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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
Innovation is the life blood of practically every organization. Innovation drives growth, development, and prosperity for many organizations and geographical areas. Sometimes, innovation thrives within a certain geographical location or in certain organizations that are known for their innovative approaches. This outstanding new volume will demonstrate how to measure the success of innovation in all types of organizations. In the last decade, there have been tremendous investments in creativity and innovations sponsored by companies, cities, states, countries, universities, NGO's, and even non-profits. With the magnitude of emphasis on creativity and innovation, the sponsors and key stakeholders will demand to know the value of these programs. The Value of Innovation: Measuring the Impact and ROI in Creativity and Innovation Programs will show step-by-step how to measure the impact and the ROI of innovation and creativity programs. The process collects six types of data: reaction, learning, application, impact, ROI, and intangibles. Data are collected analyzed and reported using a systematic, logic model. Conservative standards create results that are both CEO and CFO friendly. This proven process has been used now in 5000 organizations and this new book adapts the method directly to this critical area of innovation, showing examples and case studies.
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Contents
Cover
Title page
Copyright page
Preface
Acknowledgements
About the Authors
Chapter 1: The Importance and Challenges of Innovation
Innovation Hype
The Realities of Innovation
Trouble in Paradise: The Misconceptions
Innovation Challenges
Final Thoughts
Chapter 2: Status and Concerns about Innovation Measurement
Innovation: Definition, Models, and Measures
Sources of Innovation
Measurement Shifts
Macro View of Measurement
Micro View of Measurement
Final Thoughts
Chapter 3: The Case for a New System
Innovation: A Cost or an Investment?
The Value of Innovation: A Summary
Types of Data
How Does Your Current System Stack Up?
Using Design Thinking to Deliver and Measure Results
Requirements for the Value of Innovation: A Measurement Process
ROI Measurement Methodology™
Terminology: Projects, Solutions, Participants …
Final Thoughts
Chapter 4: Introducing the ROI Methodology
The ROI Methodology
Types of Data
The Initial Analysis
The ROI Process Model
Operating Standards and Philosophy
Implementing and Sustaining the Process
Benefits of This Approach
Chapter 5: Aligning Innovation Projects to the Organization
Creating Business Alignment
Determining the Potential Payoff
Determining Business Needs
Determining Performance Needs
Determining Learning Needs
Determining Preference Needs
Case Study: Southeast Corridor Bank
Developing Objectives for Innovation Projects
Final Thoughts
Chapter 6: Collecting Data Along Chain of Impact with a Toolbox of Methods
Questionnaires and Surveys
Using Interviews
Using Focus Groups
Measuring with Tests
Measuring with Simulation
Using Observation
Using Action Plans
Monitoring Business Performance Data
Selecting the Appropriate Method for Each Level
Final Thoughts
Chapter 7: Measuring Reaction and Perceived Value
Why Measure Reaction and Perceived Value?
Sources of Data
Areas of Feedback
Data Collection Timing
Data Collection Methods
Using Reaction Data
Final Thoughts
Chapter 8: Measuring Learning
Why Measure Learning and Confidence?
The Challenges and Benefits of Measuring Learning
Measurement Issues
Data Collection Methods
Administrative Issues
Using Learning Data
Final Thoughts
Chapter 9: Measuring Application and Implementation
Why Measure Application and Implementation?
Challenges
Measurement Issues
Data Collection Methods
Barriers to Application
Application Data Use
Final Thoughts
Chapter 10: Measuring Impact
Why Measure Business Impact?
Collecting Effective Impact Measures
Business Performance Data Monitoring
Data Collection Methods
Measuring the Hard to Measure
Final Thoughts
Chapter 11: Isolating the Effects of Innovation
Why the Concern over this Issue?
Preliminary Issues
Isolation Methods
Final Thoughts
Chapter 12: Converting Data to Money
Why Convert Data to Monetary Values?
Standard Monetary Values
When Standard Values are not Available
Technique Selection and Finalizing Value
Final Thoughts
Chapter 13: Addressing Intangibles
Why Intangibles are Important
Measuring and Analyzing Intangibles
Final Thoughts
Chapter 14: Measuring ROI
Why Monitor Costs and Measure ROI?
Fundamental Cost Issues
Specific Costs to Include
The ROI Calculation
Other ROI Measures
Final Thoughts
Chapter 15: Forecasting Value, Including ROI
Why Forecast ROI?
Preproject ROI Forecasting
Forecasting with a Pilot Program
Forecasting with Reaction Data
Forecasting Guidelines
Final Thoughts
Chapter 16: Reporting Results
The Importance of Communicating Results?
Principles of Communicating Results
The Process for Communicating Results
The Need for Communication
The Communication Plan
The Audience for Communications
Information Development: The Impact Study
Media Selection
Delivering the Message
Reactions to Communication
Final Thoughts
Chapter 17: Implementing and Sustaining ROI
Why is this Important?
Implementing the Process: Overcoming Resistance
Review Current Results
Developing Roles and Responsibilities
Establishing Goals and Plans
Revising or Developing Policies and Guidelines
Preparing the Project Team
Initiating ROI Studies
Selecting the Initial Project
Preparing the Sponsors and Management Team
Removing Obstacles
Monitoring Progress
Final Thoughts
Index
References
End User License Agreement
Guide
Cover
Copyright
Contents
Begin Reading
List of Tables
Chapter 17
Table 17.1 Typical Objections to Use of ROI Methodology.
Table 17.2 Evaluation Targets in a Large Organization with Many Innovation Projects.
Table 17.3 How to Address Bad News.
Table 17.4 How Data Should Be Used.
List of Illustrations
Chapter 1
Figure 1.1 What is True of All These Companies? Adapted from:
Lead and Disrupt: How to Solve the Innovator’s Dilemma
(Charles A. O’Reilly III and Michael L. Tushman)
Figure 1.2 Types of Innovation. Adapted from:
Ten Types of Innovation: The Discipline of Building Breakthroughs
(Larry Keeley, Ryan Pikkel, Brian Quinn, Helen Walters)
Figure 1.3 Three Horizons of Innovation. Adapted from:
Mapping Innovation: A Playbook for Navigating a Disruptive Age
(Greg Satell)
Chapter 2
Figure 2.1 Where Innovation Comes From.
Figure 2.2 Adapted from Guido Kovalskys, the d.school, Stanford
Figure 2.3 Measurement Framework for Idea Management. Adapted from Hansen and Birkinshaw, 2007
Figure 2.4 Measurement Framework for Innovation Funnel. Adapted from Morris (2008)
Figure 2.5 Conference Board Measurement Framework. Adapted from The Conference Board (Janet X. Hao, Bart van Ark, and Ataman Ozyildirim)
Chapter 3
Figure 3.1 Costs Versus Investment Perception.
Figure 3.2 Use Results to Optimize and Allocate.
Figure 3.3 The Value of Innovation.
Figure 3.4 The Top Ten Most Innovative Companies.
Figure 3.5 Six Categories of Data.
Figure 3.6 Problems and Opportunities with Current Measurement Systems.
Figure 3.7 Design Thinking. Mootee, Idris. (2013).
Design Thinking for Strategic Innovation.
Hoboken, NJ: Wiley.
Figure 3.8 Designing for Results. Taken from Phillips, Patti P. and Jack J. Phillips. (2017).
The Business Case for Learning: Using Design Thinking to Deliver Business Results and Increase the Investment in Talent Development.
West Chester, PA: HRDQ and ATD Press.
Figure 3.9 The Data from the ROI Methodology.
Figure 3.10 Terms and Applications.
Chapter 4
Figure 4.1 Example of Levels of Evaluation. Source: Data from Alabama Hospital Association/ROI Institute, Inc.
Figure 4.2 The Data Pyramid.
Figure 4.3 The ROI Methodology.
Figure 4.4 The ROI Process Model.
Figure 4.5 Completed Data Collection Plan.
Figure 4.6 Completed ROI Analysis Plan.
Figure 4.7 Project Plan.
Figure 4.8 Twelve Guiding Principles of ROI.
Chapter 5
Figure 5.1 The ROI Methodology.
Figure 5.2 Examples of Hard Data.
Figure 5.3 Examples of Soft Data.
Chapter 6
Figure 6.1 Types of Questions.
Figure 6.2 Example of Follow-up Questionnaire.
Figure 6.3 Action Plan Example.
Figure 6.4 Collecting Application and Impact Data.
Chapter 7
Figure 7.1 Correlations between Reaction and Application.
Figure 7.2 Non-Content and Content Issues for Innovation Conference.
Chapter 8
Figure 8.1 Categories of intellectual capital.
Chapter 9
Figure 9.1 Program Design: Leadership for Performance.
Figure 9.2 Examples of Coverage Areas for Application.
Figure 9.3 Action Planning Checklist.
Chapter 10
Figure 10.1 Measures at Different Levels.
Figure 10.2 Criteria for Effective Measures.
Figure 10.3 Typical Measures from Different Types of Innovation.
Figure 10.4 Example Calculation from an Action Plan.
Chapter 11
Figure 11.1 Use of Control Groups.
Figure 11.2 Trend Line Analysis.
Figure 11.3 Questions for Participant Estimation.
Figure 11.4 Example of a Participant’s Estimationv.
Chapter 12
Figure 12.1 Converting customer complaint data to monetary values.
Figure 12.2 Examples of Standard Values from Sales and Marketing. Adapted from
Marketing Metrics: 50+ Metrics Every Executive Should Master
by Paul W. Farris, Neil T. Bendle, Phillip E. Pfeifer, and David J. Ribstein.
Figure 12.3 Relationship between Attitudes and Profits. Copyright 1998. President and Fellows of Harvard College 1998. Used with permission.
Figure 12.4 To Convert or Not to Convert.
Chapter 13
Figure 13.1 Common Intangibles.
Figure 13.2 The Link between Hard-to-Value and Easy-to-Value Items.
Figure 13.3 Measuring Greatness at the Cleveland Orchestra. Adapted from
Good to Great and the Social Sectors
by Jim Collins.
Figure 13.4 Valuing the Hard to Value.
Figure 13.5 Identifying Intangible Measures during the Project Life Cycle.
Chapter 14
Figure 14.1 Types and Levels of Data.
Figure 14.2 Sources of innovation project costs.
Figure 14.3 Project Cost Categories
Figure 14.4 Misused Financial Terms.
Chapter 15
Figure 15.1 Detailed Objectives.
Figure 15.2 Forecast of Monetary Benefits.
Figure 15.3 Forecasted ROI.
Figure 15.4 Time Intervals When ROI Can Be Developed.
Figure 15.5 Pre-Project Forecasting Model.
Figure 15.6 Expected ROI values for different outputs.
Figure 15.7 Level 1 data for ROI forecast calculations.
Chapter 16
Figure 16.1 Common target audiences.
Figure 16.2 Format for an impact study report.
Figure 16.3 Options for communicating results.
Figure 16.4 Story Structure Checklist.
Chapter 17
Figure 17.1 Building Blocks to Overcome Resistance.
Figure 17.2 Implementation Plan for a Large Organization with Many Innovation Projects.
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Scrivener Publishing100 Cummings Center, Suite 541JBeverly, MA 01915-6106
Publishers at ScrivenerMartin Scrivener ([email protected])Phillip Carmical ([email protected])
The Value of Innovation
Knowing, Proving, and Showing the Value of Innovation and Creativity
A Step By Step Guide to Impact and ROI Measurement
Jack J. Phillips and Patricia Pulliam Phillips
This edition first published 2018 by John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, USA and Scrivener Publishing LLC, 100 Cummings Center, Suite 541J, Beverly, MA 01915, USA© 2018 Scrivener Publishing LLCFor more information about Scrivener publications please visit www.scrivenerpublishing.com.
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For details of our global editorial offices, customer services, and more information about Wiley products visit us at www.wiley.com.
Limit of Liability/Disclaimer of WarrantyWhile the publisher and authors have used their best efforts in preparing this work, they make no representations or warranties with respect to the accuracy or completeness of the contents of this work and specifically disclaim all warranties, including without limitation any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives, written sales materials, or promotional statements for this work. The fact that an organization, website, or product is referred to in this work as a citation and/or potential source of further information does not mean that the publisher and authors endorse the information or services the organization, website, or product may provide or recommendations it may make. This work is sold with the understanding that the publisher is not engaged in rendering professional services. The advice and strategies contained herein may not be suitable for your situation. You should consult with a specialist where appropriate. Neither the publisher nor authors shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. Further, readers should be aware that websites listed in this work may have changed or disappeared between when this work was written and when it is read.
Library of Congress Cataloging-in-Publication DataISBN 9781-119-24237-6
Preface
Innovation is everywhere, in every direction we look, in every type of organization, and in almost every part of the world. Leaders are obsessed with innovation, politicians cheer innovation and desire more of it, consumers demand innovation, investors reward innovation, and media coverage of innovation is relentless.
This visibility and popularity translates into billions of dollars being pumped into all types of innovation efforts. Visibility brings out the critics who expose glitches and concerns. Lack of success and high failure rates bring out even more critics. All of this creates the need to show more results.
Innovation Meets the ROI Methodology
For almost two decades, we have had individuals involved in innovation attend an ROI Certification program which involves a week of comprehensive learning. In this process, the participants enter the program with a project in mind that they would like to evaluate at the impact and ROI level. They learn how to do conduct an ROI evaluation in this process, and they pursue the work with virtual support until they complete their project. At the end of this process, the participants obtain the designation of Certified ROI Professional (CRP). With some prompting from our international partners about ten years ago, we hosted a dedicated group of individuals who were just involved in innovation, and had them pursue the certification. We conducted sessions in Copenhagen, Denmark, and Istanbul, Turkey. In these two situations, the results were amazing. The participants tackled all types of innovation projects, followed through to measure the success of their projects along the way, and developed amazing confidence to use this tool. Interest continued and we began to conduct studies globally with companies, governments, NGOs, nonprofits, and universities. As we continued to work, applying this process to innovation, we knew there was a need and a market.
The Need for This Book
When we write a book, we make sure there is not a current book already meeting the need. Writing a book that has already been written is not good for the publisher, and it’s not good for us. As we examined potential competing books, we saw nothing that matched the approach and credibility of the ROI Methodology. We have a process that has become the most-used evaluation system in the world. It is built around three pillars: 1) It is user-friendly, not overly complicated or complex; 2) It is based on sound principles, using an enhanced logic model, and is very reliable and valid from a research perspective; 3) Finally, it is CEO- and CFO-friendly, producing data that passes the scrutiny of the CFO and provides data that top executives can support.
This book uses a results-based approach to innovation implementation, focusing on a variety of measures that are categorized into six data types:
Reaction and Perceived Value of Innovation
Learning and Confidence to Know How to Make Innovation Work
Application and Implementation to Make Innovation Work
Impact, the Consequences of the Innovation
Return on Investment in the Innovation Project
Intangibles Linked to the Innovation Project
Connected to it is a step-by-step process for identifying, collecting, analyzing, and reporting all six types of data in a consistent manner that leads to credible results.
Credibility is Key
The Value of Innovation focuses on building a credible process—one that will generate a balanced set of data that are believable, realistic, and accurate, particularly from the viewpoint of sponsors and key stakeholders. More specifically, the methodology presented in this book approaches credibility head-on through the use of
Balanced categories of data
A logical, systematic process
Guiding principles, a conservative set of standards
A proven methodology based on thousands of users
An emphasis on implementing the methodology within an organization to ensure that the process is sustained
A procedure accepted by sponsors, clients, and others who fund projects
The book explores the challenges of measuring the hard-to-measure and placing monetary values on the hard-to-value. It is a reference that clarifies much of the mystery surrounding the allocation of monetary values. Building on a tremendous amount of experience, application, practice, and research, the book draws on the work of many individuals and organizations, particularly those who have attained the ultimate levels of accountability using the ROI methodology. Developed in an easy-to-read format and fortified with examples and tips, this is an indispensable guide for audiences who seek to understand more about bottom-line accountability.
Audience
The primary audience for this book are the managers of innovation projects in an organization. These managers are concerned with the valuation of innovation projects, programs, processes, and people. Although they are strongly committed to their projects, they need to see value in terms executives can appreciate and understand—money.
This book is also intended for professionals, analysts, and practitioners who are responsible for implementing and evaluating the success of innovation projects. The book shows how the various types of data are collected, processed, analyzed, and reported.
Another audience includes consultants, researchers, and professors who are dedicated to unraveling the value mystery, trying to understand more about the difficult and demanding challenges of developing measures and values for a variety of innovation programs.
Types of Innovation Projects
The good news is the ROI Methodology will show the value of all types of projects, including the ten types of innovation as outlined by Keeley.1 In his beautifully illustrated book, the ten types of innovation are projects that:
Are designed to make money
Connect with others to create value
Organize and align talent and assets
Are signature or superior methods to do work
Develop distinguishing features and personality
Create complementary products and services
Support and amplify the value of your offerings
Deliver your offerings to customers and users
Represent your offerings and businesses
Foster compelling interactions
Regardless of what type of innovation, whether it is internal, working with employees, an R&D Center where new products are developed, or the breakthrough innovation that is the basis of the company, this methodology will show how to know, prove, and show the value of innovation.
Flow of the Book
The Value of Innovation flows through three sections. The first section, involving three chapters, sets the stage for the book by reviewing the importance of innovation along with some of the major challenges in the field in the first chapter. Then, the current metrics involved in innovation and the shortcomings in those areas are discussed in the second chapter. Finally, chapter three outlines the necessary requirements for a measurement system for innovation, and introduces the ROI Methodology, which meets those requirements.
This sets the stage for the second section, the major part of the book, built around the ROI Methodology. This section involves thirteen chapters, detailing all parts of the process with examples, scenarios, and stories. Finally, the last chapter focuses on how to make this process work routinely and sustain it over a long period of time.
We are convinced that you will find this a valuable book. If not, we will be happy to refund your money. If you purchase this book and it doesn’t add value to your innovation efforts, please drop us a note. Keep the book, and we will send you a refund. We have confidence in this book. We know this methodology has helped many others, and it will help you with your evaluation of innovation. Please enjoy.
Jack J. Phillips, Ph.D.Patti P. Phillips, Ph.D.Birmingham, AL - November 2017
Reference
1. Keely, Larry, Ryan Pikkel, Brian Quinn, and Helen Walters. Ten Types of Innovation: The Discipline of Building Breakthroughs. Hoboken, NJ: Wiley, 2013.
Acknowledgements
This book had its beginnings over a decade ago when we conducted our five-day ROI Certification workshop for two groups, one in Copenhagen and the other in Istanbul. The participants in both groups were individuals involved with innovation projects, and they wanted to show the return on investment for those projects. They used the ROI Methodology and completed their projects to obtain the designation of Certified ROI Professional (CRP). From that point, we worked with hundreds of other organizations in innovation, including nonprofits, NGOs, and governments. This work clearly revealed that this methodology applies extremely well in the innovation and creativity space. We owe a debt of gratitude to those early adopters of this process in our work with innovation, spanning all continents.
We want to thank our editor and publisher, Phil Carmical for his patience with the delivery of this book. We’ve worked with Phil for many years, and we are pleased to deliver another book to him at Scrivener, a Wiley Imprint. We also want to thank Hope Nicholas, director of publications at ROI Institute. Hope manages our publications and editorial projects and has done a marvelous job with this book in the midst of hectic schedules, numerous deadlines, and countless interruptions. Thank you, Hope, for another great job. We also want to thank Kylie McLeod, our Communications Coordinator, for putting the finishing touches on the book. Thanks Kylie for a job well done.
Jack would like to thank Patti. Patti is an outstanding consultant, topnotch facilitator, meticulous researcher, and above all, an outstanding writer. She makes our books and our work much more effective and enjoyable. Her books win awards, and her workshops have the highest rating. More important, she is an enthusiastic, creative, and lovely spouse.
Patti would like to thank Jack for putting ROI on the map in terms of its applicability to noncapital investments. Jack laid the foundation on which so many others have built their measurement, evaluation, and analytics practices. Over the years, he has given much more than he has received – and for that, we are all thankful!
About the Authors
Jack J. Phillips, PhD, is a world-renowned expert on accountability, measurement and evaluation, and chairman of ROI Institute. Through the Institute, Phillips provides consulting services for Fortune 500 companies and workshops for major conference providers throughout the world. Phillips is also the author or editor of more than 100 books and more than 300 articles.
His expertise in measurement and evaluation is based on more than 27 years of corporate experience in five industries (aerospace, textiles, metals, construction materials, and banking). Phillips has served as training and development manager at two Fortune 500 firms, senior HR officer at two firms, as president of a regional federal savings bank, and management professor at a major state university.
Jack has received several awards for his books and work. On three occasions, Meeting News named him one of the 25 Most Powerful People in the Meetings and Events Industry, based on his work on ROI. The Society for Human Resource Management presented him an award for one of his books and honored a Phillips ROI study with its highest award for creativity. The Association for Talent Development gave him its highest award, Distinguished Contribution to Workplace Learning and Development for his work on ROI. His work has been featured in the Wall Street Journal, Business Week, and Fortune magazine. He has been interviewed by several television programs, including CNN. Jack served as President of the International Society for Performance Improvement for 2012–2013. In 2017, Jack received the Brand Personality Award from Asia Pacific Brands Foundation for his work as an international consultant, author, teacher, and speaker.
Jack has undergraduate degrees in electrical engineering, physics, and mathematics; a master’s degree in decision sciences from Georgia State University; and a PhD in human resource management from the University of Alabama. He has served on the boards of several private businesses – including two NASDAQ companies – and several nonprofits and associations, including the Association for Talent Development and the National Management Association. He is chairman of ROI Institute, Inc., and can be reached at (205) 678-8101, or by e-mail at [email protected].
Patti P. Phillips, PhD is president and CEO of ROI Institute, Inc., the leading source of ROI competency building, implementation support, networking, and research. She helps organizations implement the ROI Methodology in over 60 countries. Patti serves as chair of the People Analytics Board at the Institute for Corporate Productivity, Principal Research Fellow for The Conference Board, board chair of the Center for Talent Reporting, and ATD CPLP Certification Institute Fellow. Patti also serves as faculty on the UN System Staff College in Turin, Italy, the Escuela Bancaria y Comercia in Mexico City, Mexico, and The University of Southern Mississippi’s PhD in Human Capital Development program. Her work has been featured on CNBC, EuroNews, and over a dozen business journals.
Patti’s academic background includes a B.S. in Education from Auburn University, a Masters in Public and Private Management from Birmingham-Southern College, and PhD in International Development from The University of Southern Mississippi.
She facilitates workshops, speaks at conferences, and consults with organizations worldwide. Patti is author, coauthor, or editor of over 75 books and dozens of articles on the topic of measurement, evaluation, and ROI. Patti can be reached at [email protected].
Chapter 1The Importance and Challenges of Innovation
Clifton Leaf, editor-in-chief of Fortune magazine borrowed a stranger’s silver and orange bicycle and rode it two kilometers. When he was finished riding, he leaned the bike against a street lamp at a city intersection. Clifton was benefiting from the remarkable business model of Mobike, a Beijing-based start-up whose more than 100 million registered users do much the same thing an average of 20 times a day. This is more than three times the rate of use by other types of ride-share bikes. Many cities have bike-sharing where users typically pay to release the bike from a docking station and return it to another docking station within a particular timeframe. Mobike has eliminated the cumbersome docking process entirely. A user downloads an app, finds a bike nearby, and scans a QR code to unlock it. After using the bike, the user drops off the bike wherever they would like, because GPS and other wireless technologies are built into the bike’s chassis, allowing the company to track its whereabouts. A smart-locking system bolts the rear tire in place until the next user shows up [1].
The old dock-based sharing systems are like the first-generation PCs. According to Davis Wang, CEO and co-founder of Mobike, while first-generation PCs were attached to desktops, Mobikes, in contrast, are like smartphones—you can take them anywhere you would like. Today, Mobike has more users than Uber, although it has been in business only two years. While few consumers outside of China have likely even heard of this ride-sharing business, the company has already expanded to Singapore, the United Kingdom, and the United States.
Innovation Hype
Innovation is everywhere and is constantly being brought to our attention. In the media, stories, ads, interviews, chats, blogs, and references dominate. It’s hard to read articles, stories, or see advertisements without the term innovation being mentioned. Everything we see is innovation and everything that is developed is innovative. We even have innovative leaders now.
Articles
Innovation articles are everywhere, dominating the print space. Fast Company magazine, which has been a driving force for promoting innovation, devotes a good portion of its magazine to the subject of innovation, as do other major publications such as Harvard Business Review, Wall Street Journal, Bloomberg Businessweek and Forbes, among others. There is even a Chief Innovation Officer Magazine dedicated to those who are leading this effort.
Books
Innovation books now dominate the business book scene. A few years back, that wasn’t the case. Famed management guru Peter Drucker wrote one of the earliest books on innovation in 1985 when he authored Innovation and Entrepreneurship: Practice and Principles.[2] Tom Peters, legendary best-selling business book author, is another successful innovation author who jumped into the arena with his book, The Circle of Innovation: You Can’t Shrink Your Way to Greatness. This book put innovation on the map for many readers and business people, as he complained that not enough space had been devoted to this important area. Perhaps the person who has contributed the most is Tom Kelley, a partner in IDEO, one of the world’s leading innovation and design firms, who contributed The Art of Innovation, The Ten Faces of Innovation, and Creative Confidence, the latter co-authored with David Kelley. The person who has contributed the most about disruption from innovation is Clayton M. Christensen. His classic book, The Innovators Dillema: When New Technologies Cause Great Firms to Fail, showed not only the power of innovation but also the many outcomes of the innovation process. Even Google founder Eric Schmidt got into the innovation fray with his book, How Google Works. CEOs have also popped into the arena with books ranging from Phil Knight (CEO of Nike), author of Shoe Dog, to Steve Case (former CEO of AOL Time Warner), who wrote The Innovation Blind Spot and The Third Wave. Clearly, the subject of innovation is now one of the most documented and written about areas in the business book market. For example, at Stanford University Press, in the business book category, six of the 23 titles for 2017 were in the innovation area. Amazon now has over 100 pages of books in the innovation category.
Jobs
Job titles have emerged for those responsible for innovation as the responsibility is shifting to one or more individuals. The title of Chief Innovation Officer, VP of Innovation, Director of Business Innovation, and Chief Innovation and Engagement Officer point to a growing desire to have leaders of innovation within organizations. Further down the organizational chain, we have innovation managers, innovation directors, and even innovation champions. A website, www.cio.com, is dedicated to providing resources to these individuals in this job category.
Speeches
You would be hard pressed to see a speech from a top executive recapping the events and success of the organization without a mention of innovation. State-of-the-company addresses and end-of-year summaries are almost always laced with innovation progress, updates, and issues. Politicians from presidents to mayors have proclaimed innovation to be an important part of their campaigns and strategies and have created more innovation for the government. Dubai has made a commitment to be the most innovative city. In Malaysia, there is an appointed Minister of Innovation.
Experience
You don’t have to be reading books, articles, or listening to speeches to be innovative. We all experience innovation every day. Imagine the complete Uber experience compared to the use of a taxi, or the timeliness and efficiency of shopping with Amazon.com, or the amazing innovation that goes into Google’s ability to find all the information we would need, not to mention the innovative efforts of organizations like Facebook, Netflix, and Apple. In our daily lives, we are experiencing innovation in a big way—in almost everything we do.
We love innovation because it often brings convenience. Sometimes it makes an entire process feel seamless, as in the Mobike example presented earlier in the chapter. In many cases, it reduces the cost of what we are doing or buying, such as with Amazon. Sometimes it is environmentally friendly, like the use of a ride-sharing program. At other times it makes us healthy, such as the medical devices that keep us alive. Few topics have enjoyed as much hype as innovation, and we’ve come to expect innovation and appreciate it.
The Realities of Innovation
Although there is much hype surrounding innovation, there are some realities of innovation that point to opportunities and concerns.
Innovation is Not New
Innovation has been around for many years with inventions traced to the ancient Chinese and Greek cultures. Innovation has been progressing for a very long time, but it has mushroomed in the last 50 years. Now, each year it seems to increase at a more rapid rate. Sometimes innovation is older than it looks. For example, Lockheed Martin developed a cargo aircraft, the C5A. At the time of its development, it was the world’s largest airplane, much larger than the passenger aircraft Boeing 747. The C5A is huge, but also very versatile with the capability of tanks and large trucks driving through the front of the plane and out the rear. It has the capability to land and take off on unimproved runways. More impressively, it has the capability of taking off, flying, and landing entirely on autopilot. In 1969, over the mountains of North Georgia, the C5A made its first flight completely automated from takeoff to landing. In most of today’s aircraft, autopilots are common. Still, many are surprised to know that the capability exists to take off, fly the entire plane, and land without a pilot. What makes this story interesting is that this capability was demonstrated almost 50 years ago. So innovation is not new, but the rate of change is rapidly increasing.
Innovation is Necessary for Survival
Figure 1.1 lists several companies that have had a near-death experience or have actually died, based primarily on their failure to innovate. Unfortunately, there are many familiar suspects on the list. In 1935, the expected life span of a company was 90 years. By 2005 this had fallen to 15 years. Yet at the same time, many companies have survived for over 100 years because they have constantly innovated.[3] For example, Johnson & Johnson, IBM, American Express, 3M, P&G, and Goodrich are on average about 100 years old, and they are still going strong. Innovation is essential; without it, it is almost certain that the company will not exist.
Figure 1.1 What is True of All These Companies?
Adapted from: Lead and Disrupt: How to Solve the Innovator’s Dilemma (Charles A. O’Reilly III and Michael L. Tushman)
Innovation is Equated with Success
If something is successful, it must be innovative, and usually is. For example, on a recent flight on Delta Airlines, we noticed that Sky magazine, Delta’s in-flight publication, had a feature on the founder of Delta with the title, “Spirit of Innovation.” In this article, Delta was celebrating its success since its founding in 1929. Delta is now one of the largest, most admired, and most profitable airlines with 80,000 employees. They owe much of their success to what the company describes as the innovation driven by the founding CEO, C. E. Woolman. A review of any list of the most admired organizations, the most sustainable organizations, the most profitable organizations, or even the Best Places to Work have much innovation going on, making success almost synonymous with innovation.
Innovation is Truly Global
Innovation is not limited to the United States or even to pockets of creativity around the world. It shows up almost everywhere. The current geographic breakdown of the 2017 Fortune Global 500, the definitive list of biggest companies by revenue in the world, points out that the latest rankings are based on no fewer than 232 cities in 34 countries.[4] More than two-fifths of those companies, 109 in total, are based in China. That number is up from only 29 a decade ago. The example of Mobike shows that ideas know no borders. A good idea can permeate borders and turn into a truly global innovation within the marketplace.
Consumers and Investors Expect Innovation
Consumers expect the constant stream of innovation they have come to experience, be fascinated by, and perhaps even hooked on. Sometimes we can hardly wait for the “new and improved” version of our next project. Investors also expect innovation to continue to flow. For example, one has only to witness the constant pressure on Apple to continue its innovation of products and services. When the rate of innovation (new or improved products) declines, so does the stock price.
Innovation is Often Disruptive
Many of the businesses listed in Figure 1.1 were displaced by more innovated approaches. Two of the most visible causes of this are the impact that Amazon has had on bookstores and Netflix on video rental stores. Disruption creates problems because of the displacements that often follow the new processes. Investors in the original companies lose money and employees lose jobs. Even just the mere threat of some of these displacers can cause huge problems. For example, when Amazon recently announced the pending purchase of the Whole Foods supermarket chain, investors assumed that Amazon would transform the entire retail supermarket business, a business that Amazon was already involved in. Merely on the announcement of their interest alone, competitors’ stocks took a dip in one day; Kroger’s stock dipped 9.2%, Target’s stock 4.1%, and Walmart’s stock 4.7%.[5]
Packaged-goods companies additionally experienced a huge dip with the anticipation that Amazon may change the way in which people have their food packaged. It’s helpful to remember that when Amazon took on the book-selling business, it also transformed the way in which books are published, fueling the e-book market and the Kindle as a device to read the books. This put fear into the packaging industry with General Mills stock falling 2.9%, Kraft-Heinz 2.4%, and Kelloggs 1.7%.
Innovation is Not a Single Event
It is also important to remember that a single event doesn’t bring out a major innovation. Consider, for example, the mouse for our computer. The mouse was first displayed in 1968 during a research project funded by the U.S. Department of Defense.[6] The mouse was actually presented at a demonstration. From that meeting, two individuals developed the idea into Alto, the first truly personal computer at Xerox’s famed Palo Alto Research Center. Later, Steve Jobs would take many elements of the Alto to create the Macintosh. Even with the invention of the personal computer, while Xerox built the first one, Apple launched the Macintosh with great fanfare in 1984. So, it’s not entirely clear, when an invention seems to make commercial success, who invented it or where it was actually created.
Little Ideas Often Make a Big Difference
It’s not the incremental product improvements or project improvements or huge breakthroughs that drive most innovation. Innovation doesn’t fall neatly into the usual categories that we see in the business press. Most companies aren’t disrupting their industry; nor are they sailing for blue oceans or acting like lean startups. Most are not revolutionizing the future of their business or simply improving its core products. The approach to innovation is unique, based on the power of little ideas.[7]
In the book, Brick by Brick: How LEGO Rewrote the Rules of Innovation and Conquered the Global Toy Industry, David Robertson tells the story of how LEGO adopted a similar innovation approach in 2003 to recover from its brush with bankruptcy.[8] LEGO’s recovery and growth didn’t come from just offering a better core product of from reinventing the future of its industry. In fact, LEGO tried both of those strategies and failed. The successful strategy for the toy maker was to go back to the company’s core, the box of bricks, understand what the customer wanted from that product, and innovate around the box. When Lego mastered this approach, the company recovered quickly and spectacularly. When LEGO posted its annual results in early 2016, its eight-year average annual sales growth was 21% per year, and profit growth an equally impressive 36% per year. This approach to innovation, neither incremental improvement in current products nor revolutionary disruption of those products, is what the author calls the Third Way to innovate.
Innovation Comes in Many Types and Forms
Innovation comes in many types and forms. Figure 1.2 lists the types of innovation projects that range from R&D efforts to product development to individual innovation, coming through any function or department.[9] Others categorize types of innovation by the nature of the innovation itself. For example, one approach is to think of some innovations as small, where the innovation is a part of the bigger system. These are small initiatives, built into all function processes. A second type is repeatable, where innovation is part of the day-to-day operations as much as possible, and finally, the third category of innovation is custom, where these are separate, but compatible, innovation tasks apart from the day-to-day operations.[10]
Figure 1.2 Types of Innovation.
Adapted from: Ten Types of Innovation: The Discipline of Building Breakthroughs (Larry Keeley, Ryan Pikkel, Brian Quinn, Helen Walters)
Innovation Spans Many Different Horizons
Finally, innovation sometimes spans many different horizons. Figure 1.3 shows the three different horizons where the focus is sustaining innovation and using existing capabilities already deployed in an existing market already served. The idea behind the three horizons framework is not to eliminate uncertainty, but to take the level of uncertainty into account when allocating resources. The bulk of resources are invested in capabilities (e.g., skills and technology) and existing markets, a much smaller portion toward adjacencies, and an even smaller proportion to future opportunities that don’t even exist yet. The proportions of 70/20/10 are intended to be general guidelines and do not lend themselves to a strict accounting. The primary insight is that businesses need to pursue all three horizons at once, in different proportions.[11] While the three horizons framework may seem simplistic, it offers a simple framework with a simple language to discuss the core business, adjacencies, and long-term bets.
Figure 1.3 Three Horizons of Innovation.
Adapted from: Mapping Innovation: A Playbook for Navigating a Disruptive Age (Greg Satell)
Trouble in Paradise: The Misconceptions
Unfortunately, not everything is as it seems. There are many misunderstandings and myths about innovation. These often lead to bad decisions, inefficiencies, lack of accountability, and lack of support. Perhaps the individual who has tackled this issue in the most thorough way is Anne Marie Knott, author of How Innovation Really Works: Using the Trillion-Dollar R&D Fix to Drive Growth.[12] Dr. Knott is an expert on R&D, having worked in this field for many years. She is also an outstanding researcher and a whiz at analytics. Because she saw so many misunderstandings about investments in R&D, she wanted to tackle the issue in a different way. Realizing that just investment in R&D alone doesn’t necessarily translate into innovation or profitability, she developed a different measure called Research Quotient.
RQ is the efficiency of solving new problems. For any given level of R&D spending, high-RQ companies will generate more innovations. For any given innovation, high-RQ companies will invest less in developing it. Accordingly, RQ is mapped into a scale where the mean is 100 and standard deviation is 15. In Knott’s research, she brings to light seven misconceptions that can confuse the support for innovation and investment in innovation.
Misconception 1: Small Companies are More Innovative
Although there has been much hype about this, larger companies seem to generate more innovation. They do so because they have more resources to develop innovation, they can spread the cost of R&D over the whole organization, and they can have systems in place to make innovation more systematic and routine within the organization.
Misconception 2: Uncontested Markets are Good for Innovation
Knott makes a strong case for the fact that most innovation is from contested markets that need improvements in efficiency, quality, or cost. This creates a competitive spirit and causes organizations to look for an advantage. An uncontested market, where there is only one active organization, might lead to innovation that is not so efficient and effective.
Misconception 3: Spending More on R&D Increases Innovation
Although it seems obvious that increasing R&D will lead to innovation, in fact, that is not necessarily the case. R&D is an input. R&D teams, especially the large ones, can become bureaucratic and efficient, not delivering on the promise. Companies want growth because it increases their market share, and the government wants economic growth because it increases the number of jobs. The best way for companies to grow and create jobs is not necessarily to invest more in R&D, but let the competitive spirit drive innovation from all processes.
Misconception 4: Companies Need More Radical Innovation
Radical innovation (or innovation that is new to the world) is very important for the economy. We see much hype paid to these inventions and innovations, from cameras to MP3, and they often take a long time to develop. For example, television took 22 years from invention to commercialization. For the personal computer, 20 years after introduction, only 50% of households had personal computers. The big hits don’t necessarily pay off on a large scale, and certainly not quickly. Most innovation is coming from the incremental, systematic, and routine processes within organizations which makes it more efficient, more cost effective, of better quality, with better design.
Misconception 5: Open Innovation Turbocharges R&D
One of the biggest innovation trends over the past few years has been open innovation or open business models.[13] There is a widely held belief that open innovation increases companies’ financial performance. Accordingly, open innovation has been adopted by the vast majority of companies engaged in R&D. Knott argues that, while there is some evidence that open innovation in the form of R&D outsourcing may improve companies’ financial performance, the record on idea development indicates that R&D outsourcing not only fails to improve financial performance, it actually degrades it! This occurs because outsourced R&D incurs R&D expenditures without increasing revenues. Thus it decreases profits. Worse, however, it appears that outsourcing R&D is a slippery slope wherein company innovative capability decays, so the company increasingly outsources, and capability decays even further.
Misconception 6: R&D Needs to be More Relevant
The need to be relevant led to widespread decentralization of R&D. The logic of decentralized R&D is that it makes companies more responsive to the market. The view was widely held. In fact, the opposite is true, because companies with centralized R&D tend to a) do more basic research, so are more likely to create new technical possibilities, b) create technology that benefits multiple divisions, and c) derive more of their technology from internal R&D rather than through outsourcing.
Misconception 7: Wall Street Rewards Innovation
Although investors do get excited about huge R&D expenditures and announcements of improvements in R&D spending, they ultimately reward the companies with the output of the R&D spending, the innovation. Because R&D is not a good indicator of innovation, investors seek other measures, such as IP (Innovation Premium) and RQ (Research Quotient). Without a good measure, their decisions are not optimal.
These misconceptions, fully documented in Knott’s work, make the process of innovation confusing to some people because some of the beliefs that have been promoted, amplified, and explored over the years are not necessarily true. This may have contributed to misguided investments in innovation.
Innovation Challenges
The path of our innovation journey brings us to the challenges of making innovation work. There is no doubt that innovation is necessary, and it must be an important part of any organization’s strategy. But these challenges make us rethink our processes and the ways in which we are tackling these issues to make innovation successful, efficiently, within cost, and on time.
Innovation is Expensive
You would have to look no further than the pharmaceutical industry to see what it costs to develop new medications. A study by the Tufts Center for the Study of Drug Development suggests the road to bringing new FDA-approved medicine to patients is long, and the costs are formidable. This study revealed that the average cost to research and develop (R&D) a new medicine has doubled over the past decade to $2.6 billion. This includes the cost of failures— which tend to be more common than successes, but build on previous advances. When the costs of post-approval R&D were factored in, the estimate increased to $2.8 billion.
Researchers attribute this growth in R&D to several factors, including an increase in the complexity of clinical trials and a significant decline in clinical approval successes. According to the study, only 12% of drug candidates that enter clinical testing are eventually approved for use by patients.[14]
Basic research and development add tremendous costs to an organization. Even the processes to bring systematic and routine changes and improvements to an organization will be expensive because of the time and efforts involved. The key is to make sure that this is accomplished as efficiently as possible within the cost and time of any budget. It costs virtually nothing to communicate a vision of innovation, set goals and objectives for ideas and innovations, and ask for ideas. It costs very little to run brainstorm meetings, set up an intranet-based suggestion scheme, implement small incremental innovations, empower the team to try more initiatives in their areas, and investigate new collaborations and partnerships.[15]
Managing Innovation is Difficult
Leaders create the willingness to innovate, the ability to innovate, and they cultivate the innovation.[16] The process of leading a team, working exclusively on innovation, is a difficult challenge. The process of stimulating creativity and innovation in an organization, bringing the culture necessary to not only create and nurture new ideas, but to turn them into workable, viable products and services is also difficult. Because of this, most organizations have set up divisions, departments, and units which focus directly on innovation. One of the most interesting new roles has been the creation of the Chief Innovation Officer with the promise that this person will bring innovation to the organization.
Unfortunately, this maybe sends the wrong message and some indicate that this job should be eliminated. According to George Bradt, a Forbes magazine contributor, the whole premise behind the Chief Innovation Officer goes beyond useless to completely and utterly counterproductive. [17] If one person oversees innovation, then everyone else is not innovative and they must be. His point is that everyone is responsible for innovation and creativity, and leading this effort should be a part of each manager’s job, and even the part of the job of most people within the organization. Everyone shares responsibility to come up with ideas, push those ideas, and help develop those ideas.
An Innovation Culture is Necessary for Success
Another challenge is that an innovation culture is necessary for success. The most innovative companies are those that seem to have a culture for innovation and creativity. Innovation is about extending what is possible. When a person develops a new idea to improve something that was perhaps difficult, now it becomes a little easier. Leading innovation is about inspiring people to see and want better futures, better work, and better processes. Getting people to do what they love the most is an effective way of inspiring creativity and commitment to that better future, and in that sense, a culture is needed.
According to Max McKeown, innovation culture is how we describe effectively or ineffectively people are working together to create and use new ideas.[18] Culture is the sum of the values, beliefs, and assumptions of human groups. Culture is about the personality and behavior of a social group, and it is all about the different factors that shape what groups are likely to do next. McKeown has an interesting way of describing different cultures ranging from idea-toxic cultures, where creativity is not welcomed or rewarded to idea-wasteful cultures, where ideas and insights are treated casually and often mismanaged. Then he describes an idea-friendly culture where creativity is welcomed and new ideas are valued. These new ideas may get introduced and reviewed by the hierarchy. But the best is obviously the idea-hungry culture, where people seek new ideas. They make the world better with improvement beyond existing limits. This is an interesting way to describe the culture in an organization with regard to improvements, new ideas, and new suggestions. Most organizations say they want innovation, but only a few work with it in an effective and an efficient way.
Dr. Amantha Imber has developed what she refers to as The Innovation Formula.[19] Dr. Imber’s work identifies 14 science-based keys for creating a culture for innovation. These are based on individual-level factors, including challenge, autonomy and recognition. They also involve team-level factors of debate, team supportiveness and collaboration. They focus on leader-level factors of supervisor’s support, senior leader’s support, resourcing, and goal-clarity. Lastly, the focus is on organizational-level factors of risk-taking, cohesion, participation and physical environment. Dr. Imber has created an interesting Innovation Culture Audit, which involves two questions for each of these 14 factors and invites individuals to take the survey to discover where they stand in terms of their own internal culture for innovation (www.inventium.com.au).
The important point is that there is a huge challenge to create this culture. It doesn’t occur quickly; it evolves over time. If the culture is not there, it will take some time to change and improve it, so it clearly becomes an innovation culture.
Innovation Requires Many Personas
Innovation requires many personas. Innovation takes on a lot of different roles and many different styles. These are often called personas, as described by Tom Kelley of IDEO, one of the largest organizations created to help build innovative organizations. In his early work with IDEO, Kelley discusses the ten faces of innovation. These are the personas that may already exist in large organizations, although they may be undeveloped and unrecognized.[21]
According to Kelley, there are three learning personas that help individuals and organizations gather new sources of information to expand their knowledge and grow. These roles are:
The
anthropologist
who brings new learning and insights into the organization by observing human behavior and developing a deep understanding of how people interact physically and emotionally with products, services. and space.
The
experimenter
who prototypes new ideas continuously, learning by process of enlightened trial and error.
The
cross-pollinator
who explores other industries and cultures, then translates those findings and revelations to fit the unique needs of the enterprise.
Also according to Kelley, there are three organizing personas, played by individuals who are savvy about the often counter-intuitive process of how organizations move ideas forward. These personas are:
The
hurdler
who knows the path to innovation is strewn with obstacles and develops a knack for overcoming and outsmarting those roadblocks.
The
collaborator
who helps bring eclectic groups together, and often leads from the middle of the pack to create new combinations and multidisciplinary solutions.
The
director
who not only collects a talented cast and crew, but also helps to spark creative talents.
Kelley goes on to say there is a set of building personas based on roles that apply insights from the learning roles and channels the empowerment from the organizing roles to make innovation happen. These are:
The
experience architect
who designs compelling experiences that go beyond functionality to connect at a deeper level with the customers latent or expressed needs.
The
set designer
who creates a stage on which innovation team members can do their best work transforming physical environments into powerful tools to influence behavior and attitude.
The
caregiver
who builds on the metaphor of the healthcare professional to deliver customer care in a manner that goes beyond mere service.
The
storyteller
who builds both internal morale and external awareness through compelling narratives that communicate a fundamental human value or reinforce a specific cultural trait.
These are excellent ways to think about the different roles in innovation. They are needed to bring about the innovation necessary for an organization.
Innovation Success Rates Need to Improve
The failure rate of projects is much higher than it needs to be. There has been, for example, a typical assumption that nine out of ten start-ups will fail. There have been many start-up failures which have been celebrated and almost immortalized. That seems to be changing now, and failure should not be considered the norm. Success should be considered the norm, argues Erin Griffith, a Fortune magazine columnist.[20]
Part of this success rate is that innovation needs to be faster, and this is no more obvious than the race to bring out new medications or find cures for diseases. Sometimes it just takes a long time for a breakthrough, but there are opportunities along the way that can speed up the mechanics. R&D sometimes falls into bureaucratic processes and may not be managed efficiently, and may not be delivering in a timely manner. Having a system in place to help manage the process in an efficient way should bring out faster innovations and faster solutions.
