Five Keys for Driving Growth through Innovation
By Dr. Phil Samuel
While growth is the No. 1 priority for most CEOs, roughly 90 percent of companies fail in sustaining growth over the long-term. Growth can be approached organically—by employing new and improved products and services to enhance revenue—or via mergers and acquisitions. Neither approach has a very impressive track record.
For example, a research study published by Businessweek in conjunction with Boston Consulting Group concluded that 61 percent of the M&As included in the study actually eroded shareholder value. And on the organic front, research has shown that approximately 75 percent of new products introduced by established companies fail.
Although it’s more difficult to quantify, many companies today are also struggling with the concept of innovation—what it means to them and how exactly it contributes to their growth. For those responsible for delivering results to shareholders, growth through innovation has generated a sense of risk and uncertainty.
At the Lean Methods Group, we believe that the primary reason for this is that many organizations do not understand the key variables that affect innovation, growth and the creation of new market space. Fortunately, experiential data is now available to draw viable conclusions about how to accelerate growth through innovation, as well as how to mitigate the risk associated with unstructured innovation. Following are five key variables for successful innovation.
Key #1: Develop a Balanced Innovation Portfolio
Innovation-elite firms understand that achieving uncommon industry growth rates means going beyond the traditional research and development focus. Companies that seek growth through innovation benefit from developing a balanced, comprehensive portfolio that spans many areas—products and services, processes, strategy and even the organization’s core business model. These companies also vary the required degree of innovation, from incremental to significant to breakthrough levels.
Companies that seek growth through innovation benefit from developing a balanced, comprehensive portfolio that spans many areas.
Organizations that execute innovation projects in this way almost always generate higher return on investment than companies that limit innovation to new products. Also, companies that innovate simultaneously in multiple areas reap more rewards than those that innovate in a single area.
For example, Apple has experienced tremendous success with the iPod, a product innovation. However, the success of the iPod is largely due to the introduction of iTunes, a business model innovation. Through this combination of product and business model innovation, Apple created $70 billion in shareholder value in just three years. As Mark Stein of the Kaiser Associates research firm notes, “What is especially impressive about Apple’s feat is that [Apple] did it with an R&D spend that is one-tenth the size of Microsoft’s annual spend, and that they did it during a period of otherwise flat industry performance. This clearly demonstrates the approach, the techniques, the strategy, and the focus matter far more than how much [you spend].”
Companies can identify and manage their own balanced innovation project portfolio by using a set of growth and innovation opportunity assessment techniques. In addition to project prioritization and scope, these tools help organizations identify unarticulated, latent and underserved customer expectations that may indicate an unoccupied market space—and a potential direction for growth.
Key #2: Build Effective Teams for Collaboration
The second key to innovation success is to assemble innovation teams that are capable of flawless and speedy execution, and then manage these teams for high performance and collaboration. This is easier said than done. To begin with, the best teams will be composed of people with diverse problem-solving styles.
In addition to a well-managed balance of problem-solving styles, effective teams must have a cognitive level (i.e., knowledge) and motivation level appropriate to the problem they are trying to solve. Companies can use a set of assessments, inventories and management approaches to assemble effective and collaborative teams for specific growth projects.
Key #3: Deploy a Systematic Process for Innovation Projects
The third key to success is to make innovation repeatable, predictable and scalable. This means making it systematic using a consistent process that is applied by all teams (as DMAIC is applied by Six Sigma teams, for example). The process must also be robust enough to accommodate multiple innovation pathways; while some growth projects require “thinking outside of the box,” others require more structure within existing paradigms.
D4 is the Lean Methods Group’s methodology for enabling consistent, results-oriented innovation projects. This flexible methodology consists of four project phases (Define, Discover, Develop and Demonstrate). D4 was specially designed to accommodate the natural flow of the innovation thought process. Thus, it encourages participants to agree upon a specific problem, and then depart enough from the current way of thinking that novel solutions can be discovered.
D4 was specially designed to accommodate the natural flow of the innovation thought process.
Key #4: Apply Proven Techniques and Tools
The D4 innovation methodology provides a consistent approach to innovation. D4 practitioners must also understand how to apply a variety of tools and techniques that enable success in each project phase. For example, the main objective of the Define phase is to identify unmet customer expectations. Techniques such as ethnography, archetype research and heuristic redefinition all help capture the unarticulated needs of customers.
The Discover phase of D4 features tools designed to generate new innovative ideas you can use to meet the unmet needs of your customers. These tools range from random entry techniques to provocation and movement techniques to technical and physical contradictions.
The most promising ideas generated in the Discover phase of D4 are further investigated during the Develop phase using techniques and tools that enable the analysis of data and the subsequent design process. Techniques such as axiomatic design, function structure, conjoint analysis, design of experiments and Lean design enable smooth execution through this phase.
Finally, successful solutions are implemented in the Demonstrate phase using techniques and tools such as piloting, rapid prototyping and mistake proofing.
Key #5: Establish a Climate for Innovation
One way to mitigate the challenges of innovation is by establishing a climate that is best suited for innovation; in other words, an organizational culture that promotes calculated risk-taking, collaboration and trust. Such a climate enables people to learn from their mistakes (instead of being punished for them). It also supports quicker execution of ideas and a more agile organizational structure, all of which minimize exposure from innovation risk.
Phil Samuel, Ph.D., is chief innovation officer for the Lean Methods Group. He is a highly regarded thought leader in performance excellence methodology studies including innovation, Six Sigma, Lean, Design for Six Sigma and change leadership.