Innovation Accelerator … 10 innovation frameworks to accelerate your growth … Design and lean, creative and disruptive, open and dual, horizons and portfolios
March 8, 2018
We all know that innovation is important, if a company is to survive and thrive in today’s world
Creativity, as a source of problem-solving and ideas generation is fundamental to opening our thinking, whilst Innovation is about making the best ideas happen successfully.
Some organisations still seek to closet innovation in a box called product development, often in a discrete department of the organisation. They are wrong of course, in that innovation should be applied to every aspect of business, and a core attribute of every person and project.
Ultimately, we should align innovation with growth. It is not innovation we seek, but the means to sustain and improve growth. Profitable growth.
But we also know that innovation is not easy. 3M likes to say that it takes 2000 ideas to create one successful innovation that is commercially successful. Jay Doblin, similarly quotes that 96% of corporate innovations fail.
So innovation needs discipline, structure, facilitation to ensure that is more likely to succeed. Here are some of the most useful tools that I have come across in 30 years of business – from developing flat beds for airlines to cafes in banks, simplified diagnostics in healthcare or new offerings in technology.
10 Types of Innovation
Doblin’s framework for evaluating what various types of innovations your company is currently trying out. Based on research of more than 2000 innovation projects by Doblin which is now part of Deloitte, they defined ten distinct ways that a company can innovate, which are:
- Profit Model: How you make money
- Network: How you connect with others to create value
- Structure: How to organise and align your talent and assets
- Process: How you use signature or superior methods to do your work
- Product Performance: How you develop distinguishing features and functionality
- Product System: How you create complementary products and services
- Service: How you support and amplify the value of your offerings
- Channel: How you deliver your offerings to customers and users
- Brand: How you represent your offerings and business
- Customer Experience: How you foster compelling interactions
The research also showed the impact of companies trying more than one type of innovation. While most companies innovate by improving the performance of their product (type 5), those companies which tried to add value by innovating in several ways were consistently more successful, with their innovations more likely to make a return on investment. To see the full impact of trying out more than one type of innovation, check out this graph from Doblin which analyses the number of different types of innovations the companies were attempting and how they performed against the stock market:
As you can clearly see, the companies which attempted more types of innovation consistently outperformed the market.
In conjunction with portfolio management, design thinking and a number of other frameworks on this list, the Ten Types of Innovation framework gives an excellent basis for evaluating whether or not there are additional ways that your company could try to add value or different ways to approach a challenge. For example, you can set yourself the challenge of trying to innovate without changing the product performance at all and using just the 9 other types of innovation. Additionally, it is extremely powerful to evaluate your current portfolio of innovation projects against the matrix of the Ten Types of Innovation, since then you will be able to see potential gaps in your own list of projects, as well as potential gaps in the market which nobody is currently exploiting or exploring.
Three Horizons of Growth
The framework is based on McKinsey’s Three Horizons of Growth, but used to determine how well your business offerings will be able to deliver value and fit into your overall strategy as time goes on. The horizons in an innovation context are as follows:
- Horizon 1: exploiting your current offerings (core business activity and incremental innovations to improve current offerings)
- Horizon 2: extending the business with new offerings which build on the core but provide new value
- Horizon 3: exploring new future offerings that could change the company but aren’t ready yet
As time goes on, companies will notice that customer tastes, technology, competition and the whole market will change, often making their current offerings less valuable (and therefore less strategic) and will eventually require more innovative offerings to take their place. When these moments happen, they are disruption points where one horizon is replaced by another, as outlined in this image:
The Three Horizon Framework is usually applicable at CXO / Executive level discussions within companies to ensure that leadership have an overall view of the need for various types of innovation activity. Therefore it enables company leadership to become aware of the need to prepare for future change, and to invest in a variety of innovations that may not currently be viable but which could become the most important offerings for the company in the future. This is important for looking into the future market scenarios to adjust your strategy, and to balance your innovation portfolio accordingly.
Portfolio management is the selection, prioritisation and control of an organisation’s projects and programmes in line with its strategic objectives and capacity to deliver. The goal is to balance innovation programmes, change initiatives and business-as-usual while optimising resource usage, risk and return on investment. In my view, this is one of the most fundamentally overlooked frameworks for improving the success rate of innovation projects and every company should put more emphasis on it. Traditionally, portfolio management (if it happened at all) would be handled by the central team covering the programme management of various projects in a company, often called a Programme Management Office (PMO), and it would help evaluate which projects should be invested in, plan them, track progress and handle risks and issues.
If Programme Management is about doing projects right, then Portfolio Management helps to do the right projects
Incorporating innovation projects into a programme portfolio can be tricky, but can also reap huge benefits when done correctly:
- It helps evaluate which innovation projects fit the company’s overall strategic goals
- It is vital for incorporating innovation projects back into the core business (see point 11 about Ambidextrous Organisations)
- It helps determine potential bottlenecks and dependencies between innovation projects that individual team members may not realise (for example, the availability of specific people who might otherwise be pulled in various directions)
- It can help see how projects fit together across various sites, territories and countries
- It can spot and reduce duplication of effort and reduce overall costs
- It can help sequence activity and resources between projects and teams
- It can distinguish differences between types of projects and determine the best management methodology / principles for each instead of a “once size fits all” approach (for example, there are big differences between the ability to create a full business case for an 18-month IT transformation, compared to a short-term initial MVP build for a new offering)
- It can be used to “balance” the portfolio budget and resources between projects which build out the core business, build related new innovations and also more radical innovations (see point 3 about Three Horizons)
- It can be used to spot gaps in the overall list of projects and types of innovations you are developing (see point 2 on Ten Types of Innovation)
- It can significantly reduce the perceived risk associated with doing innovation projects
- It can give leadership a clearer idea of the direction the company is travelling, what customers are demanding and innovations they are developing to address that demand
Every company which is running multiple projects simultaneously, as well as those developing new innovations, should have a portfolio view of everything that is going on in the company.
Jobs to be Done
The “Jobs to be Done” concept promoted by Clay Christiansen states that instead of thinking about what features or benefits a customer would want to buy, an innovation should instead try to find out what job/activity/outcome a customer is trying to accomplish, and then develop something which helps them achieve that.
As Theodore Levitt said, “people do not want a quarter-inch drill, they want a quarter inch hole.”
This way, you can develop an offering that a customer can “hire” to complete their job. Office workers hire word-processing software to create documents. Surgeons hire scalpels to dissect soft tissue. But few companies keep this in mind while searching for ideas for breakthrough offerings, and simply asking people what jobs they have is unlikely to result in any insightful answers, as people themselves often don’t realise or can’t verbalise what is frustrating them or what they are trying to accomplish. What companies really need are insights, not opinions.
The Jobs to be Done framework helps companies get the true insights from real people about the challenges and frustrations they are facing. By segmenting these people, it may be possible to find an innovative solution to meet a number of the challenges which together mean a product could do the entire “job”, and therefore make it much more appealing to a customer.
Any innovation project which your company is starting should aim to investigate the potential jobs to be done for a customer. It is most effective at the early stages of a project when a team should be going out and investigating how things currently run. This involves going out and meeting real people, observing them in a neutral and unbiased way and trying to get insights by learning about their behaviour and frustrations, rather than their opinions.
One of the most popular but misused terms going through the business community today is Design Thinking. Design Thinking is a methodology used by designers to solve complex problems and find desirable solutions for clients. A design mindset is not problem-focused, it’s solution focused and action oriented towards creating a preferred future. Usually, it involves a company spending time with users to find out what their current everyday experiences are, and use those to find insights into what the real underlying challenges are and how they might be addressed.
Contrary to what some people say, it is not just about the “design stages” of product development (initial sketches, graphic design, prototyping etc). Instead, imagine it more as a collection of processes which lead to a better understanding of the needs of a user and ways to find solutions to those needs.
Christoph Meinel and Larry Leifer, of the HPI-Stanford Design Thinking Program, laid out four principles for the successful implementation of design thinking:
- The human rule, which states that all design activity is ultimately social in nature, and any social innovation will bring us back to the ‘human-centric point of view’.
- The ambiguity rule, in which design thinkers must preserve ambiguity by experimenting at the limits of their knowledge and ability, enabling the freedom to see things differently.
- The re-design rule, where all design is re-design; this comes as a result of changing technology and social circumstances but previously solved, unchanged human needs.
- The tangibility rule; the concept that making ideas tangible always facilitates communication and allows designers to treat prototypes as ‘communication media’.
Business Model Canvas
The Business Model Canvas is a great tool to describe, design, challenge, and pivot your business model and test out new business models, vital when developing innovations. Developed by Strategyzer co-founder Alex Osterwalder, it enables you to succinctly lay out the various aspects of a new offering and determine how the components will fit together to form a business model. This allows you to see potential hurdles which need to be overcome, gaps in the offering or even potential gaps in the market. Often this can provide a much clearer overview of an offering than other summaries, like traditional business cases.
Use it at the initial stages of any project when you need to look at the overall picture and how a business model might fit together, mapping out the existing business, and the potential changes and how they interplay. The starting point should be the customer, and the proposition to them. Because of this, I tend to draw the canvas the opposite way around, with the customer on the left.
Lean Innovation Management
Inspired by a number of Lean Startup principles along with aspects of Design Thinking and Agile Development, Lean Innovation Management is a framework to manage innovation projects in a more agile way than traditional project management. For example, instead of asking managers to develop a full business case with lifetime costs and risks to ask for budget for a full project (which is often highly inaccurate and purely guesswork for innovation projects), a manager might only be required to ask for budget to do an initial set of experiments to test the market for an idea. This can lead to a much larger number of innovations being tested much more quickly, for a lower cost and at a lower risk than traditional management methods.
Some of the aspects of Lean Innovation Management include:
- Encouragement of lots of small scale, cheap experiments instead of full launches
- Allocating small initial budgets to get to the next stage in a lifecycle early on (e.g. to test the market), instead of asking for a full project budget with a business case
- Incorporating feedback from multiple parties throughout the design and development process
- Building of “Minimum Viable Products (MVPs)” and prototypes and testing these with real people
- Iterating and changing direction (“pivoting”) if the feedback suggests you are going in the wrong direction
Any company which has a limited budget of money and pool of resources to work on innovation projects could greatly benefit from a Lean Innovation approach.
One of the most important theories of innovation, but one which is usually completely misunderstood. Brought to prominence by Clay Christensen’s book The Innovator’s Dilemma, this important theory provides an explanation as to why large, established companies eventually get overtaken by smaller ones, and it introduced the concept of disruptive innovation.
Put simply, it theorises that small companies can disrupt the market of large companies by releasing a new version of an offering which appeals more to a subset of the customers. In many cases (especially those listed in the book, such as Computer Storage, Department Stores and Construction Equipment), the small company releases a new technology which is inferior in quality or performance to that of the large company, but makes up for it in another way, like a lower price or convenience. Over time and iteration, this new technology will begin improving to handle more demanding uses.
The important aspect of the theory which most discussions ignore though is that while it is happening, management at the established companies think they’re making the right decision to let the new companies take over the low-end of the market. The reason: The low end of the market is often the least profitable, and by removing it from your customer base, the large companies are actually becoming more profitable (although not necessarily making more profit). Since company leaders have often been taught that increasing profitability is the holy grail of management, it makes perfect sense to allow someone else to take over the low market.
Going by many names, this is the process by which a company can set a challenge that they want ideas for, and gather ideas from hundreds, thousands or hundreds of thousands of people, both within their organisation and externally. Historically, companies may have used systems like suggestion boxes or an email address where people could send their ideas, but more often than not, the ideas sent in didn’t go anywhere, leading to frustration in both the leadership (who could not organise and evaluate ideas) and the people who submitted them.
However, recently there have been a number of startups providing a software solution to enable companies to set up innovation challenges, have thousands of people submit their ideas, and then evaluate and manage these ideas in a more structured way. Whether you call it Open Innovation, Idea Management, Innovation Management Systems or Crowdsourcing, the concept is pretty similar.
There are various types of companies which will benefit the most from Idea Management. Here are a few:
- Companies which have stubborn challenges for which an outsider’s perspective could provide a breakthrough (e.g. ones where traditional experts in a field have not been able to solve a challenge with existing methods)
- Companies which want to solicit feedback and ideas from a large number of internal employees (e.g. bringing to light inefficiencies which leadership would not be aware of)
- Companies which want to get feedback on early prototypes or ideas from the marketplace (e.g. to beta test multiple variations of an offering to see if / which one proves to be popular)
- Companies which want a structured system to manage a funnel of ideas and projects (e.g. when thousands of potential ideas need to be evaluated and budgets/resources need to be assigned)
- Companies which want to allow external parties/consumers to suggest improvements to existing products or entirely new products (e.g. like P&G’s Connect and Develop platform)
Importantly, it should be noted that there are times when this system could be overkill, such as for start-ups which are working on a single product and are very early in their journey. Typically, more established companies will gain more benefits from a system like this. Additionally, software systems like this do not replace people in the innovation process and cannot automate its management.
One of the most challenging aspects of innovation for most companies is not the generating of ideas, or the development of new innovations. Instead, it is integrating new innovations into the business without affecting the performance of core business operations negatively. This is something a large number of companies struggle with. Even if they have agreed on the importance of innovation and have set up teams or departments to develop new value-adding, innovative products and services, these products may end up never being launched because nobody in the existing business units will take responsibility and take the risk of launching them. They can cite a number of seemingly valid reasons for this, including:
- My team hasn’t got the time to resources or time to take ownership of this new thing
- My team doesn’t have the skills to understand or support it if something goes wrong
- I don’t want to risk showing this to our customers and them not liking it
- It might take sales away from our current offerings
- I’m not putting my neck and job on the line to promote something which I wasn’t involved with developing
- If this doesn’t work, it is going to make me look bad
Ambidextrous Organisations on the other hand are companies which have set themselves up to do three things:
- Effectively run their core business
- Develop, test and validate innovations outside of their core business
- Integrate a number of the best innovations back into the core business in a reliable manner
The process of making this happen is what Scott Anthony calls “Dual Innovation”, and builds the skills, capabilities and processes within a company to make the transition of innovations into the core business more likely to take hold.
Creative techniques, like TRIZ
TRIZ is a problem-solving, analysis and forecasting tool derived from the study of patterns of invention in the global patent literature. The TRIZ acronym comes from it’s original Russian name, and in English it is often referred to as a “theory of inventive problem solving” or TIPS. At its core, the framework is a collection of strategies and tools for finding inventive solutions to difficult problems.
By analysing thousands of patents which successfully solved problems, researchers determined that there were approximately 40 inventive principles which underlined the majority of these successes. TRIZ suggests that by looking at whatever problem you are facing and comparing it to the 40 principles, you will find a number of ways to approach the finding of a solution.