Innovation is typically a top-3 priority for organisations, however, incredibly high failure rates are sadly the norm. Depending on the reference data you use, it’s likely that it’ll show that repeated innovation success is a rarity. Based on Radiocarbon’s internal innovation data along with that published by an assortment of research agencies and management consultancies, we’d estimate that businesses get it ‘right’ around 15 out of 100 times. If not managed and balanced well, this can be incredibly costly, in terms of financial and human resources as well as opportunity cost. In addition, consecutive failures may have enduring effects on organisational culture and faith in innovation as a growth vehicle and protector against obsolescence.
In our consultancy (Radiocarbon), we spend almost all of our working hours studying, talking about and advising on innovation. We’re fascinated by what creates success and what drives failure (defined here as the inability to sustain viable demand levels in-market or return the cost of capital). As former corporate operators, we’ve collectively worked across hundreds of projects and ventures, leading many of those ourselves end-to-end and experiencing both the pains of failure and the elation of success. In addition to reflecting on our own past experiences, we continue to be students of the game, reading all that we feel is relevant and interviewing people with long and diverse innovation histories – corporates, start-ups and investors.
When it comes down to what drives innovation success, there are so many ‘links in the chain’. Frankly, there are an incredible number of ways to get things wrong, and apparently, only a few paths that lead to glory. The problem is, this prosperous path is different for every single venture. The huge number of variables, across desirability, feasibility, viability and endurability dimensions, make it impossible to predict whether something is going to work from the outset. We suggest that it is futile to guarantee success for any new product, service, technology or business model, but it is completely possible to increase its odds of success through the use of a rigorous, principles-led process. We know for a fact that there are businesses, right now, that successfully innovate at triple the rate of industry averages, and our own experiences have helped us acknowledge the power of principles in routinely delivering impactful outcomes.
So, what are the secret sauces for innovation success? Let’s start with what they’re not- these are some of the most popular sauces that may burn your mouth and spoil your meal:
- Theatrics: While it may seem buzzy and cool to run labs, partner with start-ups and form an incubator, this façade of innovation will fizzle out unless the appropriate infrastructure is in place to yield material results on agreed timeframes. Dedicated innovation or growth units can be very powerful, but must be calibrated to the organisation’s unique situation, readiness, patience and risk profile.
- Innovation ‘church’: Like the theatrics, above, there can be a tendency for certain people inside organisations to think that a specific process or model can solve all of their problems. By worshipping Agile, Lean, Stage-Gate or Design-Thinking as rule books instead of understanding their purpose and principles, things can go wrong.
- Starting with solutions: It’s easier to force-fit solutions out into the market instead of wading through the confusion and ambiguity of the front-end of innovation. Putting something out into the market that doesn’t solve a problem or meet a need better than an existing solution could very much see it’s odds of success somewhere close to 0%.
- Familiarity and safety: Organisations are conditioned to look at opportunities through the lenses of their assets, capabilities and categories. Consumers are oblivious to (and couldn’t care less about) business equipment or classifications. They care about their needs and will buy and use what serves them best.
- Being rigid & linear: The application of governance-based project management processes to true innovation can be a liability, especially in the front-end. They demand certainty around scope, specifications, timelines and investment very early on which suffocates the potential for true learning, iteration and optimisation.
- Going unnecessarily all-in: Rolling the dice on a single, large bet, has been conventional wisdom for businesspeople and innovators for many years. However, the data-driven truth suggests that it’s better to have a portfolio consisting of many small investments in pre-market validation activities before determining what to stop, what to change and what to double-down on.
- Premature scaling: Related to the above, too many organisations miss out on the opportunity to test, learn and adapt innovative ventures in-market before scaling. The desire to maximise usage or revenue from the outset leads to a ‘pass/fail’ grade in the market with no real opportunity to learn or improve. A failure, at scale, is catastrophic.
Thinking about the ‘anti-secret sauces’ above, let’s reflect on a hypothetical yet realistic scenario of how an innovation project may unfold inside of a large corporation to see some of them in action:
- Product-Co’s annual brand or business planning cycle identifies an opportunity for innovation. They either read a trend report (same one their competitors read) and joined two dots or have observed something going well in the market and they want to do something similar. At this point, they haven’t had a single interaction with an intended consumer or user.
- A solution – let’s say for this example it’s a physical product – is quickly concocted. It is commonly a copy of something already in market or is based on what the business’s assets can make with minimal hassle. Alternatively, it may even be something Product-Co already makes in another market and it seems like a good idea to lift-and-load it. It’s framed as a ‘fast-follow’ or a ‘quick win’ and speed-to-market becomes the focus.
- Throughout some kind of Stage-Gate process, the product gets compromised and watered-down in order to hit a pre-defined ‘margin hurdle’ (side-note: isn’t it crazy we expect new things to immediately be as profitable as our core business that has been engineered for efficiency over decades?) or to comply with existing supply chain constraints. Productivity and efficiency take precedence over trying to make the best thing for the consumer that is defensible for the business. Mediocrity ensues.
- Forecasts and financials are engineered to ensure support for this project and its progress through the gates by way of steering committee approvals: revenues are inflated, and costs are undercooked using best-case scenarios and everything looks great on paper. Product Co’s new range must launch on-time without letting down the customers who premature promises were made to.
- The products launch into the market, at-scale, at around about the same time something similar is launched by a competitor. It fails to find demand and pricing wars follow as incumbent brands defend their turf while the new me-too entrants grapple for a permanent spot. Crazy, unsustainable discounting activities destroy margins and ultimately make the venture not viable.
- Product Co’s ‘quick win’ became a ‘quick mess’. The new products fail and are pulled from market somewhere between six months and two years after its introduction. The sunk costs are huge, and the clean-up of obsolete stock and retailer relationships isn’t fun. Some people will say that “the new products didn’t get enough support” while others will say the project was doomed from the beginning. It’s been said that failure is an orphan whereas success has many fathers.
- Product-Co has some people movements and starts another annual business planning cycle. A new opportunity for innovation is spotted! The process repeats…
Now that we know what ‘good’ doesn’t look like, let’s simply piece together what is truly important for repeatable innovation success. No sauces, condiments or stuff that’s sprinkled on top of business-as-usual. It requires deep-rooted, disciplined principles, philosophies, choices and infrastructure that allow for it to happen.
- An informed view of the future: The outside world is changing much faster than things change inside organisations. Knowing what’s currently occurring, where disruptive risks and technologies exist, nascent and emerging consumer needs, and forming an opinion on what’s coming, are all vital aspects for business evolution, innovation and transformation.
- An innovation mandate: It must be clear as to the role and purpose of innovation within an organisation. Without this, it’s very difficult to get traction and efforts will be resisted and opposed until people give up and stop trying. The clarity provided by the CEO or MD as to the value and utility of innovation helps to build more widespread understanding throughout the organisation, which in turn garners support, positivity and patience. The innovation mandate set from above is a huge part of building what’s commonly called an ‘innovation culture’.
- Strategic choices: Corporations have finite resources available to deploy to a finite number of activities, and it must make clear choices about what it will do and what it won’t do to appropriate those resources effectively. The creation of future-centric innovation platforms is essential to ensuring effort is being deliberately applied to important territories instead of hoping it happens by default.
- Organisational ambidexterity: Core, business-as-usual activity cannot be the sole focus of future-proof organisations. While productivity and efficiency metrics fuel the business as it is today, tomorrow’s livelihood will be based upon the ability to manage uncertainty, adapt to change and de-risk obsolescence. Businesses must both respect its lifeblood of ‘now’ and the fuel sources of ‘next’.
- Measurement: Strategic innovation can’t flourish if held to the same measures and KPIs of the core business. Innovation is iterative, unpredictable and works on a longer timeframe than core operations and annual planning cycles. While simple core renovations and continuous improvement activity can help deliver annual budgets, adjacent and breakthrough innovations shouldn’t work as short-term gap-closing tactics.
- A powerful front-end innovation process: Most competitive organisations have similar goals, aspirations and governance models. What sets them apart in terms of innovation success, is how they navigate the ambiguity of the front-end of a venture. Most ineffective innovation fails to solve a problem or meet a need better than something it hopes to replace. A principles-driven, evidence-based front-end innovation process can design-in empathy, curiosity, iteration and commerciality while designing out harmful, unvalidated biases.
It’s true, that many businesses can get by without all of this stuff and ride the headwinds or tailwinds as they come. It’s our belief, however, that haphazard ‘wins’ will become rarer as technological advances lower entrance barriers for insurgents and consumers’ expectations and demands shift more frequently. The organisations that will win the future will be those that get their innovation infrastructure in place, sooner rather than later. It’s time to start working now on the things that will matter most for your tomorrow.