To truly innovate your innovation portfolio or program we need to start from the absolute beginning and make sure that the foundations are strong. Based on our experience we believe that five main principles, or guidelines, outline how this can be achieved. Let’s now dive deeper to each of them. Five main principles, or guidelines, outline our thinking around this subject. Firstly, you need to have a clear strategy and communicate it clearly. You also need to make sure that you fund and encourage true progress, not only presentations that don’t lead to actual business outcomes. Our third principle is to always be consistent in your ways-of-working and keeping your portfolio balanced and aligned through ups and downs. In addition, you need to be able to kill ideas as soon as your validations show that they’re not viable. Finally, you need to be patient. This is all about building the right culture, and that, or lasting business results, don’t happen overnight. In the next paragraphs we’ll dive deeper into each of these principles.
The importance of a well-defined and communicated corporate strategy can’t be denied. Every corporation tends to have a, at least somewhat, clear corporate strategy to guide their actions. It provides a sense of direction and clarity on where and why the company is moving. A well-defined and clear corporate strategy also aids in setting the direction of a company’s innovation efforts, and therefore forms the basis for corporate innovation activities.
One of the main reasons why a clear corporate strategy is important is that it provides direction when defining the domains of interest, or opportunity spaces. The direction a company has chosen obviously has an impact on the domains of interest regarding innovations. But what are domains of interest? They’re the areas in which you develop and validate ideas. For example, it can be that a company plans on expanding to new businesses, and then it makes sense to search for and validate ideas in this new domain. The more clearly you have defined your strategy, the less there are questions about your chosen direction, and the easier it is to ensure that innovation efforts are kept aligned with strategy. Vice versa, without a clear strategy and direction you risk spending valuable resources on ideas that are far from the interest areas of the corporation.
While having clearly defined domains of interest is crucial for the success of an innovation portfolio, you shouldn’t too strictly define where your innovations are. The domains of interest are there to just provide guidance on the direction. Having too strict domains of interest could mean a higher risk of missing out on potentially relevant disruptive innovations. While disruptive innovations are important, you need to find the right balance between incremental and disruptive innovations. Some claim that the right ratio should be 70/20/10 (70% incremental innovations, 10% disruptive innovations, and 20% those somewhere in between), but we believe that there isn’t one universally true answer for everyone. Instead you need to find what suits and supports your strategy.
Having a well-defined and clear strategy and domains of interest doesn’t mean anything unless you’re able to communicate them well to your innovation teams. This is crucial mistake that many corporations tend to make. They often tend to simply rely that innovation teams implicitly do know your underlying strategy and direction. Often this isn’t the case, and while innovation teams have some sort of idea where you are going as a company, they don’t necessarily embrace the full picture, which can lead to unnecessary waste of resources.
Innovations require resources, something that corporations tend to have much more than startups. Yet startups seem to have been better able to operate under uncertain circumstances. Why can’t corporations do the same? As always, there isn’t a clear answer regardless of the endless debate that has been going on around this subject. But some basic ideas should still be followed.
Innovating takes time, it doesn’t happen overnight, and this should also be reflected in the funding of innovation portfolios and programs. Too many times have we read that a corporation is slashing its innovation or R&D budget because no business results have been achieved. When the amount of funding changes radically from time to time, innovation portfolio and program managers don’t have a true opportunity to innovate. With an always fluctuating budget it becomes impossible to plan for the long term, and focus is easily put too much on incremental innovation, which in turn cripples the balance between incremental and disruptive innovations.
On the team level, funding also needs to be ensured. This doesn’t mean that each team should be able to continue working indefinitely without showing any real progress. A good way to structure the funding of individual teams is to follow the lifecycle of the innovation funnel. Each idea should get some level of funding to start validating the most critical assumptions. This funding needs to be kept sufficient enough to enable validation but limited enough to ensure that focus is kept on most critical issues. As the innovation team validates more assumptions and learns and develops their idea, it should start showing real progress and traction to get more funding.
A question that is often asked is how you should measure progress. Each idea is different and therefore it’s impossible to define a set of metrics that suit each and every innovation team. However, there are some dimensions that you need to keep an eye on. Innovations aim at creating new business, and therefore you should already from the start focus on the traction that your idea is achieving. Another important domain is learning in a sense that are you validating assumptions and pivoting your idea based on data from validations. A third domain is efficiency. While the metrics in these domains change from phase to phase and idea to idea, they should be followed both on the portfolio and team level.
When managing an innovation portfolio or program, it is crucial to stay consistent and keep it aligned with the corporate strategy. Consistency is key also in this aspect. Without consistency you will risk all the valuable design work that has gone into planning and building a successful innovation portfolio or program.
One aspect in which consistency is always required is measuring progress. While there are several ways how this can be done successfully, we recommend that you have some clear structure for monitoring progress. One way to do this is to have an “innovation board” for each team. Ideally this board would also contain representatives from your business lines, but more on that in our upcoming posts. The purpose of this board is to ensure that the team is making progress and to provide sparring support when they need help.
A key task for the innovation portfolio or program manager is to at each point in time ensure that the portfolio is balanced and well aligned with the corporate strategy. Individual innovation teams might, and should, pivot their ideas often and while a clear and well-communicated strategy could help resolve potential conflicts between ideas and chosen strategic direction, the innovation portfolio manager should on regular intervals ensure that the ideas are relevant from the perspective of corporate strategy.
Eric Ries taught us all in The Lean Startup to always remember Build-Measure-Learn. This loop is critical from the perspective of ways-of-working and should therefore be an integral part in all innovation efforts. This is a subject that has been discussed in quite a depth, and therefore we won’t go into very much detail in this post on how this should be done.
A key question in an agile way-of-working within corporate innovation portfolios is how often you kill an idea. Validation of assumptions should provide the innovation teams with proof and data on whether the direction is right or not. And when the data says that an idea should be pivoted or killed, you shouldn’t hesitate. But it is really easy to ignore this and just keep going because the team says that they are “making progress”. Another aspect of this is whether the individual teams have the responsibility to truly drive their idea and do they feel confident enough to kill it without repercussions.
Our fifth and final principle summarizes this subject pretty well. Innovation takes its time, you can’t expect results overnight. The same applies to changing the corporate culture, which is very much intertwined with building a successful innovation portfolio. Having the right corporate culture in this sense enables a company to build a sustainable innovation capability. We have written some blog posts also regarding our views and experiences regarding cultural change, so please feel free to read more about this subject here.
To conclude, we do truly believe that also large corporations can be innovative. A key way to achieve this is to lay the groundwork properly and build a lasting foundation. This can be achieved by following the five principles for innovating your innovation portfolio outlined in this post.
Max Knuts, Consultant, BearingPoint Digital & Strategy
This is the second part of our blog series on innovations in large corporations. In our previous post we focused on innovation within banks, click here to read our thoughts. In the next blog post of this series we’ll jump further in the innovation process, to scaling innovations successfully in a corporate environment. Thank you for reading and stay tuned for our next post!