Building a Mission, Vision, and Strategy for Innovation

As part of this first innovation governance element, management should reflect on and explicitly address three fundamental questions:

• Why innovate? What benefits can we expect from innovation, or what penalties might we incur if we fail to innovate?
• Where to innovate? In what areas should we focus our innovation efforts to implement or reinforce our business strategy?
• How much to innovate? How much risk can we bear in our innovation drive, and how many resources are we ready to commit to it?

It is critical that management make its expectations explicit regarding why, where, and how much, and that these expectations are widely known in the company. Some companies waste scarce resources pursuing opportunities that, in the end, are sidelined or canceled, not because further research shows them to be less likely to succeed, but because management does not adhere to its own guidelines. Management must also make explicit its own willingness to pursue different levels of innovation. Too often, for example, management pays lip service to radical innovation, but fails to fund the projects that emerge from early stage innovation initiatives.

It is imperative that management also take the time to reflect on these questions. Different members of the management team are likely to have different mental models or implicit assumptions about innovation, often stemming from their own experiences. Unless they have the opportunity to reflect together, to discover where they agree and disagree, their actions and decisions are likely to contradict the mission and strategy as they have been defined.

Discovering Opportunities for Innovation

One critical capability to be developed as part of the company's innovation strategy is “foresight,” or the ability to track weak signals and sense emerging trends in the market, in customer behavior and preference models, and in tech­nologies. Building foresight is a complex process which requires launching efforts to collect market/customer, competitive, and tech­nological intelligence. It requires a company-wide attitude of openness and curiosity and, possibly, the establishment of small specialist departments to constantly scan the environment for weak signals of change and emerging trends, particularly from outside one's own industry.

Many large R&D departments have set up such a capability, appointing a number of technology gate-keepers to follow the progress of new technologies. In recent years, product management and commercial managers have also begun to dedicate valuable resources to long-term market and competitor intelligence activities.

These activities include gathering ethnographic information about customers and their wants and needs (in particular so-called latent needs, of which the customer is unaware), building groups of industry “thought leaders,” and participating in conferences and other gatherings where it is possible to rub shoulders with technologists and customers. However, many companies run the risk of myopia, failing to sense new opportunities or failing to commit to them once they have been uncovered. Product managers may be tempted to look narrowly at the boundaries of their competitive arena and stick to the paradigm on which they built their business. Marketing managers' perspective is often more operational than strategic, which leaves them boxed in as they try to use incremental improvements to compete in the same markets. R&D can certainly become stuck in a commitment to its own technology and ignore potential disruptive changes. The examples of Nokia and RIM highlight the potentially dramatic consequences of such myopia.

The challenge is to establish appropriate boundaries to frame the search for intelligence. If the scope of the search is too narrow, as the examples of Unilever (see box), Nokia, and RIM show, there is a risk of myopia. If it is too broad, then the company may become lost in an endless search for irrelevant trends.

It is therefore important to stress the role of top management, as part of its innovation governance mission, in ensuring that the organization remains in a mode of constant alert to external trends that could disrupt the company's activities and/or create new opportunities. Besides accepting the costs linked to this search for intelligence – some see it as an unnecessary overhead – leaders need to adopt an attitude of extreme openness to external changes, as well as humility to challenge the company's implicit beliefs. Andy Grove, the legendary former CEO of Intel, called it necessary management “paranoia.”⁴

Steering the Execution of Innovation Projects

Of all the innovation governance elements, steering the execution of innovation projects is probably the one that has received the broadest recognition. It was the first innovation issue to be recognized. In the 1980s and 1990s, companies and the academic community began to pay attention to two critical execution activities: (1) optimizing the project pipeline, which includes project resourcing and ensuring that the collection of projects in the pipeline fulfills the innovation strategy; and (2) steering the execution of innovation projects by multifunctional teams by designing and implementing phase/review processes. These processes are designed to manage the tasks as well as the critical decisions of developing a new offering. They make it possible to start a project, while delaying the decision to invest significant resources until enough information has been gathered to be able to judge the likelihood of success. The logic of the phase/review process makes it possible to begin attractive but risky projects with low initial investments. As often happens when addressing complex and systemic issues, it was first seen as a simple linear process – from idea to commercialization. As understanding of the linear process grew, companies and consultants and academics were able to appreciate more subtle aspects, so execution now includes many more factors.

In steering the execution of innovation projects, management should address three new questions, which will be explored in more detail later in this chapter:

• How to innovate more effectively? What approaches should we adopt to meet our innovation objectives and how can we mobilize our organization behind this challenge?
• With whom to innovate? What are the purpose, scope, and process of an effective open innovation strategy and approach?
• Who should be responsible? Who should be the owners of our innovation efforts, and what organizational models will we choose to steer innovation?

The role of governance with respect to execution is to ensure that the necessary processes exist and are being used optimally. Many companies have appointed process owners, who are responsible for implementing and improving processes. Corning, for example, uses a kind of ethnographic methodology to assess how well a process is working for those whose work is framed by it, in order to make sure that improvements are targeted and necessary.

There is, however, a problem that has become more severe in recent years. Now that companies do not need to design processes from scratch, there is a temptation to over-perfect them. Processes should of course be improved when necessary – but management should guard against over-engineering processes, spending more time on them than what they can do for the market warrants.

Developing Innovation-enhancing Capabilities

Innovation-minded leaders are generally aware of the need to enlist as many of their staff as possible in focused innovation management development programs. Of course, innovation requires a range of hard skills, such as new technological competencies or advanced commercial proficiency. These are generally offered as part of the company's traditional training programs. They are needed in most circumstances, but they are not sufficient. At least four other categories of softer skills essential for innovation also need to be developed:

• Customer sensing – understanding customers' evolving hierarchy of preferences and subtle patterns of adoption. What used to be called “the fuzzy front end of innovation” is now more widely referred to as just “the front end of innovation,” and there are many excellent processes to guide the search. These techniques, which must be learned by a broad range of people, include mapping technologies, ethnographic customer research, and so on.
• Idea and concept evaluation and validation – being able to screen and rank ideas and preconcepts generated through an ideation process against the company's strategic criteria. Here again, processes and tools to accomplish this are widely available and can be shared with a broad range of managers.
• Team management – creating a culture and processes that foster collaboration within projects and across functions and levels. This type of training is essential at the beginning of important projects to help team members to bond and encourage them to cooperate with one another while maintaining a healthy confrontation of ideas.
• A to Z project and venture management – including knowing how to reduce the range of technical and market uncertainties as a project progresses, and how to assess the changing value of the project in terms of its fit with strategy, with the proposed portfolio of new offerings, and with offerings already in the market.

Besides ensuring that such skills are being nurtured, innovation governance also promotes critical innovation-enhancing values and behaviors. The range of values to be promoted is long and well known, since they are constantly repeated in the management literature:

• user orientation and customer intimacy;
• curiosity; openness to the external world and to ideas from all over;
• risk taking, tolerance of failure, and learning from failures;
• teamwork and collaboration across all hierarchies and organizational units;
• entrepreneurship and a bias toward a “just-do-it” attitude;
• experimentation and a tendency to build prototypes very early;
• professionalism in project management; respecting timing and budgets; and
• speed and a sense of urgency.

The role of top management and particularly the CEO in this area is critical, since concrete examples – and not just exhortations – must always come from the top. It takes a lot of repeated efforts, in words and deeds, to propagate these values across the organization and make them stick.

Looking at All Types of Innovations and Enriching Projects through Multiple Innovations

Left to their own devices, most business leaders might be tempted to stay within their comfort zone and focus their innovation efforts on only a few areas, typically new technologies, new products, and manufacturing processes, since these correspond to their main functional emphasis. It is top management's responsibility, as part of its governance mission, to make its businesses think more broadly and stimulate them to explore opportunities in a number of other areas.

Many well-accepted innovation typologies can be used for this purpose. The one we prefer is adapted from an original model promoted by the Doblin Group.⁵ It points at innovation opportunities across the value chain.

• Innovating on the company's business models, e.g.
  • reorganizing the business to restructure the value chain;
  • introducing new revenue sources and/or a new and different revenue model;
  • creating new sourcing partnerships.
• Innovating on processes, e.g.
  • building an advantage in enabling processes;
  • innovating on the company's core process.
• Innovating on the company's offering, e.g.
  • pioneering a new product or system concept;
  • launching a new technology with a better quality/price performance;
  • focusing on new product features and attributes;
  • building and offering new product platforms to others;
  • extending the offering with new service products.
• Innovating on the company's way to go to market, e.g.
  • building new distribution channels;
  • repositioning the brand creatively;
  • focusing on activities that enhance the customer experience.

Once everyone in the organization is aware of this typology, management needs to encourage teams to search for combined innovations, i.e. to try to uncover and work on other relevant innovation categories. Many products or services that have sustained a strong market position over the past decades – think of Apple's iPod/iTunes, P&G's Pringles potato chips, and IKEA's furniture business – are the result of combined initial innovations. They all embodied innovations in product concepts, of course, but they also brought together new approaches in business organization, business models, processes, services, and marketing. The power of combined innovations is so potent in creating a sustainable competitive advantage that some companies, like Lego, expressly demand it.⁶

It is therefore good practice for management to insert a mandatory innovation-type scorecard in a company's project review system. This scorecard reminds project teams and the reviewers that they are expected to explore the introduction of relevant new approaches in their new undertakings.

Figure 1.2 shows the innovation scorecard of an actual project plan, before and after review by management. The initial plan was rejected as too conventional and, after extensive discussions, brainstorming and feasibility studies, the more ambitious project plan was approved. This type of approach requires that project review committees include managers with a broad perspective on innovation.

Figure 1.2: Innovation-type Scorecard

Management must be aware, of course, that the more innovations that are introduced in a given project path, the riskier the project becomes. It must therefore balance its ambitions to maintain an acceptable project risk profile.

Encouraging a Series of Incremental Innovations, but also Seeking Breakthroughs to Achieve a Balanced Innovation Portfolio

Although a few companies seem to have adopted a permanent breakthrough culture – this was certainly the case with Apple under Steve Jobs and it is still valid for Google – most companies tend to favor incremental innovations over more radical ones. This often reflects business managers' perception that taking undue risk on a project will attract management's attention and, ultimately, disapproval. Although risk taking is encouraged and failures are officially accepted – at least in principle – in companies' innovation credos, they may not be totally forgotten when the time comes to review individual performance.

Yet sustained innovators tend to be found among companies that combine a stream of incremental innovations with an occasional breakthrough that creates a new market space. A good example is Toyota, with its kaizen approach to traditional product improvements combined with its pioneering development of hybrid vehicle technology. Encouraging a search for radical innovation opportunities in the hope of achieving a breakthrough is therefore part of top management's innovation governance mission. Concretely, this means that risky breakthrough projects must be provided with a different management supervision, team, budget, and process path from incremental ones.

As the Tetra Pak example illustrates, one of the most effective ways to promote breakthrough projects is for management to play a direct role in initiating them and thereafter in sponsoring and supervising them.

By sponsoring high-risk projects while the rest of the company pursues incremental innovation projects, management can transmit important messages to the organization:

• Why management is pursuing these projects, i.e. what are the objectives and potential contributions of the projects?
• What failure rate, hence yield, management considers as “normal” given these projects' level of risk.
• How management intends to manage and supervise these projects to guarantee maximum control, risk containment, and transparency.
• How these projects will be turned into an ongoing operation if/when successful, and to what unit they will be allocated.

Paying Attention to All the Subprocesses within Innovation, Broadly Defined

Management must also make clear that innovation extends well beyond the traditional project-related processes that companies often refer to as NPD (new product development). Indeed, innovation starts well before and ends well after the NPD process. The book Innovation Leaders⁷ suggested that management should adopt a broad look at innovation by paying attention to and structuring its eight constituent i-processes. Four of these relate to the upstream part of innovation, i.e. the creative Invention phase:

• Immersion: As we have stressed above, immersion in the market using practices like visiting customers is critical for identifying unarticulated customer needs. For R&D it is important to explore existing and emerging technologies to uncover potential sources of improvement, innovation, and/or disruption.
• Imagination: This process is rarely formalized. Yet, innovation always starts with imagining a solution to an untapped customer need or market opportunity. Imagination is a process of concrete visioning or “realistic dream making.”
• Ideation: This is generally where a company's NPD process starts. It is the creative part of the innovation process as ideas are collected or generated, clustered, screened, and ranked before being converted into preconcepts and validated.
• Initiation: This process tends to be visible to all because, once a business case has been approved, a formal project is created with an official brief and budget, a project leader and a team, and often a review mechanism.

The other four processes deal with the disciplined Implementation phase:

• Incubation: This process is often under management scrutiny because it is concrete: real work starts for the cross-functional project team with product design and prototype building and testing, and the project proceeds across a range of formal review gates.
• Industrialization: This process receives even more management attention since it generally starts with a formal go/no-go decision and continues with a range of investments in tooling and manufacturing equipment before the production phase starts.
• Introduction: Although critical for success, this process is not always considered as an integral part of the innovation process. Yet it starts and proceeds in parallel with product development up to the roll-out phase and thus needs to be fully integrated.
• Integration: This process (integration of the company's offering into its customers' operations to make them successful) is also part of innovation. It tends to be fully integrated only in those industries that depend on the strength of their technical service or application engineering.

As we have suggested, companies often see the NPD process as starting with ideation and ending with industrialization, which is a rather narrow perspective. So, as part of their governance duties, senior managers need to insist on the first two processes – immersion and imagination – which create the context within which innovation will take place, and the last two – introduction and integration – which will shape market success. They must ensure that these processes are reasonably mapped and understood and that adequate tools are developed to assist in their implementation.

Combining and Balancing Management-led Top-down Innovation and Spontaneous Bottom-up Innovation

Thinking about innovation broadly raises the question of its origin or mode of occurrence. Innovation can indeed be a spontaneous bottom-up phenomenon, driven by the creativity and entrepreneurial spirit of a company's staff. But it can also result from a visionary and ambition-led top-down initiative introduced by management. The two modes of occurrence are, of course, not mutually exclusive. In fact, they are very complementary.

Some companies have a strong tradition of bottom-up innovation. They rely on initiatives from their staff and give them the necessary freedom to come up with new ideas and concepts, which may lead to new business opportunities. In these companies, management sees its role as promoting and supporting front-end innovators, shielding them from possible “idea killers.” It also focuses its intervention on filtering ideas and funding the best ones. Archetypal innovators like 3M and Google probably exemplify bottom-up innovation at its best. Their management has set up systems and rules to support it, notably giving individuals the freedom to work on their own ideas (15% of their time at 3M and 20% at Google). Creating these innovation-enhancing systems and rules to encourage bottom-up innovation is an important part of innovation governance duties.

But relying on bottom-up innovation alone may be insufficient, particularly when circumstances or opportunities require the launch of major costly or complex innovation initiatives in a top-down mode. This type of management-inspired innovation is often found in Asian companies, particularly in technology-intensive industries requiring significant R&D and capital investments. It requires the ability to build and share a vision; a talent for mobilizing the organization behind that vision; and determination to persevere in spite of possible initial problems.

So, understanding the conditions under which bottom-up and top-down innovation will prosper, determining the right balance between them, and adopting management attitudes that will facilitate the two innovation modes are essential elements of innovation governance.

Questions Dealing with the Content of Innovation Efforts

As mentioned earlier in this chapter, to review whether their company has adopted a comprehensive innovation governance system, leaders need to start with three distinct types of questions about the content of innovation: Why innovate? Where to look for innovation? And how much to innovate? Good innovation governance starts with providing clear answers to these three questions.

Questions Dealing with the Process of Innovation

Good innovation governance requires three additional questions to be addressed regarding the practical aspects of innovation activities: How to innovate more effectively? With whom to innovate? And who is going to be responsible for what regarding innovation?