I have fallen woefully behind in keeping up on the Harvard Business Review this year, but this month while flipping through it, one article on innovation caught my eye.
Now I know what you’re thinking: “Does the world really need another article on innovation?” Yeah, yeah, I know that innovation is business’ hottest buzz word today, so overused that it’s lost all meaning. But, that’s just what I liked about the new study conducted by Bansi Nagji and Geoff Tuff at the Monitor Group. It offers a new way to break down and analyze what has been an all-too-generalized concept since the beginning of the Great Recession.
Nagji and Tuff tell us that organizations tend to innovate in three ways – improving core operations, pursuing new but related opportunities, and venturing into truly transformational territory. As the co-author of a new book focused on Evolutionary leaders who guide organizations through transformational change, I am most interested in this third area of innovative potential. And the study indicates this area also the most profitable potential. Hurray!
According to the data, the highest performing companies allocate their resources and investments in a ratio of 70% in core safe bets, 20% to less sure things in adjacent spaces, and 10% to high-risk transformational initiatives. But, an inverse ratio applies to returns on innovation. Study outcomes show a return on investment of 10% in core, 20% in adjacent, and 70% in transformational. So, we learn that while it is unlikely that most organizational leaders are going to feel comfortable with moving transformational innovation to a dominant activity, it is vital to overall financial health.
If you are looking to increase the focus on transformational innovation in your company, the first things that will need to change are (1) the people you recruit, and (2) the way that you manage teams. Transformational innovation requires:
- Talent with a diverse set of skills and the ability to deal with ambiguous data. In other words, you will need to recruit or develop a strong team of Evolutionaries – people that have a high comfort level with ambiguity, are experienced in taking calculated risks, and are ideally suited for serving on transformational teams.
- The study indicates that for success in transformational innovation, teams need to be separated from day-to-day operations. In our chapter on Evolutionary Teams, Captain Steve Ahlberg of the US Navy SEALs explains the reasoning behind this study outcome: “Real teams are groups of people that are allowed the luxury of focus on whatever it is that needs to be done. A work group typically has other distractions such as their regular job, and cannot operate as a truly high performance team. Real teams can be built in business. A team can be built in any environment if they are allowed the luxury of focus, time for meaningful collaboration, and receive experiential training that bonds them together.”
There are a few other necessities for creating the kind of environment that fosters transformational innovation:
- Funding should come from outside the normal budget cycle
- Pipeline management should focus on the iterative development of a few promising ideas
- Metrics should recognize non-financial achievements in the early phases of the project
For most of our clients, it is that last bullet point that trips leadership up. It can be hard to invest in long-term projects that don’t show up in a positive way on the balance sheet, even if only in the short term. The key is to start with just one project team – an “innovation think tank” that offers the focused effort you need, but with a manageable investment. Allow time for the learning process to take place, this is a big cultural shift, and your resolve will be tested. But, with a little leeway and the right people on the team, the results are likely to be a game-changer!
Stay tuned for next week’s blog: “Starting Your Innovation Think Tank”