How much does Innovation have to do with Good Ideas?
Updated: Apr 6, 2021
Let’s come up with more ideas!
I recall a conversation I had with a Sr. Director who wanted to get my advice on how to increase the level of innovation in their company. I asked her what the problem was, without hesitation her response was that “none of our new ideas are getting approved by the executive team.” I could tell that she was disappointed in herself, her line of thinking was that if only she had better ideas to put forward, more innovation would be taking place in her organization.
I asked her what she thought she should do next to solve the issue. There were two things she thought would really get at the problem: a hosted monthly hack event that would be the source of new product ideas and a regular idea pitch session, where employees from across the company would get access to the executives and share their ideas. Both seemed liked great ways to generate more thinking; in considering these actions, I asked to see the ideas that had already been submitted. There was an abundance of them already, many seemed quite viable and interesting; it was puzzling that none of them had been considered further. Would creating even more good ideas solve this problem? I had my suspicion.
In trying to understand the problem more, I replied “ok, let’s say you generate a great pipeline of new ideas for innovation; how will the decisions get made on whether to do them?” This caused a pause with the Director, surely there was a method the executive team used to make decisions, but if it existed she wasn’t aware of it. I then asked, “don’t you think it’s risky to devote all this energy on idea generation if we don’t know how the decision will get made?” A nod of agreement signaled we had to solve the problem in a different way.
What is innovation anyway?
I’d like to frame up the concept of Innovation in a certain way. As a precursor to this, if you haven’t had an opportunity, please read my earlier post on Business Agility where I write about the idea of organizational risk taking and survivability. In that post I suggested that Enterprises look to perform activities that will result in some form of positive payoff, while avoiding negative consequences. The most extreme of those consequences is where they arrive at the “Absorbing Barrier” where future activities can’t be undertaken and the business is now out of business.
Many businesses recognize that simply improving on their current business, “current cash cow”, can’t fend off potential negative consequences forever - making them, as a business, fragile. This usually doesn’t happen gradually, but dramatically when there is a sudden shift in the market: e.g. advent of car, internet, digital photography, social media platforms, etc. So companies seeking to be less fragile work on their “future cash cow”, by developing offerings that broaden their market. It is the investment into that new market that is innovation, so we can define it as:
Innovation is the attempt to develop offerings that broaden your markets.
Most business executives understand the need to build innovation into their strategy, and have likely studied people like Clayton Christensen and the Innovator’s Dilemma. In my experience, leaders do a fairly good job integrating innovation into their stated strategy — they even develop compelling visions on where the company could position itself in the near future. This is certainly necessary but in truth means little when it does not get expressed through what the company actually does. For the stated strategy to be the actual strategy, the organization needs ways to make decisions across the organization congruent with the stated strategy.
How are decisions being made?
During my conversation with the Director, I was reminded by a speech I had heard from a business executive some time ago. At a pivotal moment he turned to the audience and said: “We just need one or two great ideas.”
In my experience most companies have more than enough great ideas. Ideas aren’t the problem, the real problem its getting those ideas converted into options and in turn converting those to outcomes in the marketplace.
So why is it so hard to start something innovative? Innovation typically has a risk profile that looks very different in contrast to initiatives within a market you are already familiar with. It may be hard to quantify the payoff, it may cannibalize existing offerings, or you may need to build new capabilities; this is a lot of risk for an uncertain payoff. Existing market improvements in contrast have much less abstract risks and so appear to make for better decisions. Of course, in many cases, they hide the risk of investing in a shrinking market.
My questions to the Director was to understand where did innovation fit in the stated strategy of the organization and could it be expressed within the existing decision making process. Perhaps the organization wasn’t in a position to take the kind of risks suggested by the stated strategy. I advised that developing a better understanding of this may be a better place to invest time in contrast to developing more ideas.
Visualizing Risks Dimensions
So how could we go about building a framework that helps us make decisions that are in keeping with our strategy? One approach would be to try to articulate the business strategy in the form of risk dimensions that the business needs to manage. I suggested to the Director that we look into two categories of risks and identify some points on them.
Ordinal Risks — Some risk dimensions may have an order to them. For example in the risk dimension of which “Target Markets” to focus on, your strategy may set a preference for “downtown millennials” over “fixed income retirees”. By making these risks explicit we can now contrast any initiative against them. Initiatives that are up the scale are more desirable to start sooner than those down the scale. In summary, ordinal risks allow us to determine whether we start something sooner rather than later.
Nominal Risks — Some risk dimensions may be about achieving balance. The order is not necessarily important, but it’s about achieving the appropriate allocations to your business strategy. Going back to the example of innovation, an established organization may not want to put all their resources towards new markets but they may want to have some amount of allocation. Nominal risks are about achieving the right portfolio balance.
Every organization needs to determine it’s own strategic risk dimensions. If it can be made clear what they are, the organization can make good and timely decisions aligned with strategy. This also allows for decentralized decisions, as the whole organization has a common set of criteria in which to make them. You can identify multiple dimensions of risk together in the form of a Kiviat diagram, and map opportunities across those dimensions.
You accomplish two major things by doing this: you make your criteria explicit which allows for the criteria to be inspected, challenged and improved upon. It also makes it visual, allowing for quick sorting and filtering to support decision making.
This typically leads to 3 possible outcomes:
improved and rapid decisions
adjustments to the model if it does not accurately reflect the strategy
or adjustments to the stated strategy since it does not match the actual risk tolerance of the organization.
This approach answered a few issues for the Director I was advising: should I continue to invest time in developing ideas that could lead to innovation options? And if so, how can I shape the ideas into options that fit the risk tolerance of the organization? Answering this question was key to opening the delivery pipe to innovative options.
Innovation is an outcome of how you Make Decisions
I don’t want you take away from this that you don’t need good ideas for innovation; it’s just that there is a high likelihood that you already have those available. In order to innovate, you need to confirm whether opening your organization to new markets is indeed part of your strategy. And if it truly is, you will need to find a path for innovation to be executed on, and that starts with how decisions are made.