That is one of the very few pieces of advice that seems to apply to everything, including spandex workout clothes, movie tickets, and bank fees.
And innovation.
Just because you can invest in innovation doesn’t mean you should.
Yes, I know this is borderline blasphemy in a VUCA world. It’s also downright shocking from someone who spends every day trying to help companies innovate.
But it’s true. And the state of corporate innovation would be infinitely better if executives stopped spending on innovation simply because they can and started exploring if they should.
You can start that exploration with these 5 questions:
1. What is the current state of the business?
If the business fundamentals aren’t solid – you’re hemorrhaging cash, customers are abandoning you like a sinking ship, and you can’t make or deliver a quality solution to save your life – DO NOT INNOVATE! Do not spend $1 or 1 minute on anything other than fixing your fundamentals.
While innovation theory is very clear about the importance of building your core business and creating new ones, it does not apply in this situation because, in this situation, you won’t be in business long enough to reap the rewards of your innovation investment. Instead, invest in re-building your business into a viable and sustainable enterprise. Then invest in innovation.
If your fundamentals are solid, go to the next question.
2. Why is innovation important?
There is no wrong answer to this question. But your answer has massive implications on what you do next and the results you should expect.
If innovation is important because it enables or accelerates a strategic priority, creates or reclaims a competitive advantage, or fundamentally alters the basis of competition in your industry, then invest in it like the Mission Critical endeavor it is and expect game-changing results.
If innovation is important because it builds your reputation as an innovator while helping you attract and retain customers, employees, and investors, then it’s a marketing or PR tactic. Invest in it as you would other marketing and PR tactics and measure success in awareness, trial, and loyalty.
If innovation is important because investors are demanding it, take time to understand why. The answer is probably one of the two reasons above.
3. What does it need to deliver, and by when?
What gets measured gets managed. If it’s measured, it’s important. If it’s not measured, it’s a hobby.
You would never enter a new market, invest in a new plant, or launch a new product without success metrics and KPIs. You start with a plan for measuring success because these investments are important.
If innovation is truly important, you need to do the same thing – determine what you will measure (how we will quantify success), how (specific metrics and tools), and how often (monthly, quarterly, annually). And then do the work of measuring (and managing).
4. How much are we willing to invest before we get ROI?
Innovation takes time to generate meaningful results, but very few executives have the patience to wait years for results, mainly because they know that every dollar or person they allocate to innovation is a dollar or person not generating (almost) guaranteed results this year.
Be honest about when you expect meaningful results and whether you’re willing to continue to invest money and hire people for that long before you get results. If there’s a gap, close it by moving the time to results in (and adjusting expectations) or moving your investment horizon out.
5. ???
I want to hear from you.
What’s a question that you wished leadership asked before investing in innovation?
Drop your suggestion in the Comments, and I promise to respond (plus others will thank you)!
At this point, my husband, a Navy veteran, is very likely to moo (yes, like a cow). It’s a habit he picked up as a submarine officer, something the crew would do whenever someone said something blindingly obvious because “moo” is not just a noise. It’s an acronym – Master Of the Obvious.
But HOW did things change?
From what, to what?
So what?
It can be hard to see the changes when you’re living and working in the midst of them. This is why I found “Benchmarking Innovation Impact, from InnoLead,” a new report from InnoLead and KPMG US, so interesting, insightful, and helpful.
There’s lots of great stuff in the report (and no, this is not a sponsored post though I am a member), so I limited myself to the three charts that answer executives’ most frequently asked innovation questions.
Question #1: What type of innovation should I pursue?
2023 Answer: Companies are investing more than half of their resources in incremental innovation
So What?: I may very well be alone in this opinion, but I think this is great news for several reasons:
Some innovation is better than none – Companies shifting their innovation spending to safer, shorter-term bets is infinitely better than shutting down all innovation, which is what usually happens during economic uncertainty
Play to your strengths – Established companies are, on average, better at incremental and adjacent innovation because they have the experience, expertise, resources, and culture required to do those well and other ways (e.g., corporate venture capital, joint ventures) to pursue Transformational innovation.
Adjacent Innovation is increasing –This is the sweet spot for corporate innovation (I may also be biased because Swiffer is an adjacent innovation) because it stretches the business into new customers, offerings, and/or business models without breaking the company or executives’ identities.
Question #2: Is innovation really a leadership problem (or do you just have issues with authority)?
2023 Answer: Yes (and it depends on the situation). “Lack of Executive Support” is the #6 biggest challenge to innovation, up from #8 in 2020.
So What?: This is a good news/bad news chart.
The good news is that fewer companies are experiencing the top 5 challenges to innovation. Of course, leadership is central to fostering/eliminating turf wars, setting culture, acting on signals, allocating budgets, and setting strategy. Hence, leadership has a role in resolving these issues, too.
The bad news is that MORE innovators are experiencing a lack of executive support (24.3% vs. 19.7% in 2020) and “Other” challenges (17.3% vs. 16.4%), including:
“Different agendas held by certain leadership as to how to measure innovation and therefore how we go after innovation. Also, the time it takes to ‘sell’ an innovative idea or opportunity into the business; corporate bureaucracy.”
“Lack of actual strategy. Often, goals or visions are treated as strategy, which results in frustration with the organization’s ability to advance viable work and creates an unnecessary churn, resulting in confused decision-making.”
“Innovations are stalling after piloting due to lack of funding and executive support in order to shift to scaling. Many are just happy with PR innovation.”
Question #3: How much should I invest in innovation?
2023 Answer: Most companies are maintaining past years’ budgets and team sizes.
So What?: This is another good news/bad news set of charts.
The good news is that investment is staying steady. Companies that cut back or kill innovation investments due to economic uncertainty often find that they are behind competitors when the economy improves. Even worse, it takes longer than expected to catch up because they are starting from scratch regarding talent, strategy, and a pipeline.
The bad news is that investment is staying steady. If you want different results, you need to take different actions. And I don’t know any company that is thrilled with the results of its innovation efforts. Indeed, companies can do different things with existing budgets and teams, but there needs to be flexibility and a willingness to grow the budget and the team as projects progress closer to launch and scale-up.
Not MOO
Yes, everything has changed since the pandemic, but not as much as we think.
Companies are still investing in incremental, adjacent, and transformational innovation. They’re just investing more in incremental innovation.
Innovation is still a leadership problem, but leadership is less of a problem (congrats!)
Investment is still happening, but it’s holding steady rather than increasing.
Sometimes the value can be hard to describe, let alone quantify. You know that, ultimately, the value needs to be financial – more revenue, lower costs, higher profit. You also know that the value created in the short term will likely be more intangible – increased satisfaction, improved brand perception, and greater loyalty.
Your challenge, especially in tough economic times, is to tell a story that connects success indicators seen in the short term to the financial returns realized in the long term and maintain support and funding as the story unfolds.
That is a HUGE challenge! One that overwhelms most managers because they don’t know where to start let alone how to maintain support and momentum.
But you are not “most managers.” You know that the best place to start is at the beginning.
What is the Goal of Innovation (i.e., why are we investing in this)?
Goal #1: Create (or keep) a competitive advantage
Innovation is essential because it keeps you ahead of the competition.
Your business is already a leader in something that creates a competitive advantage, and your innovation efforts focus on keeping it that way.
For example, imagine you’re the President of Big Machine Co (BMC). You’ve been in business for decades in an industry with commoditized products, few competitors, high barriers to entry, and medium barriers to switching (i.e., it can be done, but it’s a pain).
You know that customer relationships and loyalty are the fuel that drives your business and why you’re #1 in the market. As a result, you focus your innovation efforts on creating new products or services that deliver unique value to your customers and provide easy and fast resolution to service issues.
Innovation is essential because it keeps your business alive.
Your business is falling behind the competition either because you’re not keeping up with their pace of innovation or because you’re failing to deliver on table stakes like quality, price, or accessibility. You invest in innovation to catch up to the competition or regain your place in customers’ consideration.
Let’s go back to Big Machine Co. Because of the amazing growth you achieved as President, you’re now CEO (congrats!). The new President continued your innovation strategy but got so excited by everything new he forgot to pay attention to the “old” things – existing products, manufacturing capabilities, and people. Now, you’re #2 in the market and losing customers at a concerning rate.
It’s time to get back to basics and invest in “new to BMC” innovations by creating products that customers want and competition can already offer, investing in manufacturing equipment and processes that improve efficiency and quality, and retaining people who have the knowledge, experience, and relationships that are the heart of the business.
Goal #3: Build a reputation for being innovative
Innovation is essential because doing it makes the company look good (and executives and shareholders feel good), regardless of whether it produces results.
Your business demands innovation, new news, and big splashes. Your customers want novelty, not perfection. Image is everything, and perception is reality. You invest in innovation to show what’s possible, provoke conversation, and stay in the spotlight.
Believe it or not, this is on your mind as CEO of Big Machine Co. Your customers demand perfection, not novelty, but they need to shed the perception that they’re boring companies in a boring industry moving at a glacial pace to attract and retain the next generation of talent. You can help.
You look beyond the market to identify trends and technologies in the news but not yet in your industry. You identify the ones that could transform industries and make your customers’ eyes light up with wonder and excitement. You create proof of concept prototypes that make the vision tangible and discuss the plan and timing of the first step toward that vision.
How to Goal Helps
Your reason for innovating informs everything else – your strategy, structure, activities, metrics, and governance.
That is why you can only have one Why at a time.
Yes, it’s tempting to try to do a bit of everything, but that often results in achieving nothing.
Think back to Big Machine Co:
If the products break, don’t perform as they should, or aren’t available when needed, it doesn’t matter how excellent the customer service is or how cool the new products are. You must achieve Goal #2 (avoid or overcome competitive disadvantage) to earn the right to pursue Goal #1 (create or maintain competitive advantage)
If the products are the right quality, perform as expected, and arrive on time but the customer service is poor, and there are no new products, it’s hard to believe that a company that struggles to deliver incremental innovation can deliver on a radically innovative vision. You must make progress against Goal #1 to have permission to pursue Goal #3 (build a reputation).
The next time you face the challenge of connecting your innovation’s short-term success indicators to the long-term financial returns and maintaining support and funding, don’t be overwhelmed.
Go back to the beginning and explain, “It achieves (Goal #) so that we earn the right to invest in (Goal #).”
That’s the day when each of us resolves to do something new that creates value.
Start working out so I lose weight, look better, and feel healthier.
Stop smoking, so I live longer.
Turn off my computer and phone at 6:00 pm so I focus on family.
Only 20% of people are innovators on February 1. The rest of us gave up our resolutions and decided to keep doing the same things that create (good enough) value.
Your business is no different.
At the start of the fiscal year, you resolve to innovate!
Explore new offerings, customers, and business models
Experiment with new ways to get things done
Enter new markets
Then something goes wrong, and you divert some people (not everyone!) from innovating to fixing an operational problem.
Then the first quarter starts coming in below expectations, and you cut budgets to stay on track to deliver the bottom line.
Then something else happens, and something else, and something else, and soon it’s “February 1,” and, for excellent and logical reasons, you give up your resolution to innovate and focus all your resources on operating and hitting your KPIs.
Resolve to Revive.
Innovation is something NEW that creates value.
New is hard. It’s difficult to start something new, and it’s challenging to continue doing it when things inevitably go awry. Investing in something uncertain is risky, primarily when more “certain” investment opportunities exist. It’s why New Year’s resolutions and Innovation strategies don’t stick.
Revival is the creation of new value from OLD.
When you work on Revival, you go back to the old things, the things you explored, tried, implemented, or even launched years ago that didn’t work then but could create more value than anything you’re doing today.
Your business is filled with Revival opportunities.
How to Reveal Revivals
Ask, “What did we do before…?”
Everything we do now – research, development, marketing, sales, communication, M&A – was done before smartphones, laptops, desktops, and even mainframes. Often new technology makes our work easier or more efficient. But sometimes, it just creates work and bad habits.
If you are trying to make Zoom/Teams calls less exhausting and more productive, try to remember meetings before Zoom/Teams. They were conference calls. So, next time you need to meet, revive and schedule a phone conference (or a cameras-off Zoom/Teams call).
Find the failures
Most companies are highly skilled at hiding any evidence of failure. But the memories and stories live on in the people who worked on them. Talk to them, and you may discover a blockbuster idea that failed for reasons you can quickly address.
Like Post-It Notes.
While some parts of the Post-Its story are true – the adhesive was discovered by accident and first used to bookmark pages in a hymnal, most people don’t know that 10 YEARS passed between hymnal use and market success. In that decade, the project was shelved twice, failed in a test market, and given away as free samples before it became successful.
Resurrect the Dead
The decision to exit a market or discontinue a product is never easy or done lightly. And once management makes the decision, people operate under the assumption that the company should never consider returning. But that belief can sometimes be wrong.
Consider Yuengling, America’s oldest brewery and one of its old ice cream shops.
In 1829, David G. Yuengling founded Eagle Brewing in Pottsville, PA. The business did well until, you guessed it, Prohibition. In 1920, D.G. Yuengling & Sons (formerly Eagle Brewing) built a plant across the street from their brewery and began producing ice cream. When Prohibition ends, brewing restarts, and ice cream production continues. Until 1985, when a new generation takes the helm at Yuengling and, under the guise of operational efficiency and business optimization, shut down the ice cream business to focus on beer. TWENTY-NINE YEARS later, executives looking for growth opportunities remembered the ice cream business and re-launched the product to overwhelming customer demand.
Just because you need growth doesn’t mean you need New.
Innovation is something new that creates value. But it doesn’t have to be new to the world.
Tremendous value can be created and captured by doing old things in new ways, markets, or eras.
Bad news, your business isn’t defined by the company, the industry, and even your function.
Good news, the business you’re in is defined by your customers.
And their definition unlocks incredible potential for innovation and growth.
The 2:00 am Answer
In my first few months as an Assistant Brand Manager at P&G, I had a truly terrifying experience. Sitting in a training session, a senior executive locked eyes with me and asked, “What is Brand Equity?”
My first thought was, “you tell me, buddy. I’m the newbie here.” My second thought, and the one that came out of my mouth, was probably something straight out of a marketing textbook.
“Wrong!” he exclaimed. “Brand equity is what a consumer says if you wake them up from a dead sleep at 2:00 am and scream ‘What is [brand]?’ in their face.”
I don’t know what scared me more, being yelled at for being wrong or the idea that breaking and entering and screaming brand names at unsuspecting sleepers was suddenly part of my job description.
The 2:00 am Answer is the business you’re in
The 2:00 am answer applies to more than just brand equity.
It reveals the business you’re in.
Because it’s the Job to be Done your customers hire you to do
As the training went on, we learned how this mantra manifests in everything a brand (or company) does – its products, pricing, packaging, distribution, and marketing.
For example, if the most important thing to you about laundry is that clothes come out of the washing machine clean, you have dozens of options and probably buy the cheapest one.
But, if you want to be sure that clothes will be immaculate after the first wash because you know your kids will wear anything, even if it has stains, which will lead the other parents to judge you, you have one option – Tide.
Why the 2:00 am Answer matters
The 2:00 am Answer also defines where you have a right to play and to win.
Sometimes this space is bigger than you expect, revealing incredible opportunities for innovation and growth.
Sometimes it’s smaller than you want, exposing a strategic misalignment between what you offer and what your customers want. This happened to LEGO and took the company to the brink of bankruptcy.
In 1998, LEGO posted its first loss in company history. To reinvigorate growth, it shifted from being in the business of Toys to being in the business of Play. This led to two decisions that, while strategically aligned with Play, almost bankrupted the company. First was the introduction of new toys specifically designed to be built in less than 10 minutes so kids could start playing quickly. The second decision took LEGO into other aspects of play – video games, amusement parks, and a TV show supported by a line of action figures.
In 2003, LEGO reported a $238M loss, and with only one profitable product line, the future was bleak. So, LEGO started talking to customers (though probably not at 2:00 am). Through the conversations, LEGO learned that its expansion into all forms of play and the prioritization of Play over creation (building) wasn’t LEGO-y in the minds of consumers. So they rejected the new offerings. Instead, people loved LEGO because it offered “creative play” – the freedom and ability to turn ideas into tangible and interactive 3D models.
LEGO listened and went “back to the brick.” The results speak for themselves. In 2015, LEGO overtook Ferrari to become the world’s most powerful brand. In 2021, LEGO earned $8.06B in revenue, a 27% increase from the prior year.
How to get and use the 2:00 am Answer (without committing a felony)
First, get clear on the business you WANT to be in. Ask yourself and your colleagues, what do we want our customers to hire us to do? Push beyond the easy and obvious answers (usually functional Jobs to be Done). How do you want customers to feel after hiring your company (emotional Jobs to be Done)? How do you want them to be perceived (social Jobs to be Done)? What Job to be Done do you want to do uniquely well?
Second, talk to your customers one-on-one at a time and place of their choosing. Ask them why they hire your business. Again, push beyond the easy and obvious answers to understand what they want to feel and be perceived after choosing you. Ask what other options they considered and why they hired your business.
Find and close the gap. What’s the difference between what you wanted to hear and what you actually heard? If the gap is bigger than expected, how can you expand and innovate your business to grow into all the Jobs people want to hire you to do? If the gap is smaller, how can you shift or redirect efforts to grow in ways where you have permission to operate?
The 2:00 am Answer can be the key to defining, growing, and transforming your business.
“What had a bigger impact on the project? The process you introduced or the people on the team?”
As much as I wanted to give all the credit to my brilliant process, I had to tell the truth.
“People. It’s always people.”
The right people doing the right work in the right way at the right time can do incredible, even impossible, things. But replace any “right” in the previous sentence, and even the smallest things can feel impossible. A process can increase the odds of doing the right work in the right way, but it’s no guarantee. It’s powerless in the hands of the wrong people.
But how do you assemble the right group of people? Start with the 3 Ts.
Type of Innovation
We’re all guilty of using “innovation” to describe anything that is even a little bit new and different. And we’ve probably all been punished for it.
Finding the right people for innovation start with defining what type of innovation they’ll work on
Incremental: updating/modifying existing offerings that serve existing customers
Adjacent: creating new offerings for existing customers OR re-positioning existing offerings to serve new customers
Radical: new offerings or business models for new customers
Different innovation types require teams to grapple with different levels of ambiguity and uncertainty. Teams working on incremental innovations face low levels of ambiguity because they are modifying something that already exists, and they have relative certainty around cause and effect. However, teams working on radical innovations spend months grappling with ambiguity, certain only that they don’t know what they don’t know.
Time to launch
Regardless of the type of innovation, each innovation goes through roughly the same four steps:
Discover a problem to be solved
Design solutions
Develop and test prototypes
Launch and measure
The time allotted to work through all four steps determines the pace of the team’s work and, more importantly, how stakeholders make decisions. For example, the more time you have between the project start and the expected launch, the more time you have to explore, play, create, experiment, and gather robust data to inform decisions. But if you’re expected to go from project start to project launch in a year or less, you need to work quickly and make decisions based on available (rather than ideal) data.
Tasks to accomplish
Within each step of the innovation process are different tasks, and different people have different abilities and comfort levels with each. This is why there is growing evidence that experience in the phase of work is more important than industry or functional expertise for startups.
There are similar data for corporate innovators. In a study of over 100,000 people, researchers identified the type and prevalence of four types of innovators every organization needs:
Generators (17% of the sample): Find new problems and ideate based on their own experience.
Conceptualizers (19%): Define the problem and understand it through abstract analysis, most comfortable in early phases of innovation (e.g., Discover and Design)
Implementers (41%): Put solutions to work through experiments and adjustments, most comfortable in later stages of innovation (Develop and Launch)
Optimizers (23%): Systematically examine all alternatives to implement the best possible solution
Generators and Conceptualizers are most comfortable in the early stages of innovation (i.e., Discover and Design). Implementers and Optimizers are most comfortable in the later stages (e.g., Develop and Launch). The challenge for companies is that only 36% of employees fall into one of those two categories, and most tend to be senior managers and executives.
Taking Action
Putting high performers on innovation teams is tempting, and top talent often perceives such assignments as essential to promotion. But no one enjoys or benefits when the work they’re doing isn’t the work they’re good at. Instead, take time to work through the 3Ts, and you’ll assemble a truly terrific innovation team.
