Earlier HYPE published a white paper on innovation maturity. I wrote it so I’d like to engage you in some of the issues. In conversation with Tim Woods and Colin Nelson at HYPE, we agreed that organizations tend to graduate their innovation practices over time, yet we always talk about innovation practice as if it is kind of static. You do innovation – open innovation of social (hackathon, jam) or reverse. It’s innovation. But actually when companies engage with innovation practices they go through changes. Innovation is a catalyst for some form of transformation.
We wanted to make a start on understanding that process. What do the stages of innovation practice look like? And how do they reflect a change in the organization? I interviewed 30 organizations, some of them clients of HYPE, in order to find out.
The maturity model that we developed from those interviews is not a prescription. Rather, it is an observation. It’s important to distinguish between what the stages of innovation maturity should be, something the research could not discover, and what they actually are, something the research did produce data on. In short, there is no ideal pathway mapped out for companies to follow but by looking at what happens in practice we can help short circuit bad practices and accelerate good ones.
For that reason we created a three stage model based on what we heard from companies rather than a model based on some idea of what is ideal.
What we also observed is that companies moving through these phases become more adaptive, hence the term adaptive innovation. The very fact that they are moving through different phases suggests they are adapting but, more important, those that graduate to phase 3 are characterized by a much more adaptive capability.
In the white paper you will see a variety of innovation practices at each of the three phases but there is a clear progression. To get the most out of the analysis, read the paper, but if you are short of time here are some highlights and some further thinking.
The phases we documented are:
- Phase 1 – very idea centric and centred on idea flow (and stage gate). How can we get more ideas, a quest often driven by a sense that there is one breakthrough idea that will change the company’s future? How do we process those ideas through to product and then market?
- Phase 2 – increasingly customer-centric and far more willing to involve customers in innovation processes; at this stage companies will also make more of an investment in MVP-type processes and move away from innovation for its own sake; more critique of innovation conventions is evident. We also found companies here are more concerned to tie innovation into strategy.
- Phase 3 – more discovery and options driven and capable of dealing with nuance; more likely to be investing in foundational capabilities (particularly of employees); seeking new KPIs for the firm including new financial KPIs; developing a willingness to fail forward, these companies are out to build a strategic options portfolio from their innovation work.
In phase 1, companies are typically tied down to conventional financial KPIs. What’s the business plan? What is my ROI? Where is the NPV? In this phase companies are also experimenting with collaboration and get an opportunity to understand the impact of the different cultures that they are home to.
Companies tend also at this stage to proliferate innovation projects and are likely to pick up on an adulterated form of lean innovation. They want to get into fail fast, fail cheap, often because they have too many ideas, too many projects and not enough budget. It’s a phase companies probably need to go through but should get out of as quickly as they can.
In phase 2, the lean innovation gets real with more investment in externally acquired skills, like design, so that products really do meet some form of minimum value proposition. That often means an innovation manager has been able to push back on the ROI strictures, just a little, enough to give a project space to breathe. An observation from Colin Nelson at HYPE is that companies will also introduce, or often re-introduce, time horizons, thinking again in terms of short, medium and long term innovations. That practice had begun to die out in the gold rush towards open ideation.
In phase 3, companies have really graduated to a new way of doing business. They tend to think more of their strategic options. That is, they are innovating for a fast moving world and creating options they may or may not use. That implies very strongly that they have recalibrated financial KPIs around a long term adaptive strategy. They are likely to have moved beyond simple ideas for customer-involvement in projects to a point where they track customer behaviour on a continuous basis. And their decision-making processes are likely to be much more sophisticated as they combine optionality with continuous insight.
Here’s a quote from Chris Thoen, formerly with P&G and now CTO at Givaudan, that summarizes phase 3 nicely
“In the established business, financial metrics play a more important role. The new areas mean you have to be entrepreneurial, have a good testing profile, and be good at learning, be more fluid. When transforming, everything becomes discovery, including the financial side.”
I think the maturity model has a lot of merit, because it is based on observation. In effect it reflects back to the innovation community some of the ways if behaves. However, more can be done to refine and simplify it. We are at the beginning of understanding these processes.