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The 2 E's of Innovation

Innovation (especially in the context of new products, services and business models) is a hot topic across organizations - big or small, and it’s independent of geography or industry type. Different surveys by various consulting firms indicate that innovation has been and remains to be in the leadership team's strategic agenda.

Notably there's no dearth of knowledge (thought leadership, case studies, best practices) on this topic. Amazon has nearly 65,000 books and Harvard Business Review alone has more than 3000 articles on innovation.

And yet, very few organizations have managed to get a firm grip on this strategic topic.

A. Stewart, in his article “The Great Wheel of Innovation,” Harvard Business Review (November 2006), had stated that “companies have been rushing to find new ways to make old mistakes.” Over the last 8 years since the article was published - unfortunately, things haven't changed much.

In a recent global survey I had read, the vast majority of respondents (93 percent), regarded their company’s long-term success to be dependent on its ability to innovate. At the same time, only 18 percent of the respondents believed that their own innovation strategy is delivering a competitive advantage.

One can look at the success (or failure) of an organization's innovation agenda at a high level from 2 dimensions, or as I call it – the two E’s:

1) Effectiveness of Innovation efforts - the scope, width and depth of your innovation pipeline; and the focus and explicit measurement of end results: revenues, profits, ROI, customer satisfaction, supplier satisfaction, employee satisfaction, competitive advantage, patents, etc.

2) Efficiency of Innovation efforts - the people, processes, tools and governance mechanisms deployed to achieve the desired outputs (Effectiveness); and the costs and timelines associated with converting your “Business Strategy” to "Innovation Strategy" to "Ideas" to "Concept" to "Go-To Market" to "Life Cycle Management".

Effectiveness of Efforts

Although it’s a big misconception, innovation is not just about the big bangs and eureka’s. Effective innovators (especially large organizations) have been assessed to take a balanced portfolio approach, splitting their investments 70/20/10 between incremental, adjacent and disruptive innovations.

In my view, the challenge often is – Is your organization investing the appropriate amount of resources into building future growth levers! Are you working adequately towards differentiating your products, services and the customer engagement model (or the business model itself)?

It's interesting to take an industry level view of this dimension.

As per the latest versions of global innovation surveys published by Booz (now part of PwC) and by Thomson Reuters, companies from the Automobile, Pharma, Technology & Telecom, and Consumer & Retail continue ruling the landscape (in terms of innovation rankings and amount of spend on innovation).

There are several large industries and organizations who are visibly absent from being considered the leading innovators. Notably amongst them are the organizations in banking and financial services. As per the global Bloomberg Industry database, Insurance and Banking are the second and third largest industry groups after Oil Refining & Marketing. But, the financial services organizations haven't ever figured in the key innovators listings across various studies / surveys in the recent years.

One could argue that there are limitations in the methodologies adopted. Financial services firms at large don't explicitly highlight their investments (as a separate cost element under the title of R&D or equivalents) on projects and programs oriented towards innovation and future growth. They don’t file patents as much the firms in the IT and industrial space do. But, a deeper look (or even a simple key word search for innovation, new product, etc) at the qualitative and quantitative sections of annual reports of several of the large banking and financial services firms will validate the vacuum of efforts.

And, those who work within the financial services industry are more likely to agree (than disagree) with this fact that over the last few years since the financial crisis, most of the large global banks have perhaps got overly focused on cost reduction.

It's quite likely that the ones who succeed in the long term are the ones who have taken a more balanced view and deployed transformation efforts focused not just on cost but on growth as well.

One does see some positive momentum in the direction of digitization and leveraging of new technologies (for e.g. exploring usage of indoor proximity systems for improved customer experience).

But, surely enough there's a lot of catching up to be done, and focused efforts are needed towards innovation. One needs to sow the seeds to reap the benefits.

Once again, it's not about pumping resources. It's all about having a strategic and long term view of the market landscape, and committing to undertaking discrete and conscious efforts to gain (and / or to sustain competitive advantage aka differentiation).

It's having a clear perspective on what's going to emerge from the other side of the funnel.

Efficiency of Efforts

During a recent dialogue with a senior executive from an engineering company, I learned some interesting insights about the innovation landscape at his organization. In one of the company’s SBU's, there are a size-able number of engineering team members dedicated to R&D. That sounded wonderful – it showed the organizational commitment towards innovation.

But, I got to learn that these team members don't interact with the end customers (only the marketing team has the direct interface with customers, and they inform the R&D team about what to develop)!.

Also, the size of this engineering / R&D workforce is three times that of another leading competitor, whilst the market share is the reverse! A typical innovation project lasts 5-7 years, wherein majority of the elapsed time is "wait time" towards availability of resources (people, equipment, etc) in the chain of different engineering teams involved on different new product developments.

Unfortunately, in today’s era neither customers nor the shareholders have the patience to allow an organization to operate with such inefficiencies (unless your organization is a monopoly!).

It’s imperative that the innovation processes and aligned tools / systems support a lean start up approach for prioritized and strategic innovation initiatives.

Successful organizations constantly look for ways to improve their front and back-end engines of innovation. One needs to align the innovation strategy with the business strategy, prioritize the right capabilities, and use the right tools that will help develop and successfully commercialize new ideas and processes.

Else, as W.L. Bateman said "If you keep you doing what you have always done, you'll keep on getting what you've always got."

How has your organization been improving the efficiency and effectiveness of Innovation efforts? And, what challenges are you facing?

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