Is innovation overrated? When businesses are preoccupied with responses to more immediate challenges – like inflation, supply chain bottlenecks or the struggle for talent – expanding the organization’s horizons can seem like a luxury.
What’s more, while companies are pouring more resources into innovation than ever, research shows the results aren’t always encouraging. They may be tasked with achieving something revolutionary, but a significant number of business leaders pursuing innovation initiatives report feeling like they’re treading water or even out of their depth.
This is an experience common enough that there’s a term for it: innovation fatigue. And one of the main causes is the struggle to balance the need to make breakthroughs with more day-to-day business priorities. Entrenched bureaucracies, lack of coordination and shortages of funding or strategic vision can all conspire to trap the company in ‘keeping the lights on’ mode.
Organizational challenges are the main cause of innovation fatigue
The hard truth is that in a hyper-competitive digital environment, every business will, at least to some extent, be called on to both excel at everyday operations, and push the envelope. The good news is with the right technological, organizational and cultural foundations in place it’s entirely possible to do both at once – and do both well.
i. Defining innovation’s various dimensions
Many innovation struggles are rooted in the way innovation is commonly perceived, or, as Thoughtworks Global Head of Technology, Dave Elliman, puts it, “framed in marketing speak”: as a big step or advance that fundamentally redefines the business. While innovation can take this form, framing it as the only goal worth reaching can set a team up to fail from the outset.
“Innovation rarely happens as something completely new,” Elliman says. “It might be a new use of technology, or in a completely different context, but it tends to come in the form of a refinement or improvement. It’s often a question of optimization or product placement than something that’s truly innovative in and of itself. So a normal company might only make small changes, or slight improvements. But those can have big effects.”
“We often see organizations make big innovation bets, which can pay off – but it can be really problematic if they don’t,” agrees Andy Nolan, Director of Emerging Technologies at Thoughtworks. “An innovation in one business might just be an incremental improvement in another. It depends on the context of the organization.”
The definition of what constitutes game changing can also vary depending on the point of view of customers, or where competitors are placed, Elliman notes. If a firm invests heavily in producing an innovation that barely nudges the customer experience dial, or that’s highly profitable but also easy for competitors to catch up with, very likely it won’t be considered an innovation for long. “All that helps us to understand the fact that there probably isn’t as much innovation generally as people claim,” he says.
Rather than distinguishing innovation from incremental improvements, it can be helpful to view innovation as a spectrum that includes both fitful steps forward and giant leaps. Innovation can take place in different ways and along different levels, which Richard Kick, Thoughtworks’ Head of Engineering Delivery Excellence, divides into three loose, successively larger ‘horizons’:
Horizon 1: ‘Localized’ innovation that enhances processes or outcomes at the level of individual roles or among small teams. “The company may not feel it, and it may not change the company’s position in the market, but it’s going to be innovative for that particular team,” Kick notes.
Horizon 2: Innovation that drives tangible results such as enhanced performance for larger teams, departments, even entire organizations.
Horizon 3: ‘Big-picture’ innovation that transforms the entire business. In striving for this, “you’re trying to be a different company, in a different way,” says Kick.
Defining innovation’s various dimensions
The trap that many organizations fall into, according to Kick, is viewing Horizon 3 as the only real form of innovation and ignoring the more everyday advances that are happening under the radar – when, in fact, collectively these create a more competitive organization and can have substantial impact.
“In the short term you can survive on any one of these horizons – but in the long-term, you need to cover all three,” Kick explains. “If you’re not innovating at the individual or team level, looking to optimize how you perform, you won’t have the money to invest in Horizon 3 innovations, because your tech debt will drown you. Conversely, if you’re only investing in Horizon 1, you’re always going to be doing basically the same thing, only better. You’re not going to be creating anything new or expanding into new markets.”
This argues for sustained attention to all three horizons – an approach reflected in the ‘70:20:10’ model adopted by companies like Google, where 70% of investment is dedicated to projects core to the business, 20% to projects that are adjacent but still related, and 10% to initiatives that are genuinely transformational. While a decent rule of thumb, Kick says for many enterprises the reality looks quite different, especially because Horizon 3 often involves cutting-edge technologies that aren’t yet commoditized and therefore still relatively expensive.
“The costs are higher on Horizon 3, but companies can’t invest people there, because they’ve got a business to run,” he says. “So all the people are still on Horizon 1 trying to keep the ship that’s making the money today afloat, while there are no people but a large financial investment over on Horizon 3.”
These distortions can hold back meaningful action on all fronts, and ideally both financial and human resources should be much more spread out. “The best way to think about innovation is to take a portfolio approach,” says Nolan, where the organization is making a number of strategic bets touching multiple horizons simultaneously.
But before the money hits the table, the business needs to get its technological “house in order,” Nolan notes. “It’s challenging to innovate if the company’s constantly dragged back into ‘business as usual’ operations.”
ii. The foundation: Addressing the tech debt through a thin-slice approach
The limitations of legacy technology – what’s known as the ‘tech debt’ – can drag on innovation in multiple ways. First and foremost, the tech debt monopolizes the time and focus of the organization’s tech talent, especially if things are constantly going wrong. “You need to create space for innovation so engineers and teams are freed of the mental load of worrying about the business’s everyday operations and keeping the platform running,” says Nolan.
In addition, entrenched processes and infrastructure can set boundaries that the company isn’t even aware of, so innovation is effectively dictated by what systems can do, rather than customer needs. “If all the work is done in terms of existing systems, and you only build new stuff out of existing feature sets, it may be utterly disconnected from what the market requires and what’s actually going to sell,” notes Elliman.
Related to this, even the most promising innovations will wither if the constant need to support everyday operations leaves the organization unable to fund them. “If you can’t free up the cash to embed innovations at scale and wait for a five-year return on investment, they die, regardless of whether they’d be making you money later,” says Kick. “Deciding you can’t make an initial investment because you’ve still got a business to run – that kind of thinking kills innovation.”
Companies who attempt to innovate while leaving legacy systems largely untouched are therefore effectively “borrowing against their own future,” Kick says. Sooner or later, the limitations or costs inherent in their technology stack will prevent ambitions from being realized.
In an ideal world, modernization will be well underway before a company starts on its innovation journey. But realistically, “most companies will need to innovate while they're also modernizing their business, and that creates conflict due to budget constraints,” says Nolan. “Stakeholders need to prioritize their investments across horizons, so it generally makes sense to have an innovation strategy and framework in place before spending too much on a new innovation.”
Modernization is also vital in that it equips organizations with the ability to measure how innovations are performing. In the early stages of the lifecycle of a product, for example, there may be multiple ways to define its success, from speed of delivery to how it’s received by customers. However “unless your systems have points where data is generated on what the product is doing, you can’t even begin the conversation about what it is you actually want to check for,” says Elliman. “In order to establish metrics of success you’ve got to have data production in all your systems, and the ability to draw on that data and create insights from it.”
For companies that have accumulated or patched together disparate systems over decades, this may sound like a massive undertaking. But with a ‘thin slice’ approach an organization can gradually adopt more innovation-ready infrastructure, while minimizing disruption to existing processes and without a huge upfront investment.
In essence thin slice involves identifying specific areas where improvements can quickly and easily be made with a high probability of success – whether that’s measured in efficiency gains, customer satisfaction or tangible improvements to the bottom line. Progress with one ‘slice’ fosters momentum and cross-functional cooperation that paves the way for the next.
Delivering with thin-slice verticals
Rather than certain departments or tech stacks, ‘slices’ are based on clear business outcomes – such as providing a streamlined digital payment solution for customers – and therefore cut across multiple systems and functions. Kick notes priority ‘slices’ should generally be based on the company’s ‘north star’ goals – what it’s genuinely aspiring to achieve – rather than pain points or costs it’s looking to eliminate. “The thin slice looks at how you address the big vision, because it’s creating customer value,” he says. “You prioritize the things that will get you to that north star faster.”
Because slices encourage thinking in terms of the business’s ultimate objectives, they also help companies grasp all the elements that underpin processes and products, and reckon with the real costs of change, Elliman notes. Introducing a new product on a website or app, for example, may require adjustments to inventory and payment systems, or new interactions with suppliers, which require the input of a multidisciplinary team to execute effectively.
“Unless you understand all your problems early, you’re never going to solve them,” he explains. “It might be to get some small change made on the screen you’ve got to go crawling back through all your systems. But at least you’ve got this slight vision of what change actually looks like, what it might cost, and how long it’s going to take. So, the thin slice is sort of a pioneering venture to understand complexity and feed those estimations.”
As a thin slice involves grappling with multiple existing systems it can also help the organization decide which are most in need of an update or even replacement, Elliman says. “Sometimes doing a thin slice will enable you to pick up the parts of the back end that you need to start to deal with. And that can start your decommissioning strategy.”
However thin slice’s incremental nature also means the organization may never really have to take a system offline or build entirely new infrastructure from scratch. Kick compares it to a renovation, rather than a relocation or – thankfully – a demolition. “We can’t blow up the entire house or build you a new house and slowly move you over,” he says. “We’ve got to remodel the house you’re in because that’s how you make your money. We start on one side, but eventually we’ll get to everyone, and your business can keep moving in the meantime. The company never stops making money, the disruptions are minimized, you don’t have to move across the street.”
Along with providing a better technological base for innovation, thin-slice driven transformation has the added benefit of getting the company comfortable with change. “Thin slice is a great mental model whether companies are considering incremental improvements to a system, or innovating,” says Nolan. “It encourages you to dive in as quickly as possible, and by successively making incremental improvements, you end up going past your imagined vision. You’re not building the Ferrari to start with, you build a really small version of it, that allows you to test and validate if you’re on the right track – but you do that as quickly and frequently as possible. This blurs the line between innovation and incremental improvement, but if you have the mindset, it doesn’t matter if it’s one or the other. Everyone's empowered to innovate constantly, as part of their daily job.”
iii. Various paths to a change-ready culture
While having modern technology at their disposal is a significant differentiator between organizations that can implement and measure the success of their ideas and those that can’t, it’s not tech but talent and culture that are overwhelmingly perceived as the main innovation barriers by business leaders.
Hunt for talent and ingrained culture among the biggest hindrances to innovation
After all, innovation isn’t just about having the best systems and infrastructure. Technology requires people with the right domain knowledge and skill sets – and perhaps more importantly, the right mindset – to design and use it to achieve great ends. As companies go about transforming their business and technology to stay ahead, ensuring that they bring their employees along in their quest to be innovators is a necessity. “The attrition rate is one of the most important factors in transformation,” Kick notes. “The C-suite may have grand visions, but you can’t transform when half the people in your organization have one foot out the door.”
Instead of wielding a stick or expecting employees to be receptive to new ideas simply because they’ve been endorsed by management, the vision of innovation has to be ‘sold,’ Kick says, so teams understand how participating in a particular endeavor connects to the company’s goals, and helps them grow personally and professionally. “Any sense that the innovation is a threat to their job or identity means you’ve lost before you’ve even started,” notes Kick.
Generally, when companies are charting a strategy for innovation, they will put a catalog of desired improvements in place. However, in the process they will soon come to realize that underlying the changes they wish to make are all the other issues within the organization that need to be resolved first. Moving the needle on any of these may meet with resistance.
“The bigger the movement away from a simple optimization into something that might be new for a particular market, or perceived to be higher risk, the more proportional inertia in the internal organization is generated,” says Elliman.
There are different ways to respond to this uneasiness with change depending on the organization’s digital maturity. “At the higher levels of maturity, establishing a company-wide culture of innovation is probably the best way,” says Nolan. “If on the other hand, a company is still at an early stage of digital transformation, it might make sense to create a lab or center of excellence specifically tasked with innovation.”
Some companies see setting up labs or even engaging external teams to work on new innovations as a fast track bypassing internal resistance without mounting a fight. Unfortunately, as Elliman points out, they might be kicking the problem further down the road, and only realize too late that the idea or prototype they have won’t gel with existing IT, communication and political decision-making structures.
“Lethargy and general weariness towards innovation is often a reintegration problem,” says Elliman. “A possible better way is for companies to allow innovation labs to work on a new product, but at the same time coordinate with internal teams to prepare people and systems for what’s coming.”
Nolan agrees that when the relationship is properly managed, innovation labs remain a viable stepping stone for change-resistant companies.
“There are criticisms of innovation labs as the place where a few people get to work on cool things while the rest of the organization does all the grunt work,” Nolan notes. “Innovation labs do tend to create a divide and silos between the two. But these centers of excellence can also be the ‘north star’ that gives people a vision of the way they could approach innovation – and perhaps some of that will rub off on the rest of the organization.”
Research also suggests that appointing a chief innovation officer (CINO) to shape the company’s innovation agenda and roadmap can kick-start progress. According to Wellspring over 30% of ‘breakaway growth’ category companies have one, as opposed to less than 20% at companies experiencing slower rates of growth. But it’s critical to remember that a successful CINO should be tasked more with facilitating the creation and implementation of an organization’s innovation strategy, rather than simply dictating it and pushing things through.
Hiring a Chief Innovation Officer can significantly boost business performance
“Taking a ‘if you don’t do this, you’re in trouble’ approach can make the innovation process quite negative,” says Elliman. “Many people within the existing organization could become resistant to innovation not simply because of a natural resistance to change, but because they're now being forced to do new things while dealing with an existing backlog of changes they believe is as important.”
According to Nolan, a CINO should ultimately be measured by their ability to be inclusive, and tolerance for failure. “If you're never failing, you're not innovating, you're not trying hard enough,” he says. “We can't expect people to innovate without failure.”
Companies can help failures feel more acceptable by having a portfolio of ideas and innovation and making the right strategic bets. “We say that we always learn from failures and it's true to an extent, but it doesn’t feel very good when you fail,” says Nolan. “However if you’re making the right strategic bets within your portfolio, even if someone fails, the overall success should be positive.”
The other aspect is to ensure that any bets are of a manageable scale, considering the enterprise’s budget, time constraints and team size.
“If you're making bets that are too large, a failure may be catastrophic for the team or the department,” says Nolan. “But if you're using an incremental approach, each time you're doing an experiment it's okay if it fails because there are five other experiments coming behind it - and one of those might succeed.”
iv. Governance and guardrails
Experiments, then, sometimes need to come with constraints. Similarly, there’s a need to balance encouraging people to be creative and to bring all their ideas and capabilities to the role, with ensuring innovation happens in service to the organization, and is appropriately directed.
As Kick points out, absolute autonomy creates absolute chaos. “Setting clear priorities and a governance structure to channel innovation towards those are the keys to innovating effectively,” he says.
“Where I've seen innovation fail is when innovation labs are given too much freedom to innovate and do whatever they like,” says Nolan. “It's just a recipe for burning through money and not making much progress.”
Putting the right innovation ‘guardrails’ in place ensures that stakeholders remain focused on the challenges and ambitions at hand and raises the chances of getting tangible returns on investments.
Defining these guardrails begins with identifying the company’s North Star or vision and mission, says Kick, “so people are clear about why they are showing up for work and why it matters.” Next come the elements of the playbook that will govern innovation work day to day. These include principles – how people agree to behave as individuals and team members – followed by standards, which are hard and fast requirements that can’t be ignored without consequences.
The final piece, Kick says, is “sensible defaults – guides to help direct consistent decision making.” Thus, if confronted with a choice between A and another option, for example, the employee knows always to pick A.
“Giving people a framework with these four elements sets some innovation limits while also empowering them to experiment fearlessly within those broad boundaries,” Kick adds. In other words, the idea is to establish a perimeter, rather than a bullpen.
When deciding where innovation should be targeted, again the ‘North Star’ vision should be the primary point of reference. “Emphasizing cost reduction is usually a bad strategy,” says Kick. “Innovating to expand into new markets and generate new revenue channels – that’s where innovation is going to pay off.”
Measuring success, and ROI, of course requires that metrics are established to ensure stakeholders understand what achievement looks like, what investments are being made and associated risks. Elliman notes digital-native companies typically have a head start in this regard given the ease with which they can combine and analyze data from their systems.
“People tend to sugar coat the progress and almost overinflate the possibilities of what they're doing, which can have negative impacts,” Nolan notes. “If processes around innovation are transparent, stakeholders can grasp the maturity of the innovation process and where they are in the pipeline, to make sure they’re not setting unrealistic expectations. That helps them better decide if to invest further or end the project.”
Customers can also help shape innovation priorities and serve as an indicator of success – though they shouldn’t necessarily be given the last word.
“Companies should absolutely include frequent and early interactions with their clients as part of the innovation process,” says Nolan. “Using customers as a sounding board ensures that you're progressing towards the optimal solution, rather than bringing it to them at the end of the day and then realizing that the solution is never going to work.”
However Horizon 3 innovation “is equivalent to developing the iPhone, something that the customer doesn't even necessarily know they want, so customer-driven design has no place in there,” Kick notes. “You should instead be looking at where the industry is going, identifying industry demands, and then innovating to that.”
Related to governance and structure is security. There is no doubt that as companies push their technological boundaries to innovate, they potentially open themselves up to more risks – an issue that CEOs around the world seem to be acutely aware of.
CEOs regard cyber risks as the top threat inhibiting technology-focused innovation
Innovate through technology or processes
Sadly “security is normally the thing that slows innovation down,” says Nolan. “You want to test an idea quickly, but it's not worth putting in the effort to perform all the checks and balances before you even figure out if the idea works or not.”
Organizations absolutely have to be aware of the risks associated with their experiments, Nolan says, but on the other hand, there is a need to strike a realistic balance. “Conducting a risk assessment to establish a correct risk-reward ratio ensures the focus on security does not become a hurdle to innovation,” says Nolan. “Companies need to ensure they are not slowing down progress with the dreaded corporate IT baggage that they often come up against.”
In the bigger scheme of things, cybercrime “is a cat and mouse game,” notes Elliman. “No matter what you do now it will probably be penetrated and breached tomorrow, if not today. However, that doesn't mean companies can't and shouldn't do anything.”
Adopting zero trust networks – treating any point on your network as if it's publicly available – is a good approach to managing security risks, according to Elliman. Companies can also consider using machine learning to monitor and identify unusual data traffic or behavioral patterns.
Another option is setting up sandbox environments as a starting point for developers to experiment safely without the typical constraints of corporate security.
“Once the experiment reaches a certain maturity in the innovation process, they can then start to layer in the security elements and figure out how to make it realistic,” says Nolan.
Sustainability is another governance consideration that is increasingly important for companies to factor into their innovation approach – both as a principle, and an end-goal.
“Including sustainability in the innovation agenda requires companies to shift away from constantly thinking about human-centered design and customer-centric approaches – which are often at odds with sustainability needs – to a new paradigm where they think more in terms of communities or groups of people,” Nolan says. “This may result in systems that are slightly suboptimal for the individual consumer but more beneficial to the community or group overall.”
“One of the ways companies can incorporate sustainability into their organizational culture and innovation agenda is to include sustainability metrics in their definition of value,” he adds. “That may or may not be at the cost of profitability, but it can create opportunities to attract new customers or retain employees because they aspire to be associated with the brand.”
v. Innovation ‘north stars’: Inspiring examples, but every company has to find its own
Fostering that sense of aspiration among customers and talent is critical as organizations continue to compete with digitally-native companies that in many cases appear to have cultivated just the right mix of strategy, culture and technology to innovate.
Digital-first companies are outperforming legacy incumbents in revenue growth
Percentage-point contribution to the three-year total shareholder return from revenue growth
“It’s easier to innovate when you have little to no legacy tech to deal with, which is one reason why startups are a hotbed of innovation,” notes Kick.
It may not be realistic to completely cast off legacy tech infrastructure. But long-established organizations brave enough to adopt an open mindset and trust at scale can also move fast and gain a head start on the competition. These environments mean “everyone can say they have an idea, they will be listened to, and encouraged to make their experimentation transparent,” says Kick. “They are free to fail out loud because it’s seen as a learning opportunity. And that creates a great culture where everyone is energized by seeing everyone else trying.”
Elliman notes genuine innovations tend to have impact well beyond the company or sector from which they spring. “With Tesla, we're starting to see innovative changes prompted in the energy industry,” he says. “Enabling the use of an electric car on the road and having charging points available at the right places is harder to do than it might appear. That's going to drive more innovation in smart energy distribution.”
Tesla’s approach to innovation is also a reminder of how the thin-slice approach can enable organizations to prioritize and realize their investments. “If Tesla looked at the total cost of deploying a full coverage system of chargers and tried to fund the entire effort upfront, they would never have been able to fund it,” notes Kick. “By thin slicing, they prioritized high value populations. which gave them the revenue to expand into more rural locations.”
While there’s no shortage of inspiring examples of successful innovation, it’s worth remembering that there is no one formula to achieve it. After all, innovation is connected deeply to the organization’s purpose. Each business has to pick from a menu of possibilities, learn from others and its own experiments with the spirit and mindset of an entrepreneur, and forge its own path - and encourage its people to do the same.
“In innovating you should be tapping into the passionate side of why people work,” says Nolan. “That’s what people love about innovation. Whether they're interested in doing that or not may depend on the individual. But if you can provide space for them to actually innovate as part of their job, you're going to end up with more ideas, and get a sense of what you have to do next. These innovations will be embedded in your products without having to independently fund them or set them up. Innovation will be everywhere. That’s the gold standard for how organizations should think about it.”
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