The word “Innovation” gets thrown around way too often, whether in commercials with patents flying off new cars because they’re “oh so innovative”, on billboards or in inspirational CEO speeches. Despite the hype and buzz, innovation is indeed something very real, yet often misconstrued.
For companies that want to succeed in the long game, understanding how to innovate is vital. Right now we want to clear the air and be on the same page about what innovation really is (and isn’t), and where it came from. This isn’t about getting lucky and having one big win; it’s about demystifying how you can build an engine fueled by people and process that continues to innovate for decades to come.
The Innovation Imperative
In 1958, the average lifespan of an S&P 500 company was 58 years. Today, the average is under 18. In order to survive, large organizations must innovate. People love to talk about disruption all of the time (i.e. Amazon disrupting the book buying industry and putting Borders out of business), but even when it comes to competing in existing markets, teams today must innovate to stay alive.
As a result, senior leaders at companies across the world realize that innovation can’t be just a buzzword, isn’t about patent counts, or merely about making work “fun.” It’s an imperative and requires a different way of working throughout the business. It’s not a nice-to-have, but a must-have. It is the innovation imperative.
Where Did Innovation Come From?
Let’s begin by understanding where the word innovation comes from, because it wasn’t always considered a good thing. Canadian historian, Benoît Godin, has spent the last 10 years publishing research on the evolution of the word.
One of the roots of innovation, “novation” started appearing around the thirteenth century in law texts. At the time, it was used when talking about renewing contracts. It’s meaning revolved around newness, not creation.
Flash forward a couple of centuries to the 16th and 17th century religion-laden Europe, and the word “innovation” began coming into play more frequently. At the time its meaning revolved around newness plus change — bad change. Henry Burton, an English Puritan and royal official at the time, used the word in pamphlets denouncing church officials as innovators. Unfortunately for Henry, the people in power didn’t feel like they were the innovators, instead they claimed he was the true innovator. He was sentenced to prison for life, and had his ears cut off… Yep. Not good.
The next turning point in the life of “innovation” occurred during the industrial revolution. At the time, invention was king. The number of patents, R&D labs, and a consumer culture were growing quickly. It wasn’t until 1939, until Austrian economist Joseph Schumpeter drew a distinction between invention and innovation, claiming that invention was “an act of intellectual creativity undertaken without any thought given to its possible economic import, while innovation happens when firms figure out how to craft inventions into constructive changes in their business model.” This was a powerful turning point because companies began to realize that focusing on patents was inventing, not innovating… True innovation didn’t stop at invention, or patents.
Today, it’s safe to say that definition stands true in the business context, and even beyond business, the definition that’s currently in the Merriam Webster dictionary is “a new idea, device, or method AND the act or process of introducing new ideas, devices, or methods.” Both a process or act, and its effect.
What makes things fun, is that if we look at innovation and invention like the mom and dad in a family tree with many generations, there are now tons of innovation offspring: disruptive, breakthrough, sustaining, horizon planning and likely many more to come as innovation and the processes used to innovate become a legitimate school of thought.
How Does Innovation Occur?
So we know what innovation is, and why it’s important, so now the burning question is how do we innovate? Some claim innovation is a matter of luck and a good idea that changes the world for decades to come, before becoming obsolete thanks to newer innovations. A complete art of sorts. Others, see it as a black and white process, a science rather… All you have to do is talk to customers, validate a problem, test a solution, and voila, INNOVATION.
You could probably argue both sides for days on end, but there’s a few things worth bringing to light. First, “visionaries” — those that foresee the future and think up a spanking new idea that’s going to change the world — are largely a myth. Steve Jobs, Thomas Edison, Henry Ford all had brilliant insights into market needs, surrounded themselves with brilliant people and relentlessly pursued the impact they were driven to make. But it had nothing to do with Eureka! moments and lightbulbs flashing above their heads.Trying to come up with game changing ideas by thinking really hard will not drive innovation. Nor will funding ideas at large, just because we thinkthey’re great.
At the same time, an even bigger thing we know is that there’s no silver bullet, or simple one size fits all 10 step process to innovation. Instead there are environments in which innovation is more likely to occur.
Through understanding the different types of innovation, and identifying what’s present in environments where innovation does occur, we’ve begun to see consistent patterns for companies that continuously innovate within corporate environments. Our hope is that by you instilling the right mix of people and process united around the 3 E’s of Innovation (empathy, experimentation and evidence) you’ll be able to create a lasting innovation engine in your organization for years to come.
Why is Innovation Hard?
The Biggest Challenge… The Innovator’s Dilemma. In 1997, Clayton Christensen, Harvard Business School Professor, published a book called The Innovator’s Dilemma, and in it he illustrates how great companies (often unwittingly) meet their demise.
The dilemma Christensen brought to light in his book was this: “the very decision-making and resource allocation processes that are key to the success of established companies are the very processes that reject disruptive technologies.” In other words, as companies grow, they begin to put structures in place. Take for example cascading management hierarchies… These are focused on executing upon known plans for products that need maintenance and improvement. By focusing solely on execution and improvements of current success, companies are completely overlooking what they need to do to ensure success over the long term.
In The Lean Entrepreneur, Brant Cooper and Patrick Vlaskovits dive deeper into this by illustrating the innovation continuum. On one side was sustaining innovation, and on the other was disruptive innovation. Whereas sustaining is focused on making marginal improvements, like the iPhone 6 vs. the iPhone 6s, disruptive innovation, allows a whole new market to access a product or service formerly accessible only to the wealthy or highly skilled.
The challenge then becomes eliminating a sole focus on sustaining innovation, which although valuable, is detrimental to continued disruptive innovation, let alone innovations necessary just to compete in existing markets.
With that said, it’s vital to understand that in order to innovate, we need to instill different operating procedures for different types of innovations due to their inherent differences… Differences we need to take into consideration when trying to succeed on both sides.
On the sustaining side, success is based upon execution, where as on the disruptive side, success must revolve around “searching” and embracing learning (one of the 5 ways to spark innovation we mention here)
It’s not bad to be on the sustaining side; the reason why many startups fail is because they never make it to the point where they have a product and business worth sustaining. But at the same time, a sole focus on sustaining is the very reason a company will not innovate in years to come. An example of this is when our co-founder Aaron Eden won the CEO’s Leadership Award for helping to create 100 Startups in 100 days inside Intuit thus driving $90 million in new revenue in the first year, he was getting negative performance reviews from his immediate boss.
What Are the Other Types of Innovation?
The innovation continuum paints a clear picture of the differences of what companies typically focus on, and what is often overlooked.
Another useful model to consider is the three horizons model (brought to light in The Alchemy of Growth by Mehrdad Baghai, Stephen Coley, and David White). In it, they speak about 3 levels, or horizons of innovation.
- Horizon 1 (aka sustaining innovation) = extending and defending your core business (right now and next year).
- Horizon 2 (aka adjacent innovation) = bringing ideas to fruition and building emerging businesses (1-3 years out).
- Horizon 3 (aka disruptive innovation) = creating viable options for future businesses, that if successful, could put existing business models out of business (3+ years out).
A fantastic of example of a company investing resources into all three is Mercedes Benz. In horizon 1, they’re focused on more sales, ad campaigns, and making a better version for next year’s car (getting .3 better miles to the gallon, etc.) In horizon 2, they see the rise of electric cars, so they’re starting to play more in that field by creating new electric cars. In horizon 3, they’ve launched Car2Go, a service where you can rent nearby Smart cars off the street and pay a per minute fee. The balance here is critical, and they realized that if they didn’t push forward on Car2Go, others would. If they focused only on horizon 2 or 3, they’d be throwing away a billion dollar business.
As companies begin to pursue different innovation initiatives, it’s important to understand the types of risk associated so teams can allocate resources and metrics effectively. We’ve seen the horizons model break many times, because teams try to apply traditional metrics — usually purely financial — across all horizons instead of focusing on validating learnings in horizons 2 and 3. One way to do that is to have teams focus on a healthy mix of innovation initiatives across all three horizons. Even then, there’s two prevalent types of risk: technical risk and market risk.
In plain english, technical risk asks the question, can it be built? Whereas, market risk asks, should it be built in the first place?
We often see large corporations that love to measure the success of their innovation initiatives based on how many patents their R&D teams churn out, even when those products never live to see the light of day. In other words, focusing solely on technical risk without trying to answer the market risk question… Focusing on invention, not innovation.
Even beyond R&D teams, Product Managers take orders to build a new product, without questioning if it should be built in the first place, because people’s psychological tendency is to believe their ideas are good, and find evidence that supports what they already believe.
So What Does This Mean?
We’ve seen teams try to solve for the innovation imperative in many ways, more often than not failing to do so as money, talent and time go straight down the drain. Sometimes we’ll see companies come up with a good idea, and then spend 6+ months scoping it out, investing tons of time and talent into building it, without ever answering the market risk question. We’ve seen those very same products fail big due to some insights that came to light, too late. The very same insights that could’ve been exposed through a proper mix of people and process revolving around the 3 E’s of Innovation (empathy, experimentation and evidence). Instead, teams were too caught up doing business as usual, the very same procedures that seem good now, but ultimately will lead to a company’s demise.
We know we need to innovate, we know that more than likely that what we’re currently doing isn’t cutting it.