What are best practices for fostering innovation culture? The recent boom in digital transformation efforts has produced some signposts to follow.
“Innovate or Die” might be an apt catchphrase for post-millennium business, but that doesn’t make it a surefire path to success. A new documentary making the rounds at film festivals this year tells the tale of a largely forgotten Silicon Valley startup that was the epitome of innovative — and still failed miserably.
General Magic was a venture spun out of Apple in 1990 to develop a bleeding-edge handheld communications device. At the time, there were no digital cell phones, no Web, no WiFi, no 3G. The audacious company succeeded in assembling an alliance of telecommunications and electronics partners and it did release a product. But there was absolutely no market for it at the time and the venture petered to a lackluster end in 2002.
While General Magic failed as a business, it was a hotbed for innovation that shaped the digital world as we know it today. Mobile “smart” computing, social media, apps and app stores, e-commerce, touchscreens, emoji, even USB…all sprung from the minds of its talent pool. Among other accomplishments, it’s alumni went on to found eBay, create Android, and eventually deliver the desired intelligent handheld communications device — now known as the iPhone.
What’s most remarkable about the story is how far the company was ahead of its time. In a sense, the world was not yet ready for the technology General Magic dreamt up. It was just too innovative.
This stands in stark contrast to more conspicuous 21st century business failures, where thriving giants of industry have been eradicated by too little innovation (or too late). The past 20-odd years of increasing digitalization drove many once-familiar brands into obscurity under the juggernaut of disruption. We ‘ve seen Borders fall to Amazon, and Blockbuster to Netflix, through some combination of neglect in leadership or response to innovation-driven sea changes. And they weren’t alone.
Since the year 2000, half of all Fortune 500 companies have gone bankrupt, been acquired, or fallen into obscurity while innovations redefine existing business models and forge others from thin air. Innovative technologies and/or methodologies now seem prerequisite for success, and digitalization plays a starring role.
But there is no simple formula for accommodating “the new” or predetermining its importance in any particular business. Hungry startups still fail, and stable industries still get disrupted. So what is a business to do?
There are best practices for fostering a culture that supports innovation, including increasing collaboration across groups, creative hiring and talent development/compensation, and vigilant focus on “future proofing” products and services. Innovative cultures exhibit:
- Committed and engaged leadership from the executive team
- Broad encouragement of ideas from all areas of the organization
- Strong understanding of how value is created and how competitors (and new entrants) are shifting that equation
- Clear understanding of customer needs and how they prefer to engage
- Resources to invest in innovation and sustain that investment through multiple cycles
- Willingness to take risks (recognizing that not every initiative will succeed, but that stepping out of comfort zone will lead to more breakthroughs)
- Recognition and reward for innovative efforts (and the tools to recruit people who are natural innovators and develop those skills)
Operationally, many organizations take an Innovation Portfolio approach to structure and manage innovation investment as a venture capitalist might manage a portfolio of startups: The lion’s share of resources are devoted to incremental improvements for the existing customer base in the core area of expertise, but a quarter of all resources are reserved for leveraging services and products in new segments (which is called “adjacent innovation”), and around 10 percent of all resources are directed at “transformational innovation” or “moonshots,” wherein the focus is on developing entirely new services or products for entirely new markets.
Increasingly, innovation is seen as a discipline — a structured process that can be mapped,
Within organizations, a guideline for efforts might include:
- Formation of short and long-term innovation-focused groups
- Wide-ranging and large-scale ideation
- Initial funding of initiatives (akin to seed rounds)
- Rapid prototyping
- Review, prioritization, and further funding
- Market introduction and piloting
- Fast iteration and refinement
- Ongoing structured evaluation of programs and quantification of KPIs
- Phases of additional investment based on known thresholds of success
Factors that influence how this discipline is exercised include:
- Industry Readiness: What are the structural aspects of any industry that make it most susceptible to disruptive innovation? This is largely a digital transformation issue, but it is pretty obvious how innovation connects. Internet innovation, followed by mobile, cloud, and social, have largely driven this century’s business changes, but not every industry evolves at the same pace.
- Inherent Advantages: New or “digital native” entrants to markets are generally nimble and don’t have to unlearn outdated habits or service legacy, while incumbents often have a number of advantages that actually increase their likelihood of success (existing customers, channels, data, relationships).
- Positioning: This will include financial components that apply to the aforementioned portfolio theory and resource priorities, but also other gauges such as competitive advantage, differentiation, customer satisfaction/loyalty and employee satisfaction/retention.
How is successful innovation viewed and measured? There are several good indicators, including:
- Advancing the organization’s critical capabilities (Can you do more?)
- Value chain disruption (Did you change the way that business is done?)
- Customer impact (Did you change how your customers engage?)
- Operational disruption (Did you improve internal execution?)
- Employee satisfaction (Do valued employees want to stay?)
- General “Innovative Traits” (Is the organization getting new products to market more quickly?)
The venture capital approach for measuring success would look at quantitative measures of return-on-investment. Others may also look to revenue and profitability that is logical and unassailable, and still others look to sustainability by examining the margins from new products and services, essentially asking if the innovation is generating revenue and whether that revenue is “better” than what it’s replaced.