Guide to Innovation Management

What is innovation management?

Topics or subfields of innovation management are:

• Innovation processes: The process of transforming an idea into a successful innovation. Involves concept development, business plan, solution development, prototypes, implementation and marketing.
• Innovation culture: Creating a (corporate) culture that promotes innovation by valuing creativity and allowing failed experiments.
• Distribution of roles: Assigning roles to people to create decision-making structures and process ownership, e.g. who decides which ideas are realized and by whom.
• Idea management: Find, develop and evaluate ideas.
• Future management: Identify trends, opportunities and risks.
• Innovation strategy: Plan innovation activities such as an innovation roadmap.
• Open innovation: Tap into innovation networks to use external innovation sources and resources.
• Portfolio management: Innovation controlling to manage innovation activities.
• Copyright: Dealing with patents and property rights.

Innovation management is not R&D, but R&D is still important to the innovation process because it's a specialized department within an organization where scientists develop new technologies. Innovation management, on the other hand, leverages what a company already has and tries to involve employees at every level, including the people in R&D. 

An example of innovation management would be a cross-disciplinary team composed of an engineer from R&D, someone from marketing and a supplier. They would use the company’s existing technologies and capabilities to create a new product to sell.

There has, of course, always been innovation since humans developed the first primitive stone tools. Whereas neither innovation nor management thereof is something new, “innovation management” as a fixed term appears more regularly in the late 1990s and early 21st century.

The economist Joseph Schumpeter was the first to point out the necessity for companies to innovate. He called this creative destruction, a "process of industrial mutation that continuously revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one." (1942, Capitalism, Socialism and Democracy).

In other words, companies that do not innovate will be destroyed by the market, making space for the new – hence the term creative destruction. Schumpeter went even further to claim that long-term economic cycles and the wealth of society as a whole depend on technological innovation.

While Schumpeter pointed out the significance of innovation, companies could not just go and do it. There was little theory and even less empirical evidence about what happened when a company tried new things.

For the better part of the 20th century, innovation was called diversification (according to the Ansoff Matrix 1957) and mostly associated with industrial companies releasing a new product line.

“Innovation management” as a fixed term became more established during the 90s, together with the many growing technology companies who depended much more on innovation than, say, Coca Cola.

Management in these tech companies was not conventional. When Steve Jobs returned to Apple in 1997, he fired all general managers in a single day. Instead of general managers leading managers, experts would lead experts. The reasoning was that it would be easier to train a software expert to manage than to train a manager to understand software.

Innovation management is not necessarily anarchic (leaders in innovative tech companies like the late Steve Jobs or Elon Musk rule with strong authority), but it relies on an open exchange of information across hierarchies. This kind of thinking evolved considerably with the internet.

Collaboration networks and open innovation are key concepts in innovation management, and both of these have grown considerably with the internet. The social construct of the Collaborative Innovation Network (CoIN) has been defined by the MIT Center for Collective Intelligence as "a cyberteam of self-motivated people with a collective vision, enabled by the web to collaborate in achieving a common goal by sharing ideas, information, and work".

Examples of highly disruptive innovations created by such innovation networks are the Web itself, Linux or Wikipedia.

Open innovation, group intelligence and innovation networks are ideas that accompanied digital technologies, which is why one could say that historically, the internet is the single most crucial technology for innovation management. Yes, even more crucial than post-it-notes.

However, in practice, innovation management relies on a multitude of tools.

There are a multitude of methods and tools in innovation management, often mediated through a combination of software, coaching and workshops. Examples for innovation management tools are: 

• Brainstorming
• Prototyping
• Product lifecycle management
• Idea management
• Design thinking
• TRIZ
• Phase–gate model
• Project management
• Product line planning
• Portfolio management

Which tools an organization uses depends on their goals, industry, culture and size. For example, we at rready offer KICKBOX, which is a guided program combined with digital tools and best suited for large organizations that want to validate and implement new ideas.

But there are a multitude of other tools out there for different purposes, from creativity development techniques and business creation tools to interface management approaches. However, many innovation management tools assume or are geared towards collaboration.

Innovation management depends on open innovation instead of sitting on your data, or departments working together instead of hiding under your desk. Great innovations are seldom created by a single person, but people who have innovative ideas are often individualistic introverts.

Humans are not a hivemind and collaboration only comes through constant effort, which is why innovation development typically involves a set of tools and activities to form a common understanding of processes and goals. This is crucial because the approach relies on people from different departments and even companies working together. These people come with different professional and educational backgrounds and, most annoyingly, different views on how things should be done.

To streamline dissimilar ways of thinking, disciplines and personalities into a continuous flow is the purpose of the innovation management process.

How the innovation management process works in each organization depends on the underlying method. Four common ways to think about the innovation management process are push vs. pull, the phase-gate process, the lean startup model and bottom-up vs. top-down.

1. Push vs. pull

Push-based models are internally and technologically oriented while pull-based models are externally and market-oriented.

Push-based models are usually employed by large technology or pharmaceutical companies. They already have a customer base and market data, and many resources to spend on their R&D department. An example would be Apple, who has more cash than it can reinvest in its own business and can afford to fail.

Pull-based models are more often used by smaller companies with fewer resources. They gather information about potential customers and their willingness to pay before they invest in a new product or service. This reduces risks of failing but requires time to be spent on research.

2. Phase-Gate Process

The phase-gate process is often used in software development and also known as waterfall. This process is divided into stages, separated by decision points, the gates. At each gate, the quality of the idea is assessed. This leads to five possible results: go, kill, hold, recycle, or conditional go.

This process assumes that you have more ideas than resources, and want to make sure that only the best ideas make it. 

3. Lean Startup Model

The lean startup model is inspired by lean manufacturing, aiming to reduce waste, continuous improvement and understanding the customer.

This is an iterative approach that tries to produce a minimum viable product (MVP) as fast as possible. This product then allows gathering a maximum of data about the customer with the least effort. This in turn leads to an improved product, and so on. This iterative process is called the build-measure-learn loop.

4. Bottom-up vs. Top-down

Because of the emphasis on collaboration across hierarchies and open innovation, innovation management typically aims for a bottom-up approach. This means that every employee can bring in ideas, and is made responsible to realize this idea. However, it is worth contemplating how to combine bottom-up and top-down approaches.

All the innovation management process methods have things in common, and we claim that these things are 3 phases:

1. Validation: Enter an idea that someone wants
2. Proof of concept: Proof that your idea would work
3. Implementation: Work out how to pull it off

First Phase: Validation

Evaluate desirability of the market, meaning potential customers. If your idea would exist, would anyone want it?

The segway is probably a famous example of an idea with insufficient validation. The original goal for the segway was to revolutionize transport. And they had it working! But because it looked so dorky, nobody wanted to use the Segway, except for the police and tourists, which really says it all.

Second Phase: Proof of concept

People would buy your idea, but can you actually make it happen? Prove the feasibility of your idea and provide data to support your arguments. An innovation manager’s job is to take a close look at the underlying data and the validity of the arguments brought forth.

A good example for an insufficient proof of concept is the flying car. The potential market is huge, but for a century, companies from Curtiss to Boeing have tried and failed repeatedly. Sometimes they failed quite late in the process, which was expensive. 

Third Phase: Implementation

At this point the idea-giver has established that customers would want the idea and that it is realistic. But does it make sense for the company to do it? Here the innovation manager needs to consider the current portfolio of the company and the direction of their innovation strategy.

If a great idea does not fit the company’s portfolio, they can realize it anyway.

The company then captures the value of the idea by performing a spin-out/spin-off. Besides generating cash, the idea works as a motivating showcase for company-innovation and employee-initiative.

Innovation management is useful to organizations and companies for three main reasons:

1. It helps to identify and implement the best ideas. It does so by streamlining the idea generation and implementation process. Using the expertise and market knowledge of employees is a way to gain valuable insights and new ideas.
2. Reliable ROI: Managing innovation enables building robust processes capable of generating high returns on investments over the long term.
3. Higher return on salaries: Empowering employees to be innovative by ensuring their inputs are being valued and applied in the innovation process of the firm. This increases motivation and encourages employees to start projects that make best use of their skills.

Two main challenges in idea management are dead ideas and zombie ideas.

1. Dead ideas

Problem: We have many ideas, but nothing happens with them. They just die silently.

Solution: Have a clear-cut process that both empowers and obligates innovators to go through with their idea until they fail.

2. Zombie ideas

Problem: Bad ideas survive for too long and suck up resources. They refuse to accept that they are dead!

Solution: Keep the gates open to encourage new ideas coming in.

But afterward, adopt a fail-fast approach with short test loops to keep up the selective pressure.

This is one of the most common problems: you have ideas, but now what? To make sure that something happens, do the following:

1. With power comes responsibility, so give them power: Create ownership and responsibility for the idea giver. They are the captain now and can choose in which direction they want to develop the idea.
2. Do not judge too early. Let those behind the idea prove it with data, and give them enough time to do so. After that, judge them without mercy.
3. Live the day 1 philosophy. In a letter to shareholders in 2016, Jeff Bezos wrote: “Staying in Day 1 requires you to experiment patiently, accept failures, plant seeds, protect saplings, and double down when you see customer delight.” So this means to pretend like it is always the first day of your company, always discovering what you are going to do. 
4. Do not punish failure. Employees who failed early with their ideas created value for the company, since they saved resources that could otherwise have been wasted on a moonshot project. 
5. Try again: Strongly encourage employees who failed to try with a different idea. They learned from the failed attempt, and to not let them try again would be a waste of this training.
6. Role models: Bring in innovators who walk the talk.They can be internal or external, but they need to be relatable and genuinely interested and involved in the idea doing process in your company or industry-wide.
7. Management’s blessing. This makes every employee understand that they can go for it and will not be punished for taking risks in validating ideas.

Measuring innovation over long time periods will decide whether a company’s innovation management process works, or whether it should be, in the name of creative destruction, replaced by something better. Unlike hitting a revenue target, innovation can be a bit of a fuzzy concept. This is why innovation is best measured by using both hard and soft methods:

1. Measure beyond outcomes: count how many employees were involved in the innovation process.
2. Your innovation projects are startups. Use funnel metrics that venture capital funds use to evaluate startups, rather than traditional, internal metrics. For example: from 50 ideas, one becomes big and creates a return of 60 ideas. 
3. Think long-term. Do not focus on short-term ROI, because you will be disappointed. If the funnel and the gates are robust and correctly set up, it will take time until the potential becomes reality.
4. Measure failure and avoid waste. This includes small ideas that did not make it through the funnel but could still be implemented on a smaller scale.
5. Measure employer branding. Innovation initiatives will change the outside perception of your company as an innovative force within the industry. This can be measured with a sentiment analysis of social media channels, where discussions related to your company are taking place. Attracting talents interested in innovation will further help you improve your innovation funnel and be more successful over the long-term.