Aidan McCullen recommended, “Built to Innovate: Essential Practices to Wire Innovation into Your Company’s DNA”. I can see why. We live in a time when change is the rule, not the exception, and innovation is the only way out. However, every organisation needs to operate two different engines simultaneously: an execution engine and an innovating engine. You need both.
The execution engine
The execution engine is about doing your current work as skilfully, efficiently, and flawlessly as possible. The mindset of the execution engine is sceptical, logical, demanding, and rigorous. All the many financial metrics used to define business success—return on investment (ROI), return on equity (ROE), earnings before interest and taxes (EBIT), the Berry ratio, and more—may be brought into play.
The innovating engine
Managing the innovating engine is quite a different matter. It’s about looking for new ideas—imagining new products or services, designing new work methods or processes, experimenting with new technologies, learning about new markets, or investigating customer (and non-customer) needs and desires that you’ve never previously tried to address.
Ideas and possibilities floated by the innovating engine are—at least temporarily—embraced without concern about whether they are practical, how to make them happen, how they will be used to generate revenues, and what profit margins they might yield. If the ideas excite a strong enough response from members of the organisation, there will be plenty of time later to evaluate and test them according to logical principles and cost-benefit analyses before they are implemented by the execution engine.
By contrast, the value created by the innovating engine isn’t as obvious, and it takes longer to come to fruition. The crucial factor is the organised, focused dedication of a diverse group of people engaged in a systematic process of innovating. The fact is that all of your company’s employees should find themselves working in both engines, But they’ll need to adapt dramatically differing mindsets depending on which engine they are part of at a given moment.
Three key process
Your company’s innovating engine is driven by three key processes of innovating: creation, integration, and reframing.
- Creation is the process by which the organisation continuously generates new ideas—the raw materials of innovating.
- Integration is the second process in the innovating system. This is the process by which the dispersed innovating capabilities and resources within the firmware are brought together into a corporate-wide innovating capability.
- Reframing is the third process of innovating. To prepare for the future, every organisation has to keep questioning its existing strategy even while implementing it. Reframing, then, is about shifting your mental gears sufficiently to recognise the potential value in innovation.
Then there are three main levels of the organisation: frontline innovators, mid-level coaches, and senior leaders.
- The potential of frontline workers to generate ideas is enormous. Unfortunately, frontline workers don’t get the respect they deserve in many organisations. In many organisations, the higher employees rise in the business hierarchy, the less hands-on, face-to-face contact they have with customers and the work processes that actually produce revenues and profits for the company.
- Midlevel managers have a unique job to do when it comes to innovating. As the “glue” that connects the company’s top leadership with its frontline workers, innovation is a social activity, and connectivity is an asset. Companies with great track records of innovation are those with mid-level managers who are truly committed.
- CEOs should reposition themselves as their companies’ “Chief Reframing Officers”. They should constantly frame the future and eliminate needless obstacles and barriers that discourage risk-taking, experimentation, and creativity.
Three core traits
- The first core trait of an organisation built to innovate is its ability to inspire individual creativity and initiative in all its people.
- The second core trait of an organisation built to innovate is its ability to link and leverage the distributed pockets of innovating activity and individual expertise across the organisation by connecting frontline innovators into a coordinated community and an integrated process of organisational learning.
- The third core trait in my conceptual model for the innovating engine is an organisation’s ability to continuously question itself and challenge some of its shared assumptions about its business and customers.
Top leaders have a unique job to do in stimulating and encouraging innovation throughout the organisation. They have three levers:
- Lever 1: The organisational structure. The leader can promote innovating by advocating and implementing changes in the formal structure, rules, and guidelines that govern the organisation.
- Lever 2: Key organisational processes. The leader can work with others to redefine the processes carried out by people, teams, and departments throughout the organisation,
- Lever 3: The organisational culture. The leader can use his or her power, influence, and “bully pulpit” to move the shared values, beliefs, and attitudes that reward those who develop innovations, shielding from punishment or criticism those who take risks and incur reasonable levels of failure in pursuit of innovating,
The book takes examples from clients such as BASF to illustrate some of the models that are being applied, such as a dialogue programme with their clients named “Help Our Customers to Be More Successful. Rather than starting their experimentation with new molecules they hope will have some practical value, they start with the expressed needs of customers. They then collaborate with those customers at every step of the process to ensure that every experiment, test, and redesign is focused on producing a product with powerful market appeal.
It includes “pathfinder”, a particular business unit within BASF that assembles a cross-functional team to tackle a structured set of questions designed to generate a deeper understanding of specific customers—their own value chains, market requirements, industry trends, and more.
Cross-divisional impact groups
They do deep dives into specific topics related to customer-centric innovation, such as value capturing and product launching, have business model labs, cross-divisional impact groups (learning from each other) and impact events across the globe designed to educate BASF team members about the new, collaborative approach to value creation.
As a result of those programmes, they earn a premium on their cost of capital— form the best team in the industry—acknowledging the essential role of human talent in making business success possible. Once you take innovating by anyone, anytime, anywhere, as your goal, you can begin turning your organisation into a true innovating engine.
3M, W.L. Gore and Samsung
Another constant example is dabble-time, the 3M 15% rule the practice of explicitly giving employees free time simply to think, with no return on investment expected or required. But also the importance of leadership principles (be nice to your people) and organisational structure such as W. L. Gore’s nonhierarchical, self-guided structure.
Perhaps the most famous nonhierarchical software company is Valve Corporation. Valve is particularly unusual because it is virtually devoid of managerial layers. Self-selected, multidisciplinary teams called “cabals” formed organically around interesting topics, from which products often emerged. Valve believed that each employee is capable of producing your company’s disruptive technology or service. So why not give every employee the freedom, the flexibility, and the tools to do just that? This management system—which perhaps should be called a “nonsystem”—works brilliantly for Valve.
Bayer was inspired by the organisational model of John Kotter, a well-known management theorist. In his view, organisations can develop dual systems that combine traditional vertical hierarchies with more flexible, horizontally structured networks in order to facilitate freewheeling interaction, communication, and collaboration.
The Corporate I-Team
I-team is a system of innovating coaches (or I-Coach), innovating coordinators (I-Coordinator), and the innovating committee (I-Committee). Every company will adapt the design of its I-Team to fit its culture, size, divisional structure, and other characteristics. Coaches are individuals trained and certified by the I-Trainers after participating in a corporate-wide specific training program that may involve physical classes, virtual training sessions, or a combination of both. Whenever new ideas begin to surface in Bayer’s creation process, various members of the I-Team get involved.
Bayer, the global pharmacology and life sciences corporation based in Germany, operates a powerful innovating engine that includes a digital platform called WeSolve. The virtual innovating space is inclusive—anyone, anywhere, with access to the company’s intranet, can contribute to the innovating process. It’s continually active—any Bayer employee with a few minutes to spare can log on to WeSolve.
The Lean Startup methodology, associated with the work of Eric Ries, entrepreneur, venture advisor, and author, has proven to be particularly valuable. Lean Startup emphasises the importance of objective experimentation and testing before any new idea is deemed ready for widespread adoption. Bayer has taken this philosophy to heart. Read “The startup way“.
The Catalyst Fund was launched in 2017. With the help of the I-Coordinators, 120 challenges with the potential to spawn innovative projects were identified. Eventually, 28 topics that showed unusual value-creating promise were selected by the I-Team in close collaboration with senior business leaders. They were then addressed by a small cross-disciplinary team led by a Lean Startup coach committed to rigorous experimentation and iterative testing of the concept, including fast prototyping. These projects received funding totalling €50,000 (equal to about $60,000) and had three months to explore their solution and pitch it to a venture board of senior executives and innovation ambassadors.
X-teams, are in charge of leading special high-profile, group-wide innovating projects. X-team is typically assigned one highly promising innovating idea, which it shepherds through a development process known as the Innovation Funnel, a task that normally lasts about three months.
Samsung applies TRIZ and Blue Ocean thinking. It also has a Value Innovation Program (VIP) Center. Crucially, the individuals assigned to project teams at the centre are not a separate corps of R&D specialists. Employees live at the centre for weeks at a time, guided by a team of “value innovation specialists” who facilitate their deliberations. In fact, the leaders of the company divisions from which the participants are drawn are asked to sign a pledge agreeing to let them remain at the centre, away from their regular jobs, until the innovative project has been successfully completed.
“Real, Win, Worth.”
A W.L. Gore’s cross-functional team studies the concept and asks three key questions: Real: Does this idea represent a real business opportunity? Win: If we follow this idea into a new marketplace, do we have the potential to win in that space? Worth: Are the potential financial rewards worth investing the company’s time, money, and other resources? When the answers to all three questions are positive, the idea is passed on to a project team that is given the funding needed to research and develop it further.
The Innovation Center is an 11,000-square-foot facility that includes a prototyping lab equipped with everything from laser cutters and 3D printers to advanced microscopy and wet chemistry machinery. The work done at the Innovation Center is far from random. Instead, it focuses on specific areas of technology that Gore has identified as particularly important for its future growth. The co-creation activities fostered in the Innovation Center are one way that Gore strives to ensure that the innovative ideas being produced by the company’s scientists and engineers are relevant to the needs of customers.
The Walt Disney Company has long been admired as one of the world’s most creative organisations. Its well-known system for innovation involves moving among three physical spaces—a Dream Room, a Criticism Room, and a Reality Room—to facilitate the shifts in thinking and focus required first to generate, then to test, and then to implement new ideas.
Tech Warrior Enterprise was originally launched as an annual exercise conducted by the Air Force Research Laboratory. They receive two weeks of military training and then form a squadron to be led by experienced instructors through a series of operational scenarios, which let them see just how well the gear they’re developing works—or doesn’t work. These “field insertion” activities are designed to help business people understand the real needs of their customers.
Ecocem started sending members of the innovating team out on the road in partnership with Ecocem’s salespeople to visit customers as well as non-customers with the potential to be converted into customers. The salespeople were proud to be able to show off the advanced technical expertise that Ecocem was developing.
2% innovation commitment
Ecocem has a commitment to devote 2% of its revenues to innovating. In 2016, it set up a special technology subcommittee that includes several members of the board of directors. It meets twice a year with four or five key managers of Ecocem who are immersed in the company’s most important innovating projects. As a result, the board members’ level of technological expertise has risen significantly, to the point where they can now ask probing questions of the engineers and scientists they meet with as well as share ideas of their own that may be valuable. They’ve developed personal connections and lines of communication with some of the most important people in the organisation, which is always helpful.
Paint the Future
More and more companies develop an innovating ecosystem by partnering with outside startups or suppliers to develop new ways of creating value for customers and for themselves. One successful program of this kind is Paint the Future, an initiative created by the Dutch-based firm AkzoNobel. Paint the Future is an open innovation platform that invites outside companies—in some cases, startups—to address business challenges defined by AkzoNobel.
Kordsa employs what’s called a stage-gate system to organise its innovation activity. Movement through the gates is controlled by a leadership committee that determines whether or not the concept has met the criteria to make it eligible for the next stage. The Kordsa stage-gate system “positively discriminates” in favour of new businesses by exempting them from the corporation’s usual profit requirements for their first five years.
The value curve is a simple diagram that shows how to study the characteristics of a product or service offering in relation to the qualities that customers value. The value curve concept has also helped us enormously in getting to know non-customers—people who don’t currently use Fiskars products.
Every business unit has what’s called a customer insight group—an interdisciplinary team of employees whose job is to record and analyse what customers, suppliers, salespeople, and others are saying about shifting market dynamics. These include kitchens, gardens, and workshops used not just by Fiskars’ own engineers and scientists but also by outside professionals who are not typical Fiskars’ customers but who use similar kinds of tools—chefs, gardeners, woodworkers, interior designers, and so on. The members of the Fiskars team observe the professionals in action, noting how the company’s products work well (and when they don’t), asking and answering questions, and exploring challenges that might suggest ways the Fiskars products could be improved or supplemented.
These include Idea Days, during which outside companies that partner with Fiskars (such as retailers and suppliers) are invited to work with Fiskars’ experts on brainstorming innovations that can produce value for everyone involved.
Five-Year Innovation Master
Senior leaders are also responsible for identifying Fiskars’ most promising areas of future growth based on their understanding of the global market, competitive pressures, demographic trends, technological developments, and other factors. These ideas are formally defined and updated annually in a document known as the Five-Year Innovation Master.
Fiskars created a new centralised innovating unit named Bruk. Bruk is the innovation hub for disruptive innovations of other kinds, especially when it comes to digital services and business model innovation.
Farm for dissent
One of Netflix’s core innovation principles requires employees to “farm for dissent” before launching any new initiative. Most employees like the opportunities to innovate the Netflix system provides: in a 2018 survey, tech workers rated Netflix as the #1 company they’d like to work for.
Allianz devised a system that used clear, simple metrics to track the flow of ideas, broken down to the division level, and turned the entire process into a competitive exercise. As part of a corporate initiative dubbed Ideas to Success (i2s), a network of 72 local innovation champions in 37 countries took on the jobs of coaching frontline employees in innovating techniques, selecting the best ideas, and steering individual initiatives to successful implementation.
Over time, the innovation champions played a powerful role in sparking innovation at Allianz. They organised and led companywide “idea challenges”. In addition, the innovation champions served as connectors within the organisation.
Continuing support for innovating is provided by a group known as Allianz Consulting. This is a team of about 150 people who are available, on-demand, to provide tools, frameworks, and training that Allianz business units can use in managing their innovating projects.
IBM’s Emerging Business Opportunity (EBO) system
It’s a process for identifying powerful business opportunities created by important economic and social trends and then creating cross-company alignment around innovative strategies for addressing those opportunities.
Call for Code
Call for Code is an open-source project that invites outside contributors—startup companies, academic experts and students, and corporate partners—to work with IBM tech leaders on problems of global importance. Themed hackathons offer prizes for creative solutions to challenges faced by IBM customers.
Domino’s put innovating at the heart of its DNA by mandating regular biweekly working sessions between the I.T. and marketing departments. The connection between our I.T. organisation and the marketing organisation is probably the best relationship between any two groups in the entire company.
Lots of tools
The book mentions TRIZ and the offshoot of TRIZ that some organisations employ, including SIT (Systematic Inventive Thinking) and USIT (Unified Structured Inventive Thinking). Other toolkits are Michael Porter’s Five Forces Model and the Boston Consulting Group’s Product Portfolio Matrix, the Design Thinking toolkit and the Jobs-To-Be-Done and The Built to Innovate (BTI) Seven-Step Innovating Process (I particularly like the “Back to the Future” Analysis).
- Give ideas time to germinate and make sure it remains truly free from the limiting constraints that normal management expectations impose.
- Calculate willingness to pay. WTP is defined as the maximum amount the customer is prepared to exchange to receive the offered good;
- Breaking out of the supplier-side view and learning to think like customers, non-customers, and potential customers make innovative thinking much easier—which is why it’s important to everyone in your organisation to master this mode of perception.
- Conduct a survey of the organisation that identifies bright spots where innovation is already happening in a small way,
- Analysed the entire industry landscape to find “adjacent businesses.”
- Create a protective environment for experimentation.
- The CEO and C-suite team should continually ask what kind of company do we need to become to continue to win in the future?
- Small startup companies are often more innovative than large, established firms because they have a higher percentage of frontline employees.
- Occasionally, corporations launching an innovation initiative will assign a human resources (H.R.) professional to run it. This can be a serious misstep. It needs to be driven by the CEO. As soon as the CEO or executive committee member stops participating in the initiative, it becomes just another training exercise, and before long, it fades away.
- When running a sustainable business, innovation and marketing are critical. They cannot be outsourced, and they can’t be delegated to others.
- An increasing number of managers are coming to recognise that supporting innovation is a powerful way to attract even more creative talent and encourage your people to keep the engine humming.
Make innovation a habit
Innovating should become a habit, an activity everyone engages in on a periodic, regular basis as part of a natural routine, just as health-conscious people incorporate an exercise routine into their daily lives. Make sure that all employees train their innovating muscles on a regular basis. A better advertisement for my book I could not have written. You can order “Building the in-company change muscle: intrapreneurship, innovation, transformation & strategy” . Use “BuilttoInnovate” as the code, and you will get 50% off.