It may come as no surprise that one of many challenges with innovation in large organizations is in successful execution. There’s often no shortage of ideas, but the optimal alignment of organizational funding, processes and structures necessary for translating these ideas into a steady pipeline of new products or services is often a significant management challenge.
One of the well-known barriers to successful and continuous innovation over time is the innovator’s dilemma. Basically, “successful companies can put too much emphasis on customers’ current needs, and fail to adopt new technology or business models that will meet customers’ unstated or future needs.”
The answer to address this challenge has, for many years now, been to utilize, or create, a unique part of the business solely dedicated to innovation around customer’s future needs. There’s many choices for where this group can reside within the business and how near or far it can be placed to the existing organizations managing the company’s current products or services.
The various options include 1) specialized departments (e.g. traditional R&D departments, incubators and corporate venture groups); 2) the formation of dedicated business units around distinct growth horizons (e.g. the three horizons framework featured in The Alchemy of Growth), 3) creating hybrid models where innovation is collaboratively managed by multiple departments, or 4) simply keeping innovation within the purview of individual business units.
In terms of growth horizons these are usually described as horizon 1 (core products and services typically comprising 70% of the company’s annual investment), horizon 2 (emerging businesses and adjacencies typically comprising 20% of the company’s annual investment), and horizon 3 (new, transformational initiatives and “viable options” typically comprising 10% of the company’s annual investment).
As I mentioned in an earlier article on investing for transformation, HBR points out that the ultimate financial returns are typically the inverse of the spend allocations — that is to say, 70% of the returns come from the transformational initiatives and only 10% from the core.
All of these choices for where to place “innovation” within the business have pros and cons…
- Specialized Departments – The R&D department, incubators, and corporate venture groups, by their nature, are free to concentrate heavily on innovation, but have to ensure a successful transition of innovations into the business units and ensure they are aligned with company strategy and not too far ahead of market needs where they may miss horizon 2 opportunities which lie between the company’s current offerings and the more distant horizon 3 opportunities.
- Growth Horizon-Oriented Business Units – Business units or departments formed around distinct growth horizons are well equipped to simultaneously address all three horizons, but must ensure they can either execute (i.e. take these products and services to market) effectively themselves and, additionally, know how and when to transition their offerings to the next horizon (i.e. business unit or department) as the market and the technologies mature. In terms of their focus on specific technologies, these business units, aligned with each of the three growth horizons, line up very nicely with the three waves of disruptive trends I wrote about in my recent blog.
- Hybrid Models for Innovation – Hybrid models where innovation is collaboratively managed by multiple departments leverage the collective knowledge of large virtual teams, but require considerable cross business unit and cross departmental coordination to share and develop ideas and to stay aligned in terms of integrated plans and execution.
- Innovation within existing Business Units – Finally, models where innovation is kept within the purview of individual business units require less coordination, but are often challenged by incremental innovation that’s too heavily influenced by the current products and services. They typically have a solid handle on horizons 1 and 2, but not necessarily horizon 3, unless they have a specialized department focused on innovation housed within each business unit.
Regardless of which organizational model you choose, the key is to ensure you focus on all three growth horizons in order to create a steady pipeline of new products or services that’s influenced and supported by both incremental and disruptive innovation.
Of course, open innovation is another tactic you can apply and introduce to any of these organizational models. In fact, a recent PwC survey found that the majority of C-suite respondents (32%) felt that open innovation was the best approach in terms of leading to innovations that would drive the most growth for their companies.
A key element in all of these models is highly effective collaboration across organizational boundaries so that all elements of the innovation pipeline, from ideas to execution, can flow smoothly and achieve the business outcomes your organization strives to achieve.
In terms of the role of the CIO, with IT becoming more and more an intrinsic part of an organization’s market-facing products and services, and with organizations looking for internal innovation across all elements of their operations (i.e. pulling as many value levers as possible), you can play a key role in helping solve this innovation paradox, connecting innovation with execution, and ensuring innovation aspirations achieve their intended outcomes.