Board of Innovation has been in innovation consulting for more than 10 years now. Over that time, we’ve seen the industry and innovation capabilities within organizations naturally evolve and mature. Gradually, corporates are making the shift towards customer-centricity, iterative experimentation, and cultures that support rapid learning cycles. They’re becoming more adept at using Design Thinking, Lean Startup, and business model innovation to support the whole innovation process in pursuit of disruptive and radical innovation types to achieve new business growth.
That’s all well and good, but innovation professionals are still facing challenges. And while every organization is unique, every struggle is not. We identified some patterns during our time sponsoring Innovation Roundtable Summit 2019 in Copenhagen, Denmark (which was attended by 800 innovation leaders and managers from Fortune 500 companies across the globe). We’ll discuss these challenges and ways to solve them below.
The top challenges facing innovation managers
- Innovation strategy lacking from the outset
- Agile transformation coming first (hoping to magically fix everything)
- Managerial support urgency for radical innovation
- Need for disruptive business model innovation capabilities
- New business creation and support in structuring the organization
- A gap between knowing what to do and actually doing it
- Shift towards beginning and end stages of the innovation funnel
Innovation initiatives with no innovation strategy
A significant number of new corporate innovation programs launched appear to be sporadically done so without a clear innovation strategy in place. These initiatives tend to be low commitment and low cost. They may include one-off innovation trainings and isolated design sprints. In general, they’re initiated as a means of sparking senior management interest and garnering support for bigger programs – which is the real challenge. Buy-in.
A bottom-up approach like this is good to get you going, but often these grassroots initiatives don’t link closely to the organization’s strategy, so innovation managers are finding that critical funding quickly dries up. This is because without being able to demonstrate the business impact of your initiatives (or return on innovation ROI), it is hard to justify the people, time, and resources that are being allocated to these initial programs. If you’re launching grassroots initiatives, you need to ensure they align with the organization’s growth strategy. Innovation should be put forward as one of many vehicles to help the company achieve said goals. To ensure the innovation programs you choose are aligned with corporate strategy, we highly recommend an innovation strategy sprint.
Putting Agile before sufficient user research
‘Digitalization’ and ‘digitization’ were the hottest buzzwords doing the rounds this past year, and as such, much investment has gone into creating iterative (Agile) implementation capabilities based on existing innovation funnels. For instance, companies continue with the same innovation process but execute it in a step-by-step way. This is a great start, but as I recently discussed, Agile doesn’t mean that you can skip initial ethnographic research that will help you truly understand your customers’ needs, pains, or problems to serve as the basis of your innovation process.
Once organizations have put in place Agile capabilities and teams, the next crucial step is to feed your optimized execution engine with the right kind of de-risked, iteratively developed concepts and business models. Doing so will help you get the most out of your complete innovation capability. Time and time again, we see that while Agile is an important component, it is not a quick silver-bullet fix that will guarantee new business impact. You still need to sufficiently validate customer desirability, business model viability, and technical feasibility. Agile fits in at the end of the innovation process, but you need the right early-stage capabilities to properly leverage it.
Managerial support for radical and disruptive innovation (my favorite)
Ask your senior executives these 3 deceptively simple questions:
- In which time horizon do we expect return on our innovation efforts?
- What type of innovation are we pursuing and why?
- What does radical and disruptive innovation mean for us?
In order for management to support radical or disruptive innovation outcomes, you MUST be closely aligned on all 3 of these questions.
If you can get concrete answers to all 3 of these questions, you’re doing great! If management can’t answer them, you need to run an innovation strategy sprint, ASAP, to get not only clarity and direction but buy-in from middle managers around the innovation programs you choose and the intended outcomes. Get up to speed on the key innovation strategy tools and how to use them in the right order here.
Need for disruptive business model innovation capabilities
The business model canvas gets used poorly by teams and at the wrong time. There, we said it. It is a culmination tool that should be applied once you have created an early iteration of your new business model stakeholders and value exchanges. The business model canvas is essentially a tool to get a snapshot of a newly prototyped value exchange between the key stakeholders behind your validated concept, but you need to go through the prototyping phases first.
It is surprising how often we hear of teams that have successfully applied Design Thinking and Lean Startup (plus validated prototypes and MVPs) but haven’t managed to do business model innovation correctly or at all! This results in an innovation theatre project that doesn’t lead to paying customers.
But how do you do it correctly?
You first need to prototype and map out the individual value exchanges between your key stakeholders. Then you need to fill in the details with all the different monetization options for those individual value exchanges. Once you’ve done this, you can start to look at your critical business model assumptions, which will inform the experiments you design to test your hypothesis. This is how you should start disrupting the business model – don’t just jump to the end point and hope your innovation disrupts the market.
We’ve trained countless organizations in developing their disruptive business model innovation capabilities (Philips and ING, for instance). A key tool to start prototyping business models is our very own business model kit. Try it out and get in touch for help developing your organization’s disruptive business model innovation capabilities in the coming year.
New business creation and support in structuring the organization
This one is a little trickier as it revolves around having critical discussions when formulating your innovation strategy. Some of the main issues with new innovation capabilities are around what to do with projects once they have emerged from a program. Where do they go? Who sponsors them? How do we evaluate them? How do we ensure they get to market given the fundamentally different approach they need to arrive there?
Again, the message here is: you must define your innovation strategy up-front in order to answer these questions ahead of time so you can transition smoothly from business impact projects and have the organizational structures in place to nurture and support them as you go to market and scale.
A gap between knowing what to do and actually doing it
Professor Gerald Kane presented some very interesting findings at Innovation Roundtable from his Digitalization Trends 2018 report. Rather worryingly, the key message was that 87% of organizations know that digital disruption is happening to them, but only 44% feel that they are adequately prepared in terms of capabilities to successfully deal with it. Managers are being overly optimistic in that they see digital technology disruption as an opportunity and don’t see it as a threat. This is clearly unsustainable and is leaving established firms – from a range of industries – more open to disruption in the years ahead.
We heard that 38% of organizations are actively working on their entrepreneurial culture, and 35% are in the embryonic stages. This means that there is still a lot of work to do to create the right kinds of innovation and entrepreneurship capabilities to tackle the challenges ahead.
You need to clearly define the outcomes you expect from your innovation activities – how many of your initiatives are designed to develop innovation capabilities and how many are expected to produce business impact? Typically, 70% of an organization’s investment goes to capability development, and 30% is spent on projects for business impact. If split this way from the outset, you’ll have more emphasis on developing culture and mindsets and less expectation (pressure) to get to market with profit – at least from the first program pilots. This balance will naturally shift to business impact outcomes once the capability is embedded in place.
Check out our talent development programs if you need help in 2020.
Shift towards beginning and end stages of the innovation funnel
Most interestingly, we see a general maturing of the innovation funnel as more and more organizations embed their Design Thinking and Lean Startup capabilities at scale.
This is great because it means large organizations are catching up with the startup world in terms of processes and methods that enable continuous innovation. However, there is still a significant capabilities gap around disruptive business model innovation right before teams hand over projects to Agile teams, en route to market and scale-up phases.
At the other end of the funnel, we see a widespread trend in which new innovation capabilities are disconnected from the business and corporate-level strategies. This means that your efforts may be in vain by not helping achieve strategic must-wins whilst failing to prove the business impact return on innovation (ROI). The key message here is that your innovation activities must be supported by a fully formulated innovation strategy.
This is the state of innovation as we see it moving into 2020. As always, we will continue to adapt and evolve to best serve our clients. We look forward to furthering our positive impact in the coming years.
Felin, T. et al. (2019) ‘Lean startup and the business model: Experimentation revisited’, Long Range Planning. doi: 10.1016/j.lrp.2019.06.002.
Kane, G. et al. (2018) MIT SMR & Deloitte: Digital Business Report 2018.
Roseno, A. (2019) ‘Innovation Roundtable Summit 2019’, in. Copenhagen, Denmark: Innovation Roundtable.
Tackle these challenges
Thanks for reading!
I’m Mike Pinder, Senior Innovation Consultant at Board of Innovation. Spreading innovation culture is in our DNA – if you liked the read, contribute to our mission by sharing this article.