Aug 30 2017

The Innovation Process: How are leading brands balancing execution with innovation?

by Bret Waters

the innovation process

I recently conducted interviews with nearly 100 corporate executives around the world, asking them how they see innovation process within their organizations. Many of the executives I spoke with talked candidly about how difficult it is to adopt the processes of modern innovation methodology (agile, fail fast, rapid iterations, etc) within large incumbent organizations. Financial services and insurance executives – in particular – talked about how their organizations have aversion to risk in their DNA, which puts their operating philosophy at odds with the inherently-risky innovation process. Meanwhile, of course, consumer brands are always nervous about experimenting with new ideas in a marketplace where failures can tarnish the brand. 

But virtually every executive team I talked with feels that getting better at embracing innovation needs to be a key part of their corporate strategy. An exec at a very large credit card brand said to me, “We began life when credit cards were a true innovation in payments. But in the last decade, we’ve been out-innovated by everyone else, from PayPal to Venmo. We need to get back to our innovation roots.” It’s worth noting that executive compensation packages are typically tied to revenue, profits, and/or share price, so in a way, most executives are incented NOT to innovate. As one executive I interviewed said, “corporate antibodies are designed to seek out and kill anything that is nonconforming.” And since innovation is nonconforming by definition, it tends to get stifled in traditional corporate environments. The fact is that large incumbent organizations are built to execute and to optimize for efficiency. That’s what they’re built for.

So how does an organization keep this laser focus on execution while also innovating on things that will make sure they have an innovation process in place to make sure the corporation is relevant 5 and 10 years from now? There are (at least) 4 different ways that companies today appear to be dealing with this inherent conundrum, from the execs I interviewed:

  1. Make innovation investments outside the organization. One large retailer I spoke with avoids internal new product innovation completely and instead sponsors a startup incubator and lets a third party operate it in return for having access to those startups and any innovations they develop.

  2. Partner with universities and venture capital groups, rather than dabble with innovation in-house. “Partnering lets us de-risk the innovation process,” one executive told me. Traditional corporate venture funds and corporate development departments are always seeking ways to embrace innovation while keeping it outside their core operation.

  3. Create an Internal Center for Innovation. Some companies are creating Innovation Centers within the company, with a different set of rules than the rest of the company works with. “Managers running a line of business have to reward success and punish failure”, said one executive I talked with. “Innovation doesn’t happen unless it’s within a safe environment for failure, and that’s what our innovation center is for.”  Other execs I talked with were somewhat more cynical about corporate Centers of Innovation. One exec said, “They are mostly a PR stunt. They get some great stories published, but no product they develop will ever see the light of day.”

  4. “Fast Follow”, rather than innovate. Some companies just simply accept that incumbent organizations are built to execute rather than innovate. So they carefully watch startups in their sector experiment and fail, and then quickly follow the ones that succeed in getting market traction, assuming that the scale of an incumbent player can out-execute the agility of a startup once a new model has been proven.

One common thread that I heard from nearly all the executives I interviewed was that full immersion is necessary for true innovation“We’ve tried dabbling in it before”, said one exec, “but to truly have the focus and do the rapid iterations required means that you need to have a team (or teams) fully immersed in creating innovative new products and lines of business.

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