This column is by Founder of FORTH innovation method, Gijs van Wulfen
When you read the strategy reports of your organization or your client, do you get a clear picture of the direction the organization is headed? Generally, strategic reports tend to be vague on innovation. Lots of times they mention that we have to innovate, but not how, where and for whom.
The innovation opportunities for your organization are infinite. There are hundreds of great ideas out there. You should guide and sometimes even restrict your activities in the front end of innovation to certain specific areas, as your resources are limited in terms of time, people and money. In practice, I have experienced that focusing increases the chance that you will find great opportunities that match your organization. The better you know what you are looking for, the easier it will be to spot it.
Apple is an example of a very successful company with a clear innovation focus. As Michael Schrage describes in his book The Innovator’s Hypothesis: “Steve Jobs was a strategic value innovator. The numbers –not just his company’s products – say so. Apple spent far less on research and development (R&D) than its competitors during its recent decade of rapid growth. Despite the competition investing more R&D dollars on both an absolute and a percentage of sale basis, Apple enjoyed significantly greater innovation returns. Did Apple have its innovation failures? Of course. But none were spectacularly expensive. Steve Job’s company carved out remarkable safety margins in its innovation investment. How was that possible? Focus. Apple focused on its interface design and form factors, as well as facilitating elegantly simple and simply elegant user experiences. Lower prices matter less than higher perceived value.”[i]
Zumba, the popular fitness routine is a great example in the services industry of an explicit focus which provides clear criteria for assessing potential innovations. Zumba’s founders rely on two simple rules that help them quickly identify the most promising innovations from the flood of proposals they receive. First, any new product or service must help the instructors—who not only lead the classes but carry Zumba’s brand, and drive sales of products—to attract clients and keep them engaged. Second, the proposal must deliver FEJ (pronounced “fedge”), which stands for “freeing, electrifying joy”. Read this post for more on Zumba’s focus.
Should you focus on incremental innovations, breakthrough innovations or both?
Should you focus on incremental innovations, radical innovations, or both? This depends on your role and situation. Startups mostly enter a market with a radical innovation. Facebook, and Twitter created new markets with new-to-the-world offerings. Tesla, Uber and AirBnB broke into existing markets surprising the incumbents with their new-to-the-world offerings. Existing organizations are mostly reactive innovators, which puts them in the situation where they have to quickly come up with innovations as the urgency is high. For them, incremental innovations are faster to develop with less risk. However, that won’t be enough in the long term as they also have to come up with radical innovations in order for their organization to grow again in the longer term. It’s essential that you find a good balance between incremental innovations, improvement of present products and services, and radical innovations focusing on big ideas which are outside the present comfort zone of your organization. With incremental innovations you prove to your customers and staff that you indeed can innovate and thereby build the confidence you will need to make bigger strides, once your radical innovations hit the market later.
How to draft an innovation assignment
To draft an innovation assignment you invite the relevant stakeholders, mostly your senior management, for an innovation focus workshop, where they will have to be explicit about their expectations on the results from the innovation process. This forms the guidelines for your innovation team when you are underway. You can formulate the innovation assignment with the help of the following six questions:
- Why? (Why do we want to innovate?);
- Who? (Who is the target group: BtB vs BtC; Existing vs new customer groups);
- Where? (For which distribution channels, countries, regions or continents)
- What? (Evolutionary or revolutionary: products, services or business models)
- When? (Intended year of introduction)
- Which? (Which criteria should the new concepts meet?)
Often your board has not yet defined the criteria the new offerings should meet. Then it helps to ask some questions. In practice, you will go a long way with the following eight questions:
- Revenues. How much revenue must the innovations realize during the first three years? Or, if new offerings compete with existing products, how much extra revenue must be realized?
- Profit. What profit margin or EBIT (earnings before interest and taxes) should the new concept realize?
- New. Should the new concept be new to the company, new to the market, new to the country or new to the world?
- Appeal. How attractive and pioneering to the target group does the new product concept need to be?
- Promotion. To what extent do we want the product concept to create buzz and hype among potential customers?
- Positioning. To what extent should the new product concept fit the current brand positioning?
- Production. Do we produce the new product ourselves (with our own manufacturing facilities) or can we co-create with partners?
- Strategic fit. To what extent should the new product concept fit the business strategy of the organization?
Be sure to be ambitious when you quantify these criteria, as “The greatest danger for most of us is not that our aim is too high and we miss it, but that it is too low and we reach it.” [Michelangelo, Italian sculptor, painter, architect, poet, and engineer]
A real-life example of an innovation assignment drafted by The City Bin Co., an Irish company and part of environmental solutions provider Averda, helps get you on the right track.
“The B2B waste collection industry is tired and stale. It has not evolved, in relative terms, resulting in a business model and approach that has gone unquestioned for decades. Hence, we firmly believe an opportunity exists to create innovations that distance The City Bin Co., in meaningful ways, from the competition.
Our mission is to disrupt the B2B waste collection industry! We will transform the status quo by unleashing a distinctive, elegant offering that creates exceptional value for customers and provides an experience which they would fear to lose. Equally, competitors will be unable or unsure how to react.
For the company, it will mean an explosion in revenue and profit. We will become ‘the’ leader in our chosen markets and a case study for other firms globally.
We will focus on the Dublin SME sector, or comparable organizations where decisions can be made quickly.
At the end of our assignment, we will generate at least four mini new business cases (MNBCs) which can be launched to the Irish market. Furthermore, at least one MNBC will unearth an un-served business need that is capable of expanding the market.
Each new MNBC must meet the following criteria:
- € 15M turnover by the end of the second year.
- An EBITDA of 25% within 6 months of launch.
- A CAPEX requirement at least 30% less than the current norm.
- A mechanism for managing customer churn to below 5%.
- Transferable to the UK within 12 months and to the USA within 24.
- Capable of creating WOWs in the form of written compliments.”
Once you have a smart, clear and concise innovation assignment that has the support of your management, it will easier for you to proceed with selecting the best team members for your innovation journey.
4 Key messages from this post
- If an innovation initiative doesn’t fit the focus of your organization it will be killed sooner or later.
- It’s essential that you find a good balance between incremental innovations and radical innovations.
- When you draft an innovation assignment invite your senior management to be explicit about their expectations on the results of the innovation process.
- Be sure to be ambitious when you quantify your goals.
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Image Credit: Global CreditCategory Business Startups