Sometimes the hardest part of Innovation is agreeing who owns it
Organizations have lots of ways to lead innovation. The best model isn’t black or white.
Some install a central leader. Others push it out to the periphery on the argument of putting it closer to the customer. Others layer it into business units, regions or divisions. Still others add it to the remit of related functional leaders such as Strategy, Marketing or R&D.
There are good decisions and bad, good models and bad, but there is no best model for all. I’d like to share some of my clients’, colleagues’ and students’ experiences to help you determine how best to lead innovation in your organization.
First, know what kind of innovation you’re trying to lead
To be clear, when I use the term innovation, I mean Innovation writ large – the lofty aspirations to transform the growth and impact of the organization. The central purpose of the organization sets the priorities for your growth agenda. It should balance the conventional corporate strategy (push forward from the present) with the innovation strategy (pull forward from the future). Innovations range from near-term enhancements to the known offerings and markets – elevating your relevance – to market-making breakthroughs for wholly new sources of revenue. Capital i Innovation is not limited to taking today’s offerings into new markets, or serving today’s customers with new offerings. It’s about discovering and serving the needs that create new businesses.
However, high ambition for breakthrough growth does NOT mean that your Innovation needs to “disrupt” the incumbents. You can create new offerings and earn huge dividends in new arenas – additive offerings at accretive margins. The goal is growth, not disruption. But if your efforts happen to captivate customers and knock the competition for a loop, all the better.
For this conversation, let’s simply call this Innovation, with a capital i.
Second, know what Innovation is not
Today’s Chief Innovation Officer – the “new CIO” – describes a new species. This is not the traditional role historically associated with R&D or the CMO; not Quality, and not M&A or Strategy. That’s not to say these “usual suspects” could not successfully lead Innovation; Innovation simply represents a fundamentally different mission, looking in different places, and employing different skills and methods.
Nearly every successful Innovation organization structure that we’ve seen makes this important distinction. Otherwise it gets subsumed back into the host function. When the goals become fused the teams become confused. Innovation loses the capital i, and then the innovation ambition slowly depletes.
Research & Development investigates emerging science and technology (particularly in medical, financial and technology companies) to formulate the most promising results into new capabilities. Sometimes those capabilities translate into viable new products to fill an aging pipeline. Sometimes they don’t. The goal is more hits than misses.
You’d be hard-pressed to identify a more essential function of any sustainable business. But even leading-edge exploratory R&D pursues a different mission from a strategic Chief Innovation Officer. R&D fuels today’s business and underlying business model. By contrast, Innovation executives take responsibility to discover and design the next business. They investigate new markets, new customers, new needs and often apply new capabilities, from within or without the current enterprise. They have a logical relationship with R&D – as they do with Corporate Development. But these functions are better served by crisp distinctions than blurred lines.
Marketing may overlap with Innovation – when the charge is to pursue new markets. New markets should be investigated as new customers.
A common mistake presumes the needs and behaviors of current customers can be projected onto new markets. In fact new markets mean new customers, with new needs and different behaviors. Better to treat them as strangers than acquaintances. In this case, Marketing and Innovation may overlap in their investigation of end-users. Findings may require new products and services. They work in parallel, not serial relationship.
A number of our US healthcare clients, particularly hospitals, are deeply immersed in process reviews to streamline costs and boost efficiencies. This is the good work of reengineering and process improvement usually associated with a Quality function – employing methods promoted by Deming and Juran, celebrated by the Baldridge Award, verified by ISO certification, and made famous by Toyota’s Lean Manufacturing.
Quality, by definition, enhances the known. Innovation produces the unknown. Once Innovation yields a viable new offering, then it’s time to call in the Quality experts. Quality takes over to refine the Innovation as soon as it becomes a repeatable offering. They enhance the process and the product for both the end user experience and for business efficiency (preferably in that order).
Not Corporate Development
Innovation discovers demand and designs supply. Corporate Development discovers supply and seeks to own it economically to serve demand. They work best in close collaboration, starting with a growth agenda that envisions both a push and a pull strategy. Use M&A to buy into the known first frontier. Use innovation to research and frame the future frontiers for growth. When the direction is clear, Innovation aligns with Corp Dev to scan the market for entities and partners who might accelerate returns.
Merger & Acquisition can often prove the best path to fulfill an innovation strategy. Why build a risky new offering when you can pay a premium to a third party for their valuable ideas and for bearing the initial steepest risks? Two reasons: either you believe their solution doesn’t quite fit either the market or your business, OR that your solution is considerably better, and you have confidence in your ability to build it. For industries like big pharma, and companies like Microsoft, trusting external entrepreneurs may serve you better. Even serial innovators like Google and Apple buy their way into new technologies, markets and features.
The point as with all these functions: Corp Dev has a mission, and works better as a tool to push the business forward from the present. Innovation does a better job of pulling the business forward from the future. They start at different ends of the spectrum, but meet in the middle.
And Not Strategy
Strategy should take responsibility to answer two fundamental questions: where do we want to compete, and how will we invest to win?
Those are meaty challenges. Most companies address them with one or more of the following answers:
- Do more of the same in more places (Sales & Marketing)
- Do the same more profitably (better, faster, cheaper: R&D and Quality)
- Buy our way into new marketshare or lines of business (Corp Dev)
These all provide valid pursuits and potential growth trajectories. Is it clear that they are not the same as Innovation? The CIO solves for growth adding a fourth path – to discover and deliver on unserved latent demand.
As with all the preceding functions, Strategy partners with Innovation. In some companies, Strategy may supercede Innovation. We advocate for a peer relationship. Our clients have shown us how a Chief Innovation Officer can balance growth; a great CIO helps the company overcome publicly listed pressures to focus on short-term results. Innovation hedges against the financially-driven infatuation with quarterly returns.
In my next post, you’ll meet the Chief Innovation Officer, the new CIO for strategic growth.
Designate Chief Innovation Officers with ability: capability, responsibility and accountability.
And make sure they play well with others.