Member Article

Four operating models for corporate innovation

The challenge of innovation

If innovation occurred as a natural reaction to the expressed wishes and exhortations of the CEO on the subject of Innovation then this would be a very short article. However, those of us that are practitioners and advisors on the topic know that it does not. In fact those of us who carry any kind of Innovation related title should take a good hard look at ourselves and admit we’ve let our industries down by colluding with the idea that somehow all we need, in order to generate Innovation in our businesses, are some verbal signs of support from the senior executives. This is nonsense. Think it through. If I meet up with a CEO and ask him/her to describe to me their financial management process they will have no problem in outlining the process, the systems underpinning it, its governance rules and the roles of the people who manage it. The same will be true if I ask about the people management process and as of relatively recently they’ll even be able to walk me through the risk management process.

The innovation process

But ask about the Innovation process and they’ll almost immediately flip their responses to start telling me about the specific “innovations” that have occurred in their businesses in the last 2 years or so. Not the process, just the outcomes. When really pressed they might be able to point to a Head of Innovation who reports into the Head of Product development somewhere and they may be able to point out that they have a more or less sophisticated employee suggestion scheme but almost none will be able to talk me through their Innovation process. The simple reason for this is, that on a corporate scale, they are highly unlikely to have one. No clear operating model, no end-2-end process, no underpinning systems and technology, no real investment or resources and no real chance of delivering a regular flow of innovation. Ouch!

NB – before pharmaceutical and technology clients start feeling smug about themselves as they start casually pointing to their tried and tested R&D process for creating new products – can you tell me the process for corporate innovation in any area other than new product development e.g. service innovation, cost reduction innovation, business model innovation, distribution process innovation etc? Thought not.

So rather than rant on about how sad a state of affairs it all is and that someone, somewhere should do something about it I thought I’d grab the bull by the horns and outline four different operating models that a CEO who wants to remedy the situation can think about implementing.

Model 1 – The Culture of Innovation

This works great for companies that live or die by their ability to innovate and can be seen in action in companies such as Google and 3M. In this model Innovation is the responsibility of all the members of the company and each individual is expected to contribute. To support this employees are recruited for their creativity/entrepreneurial tendencies and are given a proportion of their week to work on developing new cool ideas. To support this model recruitment needs to be targeted and very effective and the reward system for developing innovative concepts needs to be clear and generous. In addition individuals need easy access to prototype developers and concept testers to support their efforts.

The strengths of the model are that it is rarely short on ideas and as long as collaboration is encouraged and facilitated the flow of new innovation is relatively constant. The weaknesses are that this is a hopeless model for those businesses that recruit people for their ability to comply with process and follow the rules e.g. Insurers, Accountants etc. There can also be an over focus on the development of new product rather than other forms of innovation and a tendency for innovation to peter out after the prototype has been developed and given an initial testing.

Model 2 – The Golden Thread of Innovation

This works well for those companies that are in a growth cycle and are looking to expand. In this model Innovation professionals are deployed across the business to develop and manage the innovation process on behalf of the business units. They work to an agreed process and are supported by the Business Unit executives who have the overall accountability for (and are bonused on) the Innovation delivered. The Innovation professionals working in the Business Units are supported by an Innovation CoE that sits in the corporate centre to provide coordination and support (access to prototyping and testing capability etc).

Companies that have previously used this type of model include GE and RBS (pre credit crisis). The key to making this model work is to ensure that the business unit executives are absolutely on the hook for driving innovation and that the capability is properly funded. It cannot be seen as a nice to have by the business units. Careful recruitment is also required to select the right individuals. The key roles in this model are those liaising with the business unit executives to drive Innovation. This requires both innovation skills and great sensitivity to business realities.

Model 3 – The Innovation Hub

This is a model suited to those corporate businesses that have limited investment resources and are in a cost reduction/ contraction phase. They know they need to drive innovation in order to survive but need the attention of their executive team focused on resolving the current challenges. An Innovation hub or hubs concentrates the organisations innovation resources into units that sit outside the day to day running of the business. The capabilities in the hubs are supplemented by external providers that enable the hubs to ramp up and ramp down in line with investment capability. The external providers also provide access to specific skills or infrastructures that the business cannot afford to build or maintain at the current time on a permanent basis. Innovation hubs can often be constructed as joint ventures with the corporate trading off some of the future profits from the innovation ideas in return for a reduced cost of the support from the external provider. The strengths of this model are its flexibility and ability to leverage wider innovation ecosystems. The challenge lies with finding the internal innovation experts who have the skills and capabilities and aptitude to work in this kind of environment. A lot will be expected of them as they will need to manage both the Innovation process and the day to day management of the Innovation hub plus have an ability to work with stressed out, under pressure executives.

Model 4 – Innovation as a Service

Much as you can outsource a Finance and Accounting process or an HR process you can also outsource the innovation process. This is a model suited to those businesses who know they are not innovative in their nature and who do not employ innovative people. In this model an external provider takes over all or the vast majority of the Innovation process delivering an agreed level of implementation ready innovation concepts back to the business on a regular basis. The corporate does not need to worry about ideation, prototyping, testing, piloting or the building and testing of business cases. As long as the corporate is capable of implementing the innovation concepts then the Innovation process can be outsourced. The strengths of this model are that the Innovation process is managed by professional innovators and should therefore provide reliable outcomes at a reasonable price point. The challenges are to overcome the cynicism and inertia that can be injected into the process by corporate executives who have an aversion to anything “not invented here”.

This was posted in Bdaily's Members' News section by Rick Freeman .