Why innovate?
Put simply, innovation equals value. As sonos have recently found, when innovation slows, so does growth. Remember the old saying: ‘if you are not growing you’re shrinking’ as everyone around you evolves and grows.
Thus you must learn faster than your competition how to create or enhance a user’s experience or solve a problem better than others in the market.
When working with clients developing OKRs, it is always clear to see how innovation is the key driver of performance. For most clients the core metrics usually cover customer satisfaction, market share, revenue and cost efficiency, each of these is fed by strong innovation structure and culture.
Firstly, innovation helps drive creation of high quality digital products, services and digital experiences which increases customer satisfaction which in turn maximises acquisition, activation, retention and referral through the funnel.
Secondly, innovation helps increase distribution or products and increases market share driven by demand for the superior product service and experience delivered.
Finally, the total effect of the positive movement on satisfaction and market share is of course increased and sustained revenue.
Types of innovation
The type of innovation you are undertaking will of course differ depending on the nature, maturity and operating market of your organisation, but the fact remains that being able to innovate is critical to the health of your business.
According to Harvard Business School Professor Clayton Christensen, there are three broad innovation goals which will determine the approach taken:
Sustaining innovation focuses on existing digital products and services, when innovation is not sustained then performance declines and an opportunity for transformation arises. Cross sell and up sell are also key parts of sustaining innovation, we recently wrote about how Apple and Toyota create more sustainable growth so successfully using this approach.
Disruptive innovation involves winning market share, creating a new segment or even a new market through product development. Christensen defines disruption as having two distinct subsets: Low-end disruption and New-market disruption.
Low-end disruption involves challengers at the bottom of the market competing on price with a basic product to win existing customers from competitors.
New-market disruption on the other hand involves creation of new market segments and even new markets with a simplified, enhanced experience. A great example is Figma where they disrupted Adobe’s creative software market dominance with a product that is freemium with premium features and significantly less complex (I’ve used both and as a non-creative I well understand why they ‘stole’ the market. Ultimately in this case Adobe bought Figma in 2022 in order to maintain their market dominance – thus acquiring an engine of innovation.
In the last decade and driven by Eric Ries’ Lean Start-up approach, the trend has been towards Continuous innovation. The build, measure, learn loop which Ries devised shows how high performing tech companies iterate at speed to innovate through small feedback loops and constant customer feedback.
As products mature so of course does the nature of innovation required to serve them. Disruption is critical for start-ups and scale-ups looking to ‘cross the chasm’ to mainstream markets. When the Tesla Model S launched in 2013 it was highly disruptive to the automobile market place, as the organisation has matured they have sustained the level of innovation required to grow.
Snap (parent company of Snapchat) was Fast Company most innovative company of 2021 and then fell to 14th in 2021, 15th in 2022 and then missing from 2023’s top 50. As start-ups mature to scale-ups there will also be changes to the people driving innovation in order to maintain the right skill set for the organisation.
How to create the right innovation culture and structure
The CEO and cofounder of Snap Evan Spiegel attributes its high level of innovation to a number of factors according to his recent interview with Fast Company. The foundation was focused on people with a significant change being the evolution of executive team, the nature of the business and maturing product lines demanding different skills which made it “more effective at executing on innovations”. Spiegel also worked on his own leadership skills in the area of innovation and created a rapid innovation team based on a hub and spoke model thus shaping organisational structure not just culture. He used this new structure to speed up development of the existing product, create new product lines like Spectacles and support new strategic partnerships.
Spiegel also worked on his own leadership skills in the area of innovation and created a rapid innovation team based on a hub and spoke model
There are some other themes to the common blockers to innovation which I have seen across many organisations over the past two decades.
Hiring the right people is a critical step in getting good at innovating in an organisation. I have often seen a total mismatch between the leaders or an organisation and the most innovative, the root cause of this is that people hire people like them based on doing the same thing that has been done before. Making sure that you look for people with a growth mindset and bake this into your people strategy is key.
The goal is to get leaders from different disciplines working to shared goals which improve outcomes for users and create value rather than competing with each other. So rewarding, motivating and empowering leaders in the right way is really important as is training people in innovation to ensure the skills are developed in your organisation. Are you identifying and rewarding those in your organisation who try to be or have already been innovative?
An example of practical skills which support innovation is the ability to solve problems using Design Thinking, first principles and product discovery sprints. When presenting a team with a problem I can usually tell pretty quickly if they are using these approaches (many others are also available) as they will jump straight to solutions and existing mental models over taking things back to core needs and assumptions.
But there is little value in creating a highly innovative workforce if you just get people to ‘follow a plan’ – this is implementation trumping innovation and the fastest route to creating a well oiled product sausage machine. So focus everyone on solving problems over simply delivering a plan, the blocker could be as simple as not asking or expecting your employees to innovate.
Another challenge I have seen often is that organisations and teams can be strong at ideation but weak at execution. Put simply, they struggle quickly and effectively translating their learnings and insight into deliverable value. The most innovative organisations I have worked in and with pair up great people with skills to both discover and deliver, a common framework I have helped these clients implement is called dual-track agile where discovery works to feed delivery on a regular cadence.
Last but not least, funding of innovation is also critical, traditionally through innovation funds, dedicated budgets or increasingly in recent times via Lean budgets which base funding on value streams. Rolling forecasts and decentralisation of investment and funding decisions to those close to decision making also supports a drive towards greater innovation where use of traditional budgets are prevented from maintaining the status quo. Another risk comes through over investment in strategic projects and technical debt which significantly constrains product development.
To reiterate – innovation is not just about something fuzzy called culture but something very tangible and practical called structure. More specifically, empowered multi-disciplinary teams with unified value based vision and goals that allowed to discover and delivery in tandem over just servicing the sausage machine are the real drivers of innovation and positive change in the organisations I’ve worked with over two decades.