How To Balance The Weight Of Innovation

How does a firm drive innovation without getting crushed by the inherent weight that new products, and even features, add to a firm? Above and beyond the clear costs associated with human-resource assignment and managing vendor partners, the impact of opportunity cost—other things the firm could be doing with these resources—is noteworthy.

How To Balance The Weight Of Innovation

by Dan Polk

Posted on 03-06-2018

There is a common adage that innovation is a process, not an event. Yet process-rigor must be balanced with the importance of agility—getting things into the marketplace, and rapidly getting customer feedback.

But how does a firm drive innovation without getting crushed by the inherent weight that new products, and even features, add to a firm? Above and beyond the clear costs associated with human-resource assignment and managing vendor partners, the impact of opportunity cost—other things the firm could be doing with these resources—is noteworthy.

A number of important considerations need to be examined. Let’s take a look at six critical success factors for balancing the weight of innovation.

1. Innovating On The ‘How’

An assessment of innovation best practices solely through the lens of creating products and services is too narrow; such a focus is on “what” the firm is delivering. There are fruitful innovation opportunities for a firm to reimagine “how” they do business. New business models, new marketing approaches, and new ways of communicating with customers are examples of innovating on the “how.”

CarMax is a leader in innovating on the “how.” As part of the digital transformation brought on by CIO Shamim Mohammad and his executive colleagues, CarMax has co-located teams from across divisions of the company to create solutions. Mohammad also has created a taxonomy of digital themes and focused CarMax product teams around each of them.

This process-innovation, or change in “how” product development is done at CarMax, helps teams think about the customer impact of the work they are doing.

2. The Large-Firm Advantage

Examples of innovation are often cited based on transcendent successes from startups. Indeed, these smaller, more nimble firms have some advantages over their larger brethren.

However, large firms have some real advantages to drive innovation. In addition to having access to capital for research, development, and experimentation, large firms often possess a broad, cross-functional set of internal resources that can bring significant diversity to a discussion.

Perhaps more significantly, large firms attract the interest of thousands of startups that hope to earn spots as long-term partners. Relative to a pure focus on internal resources, this fact expands the diversity pool exponentially.

We’ll take a closer look at this in the next point.

3. Open To Open Platforms

In today’s hyper-connected digital age, I believe 90% of innovation should come from outside the firm. One effective mechanism to harness this innovation is open platforms. Open platforms allow third parties to focus their innovation in areas that the larger, established firm sees as important to the business.

Hackathons— where cross-functional teams work collaboratively to build a solution to a specific problem — are one example of how an established firm can use an open platform to draw in outside innovation. Hackathons are often centered on a known business problem or a certain set of data or capabilities that don’t yet have a use at a firm.

Other examples of open platforms in action include accelerator programs from service providers such as Citi or Sprint, whereby startups can develop products on top of a large firm’s platforms and position their product innovation in front of millions of a service provider’s engaged customers.

4. Reaching Out To Outside Expertise

It also makes good business sense for firms to tap into external expertise, particularly if they are pursuing disruptive innovation, for several reasons.

First, a firm might require additional expertise in the targeted area of opportunity. In such cases, looking at long-term help is critical, such as via acquisition or simply hiring a few industry experts. As an example, Sprint’s move into the mobile advertising space with the creation of Pinsight Media in 2012 necessitated acquiring the right outside advertising talent. Sprint (where I worked during time) did this with an acquisition and by bringing on a handful of key industry experts.

Second, firms often find that disruptive innovation needs to leverage processes that are very different from how things operate in existing lines of business. Bringing in expertise from the outside to instill and run these innovation processes allows a firm to make the most of its own assets, while leveraging the strength of a partner that has walked the innovation path many times.

BCG Digital Ventures (BCG DV), Ideo, and Frog Design are examples of firms that partner with organizations to spark and develop disruptive innovation. In some cases, firms such as BCG DV will enter into shared risk models, thereby significantly lowering the barrier to partnership.

5. Features Are Important

When it comes to innovation, don’t forget about your existing lines of business. While new product development in new markets generates a lot of buzz in the media, innovation certainly includes new features or business models within your existing product and service portfolio.

The 70/20/10 principle is a great guideline for how to allocate effort across these dimensions. As this model prescribes, a firm’s leadership should allocate most of its effort (70%) to what it is already doing: feature-innovating on its current product set.

Additional resources are distributed as follows: 20% to next-generation products in adjacent markets, and 10% to completely new categories.

This approach has ties to Clayton Christensen’s “Innovator’s Dilemma” model on “sustaining” versus “disruptive” innovation, drawing a distinction between a firm improving current products versus entering new markets.

Google is cited as a practitioner of this approach, and diverse firms like Amazon appear to operate similarly.

6. Know Who You Are

Most firms comprise a mix of people, with varying tenure and vastly different experiences at prior jobs. While the benefits of this diversity are well documented, this same advantage can create organizational uncertainty. This is why a firm must adhere to who it is.

Firms with exceptionally strong sales and marketing skills, for example, may find that innovation in product features isn’t a worthwhile priority, while continuing to innovate processes to support the success of the sales team is a make or break proposition.

Also inherent to a firm’s identity is the awareness of scale. A firm’s size—typically viewed in terms of revenue or number of customers—changes the decision-making criteria for when to approve ideas.

When selling products online, for example, the common approach is to find anything that can inch sales conversion rates up, even by only a handful of basis points. Smaller firms likely find that such a slight increase is simply not worth the time, so resources should be more appropriately allocated to broader-impacting new feature development.

Final Thoughts

With innovation, as with many things, what works well at one company might not work at yours. Understanding this identity dynamic is important to decision-making.

There is little doubt that continued innovation should be a cornerstone of any firm’s strategy. Elements of innovation, such as experimentation, iteration, and a willingness to fail fast, are now table stakes, undoubtedly made easier through advances in digital technology.

Innovation as a life cycle must be planned for holistically, spanning development of the product, preparedness across the organization, and alignment with corporate strategic focus. This type of comprehensive planning will ensure a firm successfully balances the weight of innovation.

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