What is innovation management? The easiest way to explain what innovation management is, is by stating what it is not: Leaving the future of your organization up to chance. Innovation management is the process to ensure you get where you want to be in the (near) future. That also explains why innovation management matters.
Innovation is an investment in the future of your organization
Innovation is an investment in the future of the organization with the aim to achieve certain strategic goals (entering new markets, reaching new client segments, achieving revenue growth, increasing profitability etc.). Usually innovation entails the implementation of new technologies, modernization of existing processes, introducing new business models, reaching new markets, expanding to new client segments etc.).
Innovation management is the process to ensure you get where you want to be in the (near) future.
Since innovation is an investment in the future of your organization, innovation management is to ensure this investment delivers the expected results. For that to happen, several things need to be accomplished. Together these activities describe what innovation management entails.
Balancing your innovation investment portfolio
There are two broad categories of future investments: incremental and radical.
Incremental innovations are to ensure that your organization stays up to date. The outcome of these projects ensure that your current services stay current and that the organization achieves its short term organic growth goals. The duration of such efforts is typically a few months, and the return of these investments is around 10%, with a failure rate of about 25-40%.
Radical innovations are to grow and expand your current offerings. This can be new markets, new customer segments, new offerings. Often radical innovations are the results of novel technological opportunities that make it possible to do things you could not do before. Sometimes, you have to develop the technology. More often – at least for service firms – it is the application of technologies invented by tech firms. The typical return of investments from radical innovation is much higher than that of incremental innovations, about 70%, however the chance of failure is much higher too 75-95%.
One element of innovation management is managing this portfolio of innovation investments. The sum of all the innovation activities need to result in meeting the strategic goals, while the investment risks and returns should remain aligned with the desired risk profile of the organization.
Management of the innovation process
Innovation does not happen overnight. It is a process.
A process that starts with ideas and ideation, moves through development and implementation, to end with dissemination of successful new services. Innovation management is to ensure that this process runs smoothly and delivers results.
The problem with the innovation process is that it is a chain. The weakest link will determine your overall outcome. If your organization is great at idea generation, but falters in the rest of the process, your outcome is as bad as the rest of the process. This often means, you will remain empty handed, despite all the great ideas brought in.
Organizations need an innovation process that works and gets ideas to the marketplace. Not just incremental ideas, but also more radical ideas.
Innovation management is to ensure that the innovation process delivers results and that the outcomes are aligned with the strategic goals of the organization.
Filtering “bad” projects
Filtering “bad” projects is another essential element of innovation management.
Not every single idea will work, is a great suggestion, or fits the organization’s future plans. Some ideas are just not worth pursuing further. The market is not right or you don’t have the appropriate capabilities as a firm to pull it off. Filtering these “bad” projects out of the portfolio is essential to free up resources for projects that have potential.
When you are Google, you are guaranteed to have successes along the way, because of the billions of dollars they spent on innovation projects. With literally thousands of innovative ideas going into the system each year and hundreds of projects being supported, there will always be a few winners.
However, most companies – especially in the professional services – innovate every 1-3 years and have at most 1 to 5 projects in their innovation portfolio.
Innovating at this scale makes innovation management an entirely different story. Among others, there is no room for failure.
When failure is not an option
If you innovate only once every 3 years, you better get it right! Leaving things up to chance is certainly not going to make you successful. Not in the last place because:
- Each innovation project is a significant investment.
- The organization’s future depends on the success of the project – why else undertake it.
- Involved employees – typically your most talented ones – will get disgruntled and may even leave if their innovation efforts take forever and a lot of energy to pull off, or fail unnecessarily.
So with fewer projects in your portfolio, innovation management becomes even more important.
With fewer projects in your portfolio, innovation management becomes even more important
Innovation management at a small scale
In law firms, hospitals, engineering firms, consultancies and other professional service organizations there are at most a handful of ongoing innovation projects. This means that innovation management becomes even more important because you:
- Do not have the bandwidth to build a lot of experiences from either failures or successes to optimize your innovation process.
- Cannot afford failures, with just a few projects in your pipeline.
- Cannot afford exploring many dead-ends and need to keep costs in control, as there are just a few clients to sell winning ideas to.
What is there to manage?
Well a lot!
First, there is the innovation portfolio. All the ongoing projects together should lead to the desired strategic outcomes.
Second, there is the innovation process. While success cannot be guaranteed or determined a priori, there are plenty of metrics to use along the way that indicate whether a project is on track or needs to be terminated.
Third, innovation teams need support. There are better and worse ways to go about the innovation process. Just executing upon an innovative idea is unlikely going to make a team successful. An entrepreneurship analogy may help here. If you encourage bright minds with a great idea to set up shop and start their company, about 99% of those who try fail. There are just too many things that can go wrong. That is why you nowadays have startup incubators and accelerators. To teach, support and connect these startups and help increase their chances of their success.
For innovators it is no different, they need similar training, support and access to the right people that will help them avoid common pitfalls and be successful.
While the entrepreneurship literature offers a lot of valuable advice, starting a company is not the same as starting and managing an innovation project. Some aspects are very similar, such as reducing market risks (using customer discovery) or reducing technical risks (using minimum viable prototypes). However, obtaining funding is significantly different. Asking money from external investors is very different than convincing senior management, your business unit and other internal stakeholders to support your project.
Fourth, the innovation process should be optimized. Unpromising projects should be eliminated timely and the most promising projects should proceed through the process as quickly as possible.
How to manage innovation?
If you just innovate every so often, how do you maintain the skill set and capabilities to innovate? How do you afford someone to take care of all the innovation management activities mentioned above?
That is a good question.
As a response, we have created innovation management as a service. With this service, your teams can access and build on our innovation management expertise and capabilities, when needed. You get the benefit of a proven and working process that can be followed by every team.
We work with your employees and guide them through the innovation process. You, as manager, get the data and information you need to decide which projects are a go or no-go, at every milestone.
This way you get the best of both worlds. Your employees stand on the shoulders of the giants in your firm and build on the domain expertise and knowledge that you have in-house.
In the meantime, your teams can move through the innovation process at full speed, because they can follow a process that works.
Overseeing your innovation portfolio becomes easy too. You don’t have to make major investments in innovation projects or need expensive overhead to manage the process. Instead, you make each investment per project and just for one milestone at a time, allowing only the most promising projects to proceed.