What Companies That Are Good at Innovation Get Right

Innovation labs, technology scouting outposts, and accelerator programs to invest in startups have become ubiquitous in large companies, as have regularly-scheduled hackathons or idea challenges that invite employees to develop and pitch new ideas. Yet, in some companies, all of that activity adds up to nothing more than “innovation theater.” In others, it actually yields a stream of internal improvements; new products and services; experiments with different business models; and investments in fledgling companies that are connecting with new customer segments.

What’s different in these two groups?

My company, Innovation Leader, fielded a survey earlier this year in collaboration with KPMG LLP, to try to find out what sets successful innovators apart. We had 215 respondents who largely represented the innovation, R&D, or strategy group inside large organizations. About 10% of the respondent companies we dubbed model innovators, because they had put in place certain commitments or systems, like an innovation strategy that was aligned with the overall corporate strategy; involvement of a broad swath of employees — both innovators and commercializers; metrics to track outcomes; and financial and cultural results from all this innovation activity. In other words, they’d created “Hamilton,” rather than a show that opened and closed in one night.

Like all companies in the survey, the model companies told us that they are acutely aware of their company’s demand for near-term results. They feel the pressure. But overall, on a scale of 0-10, they were significantly more confident that their company had developed a viable innovation strategy and was dedicating sufficient resources to support it. This confidence springs from how they envision and enact that innovation strategy over the long-term. They have more patience, and often have leaders who take the long view. Here’s how they do it.

They hone their focus. Our model set of respondents spend less time and energy on incremental innovation and small process improvements, and devote it instead to transformational or “Horizon 3” work—which we defined as the creation of entirely new businesses. They are leaving the incremental improvements to their colleagues who work in the core business, and spending their time exploring and testing ideas that will only pay off in the medium- to long-term. That may be a result of creating strong role clarity and mission for their teams, or having earned the permission, over time, to develop a portfolio more tilted towards big bets.

They collaborate with key internal partners. The model set was much more tightly tied to three key groups in the company: strategy, corporate venture capital, and the corporate development or M&A teams. They were far more likely than the average respondent to say that they were either embedded or integrated into one of those teams, or “highly collaborative” with them. That makes it clear that operating as a lone commando trying to hack your way through the jungle, without support and information from other long-established groups, can be a very long slog for corporate innovators.

They staff appropriately. While the most common staffing level for an innovation team among survey respondents was under ten employees, the model set devoted more resources. Among that group, about one-quarter of teams employ 10 to 24 people, and one-third of them employ more than 100. Small teams can do things like technology scouting, capability building, and “filling in” urgent needs for the business units, but when innovation groups want to move beyond running idea challenges and hackathons, into actually building and testing new offerings that can generate significant revenue, they need more human resources, whether that’s FTEs, contractors, or other “on demand” outside resources.

They design incentive systems. Companies in the role model set were more likely to offer all kinds of incentives to engage with their innovation activities: recognition and awards; dedicated time to further develop projects; employee bonuses; seed funding; and even a financial stake in the new offerings they create. They were also less likely than the complete respondent set to offer no incentives at all. The takeaway here: if you want a lot of people to participate in conceiving, prototyping, and launching new ideas — rather than simply performing their core responsibilities — you need a set of thoughtful incentives.

They monitor impact. It’s common that when innovation programs get started, a significant chunk of them (41%, according to our survey) haven’t yet established metrics to track the financial impact of their work. But among the most sophisticated of the model respondents, all of them had created some kind of financial scorecard for their work. Typically, they were tracking things like revenue generated by their new offerings, efficiencies or cost reduction, or internal rate of return. Financial metrics are not optional; innovation and R&D leaders that expect their programs to endure and grow over time must be gathering data — often with help from colleagues — about the economic value they are delivering to the organization.

They move beyond culture clashes. Politics, turf wars, and the lack of alignment were the top challenges in our 2018 survey, and unfortunately, they repeated this year at the top of the list — at least for the full respondent set. But when you hone in on just the models, you find a different pair of challenges rise to the top: bringing in employees with the right skills and getting access to funding. For the model group, coping with a challenge that the survey labeled “cultural issues” also constituted less of a tar pit. That suggests that the longer an innovation program survives, and the more it shows it can deliver value, the more the broader company culture accepts it.

At the model companies, innovation is a muscle that gets built up over the long haul. It takes a lot of work before you start to see even the slightest results. Unfortunately, at many companies, innovation is like a treadmill purchased in January: it represents an idealized future vision that is abandoned all too quickly.

Your company may have a few of the six systems and processes we discussed in place already. But building an innovation or R&D initiative that surmounts internal obstacles and survives long enough to deliver measurable value requires a commitment to most of them — if not all six — for years rather than months.