Not long ago, the CTO of a large organization said to us, “Innovation is not our problem. We have plenty of innovative, smart people in every department and at every level. That’s our problem. They’re disconnected. Some are off doing their own thing. Others are frustrated, and I’m concerned we may to lose them. We’re sitting on all of this fragmented potential; if it were a more coordinated, focused, and strategic effort, we could be unstoppable.”
There is no question about it, innovating in a large multifaceted organization is difficult. There are always pockets of great innovation, but how do you get these pockets to connect and scale their ideas, capabilities, and data insights across the organization? How do you ensure they complement core business operations and strategic goals, rather than distract from them? How do you set them up for success?
In our work, we see large organizations facing two complex issues: the pace of change of their market and their ability to connect their organization with the future outlook. Most businesses can see what the future holds for their industry; they have smart people, they track the trends, read the TechRadar, attend the right conferences. But they don’t know how to embrace these changes within their organization to prepare for a future that is fast approaching.
And many of these organizations—both established and startups—also lack the core capabilities required to thrive in future, most notably the ability to experiment with new products and business models and to empower their people to engage in the innovation process. These capabilities require flexibility and fluidity, but their processes and structures involve heavyweight planning and governance which can strangle ideas and initiatives. Like trying to do a graceful high-wire act while holding a 50-kilo barbell. In order to transform, businesses need to embrace a new mode of thinking, organizing and operating.
Many companies also plot their growth along Horizons 1, 2, and 3, but attempt to grow into those more distant horizons without disrupting Horizon 1. This is like saying, “we’re going to continue doing exactly as we’ve been doing, but we hope to end up in a very different place.” We’re empathetic to the need keep the current engine running, but Horizons 2 and 3 cannot be reached if Horizon 1 isn’t leading in that direction. (See McKinsey’s Three Horizons of Growth model.)
Creating an Innovative and Entrepreneurial Culture
We have been working with a number of organizations who are embracing change by adopting an entrepreneurial or innovation culture. This involves adopting lean startup approaches by using rapid learning cycles, experimenting, and empowering autonomous teams to innovate and validate at speed and to build new and useful customer propositions.
Rapid learning cycles focus on three main steps: Build, Measure, and Learn. This allows businesses to be led by value learning. Data-driven, rapid learning cycles enable leaders to find the right direction for their business and make sure they make informed decisions about the next step of their business plans.
Experimentation is one of the main tools that enable you to learn from an idea and validate its assumptions using the least time and fewest resources available. Experimentation can be used as a key mechanism to drive data and learnings. From guerilla testing to surveys and market analysis, each experiment is a step towards reducing the uncertainty of an idea, validate assumptions, indicate direction, and make more informed decisions.
Innovation is usually born from a cross-organisational team that is empowered to experiment and learns on the road to successful new revenue streams and models. Cross-organisational teams, comprised of various people from the necessary parts of the business, are empowered to bring an idea from conception to market. The capabilities required for such a team could include business specialists, product, tech, operations, marketing, and more. It’s really about the outcome desired. The key to success is to keep this team as small and collaborative as possible and to allow them to focus intently on this one idea. This should not be their third or fourth priority.
Cross-organisational teams should also be diverse in terms of level and experience. Well-networked senior leaders with social capital to spare can help navigate operational and political hurdles and secure buy-in and budget—but fresh, new thinkers are equally important (and should be empowered to question and contribute). Encourage the team to “work in broad daylight”; give them a platform upon which to socialize their trials and learnings, progress, insights, and outcomes. These diverse, autonomous teams will not only feel richly motivated and rewarded; they will become a cultural catalyst as their enthusiasm and learning spread like wildfire.
What does this mean for the enterprise?
How can enterprises catch up with the pace of change in their market and have the ability to look to the future by adopting lean approaches?
For many of our clients, a dedicated “Innovation Hub” (some call it an Innovation Lab or Innovation Studio) is a way to formalize your commitment to a culture of experimentation towards the future vision for your company. The mission of this Hub should be to explore and validate new products, markets, business models, and capabilities that can help fulfill the future vision of the organization. Innovation Hub concepts can also work well alongside a broader digital transformation as a way of creating and embedding entrepreneurial ways of working. One word of caution: innovation should be everyone’s job. The Hub, however well functioning, should not be a silo or a department solely responsible for all of the innovation coming out of the organization. Rather, it should be an incubator and cultural movement within the organization.
A strong innovation hub will have the following:
SUPPORT from a courageous executive who will help create the right conditions to enable a culture of experimentation and futuristic thinking.
A DEEP FOCUS on exploiting the existing or adjacent markets and capabilities to the organization’s core. Market Discovery is needed to enable the group to look for new opportunities that serve existing and new customers.
CROSS-ORGANIZATIONAL teams including various capabilities from tech, product, business leaders, market specialists, marketing, and operations who work together toward achieving an outcome.
INTEGRATION WITH THE CORE BUSINESS and a clear strategy for how the new business models, revenue streams, and propositions will be integrated back into the core business. The ideas may be kicked off and nurtured by the innovation hub initially, but it is critical to understand various approaches to integrate into the core operating model and run at scale.
SMALL INVESTMENTS that gradually increase as the value of ideas are proven out (i.e., it must be testing well with customers in the market). The Hub must ensure there is readiness from the business to provide necessary investment on successful ventures that are discovered. Also, be brave enough to stop investing in things that are just not proving successful.
INFORMED DECISION-MAKING using data to drive decisions whenever possible. Where key data and insights are lacking, use your team’s resourcefulness. Delve into your existing market knowledge as well as running small, lean experiments to gather data to reduce uncertainty.
CAPABILITY AND ENABLEMENT through knowledge sharing needs to be considered in order to have an effect on your wider organizational culture. There are many options such as rotations, sharing learning, regular and transparent communications to wider groups, integration of the new propositions and learnings into the core business. The innovation team must work as communication agents to ensure the wider organization is aware and engaged.
NEW WAYS OF WORKING, such as Lean approaches, are key to successfully validating the team’s ideas and initiatives. A well-designed space can also help to inspire creativity and collaboration.
The key benefits of an innovation hub
By focusing on Horizons 2 and 3, an Innovation Hub enables progress on future opportunities without disrupting the current priorities and Horizon 1 activities and initiatives. This team is not here to generate ideas for today, but to generate ideas for tomorrow that enable you to evolve and scale to new customers, capabilities, and markets.
It encourages other teams within the core business to take ownership of the ideas at the right point in their life cycle. It also should give them the necessary support to do so in order to ensure the longevity of the new revenue stream.
Reduces the risk of proposition failure in the future by creating new ways of working through early experimentation, rapid feedback cycles, and cross-organisational teams. Most critically, it will allow time to pivot or kill ideas earlier (and with less sunk cost) if the data does not prove out demand or revenue.
Nurtures customer feedback and become a go-to-source for customer insight. Innovation often comes from customers; showing them that their feedback really matters can turn customers and early adopters into powerful advocates.
Take the wider organization on the journey as much as possible. Have a great communications plan, include key business leaders and specialists in that plan, and involve core business units where possible.
From Day 1, think about your strategy and options to integrate the ideas, business models and revenue stream from the Innovation Hub back into the core business, whether that’s early in the idea’s life or after the new revenue stream is operational and starting to run at scale.
Grow this innovation capability through rotations and knowledge sharing to have a transformational impact on your core business.
Be ready to increase and “double down” investments on great ideas coming out of your Innovation Hub. Startups usually need VC funding at some point; new businesses from within your organization are no different if customer demand and potential for revenue are proven.
For us the message is simple, organizations need to allow innovation to thrive. However, innovation needs focus, coordination, and alignment. Learnings of that journey must be recognized, utilized and shared. And ultimately, innovation needs autonomy, freedom, and empowerment in order to be successful.
Disclaimer: The statements and opinions expressed in this article are those of the author(s) and do not necessarily reflect the positions of Thoughtworks.