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You don’t have to wait for innovation to happen. Plan for it, and make it happen methodically in your company.
2 Minutes Summary
Select a “Play-to-Win” innovation strategy or a “Play-Not-to-Lose” strategy. Guide innovation through measurement and incentives.
You can create innovation through several aspects of either the business or the technological side of your company.
Innovation is the greatest source of organizational security in a changing economy.
Innovation is the creation of new value through some intersection of business and technology. Radical innovation changes both the technology model and the business model. Innovating methodically matters because the way that you manage innovation will dictate the kinds of innovations your company creates.
Not every business needs to innovate intensely, or in the same way; the kind and level of innovation your company needs depends on your specific business.
Because innovation challenges the status quo, parts of your organization will fight it. Most people misunderstand innovation. It is not mysterious or magical.
Making Innovation Work Summary
Making Innovation Work is not revolutionary or magical, and not every company has to innovate a lot. Depending upon your industry, polishing existing processes might be enough. Three broad rules govern innovation. First, like other aspects of business, it requires specific conceptual tools, used with discipline. Second, to innovate profitably, you must measure and reward innovation. Third, to change your industry fundamentally, combine a business model change with a technological change. Company leaders – who play the most vital role in innovation – must choose between a “Play-to-Win” (PTW) strategy and a “Play- Not-to-Lose” (PNTL) strategy. Once you determine your approach, guide innovation by using metrics and rewards, and by helping your organization learn.
What Kind of Innovation Fits Your Organization
Companies that innovate can prosper, and change society and their industries. Innovation isn’t just for business; nonprofits can apply it as well. Develop the right portfolio of innovation by determining what’s appropriate for your company, based on its nature and market position. Innovation can be “incremental, semi-radical or radical.” Incremental innovation improves current processes with repeated small changes. Semiradical innovation creates a fundamental change in your business model or technology. Radical innovation changes your business and your technology models at the same time. Sometimes combining two semi-radical innovations creates an “ersatz radical innovation,” which has as big an effect as a radical innovation, but happens in stages, and may have a shifting cast of participants.
What is Innovation and How Do You Leverage It?
Innovation is a change in business and/or technology that creates greater value. Six aspects of your organization can drive change, divided between the business side and the technology side:
- Value proposition – Change what you sell; offer a new item or a variation.
- Supply chain – Change how you create products and/or get them to market.
- Target customer – Change to whom you sell your product.
- Product and service offerings – Create and sell an item using new technologies.
- Process technologies – Deliver things differently.
- Enabling technologies – Create something that lets you execute strategies faster.
How to Design a Winning Innovation Strategy
What sort of innovation does your company need? First, determine if “Playing-to-Win” (PTW) or “Playing-Not-to-Lose” (PNTL) is a more appropriate strategy. PTW works for companies like new tech start-ups that want to transform their industries. But, with PTW, you bet everything on delivering a successful semi-radical innovation in technology, if not a radical innovation. PNTL fits better in a volatile, highly regulated or deeply competitive market. PNTL uses mainly incremental innovation. You can lead an industry this way, but you risk that someone else will make innovations that are more radical.
Once you make this choice, design a strategy that considers crucial internal and external factors. For instance, honestly appraise what your internal organization can do technically, what its structure allows, how successful your current model is, and what resources you can invest in innovation. Blend these factors to shape a clear vision. Externally, consider your industry’s nature and what your competitors are doing. How is technology changing in your industry? Can outside parties offer productive supplemental partnerships?
How to Structure a Company for Innovation
To innovate successfully, you must balance creating something new with capturing value. Organizationally, let individuals voice new ideas and provide a mechanism that identifies good concepts. Design interdisciplinary, inter-unit business and technology platforms. Each platform should develop an array of innovative projects, from incremental to radical. Individuals, teams and the company should seek internal and external partnerships. Use “transparent” creative processes, so people know what innovation is underway. Clearly explain the value of the innovation so everyone understands how innovation creates profits. Block the nay-sayers who mobilize to destroy challenging new ideas.
Designing the Process of Innovation
The structure of your innovation system should address five functions: efficiency, communication, coordination, learning and alignment. Efficiency moves innovations quickly from ideas to the market. Those involved in innovation should be able to communicate readily with their internal and external partners. Coordination helps people in different areas work together and share results. With learning, each process tells your organization more about how it innovates. Finally, align the company’s objectives: bring all the goals in line.
A range of models let you accomplish these functions, including “Structured Idea Management” (SIM), “Experimentation” and “Prototyping.” In SIM, you control the environment and develop project criteria. Participants brainstorm, develop hundreds of ideas and narrow them to a dozen or so. Then they document, outline, briefly investigate and develop these ideas. Consciously assess if these ideas are radical or incremental, and salvage stray “idea fragments.” Radical innovation requires experimentation, the process of moving projects through repeated versions. “Prototyping,” a related model, works in a modular fashion. Instead of trying to solve all of a project’s problems at once, design prototypes that answer one question at a time. Make lots of cheap versions and learn from each one.
How to Measure Innovation
Metrics are essential for guiding innovation. Use a few sharply focused metrics that enable information to flow from innovation teams to upper management and back. Your metrics should blend objective and subjective (to account for intangibles) measurements. Metrics should touch on each stage of the innovation process, from creating ideas to capturing value. Your goal is to make the process visible at each stage and to evaluate it. Your measurement system should take specific factors into account: talent, resources, knowledge development, managements’ influence, communication flow and more. The most challenging aspect is measuring how a radical innovation creates value. This kind of innovation usually takes time, creates new capacities for entirely new markets, and – naturally – carries a high rate of failure. While you might evaluate it subjectively, you could also explain its success in terms of intellectual property and project stages completed, rather than in terms of numerical or financial rewards.
How to Design Incentives to Support Innovation
Four major factors feed motivation: vision, passion, recognition and economic incentive. Address the first two by articulating a vision, and creating a healthy unified culture that allows passion to flourish. The second two factors, recognition and economic incentives, require specific tools. Designing specific, measurable bonus reward systems is easier with incremental innovations, such as new ways to reduce process time. But, workers involved with radical innovation are often driven less by financial motives than by intrinsic motivation, that is, the desire to discover or create something new. A radical innovation project’s end goal is also less obvious, so set points of recognition, marked with acknowledgements, new titles and awards that underscore your employees’ dedication.
How Do Organizations Become Better at Learning?
Distinguish between “learning to act,” which focuses on how to improve existing processes, and “learning to learn,” which addresses the actual innovation process. An organization must do both to innovate well. Everyone makes mistakes, but innovative firms learn from them. That requires linking your learning process directly with your innovation strategy. Actively manage knowledge and ignorance: determine what you know and what you don’t know, then correct the areas you know least. Useful tools for this purpose include “project roadmaps,” which show you how to use one project as the basis for several others, and “learning histories,” which relate how specific innovations worked or failed.
How to Design a Winning Culture
Some organizations see innovation as the new religion that’s going to save everything. Don’t let your company grab on to this almost mystical worship of innovation; that re- mystifies it. Instead, spread the demystification of innovation through your organizational culture. Perhaps surprisingly, you must be cautious about success as you create an innovation-friendly organizational culture. Success can make employees complacent, and past successes can harden into dogma. People want to keep doing what already works. When they do so, they often shift to PNTL, rather than PTW.
Let your organization grow in cycles – allowing periods of rest and integration after radical innovation. Be organizationally stable, but open to change. Allow people to think and explore freely, but within generally accepted “rules of play” that guide and focus their work. Balance the creativity that creates new ideas with the discipline that recognizes their value and repackages them for the market. Balance control and trust. Since innovation often happens invisibly, or away from upper management, executives must trust that it really is happening – and must protect innovators from outside attention too early in the process. Such attention can kill innovation.
Your company’s executives should know how innovation works, and how to establish a culture that nurtures it. Executives must evolve a vision of innovation that they support with physical and intellectual resources. Innovators need to know where they can get straight answers and money. A good environment for innovation includes:
Narrative support – Tell stories of great innovators in your company’s past, making individuals who lived their values into the equivalent of mythic heroes.
Physical environment – Use color and light to put people at ease. Workspaces should allow privacy as needed, free lines of sight and an easy flow of information.
Personnel – Hiring the “wrong” person, say someone creative who doesn’t readily fit your culture, or someone without certification – may be the right choice. Different kinds of people add diversity; people outside their ruts apply new perspectives.
Applying the Innovation Rules to Your Organization
Emphasizing innovation too much can destroy your company. Adhere to the seven rules of innovation:
- Strong leaders must define, guide, fund and support your innovation strategy.
- Integrate innovation into the company’s basic business mentality.
- Align the amount and type of innovation to the company’s business.
- Manage the natural tension between creativity and value capture.
- Keep “organizational antibodies” from smothering ideas just because they’re new.
- The basic unit (or fundamental building block) of innovation is a network that includes people and knowledge both inside and outside the organization.
- Create the right metrics and rewards” to measure and manage innovation.
Fulfil the first three rules immediately. Review what employees do to promote innovation in your culture. The relative weight you place on different types of innovation should match the innovation strategy that fits your firm and your industry. Decide if you want to refine your current innovation processes or redirect them. Several general structures will help you actively manage innovation. In a “stage-gate process,” you divide an incremental innovation project into stages, and set up “gates” it passes through, stage by stage, toward a known goal. In a “venture capital model,” you delay trying to capture value as a team pursues innovations without specific goals. In the “technology innovation model,” a tech team drives innovation, perhaps beginning ambiguously but emerging into a measurable process. Finally, the “time-driven system” works with incremental innovation, focusing on deadlines and reduced production times.
The image is from the IBC Innovation Offices courtesy of Karma Trendz