Posts tagged innovation
Fast innovations reduce investment risk

Firms have been moving away from large internal R&D operations and are using incubators and accelerators to develop and scale new products and services much faster.

Success comes more from the speed of these incubators and accelerators than from the initial quality of ideas offered for consideration. By making a small investment to test a large quantity of ideas in the incubation phase, a company reduces its risk when it chooses to make a bigger investment to build out and scale an innovation to bring to market or deliver new value propositions.

An incubator team made up of about 6-10 people (a mix of both intrapreneurs from inside the firm and entrepreneurs from outside) can iterate on up to 50 product ideas in three months, quickly moving from one idea to the next and killing off bad ideas early in the process before the company makes a larger investment to roll out a product.

The innovation team will engage both customers and people across the organization, soliciting rapid, continuous feedback.

The idea is to generate lots of ideas, weed out the bad ideas quickly, refine the business models for the winning ideas, and pass those winning business models onto the accelerator stage to go through a similar process to roll out and scale quickly.

A corporate incubator can derisk investment by building value propositions through the process of engaging the customer and people throughout the firm before a big investment to commercialize is made.

Severin Schwan, CEO of Roche, one of the world’s largest pharmaceuticals, says it’s important to establish stage gates early in the process to minimize investment risk: “Our aim is to find things that will one day be breakthrough innovations,” said Schwan in an interview with McKinsey Quarterly, “and to ‘derisk’ them during the early stage, to the point where they are not big gambles if they get to the late stage.”

At each stage-gate hurdle, the innovation team can:

• Stay the course with the design

• Pivot the design/business model

• Kill the project

When a project is killed or fails during these early stages, it’s a victory for the company. The firm hasn’t lost tens of millions of dollars by investing in an untested product.

Perhaps just as important, the company has learned something about what the customer wants. By killing the project, the organization is able to take what it learned and apply that knowledge toward finding a different value proposition for the customer.

Every step of the innovation process is an opportunity to learn more about the customer and market. This knowledge will help the company ultimately deliver better products and value propositions to the customer. And it will help guide the company’s strategic vision.

Importance of corporate values

Customers are increasingly discerning about the products and services they buy. They want to purchase products made by companies that share their values and that are invested in the betterment of the world.

Customer values are important to the innovation process. In many ways, innovation is about finding the common ground between corporate and customer values.

We can’t guess what the customer wants. Products and services cannot be created in a vacuum. They need to be created with an enlightened understanding of the customer and, even more, with the customer’s direct participation in their development.

The success and popularity of startup methodologies in corporate environments is based on developing rapid feedback loops with customers to guide the innovation process and kill projects early that don’t engage the customer with a wanted value proposition. Lean practices articulate the importance of the customer.

Disruptive innovations may or may not serve a company’s current customers in the long run, but they should be consistent with the company’s core values. A company may shift and create new products and services for new markets, but its core values will provide consistent guiding principles for innovating.

An innovation project should be easily articulated by anyone on the innovation team in terms of the firm’s strategic vision and core values. These are the guiding principles of the project. An executive should be dubious if any member of the innovation team cannot articulate a project in these terms.

Further, innovation isn’t only about product engineers and customers. It’s also about engaging a team across the organization and soliciting regular input from business developers, marketing managers, supply chain managers, accountants, and finance managers.

The value proposition needs to converge these viewpoints into a product or service, or even a better understanding of what the customer wants. If an engineer develops a product the customer wants, but the business development team can’t sell it or the marketing team can’t market it or the accounting department says the support costs are too prohibitive, the product isn’t an innovation. Innovations need to find support across the entire business model and with all the stakeholders who will play a role in its success.

Innovation is the exploration and discovery of value propositions that customers want.

It’s not just about customer and corporate values. Employee values need to align as well. How can CEO’s engage employees around the firm’s values and strategy as well as develop a talent pipeline? Prospective employees are discerning in where they choose to work, seeking out organizations that share their own values. If CEOs can’t find common ground, they won’t be able to grow an engaged, committed workforce and will struggle perpetually with the disconnect between corporate and employee values.