By Tristan Kromer

 

Innovation Departments are continuing to fail.

Of course, innovation projects are supposed to fail in great numbers, but the idea of a corporate innovation department itself is under tremendous pressure.

The macroeconomic climate is battering companies around and leading to budget cuts across the board. Companies are focusing on the core business and cutting funding to anything viewed as risky or not of immediate value.

To add to the chaos, innovation departments are not doing themselves any favors. Too many projects lack concrete outcomes and stubbornly refuse to discuss ROI. Mindset workshops, sticky notes, and motivational “fail fast” posters are not convincing executives to continue to invest in innovation.

Despite the renaissance in innovation methodology ushered in by luminaries like Steve Blank, Rita McGrath, Alexander Osterwalder, Janice Fraser, and Eric Ries, most innovation departments lack the basic ingredients of success.

  • Strategy
  • Resources
  • Scale
  • Methods

None of these ingredients are controversial in the slightest.

You rarely win without a strategy. You can’t create winning innovations without people, money, and time. If you want to win big, you need enough scale to try dozens or hundreds of different ideas. Yet lacking the first three ingredients, we all seem to focus on methods as the key to success.

If we could only create the right mindset and skill sets in our teams, we would create the next billion dollar business.

Sadly, it doesn’t work like that. Skillset and mindset training must be integrated into a complete innovation stack to have any chance of delivering real impact.

An innovation ecosystem is a system for repeatedly delivering new, sustainable business models.

Strategy

I’ve seen a few companies with a clear, well articulated strategy and vision that every employee understands.

More often than not, corporate strategy is just a powerpoint slide deck that merely states goals, KPIs, and hopeful aphorisms. They lack any sort of guiding light or insight that would define clear arenas for innovation.

Many innovation teams are sitting around, twiddling their thumbs, waiting for a corporate strategy to guide them – but it’s not coming. So instead, we’re all throwing spaghetti at the wall hoping something will stick.

Even with all the best footballers in the world, the best training, and the most shots on goal – you’re not going to win the World Cup if you’re playing volleyball.

Companies need a coherent strategy that tells innovation teams where to play or all those hackathons will continue to pump out great ideas that will never get funding by the organization. Having the best A.I. writing assistant on the market is useless if you work for an ice cream company.

Innovation must align with corporate strategy and corporate strategy must incorporate innovation!

Resources

Needless to say, innovation teams need resources. This means time, money, people, and authority.

Some innovation teams are given money, but are already loaded up with 60 hours of weekly work by their direct line managers. That turns innovation into weekend work and a “nice-to-have” priority.

Then they encounter an institutional block like a regulatory risk, branding concerns, or just the inability to purchase a $20 SaaS tool they need due to a lengthy procurement process. Teams flail and good entrepreneurs go find jobs elsewhere where innovation is supported.

Along with money, a dedicated team, and time to execute, teams need a critical resource: the direct authority and C-level backing to override the corporate constraints that will kill them in their infancy.

Scale

If it takes 100 startups to create one successful company, a corporate innovation function that sponsors 6 innovation teams is not going to be successful. Yet we constantly seem to think that we will be the ones that will defy the odds.

This goes hand-in-hand with resources of course. Without sufficient resources, you don’t have sufficient scale. But it also goes hand in hand with Strategy.

A few teams in a booming industry have a better chance of success than a hundred teams in a hundred different, shrinking industries. If everyone aims in the direction of the bullseye, we’re more likely to get a hit.

But instead of doing the math and recognizing the level of scale needed for success, there is a heavy reliance on methodology to fix all the ills of a modern corporation.

Methods

Here’s my disclaimer and my bias – I am a trainer by profession and my company sells skill and mindset training. I am a strong believer and advocate of agile, design thinking, and lean startup. So it grieves me to say that just having the right mindset will not fix a lack of strategy, resources, or scale.

I would love to lie to you and just say that a good workshop and humorous anecdote of ingenuity will fix your company – but it won’t.

Methodology alone can not create a strategy, requisition resources, give you sufficient scale to win, or guarantee success.

I am first and foremost an entrepreneur. I have been so in the music industry, IT security, and even social media. I still tinker and explore, build products, and test out ideas.

Aside from my personal experience, I have now worked with over 82 companies (not counting workshop attendees) including 63 multinationals, 42 accelerators, 14 government agencies, and 14 nonprofits in over 65 locations. I’ve worked in industries ranging from agtech to fintech, ice cream to national defense.

I have seen successful projects with great impact and a whole lot of failure. But some of the biggest successes came from teams that had outsized impact in spite of having no coherent strategy, skills, or teamwork.

You can be successful without great skills. You can not be successful without resources.

But looking at each element individually is not the point. Everything must work together to form a complete innovation stack.

How to Integrate Training into the Stack

So here is what skill training and methodology can and should do.

Discover Qualitative Insights

Use Design Thinking to gain insights and empathy. However, do not let those insights be relegated to tactical design decisions. Empathy should form the basis of a customer focused strategy.

If your customer discovery efforts are not informing company strategy but are stuck at the team level – only helping you decide what marketing campaign will be effective – you are not gaining the full benefit.

Insights and information should help identify long term trends that your strategy should integrate and capitalize on. The C-level should be paying attention to and actively seeking out insights at the edge of the organization.

Insights must flow up and strategy should flow down.

Insights need to flow up from the people on the ground who have contact with customers straight to the top of the organization. Strategy needs to flow down from the top so that every team can make decisions aligned with that strategy.

While design thinking and customer discovery can’t win by themselves, they are a bedrock of a great, customer-focused strategy that helps you figure out where to play and how to win.

Lower Costs

Lean Startup and Agile methods have a clear ROI – they lower costs.

Instead of paying $200,000 to one of the big four consulting shops to assign a junior consultant fresh out of business school to guess at market trends based on desk research – you could spend a tenth of the money to do customer interviews, create a landing page to test demand, and concierge test a solution.

It’s direct customer data, it’s faster, and it’s cheaper. It’s a competitive advantage to know your customer better than anyone else and if it’s cheaper as well – why would you not want to get direct feedback from customers?

I recognize that there’s a lot of psychological safety in hiring external consultants – but feeling safe does not make for great innovation.

1/10th the cost means 10x more chances for success – which doesn’t solve, but starts to address the issue of Scale.

If the chances of success are 1 in 100 and you have enough money for 6 projects, the lean startup approach will get you 60 chances for success.

There is still a danger that you run 60 experiments on the wrong thing due to a lack of strategy. There is still a danger that you are taking 60 swings at a short term goal that won’t move the needle on your multi-billion dollar corporation.

Lean Startup and Agile need strategy and discipline to focus on the big bets and not get trapped in optimizing mediocrity.

Quantify the Odds

Lastly, the discipline of Innovation Accounting – real financial modeling using both quantitative and qualitative data – can help inform strategy, identify the big bets, and enforce data-driven decisions.

Innovators can’t just put sticky notes on a Business Model Canvas, call it a “validated,” and expect funding. They need to put a stake in the ground and say, “this opportunity is somewhere between $100 million and $1 billion.”

It’s no use saying to the CEO, “This project is too early stage to do market sizing.”

Even on day zero, we can make a quantified estimate. We can express the level of uncertainty in ranges and say it’s somewhere between zero and $1 billion.

The extreme width of the range tells us the opportunity is very uncertain. But that’s better than delivering a stack of sticky notes to the CEO and expecting a promotion and an awkward fist bump.

Innovation Accounting sounds like an oxymoron and it’s Eric Ries’ worst performing buzzword – but it’s an important concept. In the simplest possible terms, we can use real math to make better bets on innovation.

The skills needed for innovation accounting are concrete and trainable:

However, just training on the skills is useless if we can’t get the C-level and the innovation teams to communicate in the same language of probability and risk management.

What is the range of outcomes for this innovation project? What are the odds of achieving a specific outcome? What is the net output of our portfolio?

These are the questions the C-level should be asking of the innovation team.

If we can integrate the skills needed for innovation accounting, generate the data, and communicate with each other then we should be able to adjust our strategy to capitalize on the biggest opportunities, allocate resources effectively, and get enough scale to maximize our odds of success.

 

Lessons Learned

Innovation teams have relied on workshops and culture change to drive outcomes. But skill and mindset training alone won’t achieve results.

We must drive data flow through the entire organization to realize the value of these methods.

  • Drive strategy with qualitative insights using design thinking.
  • Lower the cost of innovation through lean startup and agile methods.
  • Increase your chances of success by using the lower costs to test more ideas.
  • Quantify your opportunity and odds of success through innovation accounting.
  • Adjust your strategy, allocate resources, and get to scale based on the odds of success and opportunity size.

Special thanks to Peter LePiane and Elijah Eilert for valuable suggestions to this article.

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