Four steps to building a futureproof innovation engine in uncertain times

In the past ten years, innovation has become the key differentiator for organisations. Most have realised innovating at pace is the only way to grow, stay relevant and compete. Innovation methods like Agile, Lean Start-up and design thinking have become everyday terms that spread from strategy departments through to mail rooms.

Yet the business practice of innovation is still relatively immature. Only 24 per cent of the 800 senior executives we surveyed for our Innovation Matters research feel confident they have the skills and activities needed to be innovative. The funds, resources and innovation methods are often in place, but organisations find it difficult to scale innovations to achieve bold strategic ambitions. And they don’t have established ways to measure results.

So, how can organisations go beyond generating and testing ideas in silos and embed valuable innovation across functions?

Four steps to building a mature, integrated innovation engine

The answer is in building a mature, integrated innovation engine, which means designing a clear innovation strategy, organising your innovation portfolio around it and structuring efforts around the innovation funnel. In our experience, that comes down to rethinking four areas: strategy, system, structure and people.

1. Strategy: make sure innovation contributes to your business strategy

Aligning the direction for innovation with the organisation’s purpose is the first step to harnessing transformative potential. Having worked with businesses around the world, we know purpose is a crucial driver of success. It expresses what you aspire to be in the future and what you want to do today, providing a focal point for your people and customers. And it forms the core of your strategy.

Often, organisations treat innovation as a separate activity, disconnected from business strategy. But eventually, innovations will need to integrate with the wider organisation to deliver strategic benefits, so they need to support business goals or risk being deprioritised.

By focusing innovation activities on areas that support the purpose and overall strategy, organisations can explore ideas that will drive strategic growth. They’ll also have a measure against which they can continuously make decisions.

For example, DSM, the Dutch life sciences business, successfully shifted from chemicals into biotechnology while tripling its innovation speed in a decade. How? By being adaptive to change and carefully selecting growth areas, what they call emerging business areas (EBAs). These long-term EBAs steer innovations, partnerships and acquisitions. DSM’s innovation centre develops and extracts value from these EBAs, and an innovation council steers the portfolio.

2. System: focus your innovation efforts on what you’re good at

Are you focusing your innovation efforts around your core competencies? Organisations that focus on what their system is already good at are more likely to thrive than simply survive. So, ask yourself three questions:

• What are we deeply passionate about?
• What can we be the best at?
• What drives our economic engine?

The answers to these three questions help leaders focus innovation efforts on the things with the potential to make an impact. And by using them to create bold 10- to 25-year strategic goals that stretch the organisation, leaders will think big about innovation ambitions. Together, this provides the freedom for innovation teams to run sprints and validate opportunities.

Amazon, the largest e-commerce player in the world, is a great example of aiming big and playing a long game. Its CEO, Jeff Bezos, has set the goal of making all customers Amazon Prime members, its most profitable segment. It’s a concrete long-term goal that focusses innovation efforts around their existing system.

3. Structure: increase the ROI from innovation

Are you acting early to remove ‘zombie projects’ and pivot innovations that get no traction? Continuously tracking the impact of your innovation portfolio lets you increase resources for high-potential innovations and stop initiatives that don’t work quickly. Defining the right metrics for innovation can be tricky, but organisations that measure performance at a strategic, portfolio and project level significantly reduce waste.

We’ve worked with countless organisations to deliver transformative innovations and have developed tools for tracking return on innovation. The first step is deriving strategy-level metrics to track progress on delivering strategic goals. Next, you need portfolio-level metrics, such as how many initiatives you’re supporting per stage or growth area based on resources at hand. Finally, define project-level metrics around problem/solution and product/market fit, time and costs.

4. People: create an innovation-enabled organisation

Are you making sure your people can experiment? Organisations can only embed innovation when people share a common purpose and way of working, and feel empowered to experiment. We should know. Every day at our Global Innovation and Technology Centre, our hundreds of designers, scientists and engineers experiment with turning ingenious ideas into physical and digital reality. We’ve found that leadership and training are key to stimulating innovation and attracting the skills you need to innovate at pace. It takes creativity to build something new, ingenuity to turn opportunities into value and patience to get the validation you need to start scaling.

Another example is financial services firm ING. It has an innovation office with a clear strategy to disrupt banking before someone disrupts them. The office has a budget of tens of millions of euros for discovery, acceleration and early scaling of disruptive ideas. To make impact with this budget and overcome innovation barriers, a C-level innovation board steers the innovation portfolio. They guide innovations to manoeuvre through the complexity of business and spread their innovation method through the firm.

Building the foundation to innovate at pace in uncertain times

Focusing on these four areas will let leaders build the foundation to innovate at pace, and our Innovation Playbook has the tools to support this. By getting the fundamentals right now, you’ll be able to build a futureproof innovate engine in these uncertain times and uncover new growth opportunities.