This is what organizations (don’t realize they) get wrong about innovation
I heard something similar from Belfius’ Digital Transformation guru, blockchain expert and nexxworks Innovation Bootcamp speaker Koen Vingerhoets, who claims that “innovation often gets confused with pure creativity”. For him, you can only call it innovation if you are being creative for the customer’s sake. In other words: it’s innovation if you are solving a need – a ‘problem’ if you will – for the customer.
2. Get out of the building
Another common problem in corporate innovation is their well-documented over-perfectionism, which streams out of three misleading sources: addiction to control (companies are systems of control, so it makes sense they seek it in everything they do), fear of losing face with an unfinished product and - counterintuitively – the luxury of too much time and budget. I have my interview with tech entrepreneur, author and nexxworks Innovation Bootcamp speaker Omar Mohout to thank for these insights.
Omar is a big fan of Silicon Valley entrepreneur and father of the Lean Start-up movement Steve Blank, who advocates that you need to test out the market as early as possible. Most start-ups are exceptionally good at this. They understand that the earlier that you receive customer feedback, the sooner you can iterate, pivot, improve and – in doing so – reduce the risk of launching something new. But corporates don’t have that same urgency as start-ups: they have enough time and budget and tend to overthink innovation without testing the market. That’s exactly why Omar feels that corporate innovation teams should work with clear deadlines and limited budgets, which will force them – just like startups – to innovate faster, and more in sync with the market.
Greg Satell’s forceful warning against trying to immediately seek out the largest addressable market and trying to scale too fast if you are launching a radical, untested and unpredictable idea, could seem contradictory at first. But Steve Blank’s “getting out of the building approach is all about small steps: before you scale a product, experiment in small steps and learn from how your customers use – or don’t use – your MVP (minimal viable product). So, do go to the market fast, but test, don’t launch or validate.
3. Get out of the market
Of course, as Koen Vingerhoets correctly pointed out, this fast and experimental approach is not as easy to follow in every market. In highly regulated industries like the banking or the pharmaceutical sector, you can’t just ‘play’ with people’s money and health: it’s not possible to go to market with a small-scale experiment and then find out that it didn’t work. That is absolutely true.
And yet, these are also the types of markets that are especially prone to disruption from players that come from very different industries, which are a lot less bothered with these rules. Lucien Engelen, Director of the REshape Center for Health(care) Innovation at Radboud University Medical Center and SingularityU USA faculty member, firmly believes that the big transition in healthcare will not come from the healthcare industry itself, but from adjacent players like Apple Amazon, or Google. Author and Harvard Law School and Carnegie Mellon University’s College of Engineering Professor Vivek Wadwha told me that’s because corporates find it excruciatingly hard to envisage new industries beyond their own, or see the threat from other industries, because they focus on their problems, departments, products and processes. While they should be looking at what the customer wants.
Part 2 – Systems check: how do you (not) organize innovation
4. The ugly step-child: when empowerment is a lie
Empowerment is one of the most misused words in business. Corporates love to tell the story of trust, responsibility and intrapreneurship. Newsflash: it’s not empowerment if your innovation team always has to ask for budgets and for permission to test, experiment and launch. Recently I wrote how innovation is actually the enemy of corporates: large organizations are complex systems that are built to sustain themselves through efficiency, safety and steady income. Radical innovation is the exact opposite: it’s uncertain, volatile, risky and its value will only convert to cash in the (very) long term, if ever. So if you leave the “system engineers” of a company’s human system in charge of innovation, chances are that they will make decisions that will (unwillingly) sabotage the innovation.
That is why companies should offer their innovation teams the self-steering, power and budget they deserve. Industry analyst and a founding partner of Kaleido Insights Jessica Groopman’s calls this phenomenon "the ugly stepchild" conundrum: “you need to grant your innovation group the resources, budget, P&L and executive buy-in it needs to generate actual value for the business. Otherwise, it is just a source of press releases and won't survive for long. “
Koen Vingerhoets also pointed out that whenever the more radical experiments of pseudo-empowered teams leave the sandbox, they enter a competition with incremental projects that are a perfect fit with company’s cash cow core. The radical innovators - who are by definition great at ideation but not at settling boardroom discussions – then have to prove that their projects are easier to implement and will add more to the results faster. Which they most certainly won’t. That’s indeed a BIG mistake: to compare all types of innovation projects - radical, business model & incremental - with KPIs that are completely biased towards incremental innovation: efficiency, risk, revenue, etc. Innovation projects should be compared on the basis of potential value for the customer and the market. And yes, that’s hard to measure in KPIs, and very unpredictable. (Hence, why you should “get out of the building”.)
5. “It’s complicated”: the pitfalls of rewarding innovation
One of the most underestimated reasons for failure to innovate is having a biased incentive system. “If you reward people for how well they manage your business and your budget TODAY, there is no way that they will invest time and budget in finding new markets for the Day After Tomorrow”, London Business School Professor Costas Markides explained me earlier this year. They will act upon the metrics that their work is judged upon which often is: “how much money are you making us now”? If the incentive system is not adapted accordingly, why ever would your management staff - which typically tend to be a bit more senior in age - invest in disruptive innovation that will probably only be profitable in 10 to 15 years.
Now, when it comes to rewarding dedicated innovation teams, Koen Vingerhoets explained that the according reward system – or rather, lack thereof – is often different than the rest of the company: the rewards for innovators are a lot less defined and repeatable. They tend to come in the form of recognition, rather than tangibles, Koen elaborated: “You can present your innovation on stage. There’s a breakfast with the CEO. You’re allowed to launch a second project.” The reason might be that it is very difficult to define KPIs and measure the value of radical and business innovation: because assessing is a short term action while radical change takes quite some time to deliver value (if ever). The result is that innovators often feel underrated and are driven towards new horizons in other companies.
Pt III – To conclude: In it for the long run
“The long term”: it’s a concept that kept pupping up while I wrote this piece. It actually lies at the root of most of the pitfalls described above. And it’s the biggest challenge of each and every last corporate. That it is necessary though, was beautifully illustrated by Jessica Groopman offering the example of how the network effect doesn't happen overnight. “This won't apply to every innovation initiative”, she said “but especially in the context of new business models, more and more organizations are trying to become platform businesses that use data and services to support a network of other companies. Now the problem is that networks do not generate value overnight but take (quite some) time to grow. Yet the value of the network is only as big as the quantity and quality of participants. Many stunted enterprise initiatives in the blockchain space are struggling with this painful realization. Astronomical growth in network businesses like Airbnb and Uber are the exception, but people tend to forget that they also took time.”
But how? How do you compel a system that is purposely built to generate short term value to invest in long term value? It goes even further: in a market, in a world even, where everything is focussed on the short term - real time marketing, one day delivery, on demand TV, frictionless and wait line free shopping, the way we deal with environmental issues etc.- how can we make sure organizations look further than today?
Except for (the short term (yes, I’m aware of the irony)) answer of protecting and really empowering your innovation team, I don’t have a magical answer. A great first step would be to redesign your organisations around the customer, as nexxworks Partner & keynote speaker Rik Vera explains, which will speed your company up and make it a lot more fluid. But that does not always necessarily “force” companies to invest in radical long term innovation. I’m extremely curious to hear from you how you think that we can redesign our companies to add long term vision - next to short term efficiency, revenue and the necessary speed - into their natural flow, structure, KPIs, reward systems of our organizations. We might need to conclude that our organizational systems – as they exist now - are broken and need fixing.