The IVP Lites that make it through the second gate are evolved into Investment Propositions, which is an elaboration or detailing of the elements of the IVP Lite. Additional details include, for example, the below: Quantifiable estimates of benefits and investments, both one-time and recurring Core changes to people, process, operating model, technology, and infrastructure Key implementation steps IVPs are put through a third gate which is an even more detailed or tighter set of sub-criteria of the four major categories. The number of ideas that pass through the third gate is relatively small. According to Gartner, (5) experience shows that typically 2% to 10% of ideas submitted have real promise. Should more than 10% of the submitted ideas make it through the final gate, an organization would be wise to revisit their selection criteria, as well as the rigor with which the IVP Lites and IVPs are developed. Implementation Not all selected ideas necessarily go through the Implementation phase at once or at all. The timing of a selected ideas move into the Implementation phase is based on its relative priority which is assigned by the Innovation Portfolio Manager (see section below for details on Value Realization). Based on the type of idea, the Implementation phase could be a big bang or two or more sub-phases. For example, new / renewed products, services, and customer interactions may go first through a small pilot; followed by a larger pilot, should the smaller pilot prove promising; and then finally a full rollout, should the larger pilot meet the expectations set in the Investment Proposition. Even new / renewed business processes, operating models, and strategic partnerships can be implemented through a series of phases that increasingly test the worthiness of the idea to reach its full potential. Value Realization The final phase of the Innovation Management process is where the proverbial rubber meets the road. Value Realization ultimately is about the optimization of the organizations investment in innovation; and is made up of two major functions - Results Management and Portfolio Management. 7

8 Results Management ultimately is focused on ensuring the Ideas being implemented capture the value expected within the estimated timeframe, and involves Measuring, tracking, and communicating to the Portfolio Manager and key stakeholders the progress and results of the idea against the timeline of estimated benefits and costs outlined in the IVP Identifying and sizing of the support needed to shore up meaningful sub-performance and uncovered risks Working with the Portfolio Manager and key stakeholders to determine whether or not the sub-performing ideas should continue with the additional support needed and/or as currently scoped Innovation Portfolio Management is not unlike what a mutual fund manager does, which is to maximize return on investment. To do this, the Innovation Portfolio Manager ( IPM ) first sets the innovation investment strategy. That is, based on the Innovation Strategy, the Manager prioritizes the ideas / IVPs that passed through the third gate. Second, the IPM chooses when to invest. This is to say, based on the performance of the ideas being implemented and/or the potential of new competing IVPs, the IPM may cut off or reduce funding of some ideas to make way for investment in better ideas. The IPM also could increase the funding of a particular idea, should that idea, based on its performance, have the potential to exceed expectations with additional investment. Third, the IPM communicates the results of the Innovation Portfolio to its investors, i.e., the CXOs and possibly the Board of Directors, depending on the materiality of the organizations investment in innovation. Culture At the center of the Innovation Management value ring is culture. Without all employees acknowledgment of the importance of innovation to the health of the organization and ultimately their livelihoods, all the best Innovation Management processes and tools in the world will not produce the necessary volume of good ideas nor ensure the realization of the value sought. From a leadership perspective, a commitment to innovation reveals itself in the acceptance of the following: Assets of the core business are to be leveraged, not just protected Competition to the core business from new revenue streams is not unlikely Investment of both time and money in innovation will require a re-direction of investment in the core business The detailing and implementation of ideas may require the best / most experienced personnel from the core business Innovation requires more rapid decision making and a higher risk tolerance Risk taking and failure is not necessarily a bad thing - entrepreneurialism should be recognized and rewarded Timely and fact-based feedback to idea generators is a must Innovation is often a cross-enterprise exercise, and hence requires working outside a particular silo From an employee perspective, a strong orientation towards innovation is measured by the volume of ideas, as well as the ratio of quality ideas. Note a quality idea does not have to be an idea that passes all three Selection gates or screens. As with any major organizational change, whether it is due to, for example, the re-engineering of a business process or shift in business strategy, employing a comprehensive approach to managing the organizational change is needed to ensure the institutionalization of an innovation culture. A successful organizational change management effort begins with determining where the culture needs to be, assessing where the culture is today, defining the plan to close the gaps, and diligently executing the plan. Depending on the gaps, elements of the plan could include leadership and stakeholder alignment; change program branding and communication; 8

9 organizational re-design; redefined and/or new roles and responsibilities; training and education; feedback mechanisms; and incentives, rewards, and recognition. Who Contributes To And Manages Innovation? Value-adding Innovation Management takes a village. The Innovation Management ecosystem is comprised of a variety of players, both internal and external to the enterprise, organized in an integrated fashion. Innovation Management Ecosystem Innovation Council : CXOs and Business Units Heads Ideation Innovation Management Office Selection Results Management Portfolio Management Internal Region N Region 1 Employees Business Unit 1 Ideators & Implementers Business Unit N IT Other, e.g., Finance & HR External Customers Academic & Research Institutions Partners & Suppliers Industry Bodies Venture Capitalists & Startups Other Third Parties, e.g., Software Vendors & Consultants General Public Innovation Council The top of the Innovation Management food chain is the Innovation Council which is composed of the enterprise s CXOs and business unit heads. The responsibilities of the Innovation Council, with the support of the Innovation Management Office, are as follows: Define and refresh the Innovation Strategy, objectives, and success measures Fund the people, process, and technology of Innovation Management, as well as the innovation portfolio Approve IVPS, their prioritization, and recommendations of meaningful adjustments to the in-flight IVP portfolio Communicate to the enterprise at large the Innovation Strategy, objectives, and success measures Demonstrate consistently its commitment to Innovation Management by walking the talk Meet with the Innovation Management Office (see below section for definition) to review progress and provide guidance, as needed Celebrate and reward both success and failure - with respect to the latter, recognize that getting a hit, let alone a home run, requires many times at bat Establish and nurture a culture of innovation across the organization 9

10 Innovation Management Office Overall, the role of the Innovation Management Office ( IMO ) is to drive the day-to-day. The typical functions of the IMO include the below. Function Activities Mandatory or Optional Ideation Scan Conduct research secondary and primary, if needed Determine / understand innovation drivers Draft preliminary Innovation Strategy and objectives for final revision and approval by the Innovation Council Optional (could be performed by Chief Strategy Officer, if exists) Invent Contribute ideas Collect Select, implement, and maintain idea management tool, if an enterprise-wide collaboration and/or knowledge management application is not already in place Mandatory Selection Manage Screening process Develop templates for Early Idea, IVP Lite, and IVP documentation Provide guidance to Idea Champions in the preparation of Early Ideas; and to Idea Champions and Sponsors in development of IVP Lites, and IVPs (see Ideators & Implementers section below for description of Idea Champions and Sponsors) Approve ideas to move through Early and Investment Proposition Lite ( IVP Lite ) gates Present selected Investment Propositions ( IVPs ) to IMO Portfolio Manager for prioritization Implementation The IMO s involvement during the Implementation phase is related to its Value Realization responsibilities outlined below Mandatory Value Realization Results Management Establish contracts with Idea Sponsors for results per the timeline, as outlined in IVPs Ensure accountability of the Idea Sponsors Measure and report actual vs. committed task completion and results Communicate results to the Innovation Council and other key stakeholders Recommend re-scoping or discontinuation of idea implementations that do not meet results targets and/or are no longer relevant Mandatory Portfolio Management Based on the Innovation Strategy and objectives, prioritize the selected IVPs and recommend to the Innovation Council those that should move into the Implementation phase Fund those IVPs approved with monies available in the innovation investment pool Credit hard benefits generated by IVPs during and after implementation; and debit funds required for in-flight IVPs and new IVPs Create and refresh, as needed, the Early Idea, IVP Lite, and IVP screening criteria, with approval from the Innovation Council Based on the actual results of in-flight IVPs and the expected results of new IVPs ready for implementation, make in-flight IVP portfolio change recommendations (e.g., maintain, grow, kill, or evolve) to Innovation Council for approval 10

11 Note that the IMO and Investment Council can be positioned at multiple levels. Based on the size of the business units and regions, as well as the enterprise s organizational structure and operating model, an IMO and Investment Council may exist within each of the relevant business units or regions. If an institution chooses this federated model, having an enterprise-level IMO and Investment Council is also recommended to optimize investments across the organization. In the federated model, the enterprise-level IMO would perform the cross-business unit / region IVP selection and prioritization, as well as manage the organizations overall innovation portfolio. The enterprise-level Innovation Council would be the final approver of the IMO-selected IVPs, their prioritization, and any innovation portfolio changes. Ideators And Implementers In today s dynamic, global, connected economy, organizations would do well to tap both internal and external sources for ideas and implementation support. By expanding and diversifying their sources, the richness of the idea pool increases; and the breadth and depth of available capabilities and assets expands. From an internal perspective, the idea sources may include employees at large, business units, IT, and all other areas, such as Finance and HR. From an external perspective, idea sources and implementation collaborators may include, for example, customers, academic/research institutions, existing partners and suppliers, venture capitalists, and the general public. According to Gartner, most organizations indicate they want to start their innovation journey with only internal sources. Doing so allows the organization to focus first on the institutionalization of its (6) own innovation culture; and second on getting out the kinks of their Innovation Management processes. That said, laying the foundation of an enterprise s Innovation Network may be done in parallel by layering co-ideation and implementation onto existing third-party relationships, such as partners, suppliers, and industry bodies. Mentioned earlier in the responsibilities of the IMO were the concepts of Idea Champions and Idea Sponsors. In the words of Phillip McKinney, head of the Innovation Program Office for HP s Personal Systems Group, an Idea Champion is the person that will stand on my desk with their hair on fire, and be as annoying as they need to be to (7) fight corporate inertia, to move fast, and to create and deliver the project. Idea Champions can be the idea originator or someone tapped by the Innovation Council and/or the IMO to take a selected early idea through the remaining gates of the Selection process. An Idea Sponsor is the person that owns the implementation of the prioritized IVP. S/he comes from the area within the enterprise that will be home to the idea, bringing the right experience and internal relationships to implement the idea as efficiently and effectively as possible. The idea sponsor may or may not be the same person as the Idea Champion. 11

12 Conclusion At the end of the day, Innovation Management is about moving beyond simply talking about innovation and the notion that all an organization needs is a bunch of smart employees to create sustainable competitive advantage. Continuously and optimally capturing value from innovation requires Executive commitment and alignment Focused governance A common vision consistently communicated Robust end-to-end processes diligently followed Appropriate tools and enablers Inspired thinkers and implementers, both inside and outside the organization Success measures and rewards that matter Guts a tolerance for risk and failure In the words of Steve Jobs, "Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It's not about money. It's about the people you (8) have, how you're led, and how much you get it." "It comes from saying no to 1,000 things to make sure we don't (9) get on the wrong track or try to do too much." References [1] Business Week, Building an Idea Factory, October 11, 2004: Quote from Paul Saffo, former research director at the Institute for the Future [2] Michael Porter, The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, and Dominate Your Market [3] Edward DeBono Thinking Solutions [4] Forrester Research, Case Study: How HP Drives World-class Product Innovation, September 21, 2009 [5] Gartner, Five Pitfalls of Ideation and Best Practices for Avoiding Them, March 18, 2009 [6] Gartner, Innovation and Idea Management: Make These Decisions First, January 26, 2009 [7] Stanford Graduate School of Business, Innovation at HP: The Role of the Innovation Program Office, June 19, 2008 [8] Fortune, November 9 [9] Business Week Online, October 12,

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