How To Manage Innovation
In today’s economic climate, innovation is not an option — it’s a must. The leadership challenge facing companies is to balance investments in innovation while managing uncertainty and reducing risk.
We all know there are no crystal balls. However, by employing innovative best practices, you can make significant progress with little investment.
Manage The ‘Exploit’ And ‘Explore’ Portfolios
One of the biggest things we learned during the pandemic is that operational excellence is simply not enough to guarantee that a business will thrive. Leaders today must manage the present and also continuously invent the future. This two-pronged approach requires two very different strategies, processes, KPIs and even teams. With a focus on managing and improving the existing businesses, your company’s “Exploit” portfolio limits uncertainty by using known business models to serve known customers. The emphasis here is on cutting costs and improving performance and efficiency.
By contrast, and with a greater risk of failure, your “Explore” portfolio will place multiple bets on new value propositions and new business models. The expectation is that most bets will fail, while those that succeed will yield high returns. Before making investment decisions, innovation leaders must make bets and allow their teams to test those bets. Through testing and gathering evidence, the best ideas — and the best teams to take a product or service to market — emerge. The key drivers here are flexibility, agility, adaptability and speed.
Building A Culture Of Experimentation In Your Business
Often, companies’ biggest obstacles when scaling up experimentation are not technology and tools but behaviors, core beliefs and values. Experimentation is not only technical; it’s a cultural thing that you need to embrace fully.
Ask yourself: Are you willing to discover that you could be wrong? How much autonomy are you ready to give to those who work for you? And if you don’t like to be proven wrong and don’t want employees to decide the future of your business, then it’s not going to work. You will never reap the full benefits of experimentation.
Repeat experimentation must be an integral part of the process to be successful. To create such an environment, leaders and managers need to foster and encourage an atmosphere in which every employee (not just those in research and development) can bring forward ideas and conduct tests.
Conduct small and inexpensive experiments rather than investing in business plans or launching new products. With nine of every ten experiments “failing,” companies often see those failures as wasteful. However, emphasizing the importance of successful experiments often results in familiar solutions, as employees avoid testing ideas that may fail. It’s actually less risky to run more experiments rather than less; a low success rate on a larger number of experiments translates into gains that diminish the costs of the failures. Remember, failure provides you with insight that reduces uncertainty. As uncertainty will decrease, you can also increase your spending until you understand what customers really want.
Lastly, decisions should not be based on faith or personal opinion, but rather, if they can be tested, they should be. When the results come up against a strong opinion, data must prevail — regardless of whose opinion it may be. While we often easily accept results that confirm our initial hypotheses, we should also challenge those that go against them. A way to deal with this is to implement changes validated by experiments, leaving room for few exceptions. Trust the test.
Why Your Company Needs A Chief Entrepreneur
While traditional CEOs focus on linear innovation (the Exploit portfolio) where the objective is to improve the efficiency of the existing business, companies also need someone to be responsible for the future of the business (the Explore portfolio). One way to go about this is to form the role of the Chief Entrepreneur (CE), which creates and manages the exploration of future opportunities.
In some organizations, the Chief Entrepreneur may also be the CEO. But in others, the Chief Entrepreneur, along with a team of intrapreneurs, focuses on growth and transformation. One such example is Ping An Group, a Chinese conglomerate that started its business in the insurance and financial industry and then launched a platform business that operates across many more industries, such as asset management, auto services and healthcare.
Ping An’s Chief Entrepreneur, Jessica Tan, works alongside the company’s CEO and takes calculated risks with new business models and value propositions to create new value and opportunities for growth. The CE is a forward thinker, building the company’s future. Working in partnership with the CEO, the CE manages all experiments considering the latest market trends and ongoing consumers’ changed behaviors, expectations and needs. They design a space for transformative innovation and see failure as an opportunity for learning and growth.
Organizations that improve their established business model (exploitation) while at the same time investing in the future of their business (exploration) will be the ones that will thrive. Balancing exploitation and exploration efforts requires different skills, KPIs, processes and mindsets, which must be nurtured to flourish.
Corporations able to embrace an ambidextrous structure — using both a CEO who improves and exploits an existing business model and a CE who explores growth initiatives and new business models — are the organizations that will find lasting, transformative growth.
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