Tuesday, January 27, 2015

Sustainable Innovation

Albert J. Di Rienzo


RedSky, Inc.

For many companies, sustaining a pipeline of profitable innovations is elusive, and for those that are fortunate to have a robust pipeline of innovations they are often incremental innovations, with a low-level of impact and value versus radical or breakthrough innovations, which typically have a much greater impact, and return a much higher value.  Though books have been written, and courses taught about innovation and entrepreneurship, I wanted to take this opportunity to share my insights from 31 years of diverse experiences by penning this brief article; I hope it will provide some guidance on how to achieve sustainable, profitable innovation – where innovation (for the purposes of this article) refers to the commercialization of invention, and product is used in the broadest since (e.g., a tangible or intangible offering for commerce, a service, a business model).

As mentioned above, innovation falls into three categories, each associated with escalating risk and uncertainty, and respectively, escalating impact and value.  First, there are incremental innovations, which are evolutionary products, and therefore the next logical progression within a product’s life - improving the product within an existing market in ways customers are expecting.  Second, there are radical (or disruptive) innovations, improving a product in ways that the market does not expect. This is typically by being lower-priced or designed for a different set of consumers by applying a different set of values.  Finally, there are breakthrough innovations, which are revolutionary products that create a new market by having a major, sudden impact on society, or on some aspect of human endeavor.  Radical and breakthrough innovations typically improve upon the existing gold standard product by an order of magnitude, or fulfill a considerable unmet need.

While there’s a plethora of topics one must consider to achieve sustainable, profitable innovation, leadership, organizational design, infrastructure, and patience are some of the more pertinent ones in determining success.  Taking them in order, there must be the executive level leadership that champions a culture of innovation, and is responsible as well as accountable for realizing an innovation culture strategically and operationally.  Therefore, leadership must support the new or modified organizational design; set the tone for the level of risk the company is willing to tolerate; be highly communicative at all levels in the organization; monitor the metrics; ensure adequate resources; and assist with the instantiation, implementation, and institutionalization of the resulting organizational design.  Company leadership needs to make a conscious effort to formulate and institutionalize a culture of innovation—whether internal or external—and not all at once, but in a methodical, communicative, refined way. The culture should become a way of life, and be highly visible internally as well as externally.

Organizational design sets the foundation for a culture of innovation.  Culture - in great part - determines whether a company will be successful at innovating, and in many cases, it’s the single greatest inhibitor to innovation.  Every company has a defined culture that's established by its leadership, or the company’s history.  A company's culture can be formal, and therefore, visible and promoted, it can be an operational state, or somewhere in between.  Organizational design includes organizational structure, levels, responsibilities, accountabilities, rewards, and the like.  Adequately established, the organizational design will allow the necessary freedom to operate as a culture of innovation as well as freedom to incubate the ideas within the company’s risk tolerance.  If the company has a low-level of risk tolerance, then incremental innovations will most likely be the primary focus; if the company has a moderate-level of risk tolerance, then radical innovations will figure prominently in their portfolio; and if the company has a high-level of risk tolerance, then breakthrough innovations will figure prominently in their portfolio.

Regardless of the company’s risk tolerance level, there should be a balanced portfolio, with the majority of incubation being in the company’s primary risk tolerance level, yet with some activity in the other two innovation categories.   If a company is not able to innovate within its walls, it can choose to innovate through a spinout entity, or via a collaboration partner, or a collaboration network.

In order to successfully establish and maintain the organizational design that will yield a sustainable flow of innovations, the company must institutionalize the necessary procedures, processes, methodologies, and supporting tools (i.e., infrastructure), with the key word being “necessary” since many companies have the tendency to constrain the organization with over burdensome, unnecessary, and ineffective infrastructure, thereby, stifling creativity and productivity.  Many times the tools and methods were selected prior to the processes, and therefore the adoption of the processes, or the company's best practices, become the output of the tool, instead of the processes defining the tool(s).  The key is to define the processes first.

Finally, the company leadership must ensure patience of time since an existing company will not necessarily realize a culture of innovation in a relatively short timeframe; whereas, a new company may realize a culture of innovation sooner due to the lack of established organizational design and infrastructure.  There must also be patience of money since it will take on-going financial resources to adequately build and maintain the culture.  There’s typically a ramp-up phase that requires additional financial resources, yet with time and success, financial resources can be appropriately managed in order to ensure the innovation culture is not constrained (e.g., consistent percentage of top-line dollars channeled to innovation).
To be successful, make a conscious, deliberate decision to have a culture of innovation, institutionalize the culture, leverage process in support of the culture, be patient, and realize the innovation. Consistently and meticulously refine an innovation culture that encompasses continuous process improvement in order to continue a flow of innovative intellectual capital and innovative products to support the innovation culture, and leverage methods, tools and best practices that support the process.

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