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It’s Time to Rethink How You Innovate

The fallout from the pandemic has created new opportunities that organic growth leaders are best able to capture. By investing more in their pool of innovation talent, giving these people the latitude to seize these opportunities, and encouraging prudent risks, these growth leaders will extend their lead further, write Wharton’s George S. Day and Gregory P. Shea in this opinion piece. Day, an emeritus professor of marketing, and Shea, an adjunct professor of management, base these recommendations on their research into what sets growth leaders apart from their slower-moving rivals.

The intense innovation activity ignited by the global pandemic shows that some elephants can dance when they must. Companies are moving faster and taking bigger risks than could have been imagined a few months ago. A further impetus to rethinking established and cumbersome innovation approaches is the acceleration of many trends that are already underway. The lock-down has brought forward a shift to on-line work practices and team-sharing platforms while creating new opportunities. For example, 3D printing is getting a boost by helping to replace faraway suppliers with nearby 3D printing contractors and make supply chains more resilient. To capitalize on this shift, HP accelerated their “3D as a service” business model innovation, where customers pay only for what they print. The digital transformation of industries did not pause for the crisis.

A looming question is how to avoid reverting to the cumbersome and cautious legacy practices and risk-averse decision-making that had hobbled innovation performance in many organizations. As uncertainty abates, there is a pressing need for guidance on which changes to innovation approaches to prioritize, and how to decide which opportunities to grasp.

Our research identifying the fundamental innovation drivers that distinguish organic growth leaders from the laggards gives tested guidance to harried leadership teams on where and how to place their emphasis. The three drivers will be familiar to innovation practitioners, but their effects magnify when given intense leadership attention. They serve as so-called simple rules – they avoid the confusion and dilution of effort from pulling too many organizational levers at a time, and they focus and prioritize the efforts of the leadership team to improve the work of innovation in the future. To identify the three highest-leverage drivers, we assessed the efforts of 18 highly touted innovation drivers on relative organic growth performance in a sample of 192 global companies. Three of these 18 were robust in setting organic growth leaders apart from laggards and average performers:

  1. Investing in innovation talent. The leadership team signals its commitment to innovation with high-profile investments of resources and time.

  2. Adopting an outside-in approach to innovation that starts by scouring widely for trends and searching for deep insights into customers’ emerging needs.

  3. Encouraging prudent risk-taking. Innovative organizations foster a tolerance for risk-taking by endorsing fast-to-fail experiments and learning from their innovation disappointments.

Companies applying these innovation drivers faster and better will have an advantage that rivals won’t easily overcome. Growth leaders are already emphasizing them to get further ahead.

Increasing Investments in Innovation Talent

Innovation requires intensely creative and tenacious team efforts in the face of frequent setbacks. So, it did not come as a surprise that a continuing commitment to investing in talent best explained growth leadership. Senior executives of the fastest growing firms pay special attention to nurturing the team leaders, project directors and program managers who champion and lead innovation initiatives.

Growth leaders are extending their lead by maintaining their previous innovation momentum just as their slower growing rivals are forced to retrench. They are better able to invest for the long run. Their best investment is their innovation talent, starting with retaining their “high potentials” and top talent to be ready to scale fast when the recovery shows early signs of starting. They are also seeing an opportunity to deepen their bench, fill holes in their organization, and strengthen core innovation capabilities by attracting talent from weaker companies. They are recruiting – without fierce competition – the best people working for their weaker rivals who have had to freeze hiring, furlough staff, and cut salaries. They are gaining a further edge by buying distressed rivals to get their top talent along with protected intellectual property and a pipeline of innovation projects.

To assess whether investments in innovation talent are a leadership priority, ask the following questions: Do we behave as though our innovation talent is our scarcest resource? Have we invested to deeply understand and develop the competencies of innovation leaders? Are we considered an employer of choice by the innovation talent we want to hire? If not, why not? What steps are we taking to keep our highest potential innovators?

A looming question is how to avoid reverting to the cumbersome and cautious legacy practices and risk-averse decision-making that had hobbled innovation performance in many organizations.

Approaching Innovation from the Outside-In

Growth leaders are much more likely to say that all their senior managers are highly attuned to the voices of customers and their emerging needs. This is a prominent feature of the growth leader’s approach to opportunity sensing that starts with what is happening in the market. It is driven by widespread curiosity about behaviors on the periphery of the market that are precursors of shifts to come.

To reveal whether the prevailing approach is outside-in or inside-out, the following questions are useful: Do we start the innovation development process with a technology or product map versus a customer experience map? Are we giving enough autonomy to our people working on the periphery of the organization? How much do we invest in searching for opportunities rather than reacting to ideas from R&D, operations and the sales force?

Adobe migrated its image-editing program, PhotoShop, from boxed software to a cloud-based subscription service by seeing how to reimagine the creative process of the company’s current and next-generation customers. They also anticipated that possible rivals in the digital space, including Microsoft and Oracle, might see the same opportunity and wanted to preempt them by getting to the market first.

Another feature of outside-in thinking is searching for emerging opportunities created by interactions among accelerating trends that were already underway. One firm created the issue map below to visualize some of the possibilities to consider. They were looking for combinations of several trends that could lead to an emerging opportunity (the lines between the bubbles were likely to be the source of product or business model innovations).

Encouraging Prudent Risk-Taking

All leadership teams are anxious about the prospects for their innovation initiatives – sure bets are rare. But the way companies cope with this irreducible uncertainty separates growth leaders from laggards. Leaders are distinguished by (1) learning from their disappointments, (2) sharing risks with their development partners, and (3) containing and managing these risks with small, staged bets. They take cues from start-ups to adapt concepts such as rapid prototyping, frugal experiments and lean methodologies.

Whether the culture encourages prudent risk-taking or adopts a fail-safe stance can be revealed by frank answers to these questions: Are experiments seen as opportunities for learning or a source of delays and costly mistakes? Do we encourage small, quick experiments to satisfy innovation curiosity or test hypotheses? Do we treat pilot tests as the first step in a product launch? To what extent do we actively build and participate in external innovation networks? To achieve and sustain pro-innovation answers to those questions will necessitate disciplined attention to organizational design such as those presented in Shea’s Work Systems Model.

The global pandemic has jolted leadership teams into action while accelerating trends already underway. This is creating new opportunities that organic growth leaders are best able to capture. By working differently, giving their best people the latitude to innovate quickly and seize opportunities ahead of rivals, these growth leaders will extend their lead further.

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