Part 2 – Create a shared aspiration for innovation & set quantitative targets
It is not good enough to just have sky high aspiration. Executives need to set concrete and actionable targets to achieve superior innovation performance.
In our last article we highlighted 8 innovation essentials, a collection of attributes and behaviours that underpin superior innovation performance. Companies who are able to master at least 5 have shown to surpass their competition that just muddles along. In this article we will take a deep dive into the first of the 8 essentials- “aspiration”.
While certainly all essentials are equally important, we recommend starting with “aspire”. Why? Simply, because without a guiding star and defined targets your innovation efforts will be at random and most likely fail. In our experience, most companies have understood that innovation is critical for growth. However, much fewer have tied innovation into their overall strategy and defined clear actions and specific goals that hold all leaders accountable in the same way, as to meeting their budgets.
What some executives get wrong is that innovation is not just about creativity and generating ideas. At its heart, it is a resource-allocation problem. It is not enough to have good will and sky-high aspirations. What is needed are people, budget and management attention to support the best innovation projects as well as qualitative and quantitative targets for all business leaders.
In 1961 J.F. Kennedy not only voiced his grand vision to land men on the Moon and return them safely to Earth by the end of the decade, but at the same time he also backed it up by allocating the necessary resources and manpower to pull it off. Executives need to do the same if they want to succeed with their innovation aspirations.
Aspiration is just the start
We have argued why setting the aspiration is key starting point for a better innovation performance. But how can you as innovation manager convince the executive board to also commit to it and allocate the necessary resources? First, you need to make sure you get a ticket to the executive board meeting. We recommend starting with an assessment and description of the current state of innovation. This will give the executive board a finger on the pulse and provide them with a good foundation to discuss how to improve.
Here is an example what the assessment could look like:
1. Online questionnaire
An online survey, incl. open-ended questions, to get a representative picture of the “state of innovation” and gathering insights from the organisation
2. Semi-structured interviews with key stakeholders and managers
Get an in-depth understanding of the current situation and a managerial perspective
3. Analysis of the last 3-5 innovation projects
Understand what worked and what could be better
Additionally, it is always beneficial to present benchmarks and best practices as well as suggest possible key actions. This often leads to an agreement on a shared aspiration but also an initial discussion on cascaded targets.
Translate aspiration into shared quantifiable targets
Armed with a shared aspiration for innovation and a series of follow-up meetings, the innovation management will have overall growth targets and a clear innovation strategy roadmap on how to achieve it.
In the following we give a concrete example from one of our clients to illustrate how you could break down the overall target for growth:
1. Market Momentum
Annual organic growth budgeted to be 4% over the next 3 years.
Adding an extra 5% to the current top-line over the next 3 years
3. Incremental innovation
Securing an EBITDA margin of 10% (2% higher than peers)
4. Transformative innovation
Primarily delivered by the CIO and R&D adding an extra 5% of the current top-line over the next 3 years*
* Depending on your starting point and your state of innovation, transformative innovations might not deliver value in the short term
Each part has a clear executive responsibility. While the innovation team and CIO (Chief Innovation Officers) are driving the “transformative innovations” contribution to the overall growth, the responsibility for incremental improvements might be shared, depending on how the business operation is organised.
The Innovation teams KPIs
The targets for the innovation team can be then further broken down into more specific KPIs. Here is a list of KPIs that in our experience achieve good results:
· Establish an incubation zone that is continuously fed with new ideas to explore. Each quarter the zone should deliver ideas that have been tested for viability, show promise and provide investment opportunities for further exploration from the executive board.
· Responsible for a diverse and balanced portfolio of ideas covering product, service, process, and business model innovation - sometimes broken-down per business unit.
· Work closely with business teams and product development to create viable business models and commercialisation strategies for ideas in incubation.
· Facilitate a quarterly overview of the number of ideas in the incubation zone. How many ideas are in incubation, how many are viable and which ones show high potential and can be scaled.
· Build and support an innovation culture and grow the capabilities to master innovation practices across the business. Innovation does not happen in a corner of the company; it happens across the organisation and arises from unexpected places.
· Run x-amount of company-wide innovation challenges and idea campaigns to source new ideas from employees. Show best practices in idea development by using consistent tools and methods. E.g. engagement rate +30% of invited/ the whole company.
· Responsible for a setting up an innovation operation model - a set of consistently used processes, methods and tools
· Facilitate a high “ideation rate” – as number of ideas backed with resources to be explored to a certain level of maturity. This would work as the “pipeline” for the incubation zone. E.g. 10-15 ideas selected and backed with resources to experiment and incubate.
· Facilitate that senior executives and managers on all levels are exposed to your innovation activities and are involved or informed in a relevant manner.
· Run “intrapreneur” programs - training people in lean start-up and agile maturation methods and train executives to think like a venture fund.
While the innovation team has the main responsibility of achieving the KPI’s, sometimes division leaders and business unit leaders also share some of the responsibility for the implementation rate and the number of ideas scaled into viable business as they contribute with a certain percent of their resources to finance the incubation zone. Hence, you should always include them in the selection and evaluation process so they are committed to play their part, when the idea is ready for implementation. A digital platform involves different stakeholders and groups, easy and efficiently. But more about that in our upcoming article.