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Innovation Capability of an Organization

istockphoto 938985212 612x612Your innovation capability is not simply your ability to generate new ideas or create new products.  It is the holistic, comprehensive, and all encompassing ability of your entire organization to respond to changes in the business envrionment with actions that deliver real value to the organization.   

When considering this question, the answer can seem elusive and complex as it involves all functions of the organization and the subtle complexities of their interaction and relationships. Each organization contains its own individual seeds of success or failure.

Sustainable business success requires leaders to understanding and nurture the right combination of elements.  The question is what is the right combination of elements for your organization?

What Drives and Limits Your Innovation Capability?

InnoWheel

Based upon The InnoSurvey™,  our 360-degress Innovation Capabiility Assessment provides an easily understood radar-graph that illustrates your firm's strengths, weaknesses, and areas needing improvement.  This is accompanied by a detail report and presented in an interactive briefing with key stakeholders.

The survery collects a compilation of insights from multiple respondents in each company, both external and internal stakeholders, that arrives at a comprehensive 360-degree analysis of what, why and how innovation projects came to fruition.  Based on studies of more than 1,000 companies across 62 countries used to build the world's largest innovation database, The InnoSurvey™ provides a data-driven evaluation of 16 different aspects of the organization's innovation viewed through 8 different innovation perspectives, based on examination of 66 different core capabilities.  

This approach provides an iterative, evidence-based assessment to serve as the roadmap for where you need to invest to improve your capabilties.

16 Organizational Aspects

The Wheel of Innovation graphic provides a organized structure of 16 different organizational aspects described below which are created from examination of 66 core innovation capabilities.  The definitions are based upon "How to Assess and Measure Business Innovation (2017)  by Magnus Penker, Peter Junermark, & Sten Jacobson
wheel of innovationClick on the individual boxes below for a detailed description of each organizational aspect.

Process (How)

In the context of innovation, the process aspect refers to the complete innovation process—from idea generation, prototyping, a system for project selection, R and D cost control, speed to market, piloting, test methodology, ramp-up mechanism, and risk assessment to analyzing and handling market regulations and management of the complete product life cycle. Typically, the innovation process is linked and adopted depending on the innovation horizon and the company’s mix in the innovation portfolio. This aspect is linked strongly to profit and is both internally and externally focused.

Organization

Here, the term “organization” is used to describe the organization’s ability to deliver innovation projects. Capabilities that are especially important to this aspect are engaging and involving people, supporting goal-oriented leadership with a clear vision, and setting a high priority on innovation in all horizons. Idea diffusion within the organization and cross-functional capabilities, together with talent management and reward systems for innovations, are especially important. This aspect is internal and typically drives profit.

Learning Capabilities

Learning is essential to innovation on several levels. Critical capabilities like being opportunistic, involving C-level management, running cross-disciplinary learning, evaluation, and a reward system are essential. Gaining insight from the horizon tree is especially crucial to succeeding in horizons one and two. Well-known large corporations operating in all three horizons and rewarded for their learning efforts include IBM, MindTree, and Verizon. In general, learning is an internal activity and is highly linked to profitability.

Supply

Supply development concerns scanning and involving suppliers and partners in order to extend the core business that you are really good at. Typically, today’s organizations go about this by defining new digital solutions, new business models, and new ways of producing and delivering offers to the market through digital trading places.  The supply-innovation aspect is internal and strongly linked to profit.

Channel (Where)

The channel aspect is one of the most important to finding new ways of building the capability to interact with the outside world. It is also one of the hardest to expand and develop, as it is not obvious during the emerging phase. Channel development is about how the offer is consumed, how it is distributed, and its delivery format. But to succeed, new channels cannot just add distribution; they also have to find new ways of consuming the products or services, maybe by adding machine learning or through new technical formats.

Linkages

The linkages aspect is a broad concept that encompasses building and utilizing so-called “eco-systems” for developing, engaging, and rewarding external parties, benchmarking, reverse-engineering existing solutions, watching and learning about new technology in order to be faster, increasing capacity, and ultimately mitigating risks to keep the speed-to-market rate high. This kind of multifaceted eco-system is one of the most efficient ways of working in parallel in all three horizons, from incremental innovation to radical technology-driven innovations, even with scarce resources. Linkages increase the size of a company’s reachable market and are built upon internal strength in identifying, collaborating, and exchanging innovations with outside parties.

Openness

Openness is not about being uncommercial; it is about setting the stage for creating together, learning together, and eventually protecting IP together through patent exchange. The openness aspect typically contributes to growth of the market and is based on internal changes and development of capabilities for opening up and sharing.

Brand

The aspect “brand” addresses the activities of generating demand, sharing through telling, and setting the stage for creating so-called diffusion of new innovations. This aspect is also used well by the experience industries, such as resorts, movies, gaming, and the music business. It is used for generating and growing the market and is built upon primarily internal activities and capabilities.

Value Proposition

Defining your organization’s value proposition is about uncovering what you are really good at—the DNA of the organization—and clearly expressing it, while at the same time attracting the right customers, clients, members, citizens, or other primary target groups. It also requires you to reinforce the offer in every single contact, from lead to sale to aftermarket. The value proposition is essential to driving and expanding the market, and finding the intersection between developing the offer (external context) and building the capability for marketing (internal context).

Platforms

In the first horizon, organizations typically work with incremental innovations, and therefore it is necessary to keep costs and the development timeframe low. By deploying organizational components, blueprints, value offers, and all kinds of documents, including a process description and other useful bits and pieces, it is possible to work with continuous improvements and bring the innovation to market reasonably quickly, while keeping the cost down at the same time. This process is what we call “developing a platform.” Typically, it is organized through the use of product life-cycle management systems and other software.
 
In the second and the third horizons, platforms focus more on architectural principles, for example in the software industry with its APIs, clean code, and bootstrapping. Technical architectural principles can be used as inspiration for creating platforms in business, driving reuse, standardization of interfaces to create common ground for fast experiments, and innovation at a fraction of the cost compared with large-scale implementations of organizational changes.

Products

The product-development aspect of an organization concerns whether and to what extent there is a systematic and working product-development process in place (specifically, the development phase of the innovation process) that contains development guidelines, evaluation of competitors’ features, and guidelines for planning the market launch. In contrast, the innovation aspect process is broader and contains all innovation-process capabilities, while the services innovation aspect refers to specific service characteristics. Unlike those two aspects, which are largely internally focused, developing products drives external transformation and market growth.

Services

The service aspect encompasses systematic development and evaluation of existing and new services based on the organization’s systematic work to gain customer insights.  Developing innovative services can cause external transformation that drives market growth. Service design is a discipline that can dramatically improve the productivity and quality of services.

Customer Insights

This is the organization's commitment to gaining customer insights studies and analyzing actual customer behavior as well as undertaking frequent independent market research and assessing market potential in order to segment the market in innovative ways. This is typically undertaken by analyzing data from sales, marketing, and customer care as well as running surveys, interviews, focus groups, and field studies. In this way, the organization generates a deep understanding of customer decision-making processes, which can be used to drive external innovation and the development of internal processes to support it.

Customer Experience

An organization innovating based on customer experience uses an anthropological approach to studying human behavior in order to gain accurate new customer insights. This data-gathering process is typically not pursued though direct interaction but rather through watching and learning. This activity builds in automatic evaluations of how customers use and experience innovations, which it can then analyze to determine its next step. It also carries out regular A and B testing of new innovations, systematically comparing customer reactions to variants of the same innovation. Customer experience drives customer loyalty and yields fewer complaints, higher utilization, and ultimately sustainable profit.

Customer Engagement

Engaging customers and stakeholders is among the most efficient ways to create sustainable relationships and gain insights on a deeper level than ordinary market research. In this innovation aspect, building a community and involving them through activities such as cocreation, ideation, and rewards is key.  These activities can range from periodic customer surveys, and user groups to open innovation processess.

Value Capture

Capturing and protecting value is essential in the first and some of the second horizons, where commercialization and market penetration are essential. Intellectual property (IP) protection is one component of value capture, but at least as important is claiming a position and visualizing the advantages of being a customer. Proper pricing is important: the organization must develop a pricing system that supports each phase of the offer life cycle, often starting high and decreasing over time.

Lenses of Innovation

The arrangement of the 16 organizanal attributes on the Wheel of Innovation are deliberately structured to align with 8 different lenses of innovation.  The wheel is diviided into quadrants defined by a horixontal axis defined by a focus on internal vs. external transformation, forming the left and right hemispheres.  The vertical axis define the focus on profit vs. market share which form the top and bottom hemispheres.  The quadrants then align with four types of innovation: market, offer, sales, and organization.

Web Slides
Internal External Market Profit

66 Core Capabilities

The 66 core innovation capabilities considered as part of the assessment are listed below. These cpabailities are mapped to 16 core aspects of the organization. Hover over each capabilitiy for a description of what that capability entails.

DNA Focused
Real Need Focus
Offer Reinforcement
Design for Reuse
Common Platform & Standard Creation
Evaluation of Competitor's Products
Product to Market
Product Development Process
Systemic Service Innovation
Service Improvement Tracking
Experiential Customer Insights
Understand Customer Decision Making
Customer Behavior Insights
Market Research
Social Science
A/B Innovation Testing
Automated Experience & Usage AnalysisConsumption Development
Channel Develpoment
Format Development
Linkages for Development
Talent Management for Innovation
Community Approach
Customer Co-creation
External Rewards
IP Protection
Pricing System
Advantage Visualization
Idea Generation
Prototyping
Project Selection Decision Making
R&D Cost Control
Speed to Market
Ramp-up
Risk Assessment
Market Regulation Insights
Product Life Cycle Management
Pilot Testing
Efficient Test MethodologyExternal Innovation Engagement
Reverse Engineering
Technology Watch
Innovation Benchmarking
Open Innovation
Goal Orientation
General Involvement
Clear Vision
Innovation Priority
Cross Function Collaboration
Idea Diffusion
Innovation Reward System
Relationship Building
Opportunistic
T-Shaped
Evaluative
Cross-Learning
Innovation Measuring
Knowledge Rewarding
Value Chain Analysis
Core Focus
Partner DevelopmentPatent Exchange
External Knowledge Sharing
Demand Generation
Sharing through Telling
Setting the Stage



Frameworks

The organizational assessment, analysis, and report, are based upon the application of several leading-edge frameworks as described below.

Innovation Framework

A core framework underlying the assessment process are the six core innovation questions listed below.  (Click on each label for a detailed explanation).

Why

Why

The simple question “Why innovate?” leads us to examine the strategic nature of innovation. We know innovation is a strategic necessity, because the purpose of innovation is to ensure that your organization survives, and the evidence overwhelmingly shows that any organization that doesn’t innovate probably won’t stay in business for long. Hence, the innovation process should be aligned with the organization’s strategy, and innovation should be a key factor that defines how the strategy will be realized. The relationship between strategy and innovation, and the condition that they are enabling and driving each other, is an essential cornerstone of the Innovation360 Framework. The why questions cover whether the organization aims for profit or growth. In the case of NGOs and NPOs, profit can be interpreted as utilization, for example citizen/member advantage or usage. The why questions also address the degree to which the organization focuses on small, incremental improvements or radical innovation, whether the organization is pursuing both at the same time.

What

What

When we ask the question “what to innovate,” we recognize that the unpredictable nature of change requires us to prepare for many types of innovation options for a wide range of possible futures. Therefore we use the typology introduced by Trott (2008) to gain greater specificity about the kind of innovation that is applied. The seven types of innovation are the following:

  1. Product Innovation: the development of a new or improved product.
  2. Process Innovation: the development of a new process, for instance a manufacturing process, talent-management process or supply process; typically driven by digitalization, automatization, robotics, artificial intelligence, and new man-machine interfaces such as tablets and smartphones that can be integrated in managing and optimizing processes.
  3. Organizational Innovation: a new venture division, a new innovation center, internal communication system, and introduction of a new accounting procedure are some examples.
  4. Management Innovation: examples include TQM (total quality management) systems, BPR (business processes reengineering) and Agile Development for software engineering.
  5. Production Innovation: quality circles, just-in-time (JIT) manufacturing systems, new production-planning software as well as new, more advanced and technology-related areas such as Industrial Internet of Things (IIoT) used to connect machines to each other as well as to producers, operators, and even customers.
  6. Commercial/Marketing Innovation: can be new financing arrangements, new sales possibilities, pricing models with low-entry process levels, market approaches (e.g., direct marketing); this can also be referred to as business-model innovation, meaning the development of new or improved business models and value propositions.
  7. Service Innovation: examples include Internet-based financial services (typically referred to as FinTech), user-experience-based service innovation using new interfaces like virtual reality and augmented reality.

By linking why with what, we delineate the strategic rationale of the innovation-management work within the organization.

How

How

In the Innovation Framework, we divide how into four components: Leadership, Capabilities, Personas, and the Innovation Process. The leadership styles in the Innovation Framework are based on the work of Loewe, Williamson, and Wood (2001), who describe five types of leadership such as the following:

  1. The Cauldron: an entrepreneurial style where the business model is frequently challenged.
  2. The Spiral Staircase: a style where you climb upward without losing the overall goal.
  3. The Fertile Field: a style where the organization tries to use existing capabilities and resources in a new way.
  4. The Pac-Man: a style where you invent, outsource, and finance startups.
  5. The Explorer: a style where you explore possibilities and invest time and money in them without demanding short-term profit.

The Innovation Personas in the Innovation Framework is based on the Ten Faces of Innovation described in the work of Kelly and Littman. Kelly and Littman divide the ten personas into three categories: learning personas, organizational personas, and building personas. The learning personas are individuals digging for new sources and knowledge; the organizational personas are the ones structuring, challenging, and orchestrating the work; the building personas are typically the intellectual architects, the storytellers, and the caregivers, as well as the ones setting up a proper environment. The ten Innovation Personas are as follows:

  1. Persona: The Anthropologist (Learning)
  2. Persona: Cross-Pollinator (Learning)
  3. Persona: Experimenter (Learning)
  4. Persona: Hurdler (Organizational)
  5. Persona: Director (Organizational)
  6. Persona: Collaborator (Organizational)
  7. Persona: Experience Architect (Building)
  8. Persona: Set Designer (Building)
  9. Persona: Storyteller (Building)
  10. Persona: Caregiver (Building)

The sixty-six capabilities in the Innovation Framework are organized into sixteen aspects to simplify the analysis, all decribed in the Wheel of Innovation®. The Innovation process, consisting of the phases ideation, project selection, and commercialization.

Where

Where

An innovation process is realized through the tools and infrastructure that support it and the people who are involved in the process. Today’s innovators need to determine whether their innovation processes will be purely internal or will take some form of open innovation, where stakeholders external to the company or organization are involved in the process. These decisions will determine the innovation infrastructure provided by the company as well as three related elements such as the following:

  • The type of innovation (e.g., open innovation, engaging people internally and externally)
  • Collaborative platforms to support agile and fast value creation
  • The physical workplace (where people are engaged and motivated)

When

When

The simple answer here is “All the time!” However, every activity in a business needs to be assessed to fully understand its impact, and this is especially the case for creative work such as innovation. It is imperative to fully understand what is driving value and to measure the work effort and the end results in order to optimize the outcome of the innovation work. In the Innovation Framework, we therefore assume that innovation will take place constantly and at a high pace and that it will be guided and monitored by metrics and coached for value and results.

Who

Who

The one innovation refers to all people participating, internally and externally, in leaving ideas all the way to testing them, prototyping, developing to launching them. Typically, you organize people into innovation board, innovation task force, sponsors, project leaders and process owners.

Three Horizon Framework

The 3 horizon framework was originally developed by McKinsey and was published 20 years ago in the book The Alchemy of Growth.   It has become a sustainable model due to the insights and gudiance it provides when looking at a firms portfolio of innovation efforts and how they relate to susutainable growth for the enterprise.

3 horizons
Our assessment incorporates this model as we recommend best practices for assigning Innovative development projects across three horizons.

Horizon one covers immediate and incremental improvements that return measurable impacts and keep the IT infrastructure at peak performance.

Horizon two introduces workable concepts that offer the greatest promise for expansion or market capture, assuring revenue for the future.

The third horizon is the most creative and expansive, commercializing applications from the second horizon in original and unpredictable ways. Although these ideas present the most significant potential, it will take precise and intelligent deployment of technologies from the first two horizons to get there.

Innovation readiness analysis should concern itself just as much with internal processes as with external offerings. Your InnovationIQ score will indicate which areas could profit most from new approaches, both in terms of profitability and market share.

From there, you can go on to reimagine the interactions of your high-performance teams, as well as, test business prototyping sessions. There are many pathways that lead to streamlining workflows and ensuring stronger revenue streams. Initially, they all begin with an assessment to evaluate how ready you are now to seize new ideas and make them work.

Leadership Models

In the Innovation Framework, we divide how into four components: Leadership, Capabilities, Personas, and the Innovation Process. The leadership styles in the Innovation Framework are based on the work of Loewe, Williamson, and Wood (2001), who describe five types of leadership such as the following:

  1. The Cauldron: an entrepreneurial style where the business model is frequently challenged.
  2. The Spiral Staircase: a style where you climb upward without losing the overall goal.
  3. The Fertile Field: a style where the organization tries to use existing capabilities and resources in a new way.
  4. The Pac-Man: a style where you invent, outsource, and finance startups.
  5. The Explorer: a style where you explore possibilities and invest time and money in them without demanding short-term profit.

Speed

High Speed

Key competencies:

  • Risk management
  • Business model Innovation
  • Customizations
  • Modularization

Key drivers:

  • High level of competition, disruption and shifting market logic.
  • Industrie 4.0 (read more here) including Internet of things

Low Speed

Key competencies:

  • Market knowledge
  • Governance and compliance

Key drivers:

  • Long production cycles
  • Market barriers
  • Regulations

Bandwidth

High bandwidth

Key competencies:

  • Active portfolio management
  • Brand knowledge
  • Modularization
  • A and B testing
  • Prototyping

Key drivers:

  • Uncertain market. Hard to predict trends.
  • Risk spreading.

Low bandwidth

Key competencies:

  • Market knowledge
  • Customer insights

Key drivers:

  • Short-term cash flow, no room for failure and no need for jackpot.
  • Expensive and inflexible production system, meaning you cannot easily adopt a new kind of production.

Risk vs Opportunity

Risk minimization

Key competencies:

  • Risk management capabilities, risk affection/attraction rather than risk aversion

Key drivers:

  • Optimization in a red ocean, i.e. sticking to what you have and trying to optimize with low short-term risk. However, this also implies long-term risk as you most likely will become outdated at some point.

Opportunity maximization

Key competencies:

  • Customer intimacy
  • Measurement
  • High-speed iterations

Key drivers:

  • Blue Ocean strategy initiatives means higher risk short-term but, if successful, a high margin and volume for a period of time.
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