Innovation Playbook

Posts concerning the Innovation Strategy Framework

Innovation, Meet Strategy

Just like strategy, being innovative or creative is useless unless ideas can be executed on.

While academics and practitioners alike still argue over whether innovation can be dictated and prescribed, these arguments tend to revolve around the act of creativity or inspiration, rather than the process of innovation.  Just like strategy, being innovative or creative is useless unless ideas can be executed on.  The innovation strategy framework does not attempt to regulate the act of inspiration, only to provide an environment fostering both the identification of ideas as well as the development of these ideas into successful projects.

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Figure 1. The Innovation Strategy Framework

One of the single greatest challenges in developing sustainable innovation practices is not the lack of ideas, but the inability to focus on those ideas most likely to succeed, both in the market as well as within the organization.  Organizations are awash in good ideas, but lack the resources and capabilities to develop all of them into viable products, services, and processes.  Rather than selecting and curating the best ideas, the ones most aligned with the organization’s capabilities and direction, ideas are often selected solely at the whims of organizational influencers using idiosyncratic criteria.  Innovation tends to be born out of circumstance rather than cognizance.

This is where strategic domains fit into the innovation strategy framework (figure 1).

Strategic Innovation Domains

Every company has a set of strategic goals, either explicit or implicit.  These strategic goals help orient the organization, prioritize spending, and become the yardstick by which success is measured.  It only makes sense that these same goals should help an organization identify, develop, and manage its innovation efforts.  Strategic innovation domains align the innovation process with the overall organization acting as agents in the innovation process to seek out innovation opportunities contributing to organizational success.

The inclusion of strategic innovation domains is the key difference between the innovation strategy framework and many other approaches to sustainable innovation.  Innovation is frequently addressed as something that everyone in the organization should do, or be a part of.  Again, this is likely a result of confounding ideation from execution; however, even regarding ideation, expecting organizational participants to be more innovative or creative simply because they are told to do misses the mark.  Employees see this as another task they are expected to perform in addition to their existing duties, without additional compensation.  In addition, this approach is based on the notion that organizations lack ideas, rather than lacking a focused approach to seeking out and executing on the right ideas.

Applying Focus to Innovation Efforts

Strategic domains focus on innovation execution.  Each strategic domain is responsible for identifying, developing, and managing innovation aligned with its strategic focus.  Rather than relying on happenstance to surface the right innovation ideas, strategic domains leverage the innovation processes (attracting, foraying, and experiencing) to seek out appropriate ideas as well as develop the most promising ones.  There are several benefits to this approach.

Imagine if an organization refused to invest in accounting and just told employees to be more accountable.

The most obvious benefit is the alignment of innovation and the strategic trajectory of the organization.  There should be as many strategic innovation domains as there are strategic goals within the organization.  If the organizational strategy changes, then the strategic innovation domains should change to reflect this.  In this manner, the organization’s innovation efforts are focused on those most likely to fit within the organization’s capabilities and long-term focus.  This significantly reduces the signal to noise ratio by eliminating those ideas unlikely to be successfully executed by the organization.

By making an individual (or group) specifically responsible for innovation efforts, you also gain ownership.  If everyone is responsible for innovation, then no one can be held responsible for the success or failure.  Using the innovation pipeline approach of the strategic innovation framework, the innovation efforts of each strategic domain can be measured; and, that which can be measured, can be managed.  Strategic domains make innovation just as much a part of business operations as HR, accounting, sales, or product management.

Finally, making innovation the primary function of an individual (or individuals), leads to more consistent performance.  Making innovation “everyone’s job” in addition to their existing roles means either innovation or operations will suffer when the two objectives compete.  Employing people with dedicated innovation functions ensures continued focus on developing innovation and raises the chances of success significantly.

Importance of Strategic Domains

The number of organizations believing they will be successful with innovation without investing is staggering.  This would be a ridiculous approach to any other business activity.  Imagine if an organization refused to invest in accounting and just told employees to be more accountable.  Yet, when it comes to innovation, leaders somehow assume that telling employees to be more innovative will somehow launch the next market-leading product or service.   Investing in strategic innovation domains not only creates an environment where innovation can succeed, it also telegraphs the organization’s commitment to being successful.  It’s easy to say you believe in the importance to innovative, but until you are willing to invest, it is hard to believe it.

 

 

4 Steps to Initiating Business Model Innovation

Business model innovation is an increasingly common topic.  The advent of freemium and non-linear revenue generation is shaking the foundations of many established organizations whose tried-and-true business models are feeling constrained and sluggish. Even large organizations with strong track records of innovation are feeling consistent pressure to keep up with these rapidly changing market dynamics (Terlep, 2017).  Ironically, many business leaders and strategist have given very little thought to their business model.  Here are four steps, and resources, to assist in getting a grip on initiating business model innovation.

#1 Understand What Your (a) Business Model Is

Perhaps it is an artifact of our technology driven culture where massive companies are built without ever even having a business model, but before you can innovate a business model, you need to understand what a business model is in its most basic form, and what your specific model is.  At its core a business model comprises two basic concepts:

  1. Value Creation (how do you create value); and,
  2. Value Capture (how do you capture some of that value as profit) (Matzler, Bailom, von den Eichen, & Kohler, 2013).

While perhaps pedantic, understanding this basic construct of a business model is highly informative and the progenitor to all other business decisions. They are also the starting place for business model innovation.  Increasing the perceived value of your product without changing the cost to produce it can increase market penetration by being seen as a value offering if you don’t increase price, can increase profit if you capture this new value as profit by also raising prices, or both if the increase in perceived value is greater than the increase in price.  Conversely, maintaining perceived value, but reducing price or the costs to create the product can affect profit.  All business decisions start at this basic level and the business model informs every other aspect of the business.

The part of a business model most misunderstood is the effect of perceived customer value; yet this is one of the most important factors.  Even if your product is no different from competitors, if customers perceive it as more valuable, you have created more value – value you can capture either as market share or in direct profit.  This makes understanding your product’s value proposition a key part of business model innovation.

#2 Understand Your Product/Service Value Proposition

Many businesses either don’t understand the true job that their product performs for their customers, or believe it has no effect on the bottom line (Christensen, Anthony, Berstell, & Nitterhouse, 2007).  Yet, understanding how and why a customer is using your product or service is a key component to evaluating the perceived value.  If you don’t know what job your product is performing, it is difficult to properly affect the perception of how well it does that job.  Christensen, Anthony, Berstell, and Nitterhouse (2007) document several examples of how understanding the right job for your product is essential to understanding perceived value.

For example, how does the value of certain features of your product change depending on how the user is using it?  Does a soccer mom have a different perception of her vehicle than a travelling salesperson?  Does this perceptual difference affect the perceived value of your current product?  Understanding how your products and services are perceived and what their true function is in the lives of its consumers is critical to your business model.  Not only will it help you find ways of maximizing your current business model, it may also lead to new ways of capturing and/or creating value (Bettencourt & Ulwick, 2008).

Understanding how the percieved value of your offering differs, and what contexts affect this perception is a gateway to finding new ways of value capture.  Instead of just offering a product, there may be services when combined with the product could greatly elevate the value.  The easiest example of this is the iTunes store added to the iPod.  Not only did the iTunes store add a significant new revenue stream to apple, it greatly increased the value of the iPod because it worked seamlessly with iTunes to make finding and exploring new music simple.  Capturing “out-of-band” value is an excercise in nonlinearity.

#3 Understand Nonlinearity

Linear bias, the tendency for humans to think in straight-line correlations, can lead to very costly mistakes (Bart de LangheStefano PuntoniRichard Larrick, 2017).  While understanding we live in a nonlinear world is important in and of itself, it can have pronounced effects on business models.  This linear thinking process can severely limit your ability to understand or comprehend business model innovation; we are taught from day one in business school that profit is generate through the difference between the cost to create a product and the price we sell the product for.  In Competing Against Free (2011), Bryce, Dyer and Hatch examine how this linear approach to business models can prevent successful organizations from competing with start-ups using nonlinear business models to capture value indirectly.

The reality is we generate profit based on the cost to create value, and how much of that value we can capture.  This does not suggest that we must capture value directly from the sale of the product, nor does it say we can’t. This is most readily visible in software subscriptions (Microsoft, Adobe) and other technology sectors, but companies like Gillette, HP, and others have built their business similarly for decades.  By selling their “products” at, or below, cost and captured value through the supplies necessary to keep those products functioning they have moved from “product” companies to “service” companies by realigning how they create and capture value.    Evaluating the cost and benefits of these approaches is why understanding nonlinearity is especially important to business model innovation.

#4 Understand Whether to Innovate, How, and When

One of the lessons of Competing Against Free (Bryce et al., 2011) is just because someone else has a different business model, doesn’t necessarily mean you should change yours as well.  Business model innovation is not a simple process and can depend on the conditions of the market and internal dynamics like the presence of leadership capable of making tough decisions and building organizational consensus (Giesen, Riddleberger, Christner, & Bell, 2010).   This is not a process for the faint of heart as it likely affects every aspect of your business from how you market and sell your products, the partner organizations you work with, and even basic accounting, cost-controls, and financial reporting.  Since the business model is the most basic statement of your “theory of business”, changing your model changes everything.

The positive side is that even if you don’t implement a complete business model change, going through these steps will surely uncover a host of ideas about how you can elevate customer perceived value or better capture the value you already create.  It may also help you better understand what new competitive business models might be lurking out there, how they operate, and how you can address them should they come knocking.  Lastly, it may lead to a business model refresh, softening the organization for the day a full business model innovation needs to take place.

References

Bart de LangheStefano PuntoniRichard Larrick. (2017). Linear Thinking in a Nonlinear World. Harvard Business Review, (June). Retrieved from http://hbr.org/

Bettencourt, L. A., & Ulwick, A. W. (2008). The customer-centered innovation map. Harvard Business Review, 86(5), 109–114. http://doi.org/Article

Bryce, D. J., Dyer, J. H., & Hatch, N. W. (2011). Competing against free. Harvard Business Review, 89(6). Retrieved from https://hbr.org/

Christensen, C. M., Anthony, S. D., Berstell, G., & Nitterhouse, D. (2007). Finding the right job for your product. MIT Sloan Management Review, 48(3), 38. Retrieved from http://sloanreview.mit.edu/

Giesen, E., Riddleberger, E., Christner, R., & Bell, R. (2010). When and how to innovate your business model. Strategy & Leadership, 38(4), 17–26. http://doi.org/10.1108/10878571011059700

Matzler, K., Bailom, F., von den Eichen, S. F., & Kohler, T. (2013). Business model innovation: Coffee triumphs for Nespresso. The Journal of Business Strategy, 34(2), 30–37. http://doi.org/10.1108/02756661311310431

Terlep, S. (2017). Procter & Gamble vs. Nelson Peltz: A Battle for the Future of Big Brands – WSJ. Retrieved October 9, 2017, from https://www.wsj.com/articles/p-g-vs-nelson-peltz-a-battle-over-the-future-of-big-brands-1507485229

 

The Processes of Innovation

Successful innovation requires more than just an idea, but the knowledge necessary to develop and deliver innovation based on those ideas.  Even with access to rich knowledge resources, failure is an inherent part of the innovation process (McGrath, 2011).  Processes for selecting, promoting, and executing innovative ideas are critical to innovative strategy.

Different Types of Knowledge Development Processes

Capturing the full value of an organization’s knowledge resources requires understanding the value of various knowledge sources and the processes for selecting, promoting, and executing on the most promising ideas.  Not all knowledge has the same value to the organization, nor can it be captured using the same processes (Mahroeian & Forozia, 2012; Wilson & Doz, 2011).  Wilson and Doz identified three different types of knowledge: existential, embedded, and explicit; although, Mahroeian and Forozia simply define knowledge as existing on a continuum between explicit and existential (or tacit). Each of these knowledge resources requires unique processes and systems for effective utilization by the organization.  Leveraging the concepts of agile innovation (Wilson & Doz, 2011), these processes include attracting, foraying, and experiencing.

Attracting

Attracting is a process designed to bring ideas into the organization from outside.  What may once have been the sole domain of customer experience surveys and suggestion boxes has evolved rapidly over the last few years.  Today, attracting is commonly achieved via communities of excellence, online community forums, and crowdsourcing platforms.

Leveraging the concepts of agile innovation, these processes include attracting, foraying, and experiencing.

Foraying

While attracting, once initiated, is mostly a passive activity managing the influx of ideas and opportunities, foraying is a much more active activity.  Foraying is a process where individuals within the organization seek out and discover information and ideas.  This can be formalized as business development activities, or accidental as part of the normal business interactions with customers, vendors, or other employees.  Foraying requires more direct involvement in uncovering potential ides.

Experiencing

On the opposite end of the spectrum from attracting is experiencing.  Some knowledge and ideas cannot be fully understood or mastered without experiencing them directly.  This is particularly true with tacit knowledge, or ideas rooted intricately in the culture or context in which they originated.

Is the Juice Worth the Squeeze?

The process to capture, promote, and execute on the different types of knowledge requires varying degrees of effort.  For instance, Wilson and Doz suggested explicit knowledge was easiest to capture through an attracting process similar to virtual communities (VC’s) or crowdsourcing approaches (Hammon & Hippner, 2012; Schröder & Hölzle, 2010). VC’s provide an organization a simple, cost-effective method for capturing the innovative ideas of the masses.  At the same time, this easily codified and transmitted knowledge can also be easily stolen or replicated by competitors, diminishing its competitive value.

On the other end of the spectrum, Wilson and Doz argued tacit knowledge can only be acquired through an experiencing process involving greater time and investment targeted at specific markets, challenges, and geographies. This tacit knowledge is more difficult and expensive to obtain. Yet, because of the time and investment, it is also much more difficult for competitors to replicate, which means it also holds much greater strategic value.

Organizations need to develop integrated methods of accessing and converting these resources into viable products and service opportunities, suggesting processes cannot only be for ideation, but also for the selection and continued development of innovative solutions.  At the same time, they must fully understand the risks and rewards associated with the means of accumulating and developing that knowledge.  This is a critical element of innovation success.

Fitting Process into the Innovation Strategy Framework

Innovation processes represent the specific tools through which the organization engages knowledge resources in ideation and execution (black boxes in Figure 1). Per Wilson and Doz, these are not mutually exclusive, but represent potential means of engaging knowledge resources as required in the development of innovative solutions.  For instance, ideation might be achieved using VC’s (attracting), but further development might require rapid prototyping (Sandmeier, Morrison, & Gassmann, 2010; Tuulenmäki & Välikangas, 2011) using direct, on-site customer engagement (foraying), or long-term development within market (experiencing).  Likewise, innovative ideas developed through experiencing might be tested in different markets (foraying) or through crowdsourced selection processes (attracting).  The processes are the formalized ways in which the people across the model interact; they are the tools of innovation selection and development.

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The Innovation Strategy Framework

Furthermore, successful innovation practices require the continued application of knowledge resources from ideation through execution.  The prospect of failure is not only inherent to innovation, failure is a likely part of innovation execution (McGrath, 2011).  McGrath encouraged organizations to embrace the learning opportunities inherent in innovation execution, proposing the use of small-scale experimentation to minimize large-scale failure.  The application of rapid-prototyping and extreme programming processes to new product and service development promote similar practices (Abele, 2011; Sandmeier et al., 2010; Tuulenmäki & Välikangas, 2011).  Sandmeier et al. investigated the use of extreme programming practices in the development of innovative products, and found the early and continued involvement of diverse external knowledge resources was positively related to successful innovation.  Tuulenmäki and Välikangas extolled the similar value of rapid prototyping and experimentation in the successful execution of innovative solutions.  Each of these perspectives suggest the continued inclusion of an organization’s knowledge resources throughout innovation execution to refine and develop optimal solutions.   As a result, the use of attracting, foraying, and experiencing processes to leverage an organization’s knowledge network does not end once ideation is complete, but must be integrated across the entire innovation process.

Opening the entire innovation process to actors beyond the direct control of the organization requires significant dedication from an organization’s leadership.  Developing a culture of innovation is the final major element of innovation strategy.

 

 

References

Abele, J. (2011). Bringing minds together. Harvard Business Review, 89(7–8). Retrieved from https://hbr.org/

Hammon, L., & Hippner, H. (2012). Crowdsourcing. Business & Information Systems Engineering, 4(3), 1–166. http://doi.org/10.1007/s12599-012-0215-7

Mahroeian, H., & Forozia, A. (2012). Challenges in managing tacit knowledge: A study on difficulties in diffusion of tacit knowledge in organizations. International Journal of Business and Social Science, 3(19), 303–308. Retrieved from http://ijbssnet.com/

McGrath, R. G. (2011). Failing by design. Harvard Business Review, 89(4), 76–83. Retrieved from http://hbr.org/

Sandmeier, P., Morrison, P. D., & Gassmann, O. (2010). Integrating customers in product innovation: Lessons from industrial development contractors and in-house contractors in rapidly changing customer markets. Creativity and Innovation Management, 19(2), 89–106. http://doi.org/10.1111/j.1467-8691.2010.00555.x

Schröder, A., & Hölzle, K. (2010). Virtual communities for innovation: Influence factors and impact on company innovation. Creativity and Innovation Management, 19(3), 257–268. http://doi.org/10.1111/j.1467-8691.2010.00567.x

Tuulenmäki, A., & Välikangas, L. (2011). The art of rapid, hands-on execution innovation. Strategy & Leadership, 39(2), 28–35. http://doi.org/10.1108/10878571111114446

Wilson, K., & Doz, Y. L. (2011). Agile innovation: A footprint balancing distance and immersion. California Management Review, 53(2), 6–26. http://doi.org/10.1525/cmr.2011.53.2.6

“Zone to Win” Missing Critical Elements of Innovation Strategy

Although Zone to Win: Organizing to Compete In an Age of Disruption by Geoffrey Moore is a wonderful framework for the management of organizational resources to both lead, as well as survive, disruptive innovation, there are some missing elements that might prove useful to readers.  Specifically, Moore focuses on management, and although absolutely necessary, management does not supersede strategy or innovation in long-term success.  Zone to Win fails to encompass appropriate innovation strategy in two ways: the idea of disrupting your own organization, and gap between innovation ideation and implementation.

The Strategy of Disrupting Your Own Organization

Moore seems uncharacteristically blunt on the idea of organizations needing to disrupt their own business.  Moore suggests “all that stuff about how you have to learn to disrupt ourself–it’s baloney. It can’t be done.”  Moore’s contention is that it is impossible for an established business to replace one business model with another; yet, later in the book documents the success of organizations like Adobe and Microsoft that have radically changed their business models to deliver software via subscription instead of perpetual licensing.  It turns out Adobe and Microsoft are two excellent examples for exploring why it is absolutely important for organizations to engage in deliberate acts of self-disruption.  Adobe intentionally disrupted their existing business model (a highly profitable one) before anyone else could eat their lunch; Microsoft changed theirs only after Google started taking away their business.  Adobe was seen as a leader; Microsoft as a laggard.

From an organizational strategy standpoint, it is absolutely critical to develop strategic scenarios of how the future world may look, and how those changes may affect your existing business model.  Scenario planning provides context that is essential when disruption happens, but more importantly, can presage potential disruptions before they happen.  If scenario planning illuminates a significant threat, the organization has only two options: disrupt their own business in order to transfer old business to new business; or, let someone else start eating away your customer base.  It can be argued that cannibalizing your own business, if only to prevent someone else from doing so, makes sense in its own right.  If that new business also portends an era of growth, more the better.

Working to disrupt your own business should not be an organization’s only focus, but failure to even contemplate it, or act upon it, is a strategic failure.

Moore does cover how an organization can respond to disruptive innovations once the initial attacks begin and makes an excellent case for how to manage those attacks.  However, by dismissing, out of hand, the idea that an organization can lead those disruptions, and thus avoid the attack in the first place, Moore seems to completely discount the value of doing so.  While a brilliant theorist like Moore likely meant to dissuade companies from trying a wholesale rip-and-replace of their business model (not something any serious innovation strategist would propose), simply dismissing the strategic value of self-disruption seems cursory.  Moore’s stance is even more glaring considering the zone management framework he proposes actually makes it possible to disrupt your own business in a structured, well-managed way.

Working to disrupt your own business should not be an organization’s only focus, but failure to even contemplate it, or act upon it, is a strategic failure.

Mind the Gap

Another topic which gets too little attention in Zone to Win, is the gap between innovation ideation and the development of the Incubation Organizational Units (IOUs) suggested to incubate and develop promising innovation efforts.  Here again, Moore proposes management organization and governance brilliantly, but only once the innovation ideas get to the point of being a well-formed business proposals.  What is missing is the innovation strategy to get from ideation to the point of proposal.  Aside from a brief mention of internal R&D or other means, Moore fails to specify where this fits in the zone management framework, or how to appropriately fund it.

There is substantial research supporting the notion that “having ideas” is not the challenge for most established organizations.  On the contrary, the most commonly cited challenge is in identifying ideas with potential, and exploring them to the point where they can be taken as serious projects for the organization.   This process needs to be budgeted for, managed, and held accountable in order to be successful.  Without it, the only projects that move forward will be those lucky enough to have a champion with the authority, clout, and budget to develop them.  This creates a choke point to innovation.

Yet, it misses the fact most start-ups don’t start life with venture capital; they start with funding from the founders and personal investors until they have something they can pitch to those VCs.

Moore’s framework suggests treating IOUs as “start-up” companies and funding them just like venture capitalists (VCs) would, which is (again) a brilliant way to manage well-formed ideas.  Yet, it misses the fact most start-ups don’t start life with venture capital; they start with funding from the founders and personal investors until they have something they can pitch to those VCs.  This stage in the innovation cycle is critical and where most start-ups fail.  It is the large end of the funnel.  In such a well thought-out framework as Zone to Win presents, missing this critical element is disappointing.

Appropriately funding and managing the initial R&D neccessary to initiate innovation is just as critical to success as any other component.  However, the idea of funding pure R&D is not common among many of the organizations that would most benefit from taking Moore’s framework to heart.  Even technology organizations often do this as skunkworks or “off-the-books” projects with little organization, governance, or metrics.  Moore’s failure to address this misses a critical element in successfully leading disruptive innovation.

A Step in the Right Direction

Barring these two criticisms, Moore’s work has certainly cemented his place in the annals of business gurus and shows a continuing dedication to helping organizations overcome their own success.  The zone management framework provides a blueprint for overcoming the obstacles Clayton Christensen (and colleagues) frequently cites as the downfall of established organziations in light of disruptive innovation.  Most importantly, Moore adds significant credibility to the idea that innovation can only be truly successful if: a) it is done outside of the main business (incubation versus performance zones); and, b) it is treated with the same care and dedication used to manage any business process.   By addressing the importance of strategic planning, and formally defining the R&D component, zone management would be even better.

Lastly, one word of warning to devotees seeking to implement zone management. Remember the words of Michael Porter: “strategic positioning, means performing different activities from rivals’ or performing similar activities in different ways (1996, p. 62).  Frameworks like Moore’s are effective tools, but without making them your own, they lose their strategic value.  This is where leadership takes over from management.

References

Porter, M. E. (1996). What is strategy? Harvard Business Review, 74(6), 61–78. Retrieved from http://hbr.org/

 

The Three “People” Needed for Successful Innovation

Despite decades of research into the constructs of innovation, few practical sources of sustained innovation have proven causal to organizational success.  A cursory examination of innovation theory fails to provide concrete evidence that innovation, in itself, is key to long-term success; most innovation theories rely on post-hoc analysis of firm performance focused on successes, rather than failures (Buisson & Silberzahn, 2010; Burke, van Stel, & Thurik, 2010).  The term innovation is just as difficult to articulate being equally evaluated through ex post selection of successful innovation rather than innovative efforts in general.  While innovation may not guarantee firm success, it is clear that organizations failing to adopt to the pace of the modern, global marketplace will flounder (Reeves & Deimler, 2011); the chances of success increase dramatically if organizations are positioned to innovate and change in response.  As such, understanding the models, systems, and approaches improving an organization’s ability to innovate are increasingly important even if they are not proven to promote long-term success, or even successful innovation. This is the basis of the Innovation Strategy Framework, which attempts to combine multiple theories of innovation into a single construct.

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Figure 1. The Innovation Strategy Framework

Today, we are going to look at the importance of people to innovation strategy, what those people do, where they come from, and why they are important to innovation.

Human capital, or the knowledge, skills, abilities and other characteristics (KSAO’s) of the people associated with the organization are the source of innovation.  Human capital is a critical starting point and requirement for the development of organizational knowledge and innovation capabilities (Choong, 2008; Ployhart, Nyberg, Reilly, & Maltarich, 2014).  This is not just the employees of the organization, but also the knowledge resources of partners and other collaborators.  The greater the diversity and density of these knowledge resources, the greater the potential for organizations to achieve innovative outcomes (Dell’Era & Verganti, 2010; Phelps, 2010).   Clearly, the depth, breadth, and quality of the people in the organization are critical dimensions of innovation capability.

The three main groups of people necessary for successful, serial innovation capability are: the people with innovation ideas, the people nurturing and developing ideas into successful innovation, and the organizational leadership fostering innovation.

People as the Source of Ideation

The largest group of people involved with innovation is the infinite sources of innovation ideas (left side of Figure 1).  This group of people, including customers, partners, employees, and others, are the heterogeneous sources of knowledge providing innovative ideas and solutions.  These resources are both internal and external, creating the depth, breadth, and diversity of knowledge to supply the organization with innovative fuel (Dell’Era & Verganti, 2010; Phelps, 2010; Rothaermel & Hess, 2010).  The composition of an organization’s knowledge ecosystem (employees, partners, customers, and others) significantly contributes to the ability of an organization to successfully innovate (Dell’Era & Verganti, 2010; Engel & Del-Palacio, 2011; Kim & Ployhart, 2014; Phelps, 2010; Rothaermel & Hess, 2010; Sandmeier, Morrison, & Gassmann, 2010; Wilson & Doz, 2011).

Interestingly, while this is the largest group of people directly involved with innovation efforts, they are not necessarily the most important.  Yet, many organizations embark on innovation efforts by encouraging their employees to “be more creative”, or “be innovative”.   To the contrary, research suggests most organizations have far more innovation ideas than they can possible deal with; the problem is selecting and developing ideas into real-world solutions.  While organizations need to encourage innovation and creativity, making it the primary focus of innovation efforts will fail more often than succeed. The belief that innovation stems from the rare, perfect idea is a pervasive myth.

Ideation is essential, but completely useless without the other people necessary for innovation success.

People Strategically Selecting and Developing Innovation

On the right side of Figure 1, people in the strategic domains represent the knowledge resources responsible for taking innovative ideas and developing them in alignment with organizational goals and strategy (Ramírez, Roodhart, & Manders, 2011). This group of people is arguably the most important innovation resource in the organization as they are often able to achieve innovation in the absence of well-defined innovation strategies or formally defined roles to direct innovation.  Unfortunately, in the absence of a strategic innovation practices, innovation success is less than assured, becoming the victim of conflicting responsibilities.

Instead of relying on happenstance, organizations should create specific job roles whose entire function is to surface, develop, and promote innovation ideas specific to one strategic organizational goal.  While the strategic goals themselves may change from year-to-year, or be longer term, these strategic innovation specialists are charged with all aspects of taking ideas aligned with their strategic focus from ideation all the way through market release.  These individuals are like innovation product managers, with a portfolio of potential innovation ideas.

The caveat here is that each individual (or team) should be focused solely on one strategic organizational goal, and must have the appropriate resources (outside of existing product management) to develop and mature their innovation portfolio, which leads us to the last group of people necessary for succesful innovation.

Innovation Leadership

Developing an innovation capability within an organization takes substantial effort (Barreto, 2010; Wilson & Doz, 2011).  Accumulating the vast knowledge resources to drive innovation and implementing the systems and processes to integrate knowledge into innovative execution takes significant resources, will, and commitment.   At the top of Figure 1, innovation leadership develops knowledge networks, provides resources to create innovation processes, and the creation, funding, and direction of strategic domain groups (Brown & Anthony, 2011; Engel & Del-Palacio, 2011; Ramírez et al., 2011; Rufat-Latre, Muller, & Jones, 2010).  Without dramatic changes in the way organizations are led, innovation cannot consistently take root (Hamel, 2009).

Innovative management strategies incorporate novel ways of interacting with customers, driving cultures of trust, and opening the organization to honest debate (Abele, 2011; Capozzi, Dye, & Howe, 2008; McGrath, 2011).  McGrath argues fear of failure inhibits organizations from achieving great innovation and an acceptance of potential failure can help organizations use failure to achieve success. Capozzi, Dye and Howe report the benefits of challenging the status quo of the organization often presents a springboard to innovation.  In much the same way reducing the fear of failure helps to spark responsible risk taking, reducing the fear of challenging organizational orthodoxies helps ensure that new ideas are not discarded simply because they are counter to the way things are currently done.  These cultural changes are more difficult than getting the right people or developing systems and processes; they require commitment at the highest levels of the organization.  Without leadership demonstrating this commitment to innovative practices, organizations are unlikely to truly capture their innovative capabilities.

Bridging the Divide

Having all the right people is critical to achieving long-term innovation capability.  Organizations already have an embarrassment of riches in terms of innovative, creative ideas, but without the appropriate people committed and dedicated to their development, innovation success is only a matter of chance.  It happens all the time, but rarely more than once or twice within the same organization.  Only the organizations designed and aligned to foster innovation and committed to the process achieve long-term, repeatable innovation success (think Shell, P&G, or 3M).  Simply telling your employees to be more innovative or offering a suggestion box is not sufficient.

Even having the right people is not enough.  Without the processes governing how these people work together to create successful innovation, success is possible but not guaranteed.  In the next Innovation Playbook, we will look at how to manage the innovation process for success. 

 

References

Abele, J. (2011). Bringing minds together. Harvard Business Review, 89(7–8). Retrieved from https://hbr.org/

Barreto, I. (2010). Dynamic capabilities: A review of past research and an agenda for the future. Journal of Management, 36(1), 256–280. http://doi.org/10.1177/0149206309350776

Brown, B., & Anthony, S. D. (2011). How P&G tripled its innovation success rate. Harvard Business Review, 89(6), 64–72. Retrieved from http://hbr.org/

Buisson, B., & Silberzahn, P. (2010). Blue ocean or fast-second innovation? A four-breakthrough model to explain successful market domination. International Journal of Innovation Management, 14(3), 359–378. http://doi.org/10.1142/S1363919610002684

Burke, A., van Stel, A., & Thurik, R. (2010). Blue ocean vs. five forces. Harvard Business Review, 88(5), 28. Retrieved from http://hbr.org/

Capozzi, M. M., Dye, R., & Howe, A. (2008). Sparking creativity in teams: An executive’s guide. McKinsey & Company, (April 2011), 1–8. Retrieved from http://www.mckinsey.com

Choong, K. K. (2008). Intellectual capital: definitions, categorization and reporting models. Journal of Intellectual Capital, 9(4), 609–638. http://doi.org/10.1108/14691930810913186

Dell’Era, C., & Verganti, R. (2010). Collaborative strategies in design-intensive industries: Knowledge diversity and innovation. Long Range Planning, 43(1), 123–141. http://doi.org/10.1016/j.lrp.2009.10.006

Engel, J. S., & Del-Palacio, I. (2011). Global clusters of innovation: The case of Israel and Silicon Valley. California Management Review, 53(2), 27–49. http://doi.org/10.1525/cmr.2011.53.2.27

Kim, Y., & Ployhart, R. E. (2014). The effects of staffing and training on firm productivity and profit growth before, during, and after the Great Recession. The Journal of Applied Psychology, 99(3), 361–89. http://doi.org/10.1037/a0035408

McGrath, R. G. (2011). Failing by design. Harvard Business Review, 89(4), 76–83. Retrieved from http://hbr.org/

 

Phelps, C. C. (2010). A longitudinal study of the influence of alliance network structure and composition on firm exploratory innovation. Academy of Management Journal, 53(4), 890–913. http://doi.org/10.5465/amj.2010.52814627

Ployhart, R. E., Nyberg, A. J., Reilly, G., & Maltarich, M. a. (2014). Human capital Is dead; Long live human capital resources! Journal of Management, 40(2), 371–398. http://doi.org/10.1177/0149206313512152

Ramírez, R., Roodhart, L., & Manders, W. (2011). How Shell’s domains link innovation and strategy. Long Range Planning, 44(4), 250–270. http://doi.org/10.1016/j.lrp.2011.04.003

Reeves, M., & Deimler, M. (2011). Adaptability: The new competitive advantage. Harvard Business Review, 89(7/8), 134–141. Retrieved from http://hbr.org/

Rufat-Latre, J., Muller, A., & Jones, D. (2010). Delivering on the promise of open innovation. Strategy & Leadership, 38(6), 23–28. http://doi.org/10.1108/10878571011088032

Rothaermel, F. T., & Hess, A. M. (2010). Innovation strategies combined. MIT Sloan Management Review, 51(3), 13–15. Retrieved from http://sloanreview.mit.edu/

Sandmeier, P., Morrison, P. D., & Gassmann, O. (2010). Integrating customers in product innovation: Lessons from industrial development contractors and in-house contractors in rapidly changing customer markets. Creativity and Innovation Management, 19(2), 89–106. http://doi.org/10.1111/j.1467-8691.2010.00555.x

 

Wilson, K., & Doz, Y. L. (2011). Agile innovation: A footprint balancing distance and immersion. California Management Review, 53(2), 6–26. http://doi.org/10.1525/cmr.2011.53.2.6

NetFlix: Practical Examples of People, Process, and Culture in Creating Innovation

In keeping with the traditional analysis of innovative success, a post hoc examination of an organization known for innovation provides anecdotal evidence of the impact of people, process, and culture on organizational success.  By most accounts, Netflix, Inc. (Netflix) is considered a prime example of successful innovation.  Netflix is the leading Internet-based television network and counts some 44 million customers in 40 countries streaming more than one billion hours of content (Netflix, 2014).  Since its initial public offering in 2002, Netflix has moved from an innovative provider of DVD rentals-by-mail to become the dominant player in the pure-play Internet streaming market, a market they almost single-handedly pioneered (Netflix, 2014).  Netflix has enjoyed significant growth in market share, customers, and stock valuation over the years, and the stage has been set for further growth through international expansion, strategic partnerships, and the creation of their own content (Ramachandran, 2014a, 2014b, 2015; Ramachandran & Stynes, 2015; Schwartz, 2015). An examination of key elements of Netflix’s success suggest that business models is not the only thing that Netflix has innovated on the road to becoming a household name.

One of the better-known innovations of Netflix is the organizational culture playbook they developed.  Incorporating aspects of both people and culture, the Netflix employee handbook was presented in 127 presentation slides (McCord, 2014).  From a people perspective, Netflix purports to “hire, reward, and tolerate only fully formed adults” (2014, p. 4).  Among the corporate values are the courage to speak your mind, the ability to make sound independent judgments, being curious, and being innovative (Hastings, 2009).  Hastings also suggests “adequate performance gets a generous severance package” (slide 22).  Netflix not only states a goal to hire and retain only the best people, but also sets an upfront expectation of a culture that supports innovation.  A key element in the Netflix employee methodology is a management philosophy to create a culture of freedom and innovation with employee self-discipline and freedom eliminating many of typical corporate controls like performance reviews, bonuses, and managed vacation time (McCord, 2014).  According to the founder of Netflix, “we’ve had hundreds of years to work on managing industrial firms … we’re just beginning to learn how to run creative firms” (McCord, 2014, p. 6).  McCord reports the development of a culture conducive to innovation is seen as a primary responsibility of Netflix leadership.  Netflix, as an organization, demonstrates a commitment to attracting the right people (knowledge) and fostering a culture that fosters innovation.

Interestingly, the Netflix philosophy that supports the people and culture, eschews formalized process.  According to the Netflix culture definition, process is only required when the complexity of the business exceeds the capability of the people (Hastings, 2009, slide 47).  Hastings declares process, while useful for avoiding the chaos of increasingly large organizations, a limit to the flexibility of the organization to adapt as the business environment changes.  The Netflix response is to drive the percentage of high-performance employees faster than the rise of business complexity to maintain an informal and adaptable organization.   The apparent success of this approach calls into question whether process is independent of people and culture.  It is possible an innovative culture, or superior human capital, mediates the necessity of formalized processes for the diffusion of innovation throughout the organization. It is also possible that Netflix either lacks the need for existential knowledge that would benefit from more formalized approaches to knowledge development (Wilson & Doz, 2011), or that Netflix is simply ignoring the benefits of more formalized knowledge development approaches.  Whether superior knowledge resources and culture mediates the need for more formalized processes is a provocative notion that simply underscores how little is known about how to achieve successful innovation.

References

Hastings, R. (2009). Netflix culture: Freedom & responsibility. Retrieved August 8, 2015, from http://www.slideshare.net/reed2001/culture-1798664

McCord, P. (2014). How Netflix reinvented HR. Harvard Business Review, (JAN-FEB). Retrieved from http://hbr.org/

Netflix. (2014). 2013 annual report. Retrieved from http://ir.netflix.com/

Ramachandran, S. (2014a, November 18). Netflix sets its sights down under. Wall Street Journal (Online). Retrieved from http://www.wsj.com/

Ramachandran, S. (2014b, December 17). Dish Network to integrate Netflix app into its set-top boxes. Wall Street Journal (Online). Retrieved from http://www.wsj.com/

Ramachandran, S. (2015, February 4). Netflix to launch in Japan. Wall Street Journal (Online). Retrieved from http://www.wsj.com/

Ramachandran, S., & Stynes, T. (2015, January 20). Netflix steps up foreign expansion. Wall Street Journal (Online). Retrieved from http://www.wsj.com/

Schwartz, F. (2015, February 9). Netflix offers streaming video in Cuba. Wall Street Journal (Online). Retrieved from http://www.wsj.com/

Wilson, K., & Doz, Y. L. (2011). Agile innovation: A footprint balancing distance and immersion. California Management Review, 53(2), 6–26. http://doi.org/10.1525/cmr.2011.53.2.6

The Innovation Strategy Framework

Innovation is critical to creating and maintaining a competitive advantage in the modern business environment. Organizational leaders must find ways to combine undifferentiated resources to create differentiated products and services (Lawson & Samson, 2001; Teece, 2011, 2012).  These dynamic capabilities require constant innovation to create new value for the organization as well as the organization’s customers.  Innovation is the driver of delivering sustained competitive advantage.

Innovation is not a simple construct. Innovation means multiple things depending on the context (Costello & Prohaska, 2013). Also, numerous, competing models have shown to be capable of creating successful innovation (Bowonder et al., 2010).  This plethora of conceptualizations and models leaves organizational leadership with little practical guidance and contributes to confusion on how to achieve competitive advantage through innovation. The reality is that innovation is a varied, complex concept that encompasses many components.  It is not even easy to identify whether innovation has taken place, because the ultimate litmus test to successful innovation is how it is received in the marketplace, not how it was conceived or executed.  Rather than focusing on specific definitions or models, organizational leaders require enumeration of the basic building blocks fostering innovative capabilities and guidelines on how to orchestrate them for success.

By studying organizations consistently demonstrating serial innovation success, we do know that successful innovation all relies on some basic building blocks.  Putting these building blocks together into an overarching framework allows for infinite variability in discovery, experimentation, failure, and success and is a good place to start understanding innovation as an organizational capability.

The Innovation Strategy Framework

The innovation strategy framework accounts for the key factors identified as critical to innovation success: knowledge resources, processes, metrics (monitoring), and culture (including leadership).   Figure 1 graphically depicts how the innovation success factors fit together as a composite framework.

InnovationModel

The Innovation Strategy Framework

Knowledge Resources:

Knowledge resources include the customers, ecosystem partners, and employees that generate innovative ideas, select appropriate ideas, promote the ideas, and ultimately create innovative solutions.  White boxes in Figure 1 represent the people involved in innovation.  On one side are the heterogeneous sources of knowledge providing innovative ideas and solutions.  These resources are both internal and external, creating the depth, breadth, and diversity of knowledge to supply the organization with innovative fuel (Dell’Era & Verganti, 2010; Phelps, 2010; Rothaermel & Hess, 2010).  On the other side, strategic domains are the knowledge resources responsible for taking innovative ideas and developing them in alignment with organizational goals and strategy (Ramírez, Roodhart, & Manders, 2011).  At the top, leadership develops knowledge networks, provides resources to create innovation processes, and the creation, funding, and direction of strategic domain groups (Brown & Anthony, 2011; Engel & Del-Palacio, 2011; Ramírez et al., 2011; Rufat-Latre, Muller, & Jones, 2010).

Innovation Processes:

Processes include both the processes used to integrate, promote, and develop innovative solutions, as well as the processes necessary to manage and monitor the innovation process.  Black boxes in Figure 1 represent the processes for the generation and development of innovation.  Following the definitions of agile innovation, the processes differ based on the type of knowledge necessary, including attracting, foraying, and experiencing (Wilson & Doz, 2011). Wilson and Doz recommended these be viewed as interactive and iterative depending on the innovation and the organizational need.  Ideation using VC’s (attracting), might require rapid prototyping (Sandmeier et al., 2010; Tuulenmäki & Välikangas, 2011) using direct engagement (foraying), or the development of dedicated innovation teams embedded in remote locations (experiencing). These well-defined approaches formalize the interaction of strategic domains and innovation contributors.  Processes designed to manage the innovation pipeline monitor these interactions.

Measuring Innovation Efforts:

The innovation pipeline in Figure 1 represents the process for managing and monitoring the innovation process.  While the specific measures implemented by any organization will be unique and should not be the same for every class of innovation project, organizational leaders must ensure every process and project has specific measures enabling appropriate management (Chen & Muller, 2010).  Chen and Muller also recommended measures related to the overall revenue and profit growth attributed to innovation, projected value of the innovation pipeline if all projects are successful, and evaluation of the pipeline status.  Measures of the actual profit growth and revenue promote accountability for overall innovation efforts, while the projected value of the innovation pipeline requires the evaluation of each project in terms of expected long-term benefit; project projections also allow for organizational prioritization.  Finally, measures of pipeline status, provide overall monitoring of organization innovation success by measuring the size of the innovation network, the number of ideas making it through each stage of the process, and how quickly innovative solutions reach the market.

Leadership and Innovation Culture:

Finally, effective leadership includes the support, development, and direction of innovation efforts to create an organizational culture built to achieve innovative success.  Gray arrows in Figure 1 represent the actions promoting innovation within the organization.  Knowledge resources are encouraged to participate in innovation development through the development of shared value (Hammon & Hippner, 2012; Lee, Olson, & Trimi, 2012; Schröder & Hölzle, 2010).  Strategic domain groups support the processes of attracting, foraying, and experiencing as a source for both innovative ideas, as well as the knowledge to develop ideas into marketable solutions promoting the organization’s strategic goals (Angelis, Macintyre, Dhaliwal, Parry, & Siraliova, 2011; Sandmeier et al., 2010; Tuulenmäki & Välikangas, 2011).  Leadership develops the organization’s knowledge network and provides the resources required by the strategic domains to engage those knowledge resources. (Brown & Anthony, 2011; Ramírez et al., 2011; Rufat-Latre et al., 2010).  These actions develop a culture where innovation supported, and embraced as a way of doing business.

Putting it all Together

The innovation strategy framework incorporates the principal factors identified to promote organizational innovation success.  Successful innovation requires depth, breadth, and diversity of the organization’s knowledge network, and the internal capabilities to identify, select, promote, and develop innovative solutions.  Organizations must have appropriate processes to integrate the knowledge from the knowledge network, as well as the capabilities to appropriately monitor and manage the innovation process.  The development of the knowledge network, the appropriate processes and the integration of innovation and strategy is the job of organizational leadership directly by example and indirectly through investment.  The innovation strategy framework represents a high-level approach to innovation strategy without making explicit definitions of innovation or requiring specific models for innovation.  The innovation strategy framework presents a holistic view of innovation, not as any specific innovation model, but as basic building blocks capable of delivering innovation in any dimension.

The value in a generic innovation strategy framework is in evaluating an organization’s overall capabilities and deficiencies for achieving innovation success as well as guiding how those critical innovation resources need to interact.  There are dozens of models to develop different types of innovative outcomes (Bowonder, Dambal, Kumar, & Shirodkar, 2010), but organizations lacking the basic building blocks of people, processes, and organizational commitment are unlikely to be successful applying any of them (Christensen & Overdorf, 2000).  Christensen and Overdorf specifically called out resources, processes, and organizational values as the principal factors keeping organizations from surviving disruptive innovation, not a lack of ideas or choice of innovative response.  Long before organizations choose the appropriate innovation approaches, organizations must be primed to be successful.  The innovation strategy framework provides a means of evaluating an organization’s readiness for innovation success and guidance for improving an organization’s chance for future success.

 

References

Angelis, J., Macintyre, M., Dhaliwal, J., Parry, G., & Siraliova, J. (2011). Customer centered value creation. Issues of Business and Law, 3(1), 11–19. http://doi.org/10.2478/v10088-011-0002-8

Bowonder, B., Dambal, A., Kumar, S., & Shirodkar, A. (2010). Innovation strategies for creating competitive advantage. Research Technology Management, 53(3), 19–32. Retrieved from http://www.iriweb.org/

Brown, B., & Anthony, S. D. (2011). How P&G tripled its innovation success rate. Harvard Business Review, 89(6), 64–72. Retrieved from http://hbr.org/

Chen, G., & Muller, A. (2010). Measuring innovation from different perspectives. Employment Relations Today, 37(1), 1–8. http://doi.org/10.1002/ert.20279

Christensen, C. M., & Overdorf, M. (2000). Meeting the challenge of disruptive change. Harvard Business Review, 78(2), 66–76. Retrieved from http://hbr.org/

Costello, T., & Prohaska, B. (2013). Innovation. IT Professional, 15(3), 64–66. Retrieved from http://www.computer.org/

Dell’Era, C., & Verganti, R. (2010). Collaborative strategies in design-intensive industries: Knowledge diversity and innovation. Long Range Planning, 43(1), 123–141. http://doi.org/10.1016/j.lrp.2009.10.006

Engel, J. S., & Del-Palacio, I. (2011). Global clusters of innovation: The case of Israel and Silicon Valley. California Management Review, 53(2), 27–49. http://doi.org/10.1525/cmr.2011.53.2.27

Hammon, L., & Hippner, H. (2012). Crowdsourcing. Business & Information Systems Engineering, 4(3), 1–166. http://doi.org/10.1007/s12599-012-0215-7

Lawson, B., & Samson, D. (2001). Developing innovation capability in organisations: A dynamic capabilities approach. International Journal of Innovation Management, 5(3), 377. http://doi.org/10.1142/s1363919601000427

Lee, S. M., Olson, D. L., & Trimi, S. (2012). Co-innovation: Convergenomics, collaboration, and co-creation for organizational values. Management Decision, 50(5), 817–831. http://doi.org/10.1108/00251741211227528

Phelps, C. C. (2010). A longitudinal study of the influence of alliance network structure and composition on firm exploratory innovation. Academy of Management Journal, 53(4), 890–913. http://doi.org/10.5465/amj.2010.52814627

Ramírez, R., Roodhart, L., & Manders, W. (2011). How Shell’s domains link innovation and strategy. Long Range Planning, 44(4), 250–270. http://doi.org/10.1016/j.lrp.2011.04.003

Rothaermel, F. T., & Hess, A. M. (2010). Innovation strategies combined. MIT Sloan Management Review, 51(3), 13–15. Retrieved from http://sloanreview.mit.edu/

Rufat-Latre, J., Muller, A., & Jones, D. (2010). Delivering on the promise of open innovation. Strategy & Leadership, 38(6), 23–28. http://doi.org/10.1108/10878571011088032

Sandmeier, P., Morrison, P. D., & Gassmann, O. (2010). Integrating customers in product innovation: Lessons from industrial development contractors and in-house contractors in rapidly changing customer markets. Creativity and Innovation Management, 19(2), 89–106. http://doi.org/10.1111/j.1467-8691.2010.00555.x

Schröder, A., & Hölzle, K. (2010). Virtual communities for innovation: Influence factors and impact on company innovation. Creativity and Innovation Management, 19(3), 257–268. http://doi.org/10.1111/j.1467-8691.2010.00567.x

Teece, D. J. (2011). Dynamic capabilities: A guide for managers. Ivey Business Journal Online, 1. Retrieved from http://search.proquest.com/

Teece, D. J. (2012). Dynamic Capabilities: Routines versus entrepreneurial action. Journal of Management Studies, 49(8), 1395–1401. Retrieved from 10.1111/j.1467-6486.2012.01080.x

Tuulenmäki, A., & Välikangas, L. (2011). The art of rapid, hands-on execution innovation. Strategy & Leadership, 39(2), 28–35. http://doi.org/10.1108/10878571111114446

Wilson, K., & Doz, Y. L. (2011). Agile innovation: A footprint balancing distance and immersion. California Management Review, 53(2), 6–26. http://doi.org/10.1525/cmr.2011.53.2.6

The Building Blocks of Innovation

Innovation is not simple to achieve.  Not only is innovation difficult to distinctly define (Costello & Prohaska, 2013), there are numerous, competing frameworks proclaimed as being successful in creating effective innovation practices (Bowonder, Dambal, Kumar, & Shirodkar, 2010).  The litany of successful innovation conceptualizations leaves organizational leadership with little practical guidance in developing credible innovation strategy.  The result is the failure of most organizations in developing successful innovation practices (Rufat-Latre, Muller, & Jones, 2010).

What’s missing is an overarching framework integrating the various definitions of innovation, the different ways to achieve innovation, and the basic components necessary to achieve sustained innovation success.  While many authors have proposed innovation cookbooks purporting recipes for success, what is really needed is an innovation playbook: a set of resources that can be deployed in response to dynamic changes in organizational position and competitive reaction.  Here is an overview of the building blocks providing the foundation of the innovation playbook.

The Elements of Innovation Strategy

Successful innovation relies on the development of knowledge resources, processes, and an organizational commitment to innovation.  Knowledge resources comprise the employees, ecosystem partners, and customers that become the source of innovation ideation and development (Engel & Del-Palacio, 2011; Phelps, 2010; Rothaermel & Hess, 2010; Wilson & Doz, 2011).  In addition to the people necessary to generate innovation, organizations must have the processes to manage the integration of knowledge into the organization, the development of innovative ideas, and the means to manage innovation outcomes (Birkinshaw, Bouquet, & Barsoux, 2010; Rothaermel & Hess, 2010; Wilson & Doz, 2011).  Finally, organizational commitment towards developing knowledge resources, creating appropriate processes, and directing innovation efforts is necessary to create sustained innovation (Brown & Anthony, 2011; Engel & Del-Palacio, 2011; Ramírez, Roodhart, & Manders, 2011; Sandmeier, Morrison, & Gassmann, 2010).  Regardless of the innovation definition, or framework, the people, processes, and culture of the organization are critical requirements for building an innovation strategy.

Knowledge Wanted Here!

Successful innovation depends on the availability of vast, diverse knowledge resources to provide ideation and successful development of innovation.  The depth and breadth of the knowledge encapsulated in the employees, ecosystem partners, and customers of an organization have been linked to positive innovation outcomes (Dell’Era & Verganti, 2010; Kim & Ployhart, 2014; Phelps, 2010; Rothaermel & Hess, 2010; Sandmeier et al., 2010; Wilson & Doz, 2011).  Phelps reported the correlation between the depth and breadth of an organization’s knowledge network and innovation success; organizations with expansive knowledge networks achieved outsized innovative success.  Dell’Era and Verganti found similar correlations with the diversity of design knowledge and innovative success in design-intensive industries.  Sandmeier et al. identified the frequency and diversity of customer involvement in new product development as a catalyst to innovative outcomes.  Regardless of the perspective of innovation success, or the specific knowledge being integrated, successful innovation is consistently correlated with access to expansive knowledge resources through diverse sources.  Only Rothaermel and Hess suggested limits on the benefits of knowledge diversity and density and suggested the need to manage knowledge resources to achieve the greatest net effect.  In short, Rothaermel and Hess proposed the need for processes to identify the best knowledge resources, coordinate the development of innovation, and measure success effectively.

Some Processing Required

Processes for selecting, promoting, and executing innovative ideas are critical to innovative strategy.  Knowledge resources have differing value, and organizations must understand the differences to coordinate innovation effectively (Mahroeian & Forozia, 2012; Wilson & Doz, 2011).  Wilson and Doz identified a continuum of knowledge classifications from explicit to embedded, to existential (or tacit).  Each of these knowledge resources requires unique processes and systems for effective utilization by the organization.  Wilson and Doz also suggested the amount of effort required to utilize knowledge resources was directly proportional to the unique value of the knowledge gained.  Explicit knowledge, which can be easily codified and transferred via virtual communities (VCs) and crowdsourcing solutions, is also more easily acquired by competitors minimizing the unique value (Hammon & Hippner, 2012; Schröder & Hölzle, 2010; Shepherd, 2012).  On the other end of the spectrum, tacit knowledge requires significant effort to understand and experience, but prevents simple duplication (Mahroeian & Forozia, 2012; Wilson & Doz, 2011).  Organizational leaders must understand the use of varying processes appropriate to the knowledge needs of the organization and when to apply them throughout the process.  This knowledge contributes to an organization’s innovation competencies (Šebestová & Rylková, 2011).  Innovation management processes inform the development of these innovative competencies.  Yet, fully developing an organizations knowledge networks requires more than just process, it requires a culture ready to use it.

A Culture of Innovation

Successful innovation also requires an organizational commitment to the innovation process.  Failed innovation attempts are not only likely, that are inevitable (McGrath, 2011).  McGrath proposed developing an organizational approach embracing the inevitability of failure by building processes designed to learn from small failures to avoid large failures; i.e. fail small, fail fast. Proposing the acceptance of failure is a clear example of the import of organizational commitment to innovation and the need for leadership to build a culture that values the innovative process, including the inherent occurance of failure (Rufat-Latre et al., 2010).  Rufat-Latre et al. argued the development of successful innovation efforts was not a simple action, but an iterative process of developing a culture appreciative of, and committed to, developing innovative capabilities.  Organizational leadership is required to support initiatives inviting innovation from outside of the organization, implementing iterative innovation processes embracing failure, developing the organizational capabilities to innovate, and provide guidance on innovative efforts (Brown & Anthony, 2011; Ramírez et al., 2011).  Brown and Anthony, as well as Ramírez et al., highlighted the importance of effective leadership to financially support and direct innovation efforts as strategic and necessary practices within the organization.  Besides direct investment in the process of innovation, leadership is the critical link between organizational strategy and innovation (Bodley-scott, 2011; Ramírez et al., 2011).  Without this connection, innovation will not be directed towards the value that benefits the organization.

Measure for Success

Guiding an organization’s innovative process is a critical factor in developing innovative capabilities.  For innovative organizations, dashboards provide both the ability to gauge successful processes, as well as uncover unique opportunities (Mullins & Komisar, 2011).  Mullins and Komisar suggested dashboards, traditionally used to help keep an organization on track, could help innovators discover opportunities to innovate business processes.  When traditional metrics suggest existing methods are deviating, it could signal changes in the business environment and forewarn of shifts in market dynamics.  These warning signs provide leaders with better means to sense opportunities for capturing value before competitors (Teece, 2012).  At the same time, choosing appropriate measures to manage and measure overall innovation capabilities are also critical to building repeatable innovation practices (Brown & Anthony, 2011; Chen & Muller, 2010).  Chen and Muller presented a general approach to measuring innovation system performance using three primary criteria: innovation contribution to revenue and profit growth, the value of the innovation pipeline, and the quality of the innovation pipeline.  Brown and Anthony documented similar approaches used to increase the proportion of innovative successes.  Fully understanding the health of the innovation process is particularly important as, contrary to general belief, innovation is not stymied by lack of ideas, but an inability to select and promote good ideas (Birkinshaw et al., 2010).  Analyzing the innovation pipeline provides leadership the ability to prioritize innovation efforts, as well as pinpoint where innovation efforts are becoming restrained.

Innovation Building Blocks Summarized

The literature consistently highlights people, process, and organizational commitment as critical factors for successful innovation.  Broad, diverse knowledge resources increase the breadth of innovative solutions available to the organization.  Developing the processes appropriate to identify, integrate, and develop innovative ideas, as well as manage the innovation pipeline promote the development of an organization’s overall innovative capabilities.  Organizational commitment provides the resources, guidance, and culture required to innovate successfully, through the direct engagement of leadership in creating an organization valuing and promoting innovation.  People, processes, and effective innovation leadership constitute the building blocks for innovation strategy.

These building blocks are the foundation of the innovation playbook.

 

References

Birkinshaw, J., Bouquet, C., & Barsoux, J. (2010). The 5 myths of innovation. MITSloan Management Review, 52(2), 43–50. Retrieved from http://sloanreview.mit.edu/

Bodley-scott, S. (2011). Linking innovation to strategy. Training Journal, (March), 64–67. Retrieved from http://www.trainingjournal.com/

Bowonder, B., Dambal, A., Kumar, S., & Shirodkar, A. (2010). Innovation strategies for creating competitive advantage. Research Technology Management, 53(3), 19–32. Retrieved from http://www.iriweb.org/

Brown, B., & Anthony, S. D. (2011). How P&G tripled its innovation success rate. Harvard Business Review, 89(6), 64–72. Retrieved from http://hbr.org/

Chen, G., & Muller, A. (2010). Measuring innovation from different perspectives. Employment Relations Today, 37(1), 1–8. http://doi.org/10.1002/ert.20279

Costello, T., & Prohaska, B. (2013). Innovation. IT Professional, 15(3), 64–66. Retrieved from http://www.computer.org/

Dell’Era, C., & Verganti, R. (2010). Collaborative strategies in design-intensive industries: Knowledge diversity and innovation. Long Range Planning, 43(1), 123–141. http://doi.org/10.1016/j.lrp.2009.10.006

Hammon, L., & Hippner, H. (2012). Crowdsourcing. Business & Information Systems Engineering, 4(3), 1–166. http://doi.org/10.1007/s12599-012-0215-7

Kim, Y., & Ployhart, R. E. (2014). The effects of staffing and training on firm productivity and profit growth before, during, and after the Great Recession. The Journal of Applied Psychology, 99(3), 361–89. http://doi.org/10.1037/a0035408

Mahroeian, H., & Forozia, A. (2012). Challenges in managing tacit knowledge: A study on difficulties in diffusion of tacit knowledge in organizations. International Journal of Business and Social Science, 3(19), 303–308. Retrieved from http://ijbssnet.com/

McGrath, R. G. (2011). Failing by design. Harvard Business Review, 89(4), 76–83. Retrieved from http://hbr.org/

Mullins, J., & Komisar, R. (2011). Measuring up: Dashboard for innovators. Business Strategy Review, 22(1), 7–16. Retrieved from http://onlinelibrary.wiley.com/

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