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“94% of executives are unsatisfied with innovation performance”. Yet “84% see innovation as important to growth”! And “54% of companies struggle to bridge the gap between innovation and business”. Worse; “very few executives know what the problem is and how to fix it”!

We have forgotten the basics. Firstly that “the firm has two, and only two activities: marketing and innovation”. And that “people don’t want to buy a 1/4 inch drill; they want a 1/4 inch hole”.

Instead, we (accidentally?) embark on innovation theatre, misalign execution with vision, forget to address innovation resistance, and don’t appreciate how inefficient “ideas-first” approaches are.

And also, we don’t leverage service-dominant logic. A logic that readily drives customer-centric thinking through co-value generation. And it is a natural home for job-to-be-done and blue ocean theories; helps us minimise marketing myopia; and looks past the point of sale, naturally opening innovation space to additional services, servitization of goods, and the circular economy.

Innovation, as a buzzword, is everywhere. CEOs highlight innovation in corporate speeches. And so does marketing copy, which can’t stop using the word. Organisations perform grand-standing innovation activities (innovation theatre). We try internal, external and open innovation. And, seemingly, every job advert is looking for innovative people to fill innovative positions.

However, we are not making the difference we expect and need. McKinsey’s found only 6% of executives are happy with innovation performance. This is a concern since our economies are becoming stagnant. And growth for companies is elusive.

Let’s explore this problem in this article.

And it is this article that sets the question for this site: how do we fix this innovation problem. On this site, I investigate and iteratively build an organisational blueprint for innovation 2.0. Suitable for an organisation to break the stagnant growth of today.

OK, so what is this innovation problem?

Of the executives surveyed by McKinsey’s, 84% agreed that innovation is important to their growth strategy. However, only 6% of those executives are satisfied with innovation performance.

Think about that.  94% of executives are unsatisfied with innovation performance. Despite 84% believing innovation is important for their organisations’ growth!

The innovation problem: 94% of executives are unsatisfied with innovation performance! (source: McKinsey). Read more here… Tweet this

And it’s not just McKinsey surfacing these challenges. PWC’s 2017 Innovation Benchmark found that 54% of the companies they surveyed were struggling to bridge the gap between business and innovation.

In fact, there are many reports and figures I could repeat and summarise that indicate there is a problem. But I think this blog post from Viima – 50+ statistics on innovation – does a great job synthesising.

Figure 1: various insight into the innovation problem

Worse is that McKinsey’s survey uncovers that “very few [executives] know what the problem is, or how to fix it”.

The innovation problem: "very few executives know what the problem with innovation performance is, or how to fix it" according to McKinsey. Here are some insights… Tweet this

Put simply, our economies are stagnating and organisations are failing to find sources of growth. As Peter Drucker coined it: “innovate or die”. R.I.P. Blockbuster, Toys’R’Us, AOL, MySpace, many more, and, more worryingly: potentially you.

But why should we innovate?

Let’s take a capitalistic view. We innovate to drive growth and reduce costs – Figure 2. If we do nothing, then our revenue will drop off. Competitors will produce better products that attract our previous customers. And while we can expect our costs to reduce over time as we become more efficient, we miss out on reducing those costs quicker.

When innovation works in a firm then we can predict an increasing revenue stream as new products are are released. Conversely, if innovation is not performing, then no enhanced or new products are being released and so revenue will drop. Either because demand has dropped/been satisfied; or competitors are taking market share by releasing more innovative products. <span class='bctt-click-to-tweet'><span class='bctt-ctt-text'><a href='' target='_blank'rel="noopener noreferrer">"Innovation </a></span><a href='' target='_blank' class='bctt-ctt-btn'rel="noopener noreferrer">Click To Tweet</a></span> We should not forget that innovation can also apply to the costs side. Over time the cost of producing should naturally fall due to knowledge gains and efficiencies. Innovation can be used to increase savings even further. Note that this is a product-dominant perspective. I hypothesis it is not as applicable to services, and as we are generally in service-dominant economies, this pure product perspective is a cause of the innovation problem.
Figure 2: Why Innovate? Here’s why (from a goods dominant logic perspective)

Notice that at this point I am not talking about the type of innovation (incremental, radical, disruptive, etc.).

Alternatively, we can look at the need for social innovation. Here we are less concerned with financial growth but with the growth of social or environmental welfare. Of course, innovations that reduce the costs of delivering that welfare growth are still relevant.

Sources of innovation

Drucker, in “Innovation and Entrepreneurship” highlighted seven sources of innovation that every manager should be monitoring all the time:

  • The unexpected – what of your and competitors unexpected successes and failures can you capitalise upon?
  • Incongruity – what are the unmet needs and wants of your customers?
  • Process needs
  • Changes in market/industry structure
  • Demographic changes
  • Changes in meaning and perception
  • New knowledge

So, why is Innovation not performing?

I believe there are many reasons innovation performance is not what we need it to be. Maybe you recognise one or more of the symptoms I show in Figure 3. These are the points I often hear these when people informally talk about innovation not working, or not performing, or failing.

Figure 3: Several symptoms making 94% of executives unhappy with innovation performance

You probably have similar and even additional points based on your own experience (would be great to hear about them in the comments).

But, why do we have these symptoms?

We’ve forgotten why we innovate

Innovation is not a new thing.  Back in 1954, Drucker was telling us in The Practice of Management that “a company only exists to get a customer”.  Therefore, he continued, “a company has two, and only two, functions: marketing and innovation”.

The innovation problem: we've forgotten Drucker's 1954 observation: "a company has two, and only two, functions: marketing and innovation". Here are some more insights… Click To Tweet

Yet our organisations typically focus on operational excellence, quality and overhead reduction. We treat innovation as a bolt-on; as an additional thing to do rather than the core.

Doing so makes innovation disjoint, the crazy place, the place that has unimplementable ideas. A problem that is someone else’s to solve. And leads to PWC’s uncovering that 54% of organisations struggle to bridge the gap between business and innovation. Why is there a gap, should be the question.

Additionally, we get tech-excited or focus on our products rather than our consumers.

The innovation problem: we need to think more about helping make progress in life – as Levitt (1969) said: "people don't want to buy a 1/4 inch drill, they want a 1/4 inch hole". Here are some more insights… Click To Tweet

As Levitt said back in 1969 “people don’t want to buy a 1/4 inch drill, they want a 1/4 inch hole”. We should focus on consumer needs. But Christensen et al. noted in 2005:

Every marketer we know agrees with Levitt’s insight. Yet these same people segment their markets by type of drill and by price point; they measure market share of drills, not holes; and they benchmark the features and functions of their drill, not their hole, against those of rivals.

Marketing malpractice: the cause and cure” Christensen, Cook, and Hall (2005)

Innovation without focussing on consumer needs (known or unknown) is not a route to success.

The problem with treating innovation as an add-on, consciously or unconsciously, is we start engaging in innovation theatre.

We Perform Innovation Theatre rather than Innovation

The Innovation problem: too often we engage in innovation theatre – running innovation activities that lead nowhere, but give executives a warm fluffy feeling they are doing something. Get some more insights into the innovation… Click To Tweet

If you are honest with yourself, how many innovation competitions, ideation sessions, open innovation initiatives have you seen that consistently deliver innovations that matter? Too often, we run innovation activities for the sake of being seen to do innovation. This is innovation theatre. And I look more into it here and how to minimise it.

Sure, have a hackathon, bring in some innovation consultants, run some innovation competitions, use an ideation tool, implement an open innovation platform. Appoint a Chief Innovation Officer (potential scapegoat). Change a meeting room to an Innovation centre with exciting interior decorating. It feels good. And there’s something to present in conferences and shareholder reports.

But innovation theatre doesn’t solve our innovation problem. It does make the organisation and executives a warm fuzzy feeling that something is happening. But, as we’ve seen, 94% of executives are still unsatisfied with innovation performance.

Ideation360 have some solutions to innovation theatre. But this theatre has another challenge.

Ideas-first is a tough way to innovate

We often base our innovation activities around gathering and funnelling ideas, an “ideas-first” approach we can say. We have the hope that contributors have real-world solutions to real-world problems. I am not convinced.

Although I don’t go as far as Ulwick in his book “Jobs to be done: from theory to practice“, I sympathise with his view that:

the “ideas-first” approach is inherently flawed and will never be the most effective approach to innovation. It will always be a guessing game that is based on hope and luck, and it will remain unpredictable.

Ulwick (2016)

I prefer to look at the challenge of idea first innovation as shown in Figure 4.

Figure 4: The Innovation Performance Pyramid

Firstly, how many ideas can become innovations? And then, which innovations can the organisation implement (physically, culturally, technically)? Thirdly, how many of those implementable innovations are value-generating innovations (for the customer, the organisation, and anyone else involved)? And finally, how many of those potentially value-generating innovations are the customers going to use and realise the value?

You may strike lucky. Doesn’t it make more sense to focus at the top of the triangle? We can see the Job to be done theory as a contender here. And Ulwick claims innovators can reach an 86% success rate through using his rather sizeable 84-step implementation of jobs to be done theory. That figure he compares to a figure of 17% from a typical innovation process.

Sadly, too often, we believe that we have executive sponsorship of innovation activities. And that this means we are not participating in innovation theatre. But, then we find an organisation set up against us.

We have organisational challenges

54% of innovating companies struggle to bridge the gap between business and innovation! (source: PWC, 2017). Read more here… Tweet this

There are two types of organisation challenges we observe beyond carving out innovation. Firstly we have differences in innovation vision and strategy. And secondly, organisational roadblocks.

Misaligned Signalling of Innovation ambition, vision and strategy

There are many ways to segment innovation. To name a few:

  • disruptive, radical, incremental
  • product, service, or business model
  • from a tech push or demand-driven perspective
Figure 5: Different types of innovation

How many times do we hear CEOs calling to find the next disruptive innovation in their market/industry? Yet they drive a laser focus across the organisation on cost efficiency and control. And with that, a culture of risk avoidance sets in. Therefore our innovation events spawn exciting ideas that just “don’t align with strategy”, so will never get past the inertia of implementation.

The CEO needs to lead and set the innovation vision. And they must ensure it flows through the organisation. We can look at the implementation of innovativeness as an innovation adoption problem.

Organisational roadblocks

In my experience, we often copy product innovation thinking. This leads us to believe in having an R&D team (which you may call an innovation team). A group tasked with being innovative and coming up with ideas/innovations the business can later use. But doing so creates a speed hump (or even barrier).

Do we need this division? Maybe for disruptive innovation where we can look to being an ambidextrous organisation. However, for radical and incremental innovations, I would argue this division brings challenges. Innovation becomes innovation-push – a harder proposition for a busy organisation to manage.

We don’t address innovation resistance

We are familiar with the concepts of innovation diffusion and adoption.

Though I wonder how often we apply the concepts and other related insights. Such as Maloney’s rule, effectively telling us to change the message and medium after the early adopters have adopted (see Rogers’ adopter types). Or do we take advantage of the network? For example, social influencers, Gladwell’s connectors/mavens/salesmen or Moore’s bowling alleys/tornados/main street. And

We rarely take account of innovation resistance. Which is where consumers might postpone, reject or oppose (actively demonstrate against) adoption.

Figure 6: Types of Innovation resistance and Reasons Why

Have a look a Figure 6. You can see that this resistance can come from perceiving 4 types of risk. Or it can be the innovation is against traditions & norms or standard usage patterns. Additionally, the perceived image of the innovation can cause resistance.

By not taking away these reasons for resistance your innovation will fail. You might have a great innovation, that people refuse to use. Just think of the original version of Google Glass.

We view the innovation space/economy in an inefficient way

For 300+ years we have viewed the economy through a goods-dominant lens. We think in terms of embedding value in goods through manufacturing. And then we exchange that value by selling the goods. Once sold, the organisation has little interest in what happens next as the customer destroys/uses-up that embedded value. However, from this goods perspective, our economies are increasingly service-based.

The alternative thinking is service-dominant logic. It is not actually that new. Things we have talked about above are part of it. For example, Levitt’s marketing myopia and his view that customers buy holes not drills.

Service dominant thinking emerges once you take a step back and make several observations. We find our world is not goods vs services nor are the typical 5Is of service bad attributes.

And instead of value-in-exchange, we have value-in-use. Now, before we use a service, no value exists. We co-create value during service use. However, it is determined solely by the beneficiary. And that perspective of value changes every service use.

This drives a more relational approach. Which from an innovation perspective leads to a wider innovation space. Now we think of additional services to provide benefit after the point of sale. Servitisation of products, for example, Rolls Royce’s move from selling engines to selling power-by-the-hour. Or the way we can now look at the circular economy.

There is one more consideration. We build innovation processes around this goods-dominant lens. But are product and service innovation the same? Well, service innovation essentially the same as product innovation with additional aspects that need addressing (which may or may not be relevant in product innovation).

How can we fix the innovation problem?

So, there we have my view of the innovation problem. I find it amazing that back in 1954 Drucker was defining that a firm had only two functions and over of those was innovation, yet in 2019 we are still struggling to get innovation to perform.

The rest of this site will capture my ongoing journey to fix this innovation problem. Right now, I believe the key is in getting us to think in a more service-dominant way (given that our economies are shifting that way, if not over 80% of the way already). Ending the innovation push approach we tend to fall in (separate innovation team with weak links to the business).

We’ll see that Service innovation is built around co-value generation … so please read the articles but most of all, get involved with the discussion – this way I can improve the thinking and we all can access those improvements!

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Various insights to the Innovation Problem

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