Do you know the song “Give love a chance” by Cameo? Recently I heard that song and thought to myself – why not “give innovation a chance” as well. For those of you who like to sing, the adapted lyrics are included at the end of this article. Perhaps something for the next office party? Send me a video if you do.
Later that same day I came across T. Knoster’s model “The elements needed for managing complex change” from 1991. This inspired me to come up with my own design for an A3 poster. Feel free to print and hang it in your office as a way to visualize to management what needs to be put in place to give innovation a chance at your company.
For the purpose of this article I define success as long-term sustained growth, which is a key goal of innovation. Innovation is defined as “new customer value” – i.e. not ideas, R&D, patents, creativity or hackathons. There are plenty of ideas out there but very few that succeed in the market place. That’s why ideas are easy and innovation is hard.
1. WHY AN INNOVATION STRATEGY IS KEY TO SUCCESS
Except for a few exceptions large incumbent companies all have one thing in common. They are all great at innovation theatre. A hackathon here and a workshop there but when you ask about their innovation strategy they look confused.
The larger the company the more dispersed and disconnected the various initiatives become. Often there is no coherent strategy, no clear investment thesis or portfolio goals.
You might have an innovation lab but their focus is disconnected from the overall business strategy of the company, leaving it orphaned and without significant long-term senior management support.
Every time I run live surveys during my workshops to find out more about the company’s innovation strategy and ecosystem, the answers are all over the place. This is unfortunate since the innovation strategy is like the foundation of a house. Without one all you get is a house of cards that will come tumbling down.
“Every CEO will at least give lip service to the idea that the world is moving faster and that we need to do a better job at innovation. But if you go into an organization and ask people to describe their innovation system, you get blank looks. They have none.” Gary Hamel
2. WHY INNOVATION ACCOUNTING IS KEY TO SUCCESS
Besides innovation strategy, something else that is lacking 9 times out of 10 is innovation accounting. So what exactly is innovation accounting and why do you need some?
Measuring innovation initiatives the same way as you measure business as usual is like asking a five year old to carry a 50 pound backpack when you go hiking. The child has great potential but we can’t expect the same level of performance as from an adult. That doesn’t mean the child is not making progress, it’s just that we need a way to measure and convey progress also during “the flat part of the hockey stick”.
On a team level, innovation accounting is essentially about learning metrics connected to lean startup experimentation. What that means in a nutshell is shown below:
- Jot down your business model assumptions on a business model canvas or lean canvas.
- Identify your most risky assumption.
- Convert to a measurable hypothesis.
- Time box your next experiment and set a fail criteria.
- Measure the results of your experiment.
- Draw learnings and insights.
- Pivot or proceed.
Imagine instead that the team was asked to write a 30 page business plan with a five year Excel projection “accurate” down to the third decimal point. The business plan approach creates a false sense of confidence by disguising assumptions as facts and providing a plan for execution. The outputs from such an exercise are imaginary revenue, ROI and profit margin figures and a bias towards scaling too early.
Compare this with the seven point approach outlined above. Here the team is focused on doing business rather than writing business plans, by going into the field and meeting real customers. Their focus is on reducing risk by systematically testing for the most risky business model assumptions. The outputs from the lean startup approach are learning metrics based on interactions with real customers.
The higher the uncertainty the more important it becomes to use learning or innovation metrics as opposed to financial metrics. When you don’t know who is going to be the customer, how to reach the customer, what problem to solve for, how to price and package your product, etc., using traditional execution style financial metrics simply won’t cut it.
“Everyone has a plan until they get punched in the mouth.”
“No business plan survives first contact with the customer.”
3. WHY CROSS-FUNCTIONAL DIVERSE TEAMS ARE KEY TO SUCCESS
Cross-functional diverse teams are key to giving innovation a chance. And yes, you can measure diversity as an innovation metric.
My colleague Tristan Kromer recently wrote an excellent piece on the topic. So instead of me repeating what Tristan has already said, here it is: “Diversity is an innovation metric”.
4. WHY PRINCIPLES, METHODS AND TOOLS ARE KEY TO SUCCESS
Why do some people insist on re-inventing the wheel? Why ignore hard-earned knowledge and wisdom?
While there are a core set of principles that underpin an agile way of working, there are numerous battle tested tools that we can use today to apply these principles in practice.
Naturally not every tool will fit every situation but use what’s already available from an ever growing toolbox and adapt it to your situation. But don’t ignore hard-earned knowledge and wisdom. If you feel overwhelmed by all the information that is out there, hire an experienced innovation coach to guide you.
Although I have no idea if Gartner will be proven right when they predict that “by 2021, more than 50% of established corporations will be leveraging lean startup techniques”, what I do know is that people who say that “Design Thinking is dead!” or “Lean Startup doesn’t work in large organizations” are just plain wrong.
5. WHY TRAINING, COACHING AND PRACTICE ARE KEY TO SUCCESS
If your employees are not allowed the time and space to learn about all of the above, then none of it will matter very much.
At Lean Ventures we propose a three-pronged approach where we combine theory with real-life practice and coaching.
First we introduce the basic theory, then the participants practice what they have learnt in real life. To minimize the chance for misunderstandings how to apply their newly acquired knowledge they are guided by coaches with long experience from entrepreneurship and innovation.
It’s the same with anything that you want to master. It takes a lot of practice. So why is it that with innovation some people think that they are experts after completing a two day workshop on Lean Startup or reading a few books about “innovation”?
6. WHY PERSISTENCE & FLEXIBILITY ARE KEY TO SUCCESS
What is the single most important characteristic to succeed at entrepreneurship? Often people reply “persistence” or “never to give up”. I think that only tells half the story.
To succeed at entrepreneurship we need both persistence and flexibility. We need persistence to keep going when the going gets tough, but we also need flexibility to allow us to change course if the data points in a more promising direction.
If persistence takes overhand we will probably waste time and resources to push something to market that no one wants.
If flexibility takes overhand we probably lack a clear vision of what change we want to see in the world. The bigger the change the longer it usually takes to get there, making long-term earmarked budgets increasingly important.
To sum up, don’t give up on your vision and values but be flexible how you get there.
7. WHY AMBIDEXTROUS LEADERSHIP IS KEY TO SUCCESS
Ambidextrous leadership means that a company has found a good balance between running their “business as usual” and investing into developing new business models.
When the new business model threatens to replace the current business model they should probably be spun out and given autonomous leadership, or else risk being crushed by the mothership.
Alexander Osterwalder suggests in his article “Why Every Company Needs A Chief Entrepreneur” a Chief Entrepreneurship Officer working alongside the Chief Executive Officer, and both reporting directly to the board of directors. I think that Osterwalders thoughts are worth testing and I would like to hear from anyone who has experience from such a setup.
Someone told me that seven is a magical number. Although I don’t believe in magic, if the above seven points can make innovation work for you like magic, I couldn’t be happier.