Why Company Innovation Efforts Often Fail (And What To Do Instead)19 June, 2018 / Articles
Innovation units are emerging at speed in large companies: in a new study 70% of surveyed firms said they were increasing investment in these units, 60% of which were created in the past five years. Companies such as Google, Nissan and GSK use these units for exploring new opportunities and integrating new products, services and business models.
Still just 23% of companies said their units have delivered a significant innovation (one that now accounts for at least 10% of revenues.) In fact, high-profile companies are quietly closing these units. As a recent article by Scott Kirsner in the Harvard Business Review put it, “When a CEO announces a major initiative to foster innovation, mark your calendar. Three years later, many of these ambitious ventures will have quietly expired without an obituary.” So what causes innovation units to fail?
The bottlenecks for innovation
Based on 29 interviews with executives in different countries combined with analysis of previous publications, a recent study I conducted with prof. Mª Julia Prats (from IESE’s Entrepreneurship and Innovation Center), and David Gillespie and Nicholas Singleton (from Oliver Wyman) looked at the major factors triggering the poor adoption of inventions in large companies.
What was the common factor in main challenges we identified? A lack of organizational agility. Many large companies simply do not have the right balance between efficiency and agility. As a result, they are not flexible enough to incorporate innovations before the opportunity disappears.
Elephants learning to dance
Nearly 90% of the surveyed companies said agility was “highly” important to the future success of their companies, and 96% indicated that they needed to become more agile in the future. This echos analysis from MIT that found that agile companies grow revenue 37% faster and generate 30% higher profits than non-agile companies, data often cited by The Economist Intelligence Unit.
So how can established companies improve their agility? Agile companies must be able to move in new directions rapidly and adapt to new information without having to radically change the existing structures and practices. There are three required capabilities:
Sensing: Being able to detect, identify and develop opportunities as they emerge in relation to customer needs
At the company level, this means having a startup ethos, where the firm looks to be responsive to its environment, dedicates time and talent to spotting opportunities and is connected to internal and external radars.
At an individual level, this means fostering explorer behavior: being customer focused, willing to learn, and encouraging knowledge sharing.
Securing: Being able to mobilize and/or get hold of resources from across different levels of the organization to exploit these new opportunities
In order to do this, a company needs to have a bias to action and a willingness to deploy resources to experiment. There needs to be freedom to test, learn and develop new ideas.
Leadership also needs to be agile for this to work. That means delegated authorities, so bold decisions can be made fast, execution not being delayed by politics, and generally having an aversion to bureaucracy.
Shifting: Being prepared to adopt new practices, without incurring huge internal costs of change
To succeed at this, organizations must have flatter, faster and simpler structures, diverse, cross-trained and functional teams as well as modular processes and change architecture. At the individual level it means having an entrepreneurial mindset, a clear vision and mission, an ownership mentality and the ability to work collaboratively.
In other words: sensing opportunities, securing the right resources and, if required, shifting the organization, are three crucial sets of actions to ensure that investments in innovation units really pays off.