Due to the general lack of clarity in regards to the actual definition of innovation, many costly programs aimed at innovating corporate products and processes result in a dead end. Here is where strategic thinking goes a long way. The common image of the saviour entrepreneur, who can turn companies around on a dime, while managing worldwide product launches, is mostly a myth.1)http://www.biztechmagazine.com/article/2013/06/innovation-business-everyone-c-suite An effective innovation program goes far beyond the now dead “20% free time project” at Google, which outgrew its utility as the company matured.2)http://www.businessinsider.com/google-kills-20-time-2013-83)www.quora.com/How-does-Google’s-Google-Innovation-Time-Off-20-time-policy-work-in-practice/answer/Ben-Maurer
Executives identify four critical attributes essential for innovation:4)Boston Consulting Group – The Most Innovative Companies 2015
- R&D processes
- The use of technological platforms
- The systematic exploration of adjacent markets
The data shows that ad hoc is not a scalable nor virtuous approach to innovation. Our approach is to look at both the the macro and micro of innovation. While some innovation experts suggest approaching strategy like a VC or working like a startup, we believe that there is an appropriate time and place for both.
The Macro Level: A high level framework that integrates “Innovation” into the firm’s overall operations, rather than as an add-on. This includes dealing with economic incentives, budgeting and the process of rolling out changes.
The Micro Level: The approach to tackling individual innovation challenges.
The Macro Level: Organizational changes required to foster innovation
Structuring Your Innovation Portfolio: Thinking Like A VC
Quality vs Quantity
Most companies have difficulties pre funding ill-defined innovation – they want to “manage” innovation the way they manage a construction project. Most companies despise the idea of investing in “luck”.5)http://blogs.wsj.com/cio/2015/12/07/cios-time-to-start-thinking-like-a-vc/
Venture capitalists use a portfolio method so that they balance the risk of losers with the upside of winners. Inherent in the VC model is the knowledge that many of the ideas they back will fail. Venture capitalists place additional funds in investments that are reaching goals and stop funding those that aren’t thriving.6)http://www.innovationmanagement.se/imtool-articles/to-be-more-innovative-think-like-a-venture-capitalist/ The goal is to generate a return on the portfolio as a whole.
Typically, in a corporate environment, decision makers try to pick the “best” ideas; a small number of new business proposals are considered, selected and then every effort is made to help them succeed. Failure is not an option. Extra resources and efforts pour into the pet project even when the product is not breaking into the market.
Have a Set Criteria to Green Light Projects
Most VC firms have a semi-standard criteria that they apply to their investment opportunities. It’s typically a 3 to 5 question screen to determine which ideas are worth advancing to the next level. Typically, they should include the following:
– Total Addressable Market: How big is the market in dollars? What is the minimum required market share for success? How does each individual project compare against another? What is your process for comparing projects so they complete on a level playing field?
– Potential Early Adopters: Are there any early customers willing to sign on even before the product is delivered? This is especially critical in B to B initiatives as the typical sales cycle is so long.
– Sustainable Competitive Advantage: There should be a few large competitors or well-funded new entrants already in the target market. Ideally, an innovation should have a technology or a business model that will provide a sustainable advantage for the business.7)https://www.marsdd.com/mars-library/what-investors-look-for-in-a-technology-investment/
– R&D, Manufacturing and Supply Chain Feasibility: How much R&D is required to bring the new initiative to the state where it can be sold? How much modification do you have to make to your manufacturing and supply chain infrastructure to bring the product on line?8)https://www.sopheon.com/innovation-project-management/
– Sales and Distribution Factors: How is the new offering going to be sold? Can it leverage existing corporate sales channels or is a new method of distribution required?
In our next post, Extreme explores the wisdom of “knowing when to fold’em“.
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