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Have you ever wondered why TESLA and BYD succeed while Big Auto fail to innovate?
We have heard about the McKinsey survey (2019) where 90% of Fortune 500 CEOs interviewed say innovation is critical for their growth, but only 6% are satisfied with innovation efforts.
The lack of results is often attributed to capabilities for innovation, no dedicated innovation management system or innovation culture. These are organizations that are performing quite well (Fortune 500).
Yet we also see that startups with no formal innovation management systems come up with industry-defining innovations. Many of the successful startups that are creating innovative solutions have poor processes and management systems. Often they have a toxic culture as well. They aren’t very familiar with innovation processes, tools and methods.
Yet they succeed, while well-established organizations with experienced managers as innovation leaders, resources, and access to tools and methods, fail to deliver on innovation.
The answer dawned on me when exploring the difference between culture and mindset. I realized that mindset is a much more important element of innovation. Mindset defines the culture and the mindset required for operations excellence and innovation are quite different.
So here are some characteristics of Operations/Business Excellence and Innovation that I mapped
Operations/Business Excellence | Innovation Excellence |
Think Cause and Effect | Think Hypothesis, “what-if” |
Best practices | New Knowledge |
Sense – categorize/analyse - Respond | Probe/act – sense - respond |
Known or Knowable | Unknown or Unknowable |
Present and Immediate | Future |
ROI and NPV | Future Options Value |
Certainties | Uncertainties |
Existing capabilities | New Capabilities |
Incremental | Radical and Big |
Threats | Opportunities |
What these characteristics indicate are that mindset and thinking required for Operations/Business Excellence and Innovation are probably very different.
What would be the critical mindset that would be needed for innovation to succeed?
Here is a list of 5 mindsets I have identified.
Don’t depend on the past for future growth: Leaders and everyone in the organization need to realize that the existing products/offering may be great and class leading, but their future is not guaranteed. Products, market and technologies evolve making existing products to be become commodities or even irrelevant. In many sectors, this may be as short lived as 6 months or an year.
This has a huge implication on business strategy, a realistic strategy will identify that there are significant growth gaps between future ambitions and what the present portfolio can offer.
Key message: Don’t rest on laurels, seek solutions that will result in new offerings and new growth avenues
Radical and big opportunities are enabled by new knowledge, capabilities and technology: Technologies are constantly evolving and maturing, resulting in new knowledge and capabilities. Leveraging them creates opportunities for big, radical and disruptive solutions.
This requires organizations and individuals to keep watch on technology developments, constantly upgrade their knowledge and capabilities. This requires learning effort from both the organization and the individuals.
Key message: Keep a close watch on technology trends and the requirements of knowledge and capability enhancement.
Hypothesis and experiments are the key to reducing uncertainties: Emergent and novel trends fall squarely outside the best practices and can’t be easily predicted by analytical, cause and effect-focused problem-solving techniques. This domain requires experiments and actions to probe and make sense of the responses. Hypothesis-led experiments are a powerful way of exploring emergent practices and identification of innovation opportunities.
This requires organizations to be democratic in the way ideation is managed, setting direction for exploratory experiments, allowing time and resources, managing the knowledge generated and managing the portfolio of new concepts that are created in the process.
Key message: Build a democratic ideation and experimentation process focused on the future direction.
The future can’t be predicted, but scenarios can help: It is a dream for every leader to know what is in store for the future. Unfortunately, there is no way of predicting the future with certainty. What however can be done is predict different scenarios of the future, based on certain and uncertain trends. These scenario’s will be useful in identifying the causal loops and the possible innovation opportunities.
This requires organization to look at various factors likely to be impacting their future, Political, Economic, Social, Technology, Legal, Environmental and Demographic factors. It requires an analysis of their interlinkages and prioritization in the organization context based on importance and likelihood. Scenarios are built based on the extremes of important and uncertain trends. Usually organizations develop upto 3 scenarios for the future to plan their action.
Key message: Align innovation efforts to future scenarios, create a compelling narattive and build your ambition for achieving a sustainable future.
You can’t measure innovation using ROI as metric: The uncertainties with the future and as a result of innovation, lend themselves poorly to ROI as a metric for innovation projects. Many innovation projects fail to take off as innovators can never meet the metrics required for other capital projects that are short-term oriented. With innovation, organizations need to compare the cost of not innovating (the threat) with the opportunity it generates.
The true metric of an innovation project is options value, what is the value of doing the innovation now vs doing it later? Is the investment and the uncertainty worth the potential value that can be generated? Can we buy the technology/IP/company at a later point rather than spend on innovation?
Key message: Use the threat of not innovating to frame the resource allocation process, but treat it as an opportunity in the venture-building process.
In summary, the following mindsets are critical for innovation
1. Don’t depend on the past for future growth.
2. Radical and big opportunities are enabled by new knowledge, capabilities and technology
3. Hypothesis and experiments are the key to reducing uncertainties.
4. The future can’t be predicted, but scenarios can help.
5. You can’t measure innovation using ROI as a metric.
Can you relate to these mindsets?
Does your organization need to work on these?
If these insights ring a bell, explore the topic further by booking a free 60-minute consultation using the link https://bit.ly/3eLCLGz with Krishnan.
Alternatively, write to krishnan@thinkhorizonconsulting.com
Krishnan Naganathan
Krishnan is a leading innovation consultant and focuses on helping people and organizations innovate and build capabilities for innovation. He brings over 30 years of experience in the industry and consulting. You can reach him by phone / WhatsApp: +919791033967 or email: krishnan@thinkhorizonconsulting.com