I.

BACKGROUND OF INNOVATION MANAGEMENT

Innovation

Innovation is an idea, practice or object that is perceived as new by an individual

or other unit of adoption. An innovation is considered performed if it is introduced to the

market (product innovation) or implemented in the production process (process

innovation). It includes many research, technological, organizational, financial, and

commercial activities. It is a use of new knowledge to offer a new product or service

that the customer wants. Thus, it is; Invention plus commercialization.

Characteristics of Innovation:

 There is an object or target which is being changed.

 It can be a product, a process, an individual’s lifestyle, an organization’s

strategy, a society's culture.

 It is closely related to problem solving since the generation and

implementation of ideas for change never transpire without difficulty.

 A final characteristic is the impact of the change, the significance or the range

of its effects.

Schumpeter’s distinction between ”Invention” and ”innovation”

An ’invention’ is an idea, a sketch or model for a new or improved device,

product, process or system. It has not yet entered into the economic system, and most

inventions never do so.

An ’innovation’ is accomplished only with the first commercial transaction

involving the new product, process, system or device. It is part of the economic

system.

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The Process of Innovation

 Searching – scanning the environment (internal and external) for, and

processing relevant signals about, threats and opportunities for change.

 Selecting – deciding (on the basis of a strategic view of how the enterprise can

best develop) which of these signals to respond to.

 Implementing – translating the potential in the trigger idea into something new

and launching it in an internal or external market.

 Learning – enterprises have (but may not always take) the opportunity to learn

from progressing through this cycle so that they can build their knowledge base

and can improve the ways in which the process is managed.

Innovation Tools

 Benchmarking – process of improving performance by continuously identifying,

understanding, and adapting outstanding practices and processes found inside

and outside an organization (company, public organization, Universities,

colleges, etc.) Benchmarking of business is usually done with top performing

companies in other industry sectors. This is feasible because many business

processes are essentially the same from sector to sector.

 Brainstorming – an idea-generating method widely used by teams for identifying

problems, alternative solutions to problems, or opportunities for improvement.

The term “brainstorming” has become a commonly used word in the English

language as a generic term for creative thinking. It is actually done naturally and

doesn’t necessarily require planning. The more alternatives you generate, the

better chance you have of uncovering the best solution.

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  Change Management – the process of aligning the organization’s people and

culture with system changes, business strategy, and organizational structure. An

active change management plan builds understanding and commitment to

changes associated with an implementation of any type (e.g., re-engineering,

information technology, or strategic initiatives); aligns key organizational

elements (structure, roles, skills, etc.) to support the desired change; and

enables continuous performance improvement to sustain the change.

 Technology Audit – a method for identifying through short interview-visit to a

company, the major company requirements, needs, weaknesses and strengths

on both human resources and infrastructure. The technology audit is a technique

that enables the auditor to determine and identify in a very short meeting

session, the management’s view of how the company performs as well as strong

indications of what the company really needs. This technique examines

concurrently the external and internal environment of the company and identifies

the human resources in relation to the company’s performance.

 Technology Forecast – includes “all efforts to project technological capabilities

and to predict the invention and spread of technological innovation”. A

technological forecast actually includes four elements: the time of the forecast or

the future date when he forecast is to be realized, the characteristics of the

technology or the functional capabilities of the technology, and a statement about

probability.

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Innovation Management

Innovation management is all about learning to find the most appropriate

solution to the problem of consistently managing a fore stated process, doing so in ways

best suited to the particular circumstances in which the organization finds itself. It is

about managing the learning process with the challenge of the innovation process.

Management of innovation compromises of three things; linking of engineering,

science, and management disciplines. To plan, develop and implement technological

capabilities to shape and accomplish the strategic and operational objectives of an

organization.

Objectives of Innovation Management

 To reap in the economic benefits of new technological inventions by

commercializing them on time.

 To integrate technology into the overall strategic objective of the organization.

 To get into and out of the technologies faster and more efficiently.

 To accomplish technology transfer

 To reduce new product development time

 To manage large, complex and interdisciplinary projects and systems

Organizational Process for Innovation Management

1. Market Learning

2. Effectively Building Business Models

3. Creating a cause and not a business

4. Setting unreasonable expectations and stretching the business definition

5. Listening to new voices

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 6. Designing an open market for: Ideas, Capital, Talent

7. Building Partnership and Alliances

8. Lowering the risks of experimentation

9. Paying the Innovators well

Thus, enterprises should emphasize;

 Planning and controlling systems with high degree of flexibility

 Respect for individual initiative and personal growth

 Tolerance for mistakes and allowing room or failure

II. KEY ASPECTS OF INNOVATION MANAGEMENT

As virtually any new development in the organization can be considered to be

related to innovation, it can be quite difficult to grasp what innovation management

means in practice.

Through our experience in helping organizations with their innovation activities,

we’ve found that the simplest way to understand the topic is to break it down and

discuss each of the key aspects related to innovation management separately. The

diagram below showcases the four aspects that we typically use, each of which we’ll

then explain briefly.

Capabilities

Capabilities is an umbrella term used to cover the different abilities and

resources the organization has for creating and managing innovation.

The capabilities aspect revolves primarily around people, as innovation relies

heavily on the abilities of both individuals and teams collectively. It refers first and

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foremost to the abilities, unique insights, know-how and practical skills of the

people working for the organization. However, it also covers areas, such as

the information capital and tacit knowledge of the organization, as well as their other

resources and available financial capital, all of which might be required to create

innovation.

Structures

The difference between structures and capabilities is that structures enable the

effective use of the said capabilities. In practice, this means the organizational

structure, processes, and infrastructure of the organization. The right structures can

work as a force multiplier allowing the organization to operate and innovate much more

effectively. For example, without the right communication channels, the right processes

for making decisions, and the right infrastructure for implementing ideas, very few of the

ideas that people are coming up with will actually see the light of day. This is where

tools, such as innovation management software, can make a difference. Organizational

structure is one of the keys here. If every new innovative initiative is forced to go

through the same chain-of-command and same processes as minor changes to the

existing organization, it’s very likely that many innovations will be smothered.

Teams working on innovation need to be able to move fast and adapt to their

environment, as well as make decisions independent of the traditional ways of doing

things in the organization. So, don’t try to force the same rules and processes for

everyone in your organization. Economics of scale simply don’t work when it comes to

innovation. One of the more popular approaches for starting to create a more innovative

organization is to work towards building a so-called ambidextrous organization. This

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simply means that the organization is structured in a way that allows new businesses to

be independent from the pre-existing ones. Structures can also be used to reinforce (or

if done poorly, erode) the culture of the organization, which brings us to our next

aspect.

Culture

If structures allow the effective use of capabilities, culture is what enables the

organization to acquire the capabilities related to people.

An appropriate pro-innovation culture encourages the right kind of behavior and

discourages the wrong kind. As the effects quickly cumulate, culture can make a

tremendous difference for the innovativeness of an organization. Here are some of

the more commonly accepted traits for an innovative culture:

Emphasizes the need to always think of ways to get better Values speed,

learning and experiments Considers failure as just a normal part of the process for

creating anything new Provides enough freedom and responsibility and is led primarily

with vision and culture instead of a chain-of-command approach

Strategy

Last but not least, is strategy. Strategy is, simply put, the plan the organization

has for achieving long-term success. But what’s critical to understand is that strategy is

ultimately about making a deliberate choice between a number of feasible options to

have the best chance of “winning” and this choice shouldn’t obviously be separate from

the execution. The link between innovation and strategy is quite an extensive topic, but

in essence, innovation is simply one of the means to achieving your strategic goals.

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III. FOUR TYPES OF INNOVATION

Innovation Type 1: Sustaining Innovations

A sustaining innovation improves existing products. It does not create new

markets or value markets, but develops existing ones with better value, allowing

companies to compete against each other’s sustaining improvements. Scholar and

innovation expert Clayton Christensen explains it this way, “A sustaining innovation

targets demanding, high-end customers with better performance than what was

previously available. Some sustaining innovations are the incremental year-by-year

improvements that all good companies grind out. Other sustaining innovations are

breakthrough, leapfrog-beyond-the-competition products. It doesn’t matter how

technologically difficult the innovation is, however: The established competitors almost

always win the battles of sustaining technology. Because this strategy entails making a

better product that they can sell for higher profit margins to their best customers, the

established competitors have powerful motivations to fight sustaining battles. And they

have the resources to win.”

Innovation Type 2: Disruptive Innovation

A disruptive innovation helps create a new market and value network. The

innovation eventually disrupts an existing market and value network. A key to disruptive

innovation is that, opposed to sustaining innovation, it does not take place with

established competitors, as Christensen explains in Harvard Business Review

“Disruption” describes a process whereby a smaller company with fewer resources is

able to successfully challenge established incumbent businesses. Specifically, as

incumbents focus on improving their products and services for their most demanding

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(and usually most profitable) customers, they exceed the needs of some segments and

ignore the needs of others. Entrants that prove disruptive begin by successfully

targeting those overlooked segments, gaining a foothold by delivering more-suitable

functionality—frequently at a lower price. Incumbents, chasing higher profitability in

more-demanding segments, tend not to respond vigorously. Entrants then move

upmarket, delivering the performance that incumbents’ mainstream customers require,

while preserving the advantages that drove their early success. When mainstream

customers start adopting the entrants’ offerings in volume, disruption has occurred.”

Innovation Type 3: New Market Innovation

Another important type of innovation that companies have deployed is one in

which they take an existing solution and modify and sell it for use in a different market.

The goal of a new market innovation is to target non consumers and expand their

existing market. New market innovations are relatively straightforward to understand

and apply but there are two key considerations if you’re going to attempt a new market

innovation. The first is understand the new market segments and the second is clearly

understand your competition in that new market.

Innovation Type 4: Integrative Innovation

The main thesis of “Integrative Innovation” is the idea that a market’s ability to

adopt more performance and absorb higher prices will increase according to the

number and value of jobs to be done that have been integrated into one device in a way

that is simple and easy to use. Christensen’s theory of disruptive innovation assumes

that in order to be disruptive, products must focus on one job to be done, start at the

low-end, improve performance over time and eventually become good enough to

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capture a large portion of the market. Integrative innovation is the opposite of that.

Instead of starting out as not good enough and moving up in performance and cost,

Integrative Innovation is about combining multiple jobs into one and creating a very

high-performance/high-cost solution to begin with and quickly moving down in cost to

capture large portions of the market.

IV. INNOVATION ADOPTION LIFE CYCLE

 The innovation adoption life cycle was first introduced by Geoffrey Moore in his

1991 book, Crossing the Chasm.

 It builds on the research on the diffusion of innovations and explains why

companies with disruptively innovative products (and/or technology) often have a

hard time reaching success with the mainstream market.

 The basic idea is that the entire market can be represented with a bell curve that

can be divided into segments based on how eager the customers are to adopt

new technology with each segment having their own sets of expectations and

desires.

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Five Adopters in the Diffusion Process

1. Innovators

They are eager to try new ideas and products, almost an obsession. They

are people having high income, and are characterized as being venturesome.

2. Early Adopters

These people tend to be the most influencial people within market space

and they will often have a degree of “thought leadership” compared to other

potential adopters.

3. Early Majority

Group of customers to adopt new idea or product, characterized by their

deliberation. They are likely to collect more information and evaluate more

brands than early adopters.

4. Late Majority

These people tend to put their resources towards tried and tested

solutions only and are risk-averse. The dominant characteristics of the late

majority is skepticism.

5. Laggards

Group of customers last to adopt to new idea or product, characterized by

ties to tradition. Laggards have the longest adoption time and the lowest socio-

economic status.

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V. KPIs – How to measure innovation?

You’ve probably heard the old saying, “you can’t manage what you don’t

measure”. While there’s an element of truth in the saying, it’s quite naive to think that

everything in life, or even business, could be measured with any degree of accuracy.

So, when it comes to innovation, you would be wise to also remember another famous

quote:

“Not everything that can be counted counts, and not everything that counts

can be counted”

So, while many aspects related to innovation are notoriously difficult to

measure, there are a number of metrics, often referred to as KPIs (key performance

indicators), that are commonly used to measure innovation activities.

However, before we delve into these in more detail, let’s first cover the basics.

When it comes to measuring anything abstract and intangible, such as innovation, it’s

hard to pinpoint exactly what to measure.

As such, we need to take a more systemic approach to measurement and seek

to find a set of metrics that are as representative as possible of whatever it is that

we’re measuring, in this case innovation.

In general, there are two types of metrics that we can use for measuring the

system: input and output.

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Input metrics

Input metrics are, as the name says, used for measuring the inputs a system or

activity has. They are the “I in ROI”, in other words, investments.

In the context of innovation management, this means metrics, such as the share

of R&D or innovation from your total budget, or the number of new ideas submitted by

your employees.

Input metrics are often a great starting point for measuring innovation as

it’s usually quite easy to measure the activities you’re doing. Input metrics allow you to

see if you’re doing enough things, and the right things, to be able to achieve results in

the first place.

They also allow you to see if you’re moving in the direction that you want to, such

as by comparing your resource allocation towards the goals you’ve set for your portfolio.

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 They, however, also have their challenges. Most importantly the fact that input

doesn’t guarantee output. No matter how much resources you pour in, you might still

not see the results you want to if the quality of your activities isn’t right.

Another key challenge here is that it isn’t always straightforward to figure out

what the right inputs are for getting the best possible outputs, which is especially true for

innovation.

Output metrics

The other end of the spectrum is output metrics. As you can probably guess, they

measure the outputs of your system or your activities. They represent the returns, or the

“R in ROI”.

When it comes to innovation management, these can be things such as:

 Number of new (successful) products launched in the last 12 months

 Revenue (or profit) from products launched in the last X years

 Share of new products from the total revenue of the organization

Output metrics are a great sanity check for ensuring that your innovation

initiatives actually turn into something useful, and again for checking to see if you’re

going in the right direction.

They aren’t, however, without their own share of challenges. In general, output

metrics often aren’t very actionable. For example, it’s quite difficult to know why your

revenue numbers for new products aren’t matching your goals just by looking at them.

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 In addition, innovation activities usually take quite a long time to convert too

many of the traditional output metrics, such as revenue or profit. This, in turn, lengthens

your feedback loop, which means that you might identify problems only when it’s

already too late.

Choosing the right metrics

Every organization is different, so there’s no such things as a universally

applicable set of innovation metrics that would work for everyone.

Regardless, you get what you measure, in both good and bad, which is why it’s

important to choose metrics that best suit your situation.

“You get what you measure, in good and in bad”

For example, if your innovation unit focuses solely on short-term revenue goals

and you hold people accountable for those goals, people will find ways to create more

revenue.

Some of them might just work harder and “do the right thing”, but others will find

ways to reach the goals in less beneficial ways, such as by shifting focus towards

scaling sales and marketing prior to having a solid product-market fit for their innovation.

Here are a few tips for getting the most out of your KPIs:

 Find a good balance of input and output metrics

 Focus on just a few metrics at a time and set goals using just these metrics

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  In general, the more risk and uncertainty you face (such as when working on

disruptive innovation), the more you should focus on input metrics as the

correlation to output metrics is difficult to see, which leads to worse decisions and

demotivates people

 Don’t try to force the same metrics for everyone in the organization

 …but make sure that the metrics align with each other and your strategy

 In general, aim for metrics that are S.M.A.R.T. (Specific, Measurable,

Achievable, Relevant, Time-bound)

 It’s better to start with too few than too many metrics

 Don’t be afraid to change the metrics once you learn more

 Just try to get better every day, don’t make it into rocket science

VI. KEY CHALLENGES IN INNOVATION MANAGEMENT

Innovation is very difficult to get right, and every organization is guaranteed to

run into a number of different challenges on their journey to become more innovative.

Outlining some of the more common challenges below so that you’re aware of them and

can start to watch out for them in your organization. In addition, we’ll also briefly discuss

certain best practices and key success factors for maximizing your chances of being

successful.

1. Too hierarchical organization with purely top-down management

If an organization has a lot of hierarchy, and the management has a very top-

down, often micro-managerial, approach to their job, it is likely to lead to employees at

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the front lines becoming more passive. Innovation, by definition, is all about exceeding

expectations and current limitations. When you hear comments like that, you know that

those people will, at best, match the expectations set for them, but never exceed them.

And innovation, by definition, is all about exceeding expectations and current limitations.

2. Culture that doesn’t support a “growth mindset”

A person has a growth mindset if they think that who they are isn’t just

something that’s passed on to them, but is instead something they can work on, for

example by acquiring new skills and learning new things. Growth mindset can lead to

unlimited innovation. The same goes for an organizational culture. Without a culture

that’s growth-oriented, the organization is simply highly unlikely to innovate.

3. Poor infrastructure, lack of opportunities and resources

Without any processes, resources or infrastructure in place for implementing

ideas, it will be difficult for people to achieve impact, even if they wanted to. For

example, it’s easy to talk about Google’s 20% time being a great initiative for

empowering innovation, but if you were to simply provide the same policy in your

organization, it would likely be much less effective. Your employees likely don’t have

access to the kind of tools, infrastructure, knowledge or raw data that employees at

Google do.

As a manager, it’s your job to do the best you can to provide your team with the

resources and capabilities they need to be successful and the same most certainly

applies for innovation.

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 4. Lack of vision and/or focus

Great innovations are often born from people having a vision for creating

something that doesn’t yet exist, and the same applies for organizations. When your

organization has a clear and compelling vision, you are much more likely to attract

people who are passionate about your mission and willing to put in the extra effort to

actually come up with innovations. However, even if you do think you have a great

vision for the organization, you still need to be able to communicate it in a manner that

everyone understands and is willing to buy into.

Without focus, you are likely to spread your resources too thin and create too

much overhead. If you have a clear vision and focus, you’ll also be much better

equipped for seeing those innovative ideas through to implementation and eventually to

successful innovations. Without focus, you are likely to spread your resources too thin

and to create too much (cognitive and physical) overhead. This will lead you to be

unable to execute on any of the ideas well enough to really be the best at it.

In addition, the capabilities that you have are less likely to be in line with those

required to actually implement the ideas if the ideas are all over the place.

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VII. KEY SUCCESS FACTORS IN INNOVATION MANAGEMENT

The key success factors and best practices are, for the most part, the opposite of

the challenges, and a combination of many of the points we’ve made previously in this

post.

We’ll summarize the key points here, but for a more extensive take on the topic,

please see our post on innovation management best practices.

1. Continuous Improvement

For example, to cultivate a growth mindset, you should have a relentless focus

on getting better at all the aspects related to innovation management every day, both as

an individual and as an organization.

If you improve your infrastructure and processes on a daily basis, you’ll end up

with more time to focus on value creation, as opposed to simply working on an endless

TO DO list.

If you’ve also been working to improve your individual skills during this time,

you’ll be much more productive with the time you have, in addition to having more of it.

This obviously puts you way ahead in the game by the time that others see the

opportunity.

A mindset of continuous improvement is also tremendously helpful for cultivating

a culture that's focused on getting better and innovating.

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 2. Value creation

Many innovators are in the pursuit of chasing their vision, which can sometimes

lead them to unfortunately lose sight of the end goal: creating value for your customers.

As long as you know your market and your customers like the back of your

hands, while continuing to focus on creating as much value for them as possible with

your innovation or innovations, you’re likely to go in the right direction.

3. The Lean Startup

In general, speed is of the essence when it comes to innovation. The Lean

Startup is a great framework for a number of reasons, but the key reason for its success

is the emphasis it has on the velocity of the build-measure-learn feedback loop.

Innovation always requires you to learn at least something new, but more often

than not, it takes quite a bit of learning. The faster you get there, the more likely you are

to succeed. In addition to knowledge, you should always be looking to build your

capabilities and the organizational culture to better support innovation.

Modern startups aside, let’s consider Thomas Edison and his pursuit for the first

commercially feasible light bulb as an example. He went through thousands of

combinations of different materials prior to finding the one that works.

If he would’ve tried to go through the entire commercialization process for each

one of those versions instead of trying to find the ideal combination, he would’ve never

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made it. He would’ve run out of time and money. Instead, he knew that the critical piece

was to find the right material for the filament and he persisted until he did just that.

4. Allocation of resources

Any organization needs to be clear and purposeful when it comes to resource

allocation, but that holds especially true for larger organizations.

For an organization to be successful, they should identify their willingness to take

risk and their desired level of returns, as well as the timeline for that, and use them to

craft a strategy that is not only in line with that background but is also realistic to

achieve with the resources available for the organization.

Once the strategy is in place, one should continuously seek to monitor progress

and make sure that the resources are still appropriately allocated.

5. Great culture and a world-class team

The days of heroic inventors are, for the most part, behind us. The vast majority

of innovation created is these days the result of a team of innovators.

Without the right mix of talent, along with the right culture, it’s increasingly difficult

for teams to come up with innovations in today’s increasingly complex world.

6. Focus

Just like lack of focus can easily be one of the key challenges preventing

innovation, remaining focused is one of the key success factors for creating them.

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 You are guaranteed to increase your odds of being successful when you’re

focused. The reason for this is that to be better than everyone else and do something

that others can’t, you have to be willing to put in the work that others don’t.

To do something that others can’t, you have to be willing to put in the work that

others don’t.

And just like in your personal life, you can’t do that on very many different fronts

as an organization, at least not simultaneously.

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REFERENCES

 https://www.google.com/amp/s/www.viima.com/blog/innovation-

management%3fhs_amp=true

 https://www.google.com/search?q=importance=of=innovation=management&oq=

 sphweb.bumc.bu.edu/otlt/MPH-

Modules/SB/BehavioralChangeTheories/BehavioralChangeTheories4.html

 https://www.google.com/amp/s/searchcio.techtarget.com/definition/innovation-

management%3famp=1

 https://www.bdc.ca/en/articles-tools/business-strategy-

planning/innovate/pages/4-ways-innovation-can-help-your-business.aspx

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