By Coenie Middel CA(SA)
To large companies, creating new businesses is the challenge of the day. Because of maturing technologies and ageing product portfolios, a new imperative is clear: Companies must create, develop, and sustain innovative new businesses.
Innovation. It seems like everyone is talking about it these days. And rightly so, but the realities with innovation is that 80% of innovation projects never reach the market.
The innovation process from idea to market is full of pitfalls and inefficiencies. Stage-Gate founder Robert Cooper shows that for every seven new product ideas about four enter development, 1,5 are launched, and only one succeeds. A study of Stevens and Burley gives even more disastrous ratios. Their study shows it takes 3 000 raw ideas to come up with one successful product.
The biggest challenge to innovation is not how to generate new ideas and opportunities. It’s how to make innovation a deeply embedded capability in the organisation. I have witnessed various company initiatives over time, some of them focusing on idea creation and the so-called creating ‘a culture of innovation’ – so they launch some kind of ideation initiative with a lot of hoopla and they get a whole bunch of ideas. But then they hit a wall because there is no back end – there is no organisational system/method for effectively screening ideas, aligning them with the business strategy, allocating funding and management resources, and guiding a mixed portfolio of concepts/opportunities through the pipeline toward commercialisation.
Then you have the companies that have no clear strategy. Without a clear strategy you have no focus for innovation. Companies also struggle with issues that impact innovation, for instance culture, uncertainty, the lack of support, processes and tools, lack of market insights, politics, the fear of failure and insufficient skills, and the wrong teams. So, invariably, what we find is that the whole innovation effort eventually loses momentum and fails. And all those enthusiastic innovators inside and outside the company become cynical and discouraged as they watch their ideas go nowhere; sound familiar?
The real challenge, therefore, is to turn innovation from a buzzword into a systemic and widely distributed capability. Yet how many companies have actually achieved that? The sad truth is this: most organisations today still have absolutely no model, no practical notion, of how to drive innovation.
Most companies have no clue of how to build a corporate innovation system that seamlessly integrates leadership commitment, creates internal support, inspiration, infrastructure, prioritisation, processes, tools, talent development, cultural mechanisms and values; they wouldn’t even know where to start. It is not the lack of willingness to innovate that is missing, it’s the how.
For innovation to succeed it has to be woven into the everyday fabric of the company just like any other organisational capability, such as quality, or supply chain management, or customer service. In other words, for innovation to really work, and to be sustainable, it has to become a way of life for the organisation.
What we are seeing when working with clients is that customers lack the imagination to envisage innovative products that address their emerging − or even existing − needs or desires. For example, participants in focus groups typically opt for product innovations that feature only minor changes from the current version. When these products hit the market, they often fizzle out because small improvements aren’t enough to alter customers’ entrenched buying habits.
Innovation and operational excellence
Companies often confuse innovation with operational excellence.
Operational excellence is:
- The theory A philosophy of the workplace where problem-solving, teamwork and leadership results in ongoing improvement.
- The reality Trying to do things better and cheaper.
- The impact In the long run, you cannot survive indefinitely by producing existing products at a lower cost. Innovation budgets are cut.
What is innovation, then? Innovation is:
- The conversion of a new idea into revenues and profits (Lafley & Charan)
- The process that turns an idea into value for the customer and results in sustainable profit for the enterprise (Carlson & Wilmot)
- The creation of a viable new offering (Larry Keeley)
- A product, process or service new to the firm, not only new to the world or marketplace (Hobday)
- Promising ideas that are transformed into powerful new ways to create value and wealth (Coenie Middel)
We are also seeing in the market that companies encourage employees to ‘think outside the box’ as a way of getting beyond predictable product extensions. ‘Give free rein to your creative impulses,’ they are told, ‘and try to imagine products that respond in truly innovative ways to customer needs.’ But more often than not this kind of brainstorming yields a flurry of ideas that, while appealing, are just too far out given the company’s brand image or capabilities. They are quickly discarded or if they make it to market, simply flop.
Many businesses also focus on customer-led innovation instead of customer-centred innovation. Customer-led innovation are reactive and too self-consciously explicit about putting the customer first. Customer-centred innovation, on the other hand, is grounded in a deeply empathetic understanding of customer needs and wants but also grant the organisation the freedom to make unexpected and often unasked-for leaps forward that will lead to long-term success.
So how can companies hit the innovation sweet spot − far enough from existing products to attract real interest but close enough to fall within a company’s existing positioning and capabilities? Companies need to adopt a proven innovation methodology like FORTH. FORTH is a globally renowned innovation methodology rooted in design thinking developed in the Netherlands and was adopted by various international companies over a decade. Through a structured facilitated process, in only 15 weeks an internal team of the company delivers 3−5 innovative solutions tested with real customers and validated business cases. Recently it was scientifically proven that FORTH increases the efficiency of the innovation process as it leads to more ideas being actually launched in the market compared to commonly used stage-gate processes.
A proven innovation methodology will address the following elements required for success:
- Ideate: Generating and choosing original relevant ideas for a product, service, process or experience.
- Focus: Defining your innovation centre of interest, including all the boundary conditions.
- Check fit: Checking if your idea, technology, customer issue or business challenge fits your personal and corporate priorities.
- Create conditions: Organising the right moment, the right team, the right pace and the right funding for your innovation initiative.
- Discover: Discovering trends, markets, technologies and customer insights.
- Create business model: Creating a viable business model.
- Select technology: Identifying and selecting the right technology to deliver your new product, service, process or experience.
- Check freedom to operate: Checking if you do not infringe the intellectual property rights of others.
- Experiment: Carrying out a systematic research or test which validates the adoption and attractiveness of your new product, service, process or experience.
- Create new business case: Creating a well-founded convincing business case for your new product, service, process or experience.
Various research studies have been conducted and Larry Keeley and his colleagues structured innovation into 10 types by analysing nearly 2 000 examples of the then best innovations.1
They found that four types of innovation are focused on the innermost workings of an enterprise and its business systems:
- Profit model – How you make money
- Network – How you connect with others to make money
- Structure − How you organise and align your talents and assets
- Process – How you use signature or superior methods to do your work
- Two types of innovation are focused on an enterprise’s core product or service:
- Product performance – How you develop distinguishing features and functionality
- Product system – How you create complementary products and services
Four types of innovation are focused on more customer-facing elements of an enterprise and its business system:
- Service – How you support and amplify the value of your offering
- Channel – How you deliver your offerings to customers and users
- Brand – How you represent your offerings and business
- Customer engagement – How you foster compelling interactions
First, analyse the present offerings in the industry in which you want to innovate. And then ideate with the help of various innovation techniques and try to innovate among as many types as possible for each new offering. Experience has shown that with real breakthrough innovations, at least five of the ten types can be checked off.
Remember the front end of innovation starts with an idea, a technology, a problem or a business issue and ends with a well-founded new business case.
There are no old roads to new destinations.
Coenie Middel CA(SA), RA, is founder of Middel & Partners. In 2016 Coenie was awarded one of the most “Inspiring Accountants in the World”.