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Saturday, October 18, 2014

Seven Chronic Innovation Problems

Bill Poston is the founder of Kalypso, a global innovation consulting firm. His experience has taught him that every company has its own set of challenges since they have their own history and culture, and operate in a certain way. He, therefore, came to the conclusion that while the above factors made each organisation unique, there were seven key chronic problems that ailed all of them, across the board.

He leads us through them in a webinar called: ‘Seven Chronic Problems for Innovation Officers to Address’. He has helped guide companies to generate return on innovation investment, and so here is what the expert has to say:

1.      Organisations lack an innovation strategy:  While the word innovation gets thrown around liberally in ‘strategy’ discussions, they don’t have a set of clear, growth goals that have to come out of innovation.  This starts with setting growth targets from innovation. It should answer questions as to what “we expect in terms of revenue and margin” and to have a clear idea of “how you are going to be able to deliver those returns and create linkages between investments you are making and those expected results.”  So asking questions like ‘what are your goals’ and ‘what risks are you prepared to take’ and if you are ‘going to use internal resources or leverage others outside the organisation’ are extremely vital.

2.      Lack of alignment: Since innovation is inherently cross-functional, there has to be buy-in from all business units and functions involved. Poston suggests it’s important to ‘understand the plan and communicate intent’. He has seen this lacking across R&D budget allocation, technical and commercial functions, marketing. He says all teams tend to undervalue the contribution of each other. A successful manager has to be able to get everyone on the same page and make sure the strategy gets implemented.
3.      Overloaded pipeline: He has seen budgets go up but the headcount has remained stagnant. So while there is money and hence, the expectations go up for what more can be done, but the ability to deliver hasn’t improved. He feels this “problem is so pervasive that it has become a normal mode of operation.” Research shows that pipelines should be loaded at 80% of the capacity, to give people breathing room to innovate and understand new concepts that may not have been given official sanction. He has seen companies that function well at a 110% level too. But at 200%-300%, it’s just too overloaded. 

4.      Rampant incrementalism: The willingness to assume higher levels of risk for higher levels of growth is very rare. Product portfolios are filled with small, low risk initiatives that have low returns waiting at the end. He said most product innovations are “minor packaging and labelling tweaks that don’t really affect the substance of the product. They may be line extensions which while being nice, are probably unlikely to move the needle on margins, sale or share.”

This problem has got worse in the last 10 years as a result of the financial crises and the short-term nature of the investment horizon.  Poston said, “The irony is that a low-risk portfolio is actually a giant risk to the viability of an organisation.” Such organisations are going to be overtaken by an upstart who disrupts the market.  So allocation of budgets over a mix of high and low risk projects in a portfolio, is a wise move to make.

5.      Unclear accountability: Have a chief innovation officer on board to manage things. He’s got to handle things that need to be done as a team. If accountability lies with the CEO or the chairman of the board, which is normally the case with many organisations, then these men/women are not going to be able to dedicate time from their busy schedules to look into details of every innovation project happening around their company. So the ideal person is one who is comfortable with both the commercial and technical aspects of the innovation business.

6.      Short-term orientation:  If an organisation’s horizon is short term, then it’s very difficult to look at long term initiatives. So an organisation needs to have executives who “elongate the planning horizon and develop a long-term investment view of the innovation priorities.”

7.      Lack of skills:  This is sort of like the overloaded pipeline situation.  There is a lack of key, technical and commercial skills, and people have not been hired who could do more high-end jobs for a while, at most organisations. This downsizing is affecting innovation because critical skills were not developed and in many cases, were not even identified.

These problems are equally present in both – small and large companies, and across industries. So everyone is equally laidback or confused about their approach to innovation.  Finally, Poston believes that revenue projections for a big idea need not be looked into in the early stages of the product cycle. He said, “Any revenue projections that are far out (in terms of time horizon) needs to be discounted by the potential of the organisation to actually deliver them.”

Graphic is from the webinar. This was written for Beyond Jugaad.

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