Six Levers for Solving the Corporate Innovation Problem – Part 1

Innovation is at the top of the Management Agenda for many companies. For excellence in innovation, companies have to master the chain of activities from discovering valuable insight into unmet customer needs to successful market adoption. However, despite large and growing investments into innovation, results remain disappointing. We call this the “corporate innovation problem”. In this 3-part article series we dig deeper into this problem and find that there are actually two root causes for it. We focus on one of the root causes – the “system problem” – and work out six levers of improvement. Acting on these levers offers a solution to the corporate innovation problem and ultimately increases innovation performance.

Successful innovation: Two processes in one

As we have outlined in previous articles, the process of delivering successful innovations spans the chain of activities from discovering insights into valuable and unmet customer needs to the market adoption of commercially viable products, services or business models addressing these needs. This chain consists of two sub-processes.

The first sub-process is the early of stage innovation “Fuzzy Front-End” (short: FFE). In the FFE, the company needs to

  • Capture the “noise” of changes in the lives of the customers (“jobs to be done”), in the relevant technological domains and in the business environment.
  • Elicit the “signals from noise”, i.e. distill insights about unmet customer needs that the customer is willing to pay for.
  • Generate ideas based on these insights.
  • Connecting the ideas with other relevant ideas, with staff and managers who are helpful in driving them.
  • Select the most promising ideas.
  • Develop the most promising ideas into strong concepts and rapid prototypes with a preliminary check on customer desirability, technical feasibility and commercial viability.
  • Solve innovation challenges by finding the right experts from inside the company and from outside.
  • Specify the intended innovation.

The second sub-process is the execution phase, the so-called “Efficient Back-End” (short: EBE). In this, the specified innovation concept is turned into real products, services or business models. In the modern view of the EBE, this sub-process does not end with start-of-production. Rather it extends to a point where Pioneers and Early Adopters have been convinced to take a risk and pay for the innovation. This view is shaped by countless experiences showing that the more innovative an innovation is, the more effort and attention is required to ensure success in the marketplace.

Exhibit 1: The overall innovation process

The search for FFE excellence

How to design an optimal Fuzzy Front-End.

One way of looking at the overall innovation process is that the FFE is about “the right innovation things” (effectiveness) whereas the EBE is about executing “innovation things right” (efficiency and quality).

As we have outlined in the articles mentioned above, there is no such thing as a one-size-fits-it all “excellent FFE”. In designing its FFE, every company needs to consider “hard factors” such as industry clock speed, disruptive risk and innovation strategy as well as “soft factors” which are rooted in the company’s culture.

FFE excellence, i.e. the key value driver for innovation effectiveness, comes from having an optimally designed FFE and exhibiting highest performance in all of the activities mentioned in the list above. FFE excellence does not come overnight. It requires sustained investments in several ways, coupled with trial and error and continuous optimization over several years.

Companies are aware of this and invest significantly to improve their FFE. Studies show that – with the exception of the financial crisis at the end of the 2000s – R&D spend has been growing continuously over the last 10 years.

Exhibit 2: Companies are investing heavily into the Fuzzy Front-End

Investing into the FFE: Open Innovation

A part of the growing innovation / R&D investments went into open approaches to innovation. Some 15 years ago, this meant intensifying research co-operations with universities, co-innovations with customers or other companies bilaterally or multilaterally in innovation clusters.

About 10 years ago, investments were made in using intermediaries such as NineSigma or InnoCentive in order to find unknown ideas and experts for solving innovation challenges. Some companies used the “innovation challenge model” that they learned from working with these intermediaries use and invested in building proprietary innovation networks, e.g. P&G with “connect+develop” or Beiersdorf with “Pearlfinder”.

More recently, investments have been made into approaches that discover innovation corridors beyond the innovation search fields. This is done by “systematic serendipity” with “unusual” co-innovation partners. Evonik, a German Euro 16B Specialty Chemicals company, is widely seen to be the leader in this particular type of open, cross-industry innovation.

Investing into the FFE: Innovation Centers

In the last years, a number of companies have invested into building listening posts or innovation centers in major hubs with the explicit mandate to discover and to drive significant innovation opportunities.

Usually, these innovation centers aim at gaining access to latest technologies and deeper understanding of customer needs by leveraging the hub’s ecosystem of incumbents, startups, venture capitalists, accelerators, vendors and academic institutions.

…the number of corporate innovation centers now exceeds 300 and Silicon Valley, London, Paris, Singapore and Tokyo are the major hubs.

Capgemini has found that the number of corporate innovation centers now exceeds 300 and Silicon Valley, London, Paris, Singapore and Tokyo are the major hubs.

Investing into the FFE: Manufacturing-focused Innovation Centers

Companies are also investing in innovation centers for manufacturing technology. One example of these so-called “FabLabs” is Airbus’ Protospace. It provides Airbus and trusted partners with adaptive environments and tools that support the materialization of emerging, manufacturing-related concepts.

Protospace is designed in a way that a number of pathways to industrialization are possible. So for instance, a specialized component might be constructed collaboratively between Airbus and a partner including Protospace’s 3D-printing facilities but the industrialization is then done outside of Airbus by the partner.

In some instances, the boundaries between innovation centers and FabLabs are blurring. One example is General Electric’s Bielsko-Biala site which is an innovation center and a FabLab at the same time. There, customers and GE teams co-locate and co-innovate with the scope of joint activities ranging from ideation, rapid prototyping, product development and building up technical capabilities to product certification.

Investing into the FFE: Corporate Venture Capital

Corporate Venture Capital (CVC) is usually used in one of two ways: Firstly, via direct cash investments, companies want to get access to emerging technologies and business models and/or obtain a mid-term bucket of strategic options. Secondly, by founding or participating in accelerators and incubators, companies want to be able to look into a broad array of search fields.

As Boston Consulting Group (BCG) has found recently, CVC – which makes up roughly 13% of all global Venture Capital – is being refocused, from a more financial focused objective to innovation itself. While the combination of investment vehicle and search field differs significantly by industry, BCG found that across a number of industries the innovation center approach is surging ahead in importance. According to BCG, roughly one third of major companies is using CVC in this way.

Investing into the FFE: Innovation management systems

Investments into the FFE are also targeted at formalizing innovation management processes and deploying supporting IT systems.

Accenture recently found that 74 percent of large companies now have formal innovation processes (up by 12 percentage points since 2012) and that use of advanced IT tools has become widespread. So for example, systems for rapid prototyping, applications for social media analytics and ideation platforms are now present in 80 to 90 percent (depending on the category of tools) of large companies.

The corporate innovation problem

However, as we will show in the next part of this article series, results remain disappointing. We will also highlight that there are two root causes for this problem that we call the “corporate innovation problem.”

By Rob Munro & Frank Mattes

Article series: Six Levers for Solving the corporate Innovation Problem

Part one: the Fuzzy Front-End

Part two: metrics on the corporate innovation problem

Part Three: six levers to change the “system problem”

About the authors

Rob Munro runs innovation.support’s business in UK and Ireland. Before consulting with leading companies on innovation management, he spent over twenty years within multinational chemical and material companies creating new technologies, building new businesses and developing capability. He has held senior management positions from manufacturing to commercial and R&D with a track record in developing business and innovation strategies, improving business work processes and delivering complex high-value projects. Rob also founded The Growth Engine specializing in developing innovation strategy for clients and guiding them to build more robust, effective innovation systems.

Frank Mattes founded innovation.support and runs its business in the German-speaking countries. Frank Mattes has more than 15 years of experience in managing innovation, change management and projects. He has worked for several specialized medium-sized consulting companies and for The Boston Consulting Group. He also worked at C-level for an IT and a professional services firm. Frank also founded and runs innovation-3 which focuses on integrating cutting-edge innovation approaches into existing innovation management systems. Frank is the author of several books and a contributing editor to InnovationManagement.se, the number one platform for innovation management practitioners.

Image credit: Business team solving a problem in the office from Shutterstock.com

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