Picking winners is killing innovation

There is no doubt that Europe is not at the forefront of the technological wave that is driving the world forward. For Danes like me, it is particularly painful that investments in green technology, for many reasons, seem to turn up elsewhere rather than with us and playing a part in our future. Our place at the front of the pack is slipping away.

We must become better at converting our knowledge into innovation if we want to be in the race. And can we do that?

In Denmark, we often discuss whether we have the right culture to be innovative or whether our cultural preference for staying grounded and not standing out is getting in the way and we feel we must leave that sort of thing to others. Although innovation and creativity obviously require a certain mindset and culture, I see no evidence that this should be the most important challenge when companies want to innovate better.

The way we manage innovation in most companies plays a much bigger role. So, before we throw ourselves into big cultural campaigns or simply declare the battle lost, let's see if there is a better way to open the door to innovation.

A manager from a global manufacturing company recently said that their “innovation funnel” resembled a narrow “innovation tube”, where very little entered it at the start and very little came out the other end. The problem is shared by many companies and the image of the funnel, which has become this narrow, unambitious tube, probably seems familiar to many.

It is commonly thought that this is caused by a general lack of good ideas, and that cannot be completely ruled out. But when we look more closely, it often turns out that the door to bringing ideas into play is only ajar. The reason why far too little enters the innovation system and that the funnel looks like a narrow tube is primarily that the organisation only brings forward ideas that have a very high probability of success.

The only way to make that probability high enough is to remove everything that entails risk. All the uncertain things that have not been tried before. And because we remove all risk, we also limit failures once the ideas have entered the process.

The problem is that when we remove risk, we also remove all the innovation that could have given us something new and exciting. Instead, we often end up with careful small adjustments to known solutions and copies of what competitors and others around us have already done. Sure, it’s a way to avoid failure but it is also the exact opposite of actual innovation.

Instead, we must take a closer look at how we manage innovation. Here, our logic usually dictates that we must avoid waste and loss and therefore we must also reduce risk. That means that ideas that are sure winners are given higher priority than ideas that could potentially fail – notwithstanding that the possible gains may be more attractive. We try to spot the winners in advance, and that is poison for innovation. It draws us towards high success rates, the home of all the clear and well-known solutions.

And it pulls us away from everything new and untested. Everything with a true potential for differentiation. This is how the narrow innovation tube arises, where only a little gets in and very little comes out.

This unhealthy behaviour is rarely a deliberate practice. The mechanism is more subtle. It rooted in aspects such as the way our business cases are designed, the way we present and prioritise ideas. The way we talk about progress and success, which together provide a management logic that encourages low risk and low gain.

There are three things we must do differently if we want to achieve the broad and idea-promoting innovation funnel we want to see:

Firstly, we must approach risk progressively. You can intuitively think that innovation works a bit like roulette, where a bet on black gives a good probability of winning but limited pay-off, whereas a bet on a single number has a lower chance of winning but a correspondingly higher pay-off. The ratio between risk and pay-off is proportional. This is rarely the case with innovation. Here, the gains can often grow significantly more than the risk, which means that the most attractive risk / pay-off ratios are often found in the high-risk zone.

Secondly, we must also have a better grasp of the results we want to achieve with the innovation. This is partly to assess the differences in the relationship between risk and pay-off, and partly to help us focus less on 'the only right solution', which we cannot know in advance and which we must therefore be careful about falling in love with, and more on the results, which are likely to be achieved through several different solutions.

Finally, we must adopt an experimental approach, where the risks we allow into the process are systematically reduced by testing hypotheses and eliminating solutions that do not work.

These three changes in our innovation governance will increase the number of initiatives at the beginning of the process and gradually weed out the unfruitful ones. Only then will we achieve the innovation funnel we desire.

Read the original article in Danish