Managing the value chain of innovation

By Fundisile Serame

Much has been written about innovation as a cornerstone of business growth and key strategy for competitive advantage, so there is no need to belabor the point. Yet, innovations measured in concrete outcomes that reach the streets and the balance sheets remain elusive to many big businesses and startups alike. There continues to persist an absurdly high rate of mission-critical innovation initiatives that culminate into visions that are lovely to think about, but doable and profitable only in some remote, imaginary world – which Mark Payne, the founder of Fahrenheit 212, calls ‘unicorns’ in his book ‘How to kill a unicorn’.

The lion’s share of corporate innovation projects (over 90%) are not making it to markets. This is according to 45% of 100 chief innovation officers surveyed by Fahrenheit 212, a global innovation consulting firm, in 2014. So, why are firms struggling to transform ideas into commercial outputs? Why is there such low rate of innovation productivity?

Given that mobile technology and social media have have been major drivers of innovation across industries in the last decade, one might expect technology companies to be leading their more traditional counterparts who have used these technologies to penetrate and retain markets. Telecoms companies in particular, facing slow growth, have registered little success in global innovation compared to non-tech counterparts. Five of the top ten global innovative companies in 2015 are nontech companies, according to BCG (2015) survey. On the entire list of 50 companies, 38 (76%) are nontech companies.

It is certainly not for lack of trying that large firms always have to play ‘catch-up’ with start-up driven innovations. In Boston Consulting Group’s tenth annual global survey of the state of innovation, for instance, 79% of respondents ranked innovation as a top-three priority at their company – the highest percentage since the annual survey began in 2005. Neither should it just be expected that companies that show innovation aspirations in their business will get it right by blindly following what successful innovators are doing right. To suggest that there is a general shortage of ground-breaking ideas that can take these firms to new heights would be misleading. What is clear from evidence that has emerged in recent years points to a lack of a systematic approach towards managing innovation efforts.

The reality is that great ideas can come from anyone within and outside the business. Sourcing from outside the organization may involve customers, business partners and, more importantly, leverging an existing entrepreneurship ecosystem. However, great ideas are not enough. There are often fewer barriers to idea generation than idea implementation. Generating ‘great’ ideas can be so empowering that it is easy to get lost in the euphoria of it all and to celebrate ‘failures’. But innovation is not just a ‘feel-good’ exercise. How these ideas are validated and channelled through the organisation to see the light of day is the essence of innovation success, which many firms are grappling with. In many organisations, innovation processes in place are so broken that the excitement that comes with the idea of creating ‘new’ value tends to overshadow the importance of modelling the process and managing the value chain – and that is a management issue.

According to Wazoku, a company that provides innovation management platform and services, effective innovation management requires three things: a defined process model, a focus on innovation, and the right tools to manage. Managers do not exclusively have ideas that would ‘shake-up’ markets the same way disruptive innovations like Uber and others have done in recent years. Innovation is a cross-functional and multi-disciplinary activity that is collaborative in nature.

However, regardeless of the innovation management model an organisation adopts, creating an innovative organisation is the responsibility of management – be it top management team or a subset of it. Executives, as leaders of organisations, need to both inspire and manage innovation efforts. According to Swedish Innovation Management.se, leaders have dual roles when managing innovation, i.e. they stimulate innovative results as they facilitate ideas and initiatives coming from individuals and teams in a bottom-up model whereas they are the primary means for the organization to realize its innovation goals and strategies in a top-down approach. A fundamental challenge is to balance these two roles.

For leaders to succeed in managing innovation there are certain attributes that have proven to underpin innovation success. BCG, in its 2015 survey of global innovative companies, found that many executives identify as critical and interrelated an emphasis on speed, well-run (and very often lean) Research & Development (R&D) processes, the use of technological platforms, and the systematic exploration of adjacent markets. Speed in execution and adoption of new technologies is the major source of differentiation for true breakthough innovators while R&D processes significantly influence the pace of innovation. At least the top 15 global innovative companies, Apple and Google holding the top two spots, are all strongly associated with many of those capabilities. Excellence in the systematic pursuit of these adjacencies is a characteristic common to the most innovative companies.

With that said, an assumption that all organizations face the same obstacles to developing new products, services, or business ventures is a fallacy. The reality is that challenges to innovation vary from firm to firm, and what works for one company may not apply in another’s situation even if they operate in the same industry. Innovation ‘best practices’ are not always ‘importable’ into a company because of the uniqueness of obstacles and challenges to developing new products and services faced by organizations. One company may be great at generating ideas, but lack the discipline to bring those ideas to market. Likewise, a company that excells in excecution, may not have have the ability to source, screen or even decide on high-impact ideas, let alone measure their innovation efforts. Although innovation is messy, fuzzy and complex by its very nature, there is a case for a deliberate and systematic innovation management method that goes from ideas to commercially valuable outcomes. Such a method needs to consider a company’s uniqueness in processes, management and culture.

So, how do firms keep their innovation management processes efficient? Morten & Birkinshaw (2007), in the Harvard Business Review offer the ‘Innovation Value Chain’ framework to address just that. The Innovation Value Chain is a framework for considering existing processes to creating innovations, suggesting that the process of transforming ideas into commerical outputs needs to be viewed as an integrated flow, similar to Michael Porter’s value chain for transforming raw materials into finished goods. The Framework challenges executives to take an end-to-end view of their innovation offorts as opposed to reflexively importing innovation practices which only address a part and not the entire value chain, to ensure all weakest innovation links are addressed.

In the framework, innovation is viewed as a sequential, three-phase process that involves idea generation, idea development, and the diffusion of developed concepts. There are six critical tasks that managers must perform in all the phases, each being a link in the chain, i.e. internal sourcing, cross-unit sourcing, external sourcing, selection, development, and companywide spread of the idea. Along the innovation value chain, firms need to find the strongest links (activities it excels in) and weakest links (activities it struggles with).

This is not to suggest that innovation management gets easier with a framework in place, nor does it seek to bring a hierarchical chain of command similar to that of normal business operations in corporates as this can stifle innovation. The point is, regardless of the framework a firm adopts, there needs to be some application of a deliberate and systematically tailored end-to-end approach to generating, converting, and diffusing ideas that brings sanity to the madness of innovation.