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Innovation Management Process Written on . Posted in Innovation.

Innovation Management Process
Summary : Innovation management promotes innovation in your company from the development of ideas to successful implementation. It must take place continuously, because the risks and costs of operating it only temporarily are high. The main task is to create customer benefits and to manage or minimize risks. There are many approaches, perspectives and methods that need to fit the situation in your organization.

Content

1. What is Innovation Management?
2. Why is corporate innovation management important?
3. Elements of innovation management?
4. Categories for innovation
5. Time control in innovation management
6. Metrics – How do you measure innovation?
7. Process of a single innovation project
8. Techniques in Innovation Management
9. Common Mistakes in Innovation Management?
10. Summary

The need for innovation could not be greater. Technological trends and political influences are leading to new games in existing markets.

Climate change is also forcing companies to deal with their own value creation and supply chains. This is not just about complying with legal requirements, but about the opportunities that the upheaval brings with it. Anchoring sustainability at the core of the business agenda is not only the right thing to do, but will also become a crucial source of competitive advantage for companies.

Efficiency gains continue to be important. However, external factors and customer preferences change. Innovations will not stop at the business model.

Can you manage this upheaval? Is it just one "process" among many that you have to run and certainly leads to a good result? Probably not.

Just as there are often different ideas about the concept of innovation, in practice there are also different opinions on the subject of innovation management.

1. What is innovation management?

On Wikipedia you will find the reference to ISO 56000. According to the definition, it is the combination of innovation management and change management processes that includes product, business processes, marketing and organizational innovation.

But is working on products, business processes, marketing and organization enough to be well positioned in the future? If you see strategy as a business process and classify identity (self-image) under organization, maybe?!

innovation management is a process of developing and introducing new things and strengthening the business in one way or another. Innovation management promotes innovation in the tasks of planning, organization, management and control.

This description shows that there are different ways to achieve the goal. There is no one way. The focal points differ from organization to organization. Perhaps this is also the reason for the different understanding.

In addition, the path to innovation is full of uncertainties. Rarely can it be mapped linearly. This is also what makes it so difficult to squeeze the path to innovation into a universal process.

The description points to two main activities without which innovation management does not work: generation of ideas = organizational development, and implementation = project management and risk management.

2. Why is corporate innovation management important?

Any organization can do without innovation for a while. However, success makes sluggish. Think of Kodak. Although Kodak developed the first commercially available digital camera, it could not part with the strong position it held in the film business. Until the customers parted with the use of the films and thus from Kodak. Things went a little differently with Fuji-Film. Fuji-Film has mobilized the organization with the diagnosis of the dying film business to use the existing strengths for new products and markets.

If an organization wants to continue to serve a purpose for customers, it will always have to jump on new ideas with innovations.

3. Elements of innovation management

For innovation management to work in practice, four elements must come together: endowment, structures, culture and strategy.

four elements of innovation management: endowment, structures, culture and strategy four elements of innovation management: endowment, structures, culture and strategy

The endowment includes, among other things, the skills of value creation, the competencies acquired over many years, unique insights and the financial cushion. Endowment is what an organization does every day to create value for customers.

The structure fosters innovation in the way decisions are made through supporting processes and infrastructure. These are also goal setting or incentive systems. The structure also determines whether innovations are implemented in existing business units, in new or even in new (external) organizations.

In the best case, the strategy sets a direction for innovations. It describes in which fields and how the organization will play. It describes how the organization achieves a relatively favorable position in the market. It sets out how growth is to be achieved and the role of resource allocation, productivity programs, mergers and acquisitions, investments and initiatives to strengthen differentiation.

Culture is crucial for innovation success, because without the appropriate ways of thinking, values, behaviors and accountability, innovation projects are blocked. A good culture comes from leadership, a narrative, and stories that highlight the strengths, identity, purpose, and successes of the past.

4. Categories for innovation

In the practice of innovation management, it has proven successful to sort types of innovation into categories. This helps the participants with the quick classification, but also the assignment to processes and decision-making procedures.

Sustaining vs. disruptive

Sustaining innovations are all improvements that continue to make the product attractive to customers. New features, new versions, an update. End customers are often used to getting something "better" every year when they compare the offer with the previous year. Sustaining innovations are to be seen as gradual improvements.

Disruptive innovations create something completely new. This can be a radically slimmed-down version of a product at a significantly lower cost. Or a mobile version of a product that was previously immobile. It can also be a novel product or service that simplifies existing processes by summarizing them and makes them more convenient. Disruptive innovations create something new or replace the familiar by jumping.

Clayton Christensen spoke of sustaining innovations, efficiency innovations and market-creating innovations.

Efficiency innovations are ultimately also sustaining innovations to reduce the costs of value creation.

Sustaining innovations and efficiency innovations serve to remain competitive in the market. It is often the case that the risk of investing in these innovation categories is lower than with market-creating innovations. Therefore, it is often the focus of activities in a company.

Market-creating innovations are risky. In most cases, new sales channels, marketing strategies and a lot of communication are needed so that customers recognize the benefits of the innovation and let go of old routines and behaviors and adapt the new.

Disruptive Innovations

Clayton Christensen had presented a model in 2011, which leads to disruptive upheavals. He called it "The innovator's dilemma". Existing organizations are improving their offerings and want to set themselves apart from the competition with the best features. Their identity as a market leader also leaves no alternative. However, there are customers in every market who only need the simplest basic functions. Or customers who do not use the product because the price is too high. According to the theory, disruptors therefore come onto the market with highly simplified versions at a low price point and create a new alternative to the high-end offer of established market participants. They create a broad customer base, one that is partly inaccessible to established companies. But they also improve your offer over time and increasingly represent serious competition.

The innovator's dilemmaThe innovator's dilemma

Existing companies do not take these new offers seriously at first. In conventional structures, it is difficult to formulate an answer. By the time they get organized, it's too late.

Therefore, it makes sense to proactively deal with ways to destroy your own companies. On the one hand, to identify and close points of attack. On the other hand, to work with the new market participants at an early stage or to take them over. Intel, for example, had launched a low-cost Celeron processor family to not only provide the market with the high-end and to discourage other suppliers of less powerful processors.

Now you have a feel for different types of innovation. Other terms are often used, such as process innovation or management innovation. Choose a classification that suits your business.

5. Timing in innovation management

Timing has various tasks in innovation management. On the one hand, trends on technology, political environment, customer requirements and the environment can be represented in radar images in staggered time. This has the advantage of getting an overview and coordinating the importance for your own company.

trend radartrend radar

On the other hand, time also plays an important role in the adaptation of new technologies. This helps to tailor marketing activities to customers and manage investment and risk.

Often one meets the representation with three time horizons according to McKinsey. These horizons help to define a roadmap for the coming years. Overall, the growth potential is maximized. The times indicate when initiatives have a positive effect on an organization.

three horizons for managing innovationsthree horizons for managing innovations

H1: short-term < 1 year: initiatives in the core business

H2: medium-term < 3 years: initiatives to grow the core business

H3: long-term > 3 years: initiatives to renew the core business

The initiatives in horizon H1 carry the least risk. They also have the slightest effect. In contrast, H3 initiatives are expected to be the biggest risks, as many things may change in the future. However, the possible results are correspondingly disproportionately large.

A healthy company needs a balance of initiatives across all three time horizons. Some give as distribution 70% H1, 20% H2 and 10% H3.

example of distribution of investmentsexample of distribution of investments

The temporal distribution of the initiatives results in the necessary investments or the distribution of resources.

The individual situation has an influence on the distribution. A company in restructuring will have priority on short-term results. A healthy company with big plans, on the other hand, will invest more in H2 or H3.

Similar to the investments, the risk can be staggered over time. This means the amount that can be gained or lost by the initiatives.

Life is dynamic. The assessment of assumptions and evaluation of trends and influences can and must be repeated at regular intervals. You have certainly already experienced how strategy projects are initiated and how an analysis of the situation and the options is carried out with considerable effort. Not infrequently, new facts arise during the process, such as the merger of competitors. The validity of the assessments or the distribution of resources and investments, such as the resulting risk profile, is short-lived.

6. Metrics – How do you measure innovation?

When you look at innovation as a process, the question of measuring innovation arises. How do you rate a portfolio of initiatives? How do you assess initiatives that do not deliver a result for a long time because they only benefit from network effects and other users, as is the case with fax machine, for example? How do you take into account the many failures that are necessary to achieve real success? If you didn't have them, there would be no innovation. Evaluating failures as an avoidable cost factor would not be helpful.

Investments can easily be measured in amounts. Equally simple is the number of ideas or patents. These are parameters on the input side. In the system itself, there are implementation times, project backlogs, project fulfillment levels, risk minimization, number of verified assumptions, etc. On the output side, it is sales, the proportion of new products in the portfolio or the recommendation rate.

If you look at a single innovation idea, initially the classic evaluation methods, such as Roi, NPV or ARR will fail. Here you need lead times for experiments to check assumptions and eliminate risks. Only when the idea is to be scaled, you can apply the classic measures.

Whatever you choose, it must be meaningful parameters. Ultimately, the parameters must reflect how the organization creates value for customers through innovations. The value for the customer and thus the result are the final proof of successful innovation.

A word of caution. If you focus on certain parameters, or do not balance them with opposing ones, ineffective behaviors are likely to be encouraged. In addition, fewer parameters are better than too many. Innovation is always fraught with uncertainty, so measure how it is reduced.

7. Process of a single innovation project

Classic development processes for products are referred to as stage gates or waterfalls. They are a sequence of steps. A checkpoint can be installed behind each step to decide whether the idea should be continued.

schematic illustration of a Stage-Gate processschematic illustration of a Stage-Gate process

This process has proven very successful when the uncertainty is low. If, for example, you develop a new version of a known product due to a request from an existing customer, there will not be many uncertainties on the customer side, technologically and on the process side. The process is therefore suitable to be repeated for similar projects.

Rita McGrath had proposed an extension with "Discovery driven planning" in 1995 to acknowledge uncertainty [3]. Here, the assumptions are listed in advance and thought through in a disciplined manner. Based on the desired income statement, operational requirements are listed, compared with benchmarks and assumptions are listed. Often you will discover implicit assumptions in this approach or come across important questions that you may have overlooked so far. The process of first checking the riskiest assumptions before starting the actual implementation of the project is the core of lean approaches in startups.

However, depending on the innovation idea, there are many uncertainties. Customers' requirements may be unknown, or you may have technological uncertainties. In this case, the focus is on fast iteration, which takes place in a circle of experiments, measurements and learning.

schematic illustration of lean cycleschematic illustration of lean cycle

The aim of this approach is to eliminate or minimize the uncertainties with the greatest influence or effect. The iterations can have a fixed duration, such as two weeks.

This procedure is known from the world of startups and is called Lean because it avoids creating expensive samples or demos or even the product before it is tested on the market. The startup world therefore works with cheap prototypes. However, there will always be risk, because the final test is whether customers accept and buy the product. This disadvantage is also present in other processes.

8. Techniques in Innovation Management

A study carried out by the European Commission among 433 companies in 15 countries identified the commonly used techniques for innovation management. It is a variety of techniques used in successful innovation management [1].

  1. Knowledge management techniques

  2. Market Intelligence Techniques

  3. Cooperation and networking techniques

  4. Human resources management techniques

  5. Interface management techniques

  6. Techniques for creativity development

  7. Process improvement techniques

  8. Techniques of innovation project management

  9. Design management techniques

  10. Techniques for business development.

Behind each of the ten techniques there are several methods and approaches.

common innovation techniquescommon innovation techniques

However, if you look at innovation management with a bird's eye view, no technique or method alone will bring success. You need the ability to quickly brainstorm and prioritize ideas, reduce risk and execute to create value for customers. If you ask yourself what the problem is most of the time, you will realize that it is more the resistance in organizations to allow change. This is where leadership, communication, culture and empathy come into play, it means the social component.

9. Common mistakes in innovation management

On-Off

Innovation management must be pursued continuously. If it's just episodic, you'll have to explain and start the process over and over again. You miss opportunities or overlook risks. Therefore, it is better to anchor a process in the organization that is available to everyone at all times and creates clarity about terms and procedures.

Overconfidence and insufficient risk management

A project plan is quickly drawn up. However, questioning the attainability of the goal and the applicability of the methods in a disciplined manner is often secondary. If additional pressure is built up, whether why it could not be done faster or cheaper, employees will tend to develop a plan that fits the expectations. In case of doubt, the truth only comes to light later. Only then have you not only lost a lot of money, but also tied up resources that could have done something else.

If you read Kahneman, people are generally too optimistic when developing project plans. In case of great uncertainty (but also without), it means if the projects have not yet taken place in a similar form, by a factor of 5 [2].

Missing resources behind the initiatives

The profitable core business is reluctant to give up resources. The number of heads is a sign of power. However, if you do not courageously withdraw resources from the existing core business and put them on new topics, not only the new ideas will atrophy. The core business will also disappear one day.

No suitable structures for innovations

Depending on the proximity to the core business and the existing processes and capabilities, innovations fit in or not. If you place foreign innovations in the core business, defenses are evoked. The innovation is perceived as a disturbance. If you set up the innovation in its own unit, it will not reach the old business. Under certain circumstances, the core business will look suspiciously or enviously at the new and hinder cooperation. The question of where you locate the innovation must therefore be answered situationally. If necessary, you need to create new structures.

Lack of customer focus

Despite all the complexity and the many approaches and methods, the focus for the actual goal is often lost. Roles, powers, processes, methods, power games quickly predominate in the office bustle of a large company. However, the task of every organization is to create a customer, it means to create value. Even if customers are not always good at expressing their wishes, the success of the organization depends on whether customers are interested in your offer and are willing to pay for it.

Wrong order of magnitude

Depending on how you formulate the question, you will receive appropriate answers from your organization. Man thinks in categories. If you ask to increase sales by 10% within a year, certain activities that fit the 10% category will be used. However, if you ask to increase sales by 50% in three years, then other activities will follow that fit that goal. Therefore, make it clear what the innovations are intended to do so that your employees have the chance to think in the right categories.

Riding dead horses

It can happen that ideas are pursued, although success is becoming increasingly unlikely. It is often difficult to change saddle and let go. It's also difficult to decide if you need to muster more energy to drill even deeper, or if it's time to move on elsewhere. Here only common sense, a good gut feeling and the openness to name things helps.

Lack of strategy

Innovations should be embedded in the business strategy. However, they should also be able to stand on their own. That is, it

it should be clear why it can be a success. Because, for example, it relies on proprietary insights, because it is built on rare skills. What gives your company a competitive advantage? Or to put it another way, how could the customer still get the same benefit?

The same applies to marketing. The number of IPod units only increased significantly when there was a music store for Windows. The Ipod has benefited from an existing platform, enabling the revival of Apple.

10. Summary

Innovation management promotes innovation in your company from the development of ideas to successful implementation. It must take place continuously, because the risks and costs of operating it only temporarily are high. The main task is to create customer benefits and to manage or minimize risks. There are many approaches, perspectives and methods that need to fit the situation in your organization.

Innovation management will not work if the social aspects are not taken into account. Organizations are a collection of social beings. Therefore, think about how you can make it easy for those involved to actively shape the changes.

[1] Innovation Management and the Knowledge - Driven Economy, ECSC-EC-EAEC Brussels-Luxembourg, 2004
[2] Kahneman, Fast Thinking, Slow Thinking, 2012
[3] Rita Gunter McGrath, IC MacMillan - 1995

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