Wednesday, July 06, 2011

O2 BUSINESS STRATEGY > Innovation's Nine Critical Success Factors


Vijay Govindarajan

Vijay GovindarajanVijay Govindarajan is the Earl C. Daum 1924 Professor of International Business at the Tuck School of Business at Dartmouth. His most recent book is The Other Side of Innovation.
Vijay Govindarajan

Your organization won't innovate productively unless some underlying factors are in good shape. If "10" is outstanding and "1" is poor, how do you rate your organization on each of these?
1. A compelling case for innovation. Unless people understand why innovation is necessary, it always loses to core business or the performance engine in the battle for resources. The performance engine is bigger, is the center of power, and can justify resources based on short term financial results. So the case for innovation has to be made, and it better be compelling.
2. An inspiring, shared vision of the future. Most companies anticipate the future based upon the past. Not surprisingly, the company always looks relevant in that future. However, if the past is suspended and a holistic view of the future is envisioned, then it's easier to recognize tidal forces of change and (surprise!) the company may not look so relevant in that future. For this process, it is best to take a 10-20-year perspective. It is not about predicting the future. It is about developing hypotheses about the future.
3. A fully aligned strategic innovation agenda. As the Cheshire Cat said to Alice, "If you don't know where you're going, any road will get you there." Innovation is a journey into the unknown and there are many paths open to the innovator. Before starting it is essential to know things like: 1) What business are we in now and want to be in going forward? 2) What is our risk tolerance for pursuing big, game-changing ideas? In our experience, the #1 reason why game-changing innovation fails is because time is not invested up front to align the organization behind one strategic innovation agenda.
4. Visible senior management involvement. Incremental innovation can be pushed down into the organization where the strategy is clear, decision metrics are understood, and management models like Stage-Gate create a level playing field. However, for game-changing innovation it's the opposite. The strategy is fuzzy, and traditional metrics can't be applied early in the process, because that which is truly new has no frame of reference nor benchmark. So Stage-Gate models can unintentionally kill potentially big ideas. The pursuit of game-changing innovation only works when the person who can say yes to big spending visibly sponsors and participates in the work and provides air cover to the work team.
5. A decision-making model that fosters teamwork in support of passionate champions. Breakthroughs cannot survive without a decision-making model that is different from the one used for incremental innovation. It's not about metrics; it's about "the educated gut." Old models don't work. Autocratic decision-making fails to engage all of the critical stakeholders, while consensus sinks every decision to its lowest possible common denominator. It doesn't work without a passionate champion who can make decisions and engage the team to support those decisions.
6. A creatively resourced, multi-functional dedicated team. The best teams have three ingredients: project champions who can make decisions during working sessions and advocate for them with executive sponsors, relevant capabilities and expertise, and naïve, seemingly irrelevant diversity. Most often a breakthrough starts with the naïve and then the experts determine how to do it.
7. Open-minded exploration of the marketplace drivers of innovation. Organizational change is driven by marketplace factors: customers, competition, government regulation, and science and technology. Only by exploring these drivers of change can a company begin to recognize what it must do to be relevant in its envisioned future.
8. Willingness to take risk and see value in absurdity. Albert Einstein once said, "If at first an idea doesn't seem totally absurd there's no hope for it." Innovators understand that you have no choice; you must take risks, often big ones, by moving toward the absurd, the "seemingly" irrelevant, in order to create pre-emptive competitive advantage while competitors move in the "obvious" direction.
9. A well-defined yet flexible execution process. Companies that have been in business for a while are good at executing on small, incremental changes. And that's challenging enough. What they don't know how to do is nurture, support, and modify potentially big new ideas with a more flexible execution process. There are three elements to innovation execution. First, build a dedicated team for innovation. Breakthroughs cannot happen inside the performance engine — it is built for efficiency, not for innovation. Second, link the dedicated team to the performance engine so that it can leverage key assets of the core business. Third, evaluate the innovation leader for managing disciplined experiments, not for hitting short-term profit goals.

If your personal ratings total more than 70, you work in a pretty innovative environment. If your ratings fall below 70, then you may want to think about how well you are poised for the future.

Note: This post was written with Mark Sebell and Jay Terwilliger, managing partners at Creative Realities, Inc., a Boston-based innovation management collaborative.

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