If you always do what you always did, you will always get what you always got. Albert Einstein
Constantly evolving businesses spot opportunities, focus on their customers and adapt to market change. They refresh their products and their proposition, reach new sets of customers, grow the value of existing ones and move into new markets. In short, they innovate.
No company, however successful, can stand still. Change happens whether you want it to or not:
- Changing consumer demand
- Changing technology
- Changing competition.
Convergence of these change drivers forces change in the market. When a current business operating model is no longer capable of serving its customers, it is too late to innovate, and the organisation must now transform. Transformation is a wholesale change in the base components of a business, from what it sells, who it sells to and how it fulfils purchases. The whole operating model and infrastructure is affected, and all corporate functions are involved.
Companies that are unable or unwilling to transform will, in time, be forced to sell off whatever parts of the business are still attractive to a purchaser, and may ultimately have to call in the Receiver.
How to Innovate
Ideation, where new ideas constantly bubble-up from the workforce, is a good starting point for innovation, but its somewhat hit or miss.
The interlinkage of markets, products, technologies, and resources allows companies to identify inconsistencies and gaps in technology and product development, and to incorporate new requirements into the innovation process at an early stage. Cross-industry inspirations, ideas from employees, customers and suppliers, scientific publications, patents, competitor and market insights create a huge amount of data to be monitored, analysed and managed. Those who are able to channel this flood of information and transform it into new products and business models, emerge as winners in the battle for attractive future markets. You need to link ideation to your company's overall strategy.
The aim is to establish a balanced innovation portfolio so that, in the event of a disruptive change in the market, the company already goes through a systematic process of creating new innovations, while at the same time maintaining current cash cows and reducing declining business.
Managing the innovation portfolio is about balancing risk and return. Innovation has risk and some will result in failure. Your portfolio and investment should contain a mix of projects across the strategic spectrum.
The Golden Ratio is 70-20-10.
70% of your trends, technologies and business models are already known pretty well and belong to the core business. 70% of budget allocation should be aimed at protecting and maintaining the core business.
You should then allocate 20% of your operating budget on ideas new to your company and 10% on ideas that are completely new to the market.
Keeping it real
Innovation is the life-blood of an organisation and is essential to remain relevant as markets, consumers and tech evolve. However, there is a balancing act between encouraging innovation and in building what amounts to a corporate system debt of ‘innovations’ that never actually improved value to the end customer.
So, let those great ideas float up to the top and use your feedback loops to iterate until the innovation becomes part of the value your company delivers. Then make sure that your enterprise architecture is updated to reflect this new success, and that engineering retire those great ideas that didn't quite work before they encumber to organisation with system debt.
Next: the context of Innovation
Innovation is at the heart of any business. Successful leaders must reimagine and reinvent analogue-legacy businesses. Read more in Why does my business exist?
They also understand that they need to find new ways to increase profits and reach new customers if their organisation is to grow in the long term. Read more in How do I set and amend strategic direction?