Consumer expectations for businesses innovation are growing at a staggering rate. The ideal state organization has a sustainable method of introducing innovation throughout the product lifecycle. Innovation is not only the output of creative thinking, however. True business innovation requires enterprises to have a cultural belief system that creates new ideas focused on impacting the overall trajectory of an organization.
Consumer expectations for businesses innovation are growing at a staggering rate. A 2016 study shows that 63% of customers engage with organizations when they offer new products.1
Additionally, 84% of customers say it is somewhat or very important that the company they buy from is innovative.2
Innovation is not only the output of creative thinking, however. True business innovation requires enterprises to have a cultural belief system that creates new ideas focused on impacting the overall trajectory of an organization.
This Innovation Mindset provides direct value to the customers of the organization through multiple and diverse points of view. At its core, the Innovation Mindset requires a culture that embraces divergent thinking with committed teams that can execute on ideas.
A critical component of the Innovation Mindset is ensuring that innovation and its impacts to the business are being tracked and measured. This ties in with the Value Driven Mindset in how metrics are leveraged to ensure that an overall investment in any effort is achieving business value for the organization.
“Less than a third of the firms surveyed say they regularly measure or report on innovation.”
Measurable metrics allow organizations to set specific goals for the innovation process itself and for approved initiatives resulting from the process. Without these metrics, organizations will have no way to measure if their innovation budget is generating any real business value.
While there are numerous ways to measure innovation, organizations tend to adopt a subset of the following metrics:
R&D Innovation Efficiency: Ratio of sales from new product launches and total expenditure on R&D.
Return on Innovation Investment: Ratio of gross profit earned from innovation and the cumulative investment period.
Innovation Success Rate: Ratio of ideas commercialized to the total number of ideas.
New Product Success Rate: Measured against a set of target parameters that include consumer acceptance, technical acceptance, and gross margins.
Consumer Satisfaction Index: Measured through consumer surveys to assess product performance, effectiveness of marketing activities, and response to FMOT/SMOT.
Break-even Analysis: Detailed P&L to estimate the expected time to recover investments made in new product development through product sales.3
Organizations achieving the Innovation Mindset demonstrate the following six characteristics that help in achieving results:
Clear Strategies & Measurements
Innovators align with senior leadership in the organization providing close synchronization with organizational strategies and goals. This means strategies and measurements created and managed by senior leadership must be clear and provide runway to execute with clarity.
These organizations have adopted many of the measurements listed above under Innovation Metrics. They clearly connect innovation efforts with KPI’s that measure their success for the organization.
Path to Production
Innovators not only have the power of creation, they also convert it into actionable activities. In a recent study about organizational innovation by PwC, taking ideas to market is the top barrier for 50%+ of companies.4 The challenge in achieving an Innovation Mindset stems from embracing the theoretical process, acting upon the right targets and knowing how to integrate back into the organization. This requires identifying the right people in the appropriate places to ensure ideas can mature.
Organizations embracing the Innovation Mindset understand how specific ideas navigate through an innovation process into the hands of the target users in production. While not all their ideas will be produced or worked on, these organizations demonstrate a repeatable process for delivering new digital value using their overall innovation strategy.
Organizations that embrace the Innovation Mindset empower individuals to make decisions that align to the mission, strategies, and goals of the enterprise. Autonomy does not mean ‘unchecked’ but rather focuses on trusting people to do the right thing in collaboration with others. In a healthy organization, innovation will initiate at every level. Each level should have individuals that are given the autonomy needed to shepherd ideas through their repeatable innovation approach and strategy.
Accelerated Failure Cycle
The Innovation Mindset requires individuals within the organization are empowered to act in the face of potential failure. These organizations embrace failure, which accelerates the process of pivoting to a correct implementation. This is not for the weak at heart and requires organizational leadership to have the same lens. Short experiments on ideas allow the organization to accelerate the failure cycle and pivot quickly without being too vested in a specific idea.
Documented Innovation Strategy
An organization with an Innovation Mindset has put in place a strategic approach and process to become innovative. Mature organizations allow employees and customers to provide feedback and insight in a variety of manners. Whether it is allowing employees allotted time to follow their passion, strategic workshops, or team building exercises, there is a strategic method in place to allow for innovation. This innovation strategy is not a process that assumes success or failure at the outset. Instead, it is a core part of the organizational foundation that gives room for innovation and experimentation to occur.
A research study found that 93% of business executives believe that “organic growth through innovation will drive the greater proportion of their revenue growth.”5
Organizations that achieve the Innovation Mindset are focused on achieving organic growth through documented, sustainable and repeatable innovation.
An Innovation Mindset means the organization understands that innovation can come from anyone at any level. Rather than merely assigning a team to work in a vacuum away from other departments, the organization has individuals responsible for innovation within every department. Feedback and ideas are encouraged and systematically shared through silos. McKinsey states “Successful innovators define and cascade aspirations at a very granular level.”6 Companies that are successful innovators make sure that executives, managers, and employees are aware of their organization’s definition of innovation and how it fits into the broader goals. They help employees understand what innovation means to the company and how they can aspire to reach those goals.
When organizations are unable to achieve an Innovation Mindset, they end up facing the following four challenges, which affect culture, productivity, and improvement.
Organizations without innovation as a core value find themselves sticking to planned goals, budgets, and strict timelines. While this does produce work, companies that do not adopt the Innovation Mindset find themselves unable to change and adapt due to the fixed manner in which the initiative was documented and funded. These organizations generally try to fit innovation initiatives into predetermined engagement types without a clear definition of success.
Resistance to Change
With large investments in systems and process improvement, many organizations find themselves trapped in a machine of their own making. In his book, “That’s Not How We Do It Here”, John Kotter demonstrates that many organizations set up a structure that promotes negative responses to new and innovative ideas. Decisions made in the past limit possible change for the future when the Innovation Mindset is not adopted.
Change across an organization is difficult and can be complex. Organizations without a defined framework for innovation find themselves very capable of conducting business without the ability to inject necessary change. They plan for short-term fixes and goals without the ability to view and analyze long-term effects. Often these small fixes leave systems, products, and processes in a cumbersome mess creating technical or organizational debt.
It would be incorrect to say that innovation does not happen in organizations without the Innovation Mindset. In many of these organizations, innovation is happening. However, within these organizations, innovation is rarely a sustainable or repeatable process.
In some cases, organizations form an Innovation Team. Rarely do these teams survive—either collapsing under the weight of skewed expectations with people fleeing to old positions or losing human capital as employees leave the organization completely.
More than four of five respondents (81%) stated that their firms do not have the resources needed to fully pursue the innovations and new ideas capable of keeping their companies ahead in the competitive global marketplace.
The challenge is systemic; while more than half the respondents (55%) stated that their organizations treat intellectual property as a valuable resource, only one in seven (16%) believed their employers regarded its development as a mission-critical function. The lack of recognition for contributions to innovation is also striking, where almost half (49%) believe they won’t receive any benefit or recognition for developing successful ideas.7 Providing a solid system around innovation gives both the organization and those participating, clear boundaries of operation, a sense purpose and clear objectives.
An Innovation Mindset is not a one-time program or a dedicated team. Instead, the mindset requires a formalized innovation strategy and approach to organize it, mature it and sustain it long term. This requires the right people are empowered with an effective strategy and approach to support it.