According to research done by the Conference Board, two of the top three internal hot button issues for CEOs globally are:
- Emerging technology that is driving new business models
- Creating a culture of innovation that energizes and enhances a company’s performance and keeps them relevant during periods of intensifying competition
We shared in a prior article our 4 tips on how to create and enable practical innovation within an organization. Innovation shouldn’t be a standalone function; if innovation is intended to enable and accelerate growth, it is best driven by the employee innovators who engage daily with customers. It must be woven into the culture and strategy of the organization to be successful.
In this article, we zero in on innovation’s role in supporting – or better yet, enabling – an organizational strategy and how the contribution from innovation can be measured. Simply stated, innovation efforts should be in pursuit of achieving the strategic direction and – at the end of the day – you get what you measure.
Incorporate Organizational Strategy Directly into the Innovation Process to Establish Creative Constraints
In our experience, and confirmed by HBR, people are better innovators when there are constraints. The study discovered that “individuals, teams, and organizations alike benefit from a healthy dose of constraints. It is only when the constraints become too high that they stifle creativity and innovation. Constraints can foster innovation when they represent a motivating challenge.”
Use this phenomenon to your advantage to naturally drive ideas that are aligned to strategy by building the model of what good looks like to include key elements of the strategy that you want to heighten. For example, a core tenant of our firmwide strategy is to solve our client’s most pressing issues. In an early phase of our innovation lifecycle, we require innovators to define the industry issue that we are looking to solve – this means that the idea must be market-facing and must relate to one of the five industries where we focus. A concept we are currently exploring is how we might help healthcare organizations collaborate (versus compete) on challenging issues in order to drive faster, more effective improvements to population health in their local communities.
Another pillar of our corporate strategy is to leverage our multi-disciplinary expertise – the blend of industry, technical, and functional expertise. Later in the innovation lifecycle, we require at least three practices (client-facing business units) to be involved in ideating on an offering or approach to address client issues. Each of the three practices bring a unique perspective that, collectively, helps us unearth solutions for client issues that contemplate operational considerations, customer experience needs, and the supporting technology required. We have brought several ideas through our innovation lifecycle in the past year to explore issues around transactive energy for utilities in which the team not only includes E&U experts, but also technology and customer experience practitioners. This has resulted in three offerings we are testing in the market related to realtime digital tower inspections, carbon credit minting, and 360° view of distributed energy resources for energy customers.
This is a delicate balance to strike. Too many constraints too early can cause an employee to feel hampered. Rather, introducing the constraints at different points in the innovation lifecycle, which allows the idea to go through the iterative process to build, test, and learn, produces the best results.
Although Revenue is King, Success is in Measuring Progress Against Both Leading and Lagging Metrics
It’s often said that innovation that doesn’t drive revenue is just a hobby. Using metrics that align to organizational intent such as growing EBITDA, increasing stock price, or improving employee engagement will ultimately show how successful innovation is in enabling strategy. Looking at leading indicators is equally important because it provides an early assessment as to whether there is enough engagement in the innovation process to ultimately drive impact. Forecasting and measurement of innovation-related activities (leading) and resulting impact (lagging) are critical tools for a high-performing organization.
- Activity metrics are leading indicators that show how much traction innovation is getting within the organization with innovators and leadership. It can also provide insight into whether innovation is contributing materially to a positive employee experience or – taking this a step further – employee fulfillment. Without measured proof that innovation activities are happening regularly, it’s impossible to know if there is traction in the organization and whether ideas might translate to market success. Common metrics include number of ideas in the pipeline, number of partnerships explored, number of proof of concepts built, and adoption of new applications or platforms.
- Impact metrics are generally lagging indicators that show market success of an idea. Innovation concepts can be reworked after they have started showing market success (or lack thereof), but by this point there is usually a hefty investment made to bring something to market, making rework expensive or heavily scrutinized. Metrics often used are revenue generated, incremental employee engagement, cost/time savings, media coverage, customer satisfaction, and incremental EBITDA.
If you don’t measure how closely innovation aligns to strategy, you run the risk of ending up with ideas that don’t create value, add complexity to your business, or don’t advance your organization’s strategy and goals. In our case, we keep a close eye on the idea pipeline and what volume is passing through on a quarter-by-quarter basis. If the input decreases while our headcount increases, we know we have an engagement or awareness issue for the innovation program and need to course correct. Alternatively, if innovation concepts are launched in market and are not achieving year one revenue targets, we know we have to determine why that is happening and decide whether to preserve, pivot, or punt on the innovation. All of this must occur in a culture that learns to test and learn, recognizing we won’t get all ideas right the first time and we need to recognize the importance of trying new ideas, even if they all don’t turn to revenue.
If you are driving innovation in your organization without clear constraints rooted in strategy or continually assessing success metrics, it might be time to take a step back and rethink what you are asking of your people when they are encouraged “to innovate.”
How do you incorporate strategic objectives and constraints into your organization to power the good idea engine?