“Innovation in the Future”- a Holistic View to Ensure Success | BCG

In such a challenging environment, the key question has become one of how executives can focus their limited attention on a handful of key levers that drive success.

As we look at the most innovative companies, SIX main factors distinguish these best-practice innovators from the rest. The key to being a successful innovator lies not in being great at all six of these practices, but rather in identifying which ones are critical to your innovation strategy and in ensuring that your company is best in class in those areas.

Get the customer involved early. Effective companies use their customers to help generate ideas and break ties in decision-making. But there is a difference between consumer data and insight. The best companies focus on the insights about what customers want, not just the data.

Best-practice innovators get current and potential customers involved early in the innovation process. Customers participate in idea-generation sessions, offer frequent input on early concepts in order to help projects “fail fast and fail cheap,” and critique current offerings in the market. The challenge involves how to add external-facing processes that enable companies to capture and efficiently use the voice of the customer.

Use data to drive tough decision-making. Many companies do not have a systematic way to make trade-offs. They lack consistent and comparable project-level data across markets and product lines for evaluating investments in the innovation portfolio. As a result, the inevitable trade-off decisions are often made on the basis of the “gut feel” of executives in the decision-making meeting rather than metrics that align with business priorities and strategies.

Managing in this relative void in data often prevents leaders from making bold and firm decisions regarding projects that should be discontinued—or that should receive disproportionately high funding to speed them to market. This lack of clarity typically reduces the value of the innovation portfolio and lowers the overall return on innovation investments.

To be effective, innovation investments need to be allocated in a differentiated way. Executives at leading innovators are able to make trade-off and investment decisions with confidence because the decisions are made for the right reasons on the basis of the right data. Of course, that places a huge burden on the data required to make such decisions.

Think strategically about trade-offs. The rise of diversified conglomerates in our most innovative companies rankings highlights the potential benefits of thinking systematically about trade-offs. The senior leaders of these companies make explicit decisions about how to deploy innovation investments across businesses, markets, regions, and other dimensions. Best-practice companies do not make these decisions in reference to last year’s budget but rather on the basis of the size of the future opportunities.

Priorities about projects and spending ultimately lead to decisions that upset people. Companies that do this step well understand that they are going to under-invest in some areas in order to direct more resources to the most promising opportunities. Companies will know that they have gotten the process right when many parts of the organization are displeased about their innovation funding levels.

Ensure senior leadership commitment. The most commonly cited force driving innovation at companies in our survey was the CEO. When we look at the 2012 most innovative companies, it becomes clear that innovation leaders come in a variety of styles. Leaders range from founders and visionaries such as the late Steve Jobs at Apple, Sergey Brin and Larry Page at Google, and Jeff Bezos at Amazon, to leaders who have taken the helm at well-established companies and have either maintained or renewed the focus on innovation, such as Jeff Immelt at General Electric. All of these leaders have been successful at fostering an innovative culture and driving results during their tenure.

Regardless of their style, top leaders are best positioned to play several key roles to ensure that they foster successful innovation. Two of these involve earlier practices: using data to drive tough decision-making and thinking strategically about trade-offs. The person at the top frequently—and sometimes uniquely—enjoys an ideal vantage point for choosing between the short term and the long term, and among markets and sectors. Embracing the CEO’s role of “decider in chief” ensures that innovation clearly links to and supports the corporate strategy, and that innovation efforts focus on the most important areas in meeting current and future targets for growth.

Envision innovation as a holistic system. Managers cannot simply optimize one piece of the innovation ecosystem in isolation. In order to ensure successful innovation, companies must take a holistic approach and optimize the parts of the system that are critical to their current and future competitive advantage. (See Exhibit). This approach begins with building a strong case for change that proves to the organization why innovation is so critical to the future success of that organization. Without this buy-in, even an optimized innovation system will fail to deliver the intended results.

exhibit

After convincing the organization that innovation is critical, managers can optimize the innovation system by focusing on three main elements. The first is setting the innovation strategic vision, which requires defining the language around innovation, the objectives of innovation, and the “where” of innovation in terms of distance from the business core. The vision is supported by a set of strategic decisions concerning the types of innovation that a company pursues (products, services, business models), the internal versus external sources of innovation, and the ways IP will be leveraged for value.

The second element, the innovation engine, has to do with how innovations are commercialized. This involves identifying opportunities with a customer need, generating ideas in these areas, selecting which ideas to pursue, launching innovations, and managing them across their life cycle.

The final element depends on building the underlying enablers that support the vision and ensure that the engine operates efficiently. Enablers that must be developed include processes, culture, organization, and measurement systems.

Optimize intellectual property to create value. As intellectual property values have skyrocketed in 2012, major tech companies have locked horns over IP issues, with billions of dollars at stake.

We have identified three strategies that top innovators use to deploy intellectual property as a weapon to support, accelerate, and capture value from their innovation agenda:

  • Define the optimal IP value “equation” to measure value.

  • Develop the required skills, techniques, and tools to adjust this equation as realities shift.

  • Design clear organizational decision rights, role charters, coordination processes, and metrics across the IP life cycle. 

Billions of dollars in profits are at stake for innovators that can crack the code and deliver meaningful advantage from innovation, as we have seen from the ever-changing list of most innovative companies. The first step involves understanding the innovation environment in which a company operates, the economics driving decision-making, and the ways to prioritize and accelerate innovation within the organization. Companies that get these initial steps right have the opportunity to unlock the long-term secrets of success from innovation. 

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2 thoughts on ““Innovation in the Future”- a Holistic View to Ensure Success | BCG

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