How oragnizations and companies become and remain innovative

Research and development, innovation management and new product introduction 

On the way to becoming an innovative company and what role project management can play in this process

What is remarkable about innovations is their multiple ambivalence. Instead of a clear definition of the term, there is a collection of innovation characteristics. The majority of organizations want to be innovative, but admit that they need to do more. Furthermore, there is a lack of implementation of innovations in the organizations. In the following, selected approaches to the implementation of innovations will be described and, furthermore, the implementation of innovations will be considered. It is a question of which preconditions companies must create: for example, through leadership style as well as management systems, -management systems, methods and practices to establish a cultural basis, including processes and structures, that promotes the ability to innovate. Finally, implications and approaches for project management are also highlighted.

Driving force for growth, prosperity and quality of life

"Innovation is the most important driver of growth, prosperity and quality of life," says Paul M. Romer, winner of the 2018 Alfred Nobel Memorial Prize in Economics. Romer has developed a groundbreaking model that explains how technical progress results from economic activities and how long-term growth of economies then emerges from this - thus further substantiating the relevance of innovations scientifically. [[1]]

Why are some organizations or companies more innovative than others? Why do a few seem to succeed more easily and repeatedly in bringing innovative products to market? Why are many larger companies no longer as innovative? What should be done? Although innovative capability is considered desirable for most, indeed all, organizations and companies [[2]], there is relatively little robust empirical research and studies on what organizations can or should do - "undertake" - to be sustainably innovative.

Continuous, repeatable processes instead of one-off ideas

Experts agree that in innovative organizations, innovation is by no means a one-off exercise. A successful idea does not make an innovative company. It is true that a good idea can simply be "beaten" to market success with an excessive input of resources. [[3]] However, being sustainably innovative means having created conditions whereby innovations can be repeatedly developed and implemented over time, each of which then makes a significant contribution to a company's business results.

Strategic and profitable

For individual organizations or companies, innovations are strategic because they are aimed at future potential successes, increase competitiveness and enable organic growth generated by their own efforts. Meanwhile, their impact is far greater compared to other investments or company acquisitions. The power of innovations triggers a leverage effect: by driving the price, this acts as the most important multiplier for profit.

Organizations can be innovative in various ways. The three most important types are product or service innovations, process innovations, and business model innovations.[[4]] [[5]]

Improve short- and long-term competitiveness and enable growth

The importance of innovations for both the short- and long-term competitiveness of companies is repeatedly demonstrated by examples of companies that have been able to compensate for the consequences of crises or be successful on the market regardless of times of crisis. The most recent examples from the research-based pharmaceutical industry in particular illustrate that innovations must be designed for the long term in order to be able to bring innovative solutions to market in the short term if necessary. Biotech companies such as Moderna or Biontech have been able to exploit opportunities in the short term to develop new products based on their innovative strength since the start of the CoVID pandemic in 2020. Based on their specific product and technology know-how, both companies succeeded in developing new vaccines against the Corona virus within one year each.

In the long run, the organizations and companies that survive are those that can always adapt to changing environmental conditions.

Because almost everyone wants to be innovative, but hardly anyone in the top echelons of large companies is satisfied, there is an enormous disparity. As a 2015 survey by consulting firm McKinsey found, 84 percent of CEOs in companies worldwide think innovation is extremely important. But only six percent of CEOs are satisfied with their innovation process. [[2]]

A study conducted by the Kreditanstalt für Wiederaufbau (KfW) in 2019 further shows how multi-layered and diverse innovation activities are, even among small and medium-sized enterprises (SMEs). SMEs are a very heterogeneous group in terms of their innovation activities. They differ greatly in their inputs into the innovation process and thus in the way they build up the knowledge they need for innovation. [[6]]

Customer-centric approach: follow five disciplines to create what customers want

Innovation experts Curtis R. Carlson and William W. Wilmot have written a handbook focused on making innovation happen. [[7]] The guide is aimed at companies that want to innovate or change their corporate culture. The ultimate goal of innovation is to deliver new value to customers.

Companies that want to be successful in developing and implementing innovation should be methodical, viewing innovation as a purpose and process to deliver new value to customers. In doing so, it is important to follow five disciplines of innovation: [[7]]

1. Focus on the customer and their needs. Focus on important needs. Values that can become goals include customer value, corporate value, shareholder value, employee value, and public value.
2. Putting the focus on value creation. This involves identifying the need for a project. Then, companies should explain the uniqueness of the project, its benefits per cost, and how it outperforms the cost-benefit calculations of competing projects. For example, companies should develop an elevator pitch to summarize the value proposition.
3. Attracting supportive innovation champions. An innovation champion must believe in the value of a project and take organizational ownership of the project. Ideally, innovation champions should each have sparring partners to initiate innovations. The authors cite innovation duos such as Steve Jobs and Steve Wozniak at Apple as role models.
4. Employ (heterogeneous) innovation teams. Team members should have complementary skills, share a common vision, and be rewarded as a team.
5. Organizational alignment of the goals of innovation projects with the overarching goals of the company. Projects must be consistent with their overarching goals. In addition, companies should allow the results achieved through continuous value creation to help change the culture of employees.

Carlson and Wilmot are about companies increasing value for customers through systematic innovation by focusing on critical needs, developing lots of ideas, organizing the ideas so they build on each other, and providing enough support to make the ideas happen.

By comparison, the management consultancy McKinsey proposes a more capabilities- and resources-based approach that encompasses eight practices, some of which overlap, so that large companies in particular can become innovators again.

Because innovation is a complex, enterprise-wide endeavor, it requires a set of overarching practices and processes to structure, organize, and foster it. To this end, McKinsey has identified eight essential elements that define innovative companies, based on interviews and research. [[2]]

Eight basic requirements for innovative companies

It is more or less an (open) operating system for innovative companies, as the consultants themselves describe it. These are practices that often overlap and repeat each other, but neither build on each other nor can they be categorized. A company's ability to innovate is greater the more of these characteristics it can apply and combine in its own way - in the given situation, with its capabilities, as well as its organizational culture. The English terms are: 1) Aspire, 2) Choose, 3) Discover, 4) Evolve as well as 5) Accelerate, 6) Scale, 7) Extend and 8) Mobilize.

The factors can be grouped into two categories - strategic factors, "what" to do in implementation, and organizational elements, describing "how." The first four elements, which are strategic and creative in nature, help define and prioritize conditions:

What can be done to best foster innovation?

1. Companies should set an innovation target and provide it with key figures

An example of this is U.S. President John F. Kennedy's goal of "still flying to the moon by the end of the 1960s". In addition, the quantitative innovation target must be assigned to the respective "owners" in the management of the company and broken down to product groups in the form of performance targets and time targets in organizations.

2. Selecting projects from the portfolio and allocating resources to them

According to the consultants, this is more difficult than the previous idea generation process. That's because prioritizing now involves selecting projects from a portfolio of innovation initiatives that offer the greatest benefit and managing risk, because innovation is inherently risky. At the same time, executives need to create some boundary conditions for the opportunities they want to explore.
Project management solutions can help companies, first, shape the governance process in terms of rules and deadlines, and second, gain visibility into data - such as resource capabilities (what people are working on). The goal should be for companies, when selecting their portfolio of innovations, to focus on the projects with the highest potential for success and to provide them with the appropriate resources.

3. Discover and systematically seek insights on the problem, technology and business model

Companies should invest in the process of how best to discover insights about marketable innovations: a valuable problem to solve, a technology to enable a solution, and a business model to make money. The discovery process is iterative. It is imperative to being able to implement innovation initiatives. In this process, the active use of prototypes can help companies continue to learn as they develop, test, validate and refine their innovations. This process of gaining insights should also extend beyond the boundaries of a company, build an ecosystem, and include partnerships to gain insights.

4. Developing profitable business models

In addition to product and process innovations, it is advisable for companies to increasingly proactively search for new business models, for example in order to acquire new customers in a different field parallel to their core business. In this way, they reduce the risk of being too dependent on their core business, which could well be threatened by disruptive developments and swept away. Examples of business model innovations can be found in the media industry. Many newspaper publishers, from the New York Times to brand eins in Germany, for example, now have additional revenue streams to print subscriptions, which they generate from content syndication, digital subscriptions, or additional business with customers.

The next four basic requirements address how innovations can be delivered and organized repeatedly over time with sufficient value to make a significant contribution to overall performance.

How innovations are successfully organized

5. Accelerate
To be successful, companies should accelerate their innovation projects by establishing a corporate culture that encourages cross-functional collaboration.
To do this, they need a well-connected manager, project leader, who takes ownership of a project and is responsible for budget, go-to-market and key specifications. In addition, the project team must be cross-functional not only on paper, but in practice. This means that team members meet in a single location and dedicate a significant amount of time to the project, fostering a culture that values the success of the innovation project over the success of individual functions. In addition, cross-functional collaboration can help ensure that end customers are involved throughout the development process when needed.

6. Scaling, along with comprehensive market entry planning
When comprehensively planning and financing market entry, it is imperative that companies consider, according to the particular scale and scope of the idea to be commercialized, that the right level of resources can be invested. Resources and capabilities must be mobilized to ensure that a new product or service can be delivered quickly in the desired quantity and quality. In addition, manufacturing facilities, suppliers as well as distributors should be prepared to ensure that the time-to-market is fast and complete.
Project management solutions can support planners and project managers, especially in certain routine operations, by providing templates.

7. Expand
Faced with short time-to-market and scarce resources, companies are increasingly looking to develop innovations through external partnerships, and further to build various networks, up to and including their own ecosystem.
For example, companies in the IT industry have realized over the past 20 years that they are more successful and efficient in developing innovations if they can draw on the capabilities of external partners. In the consumer IT industry, for example, the components of Apple's first iPod were developed almost entirely outside the company. By having partners co-develop components, not only can ideas be implemented more quickly, but development cycles can be shortened and costs saved. As companies continue to expand their networks and establish entire ecosystems, they will also be able to configure their development partnerships more flexibly for individual innovation phases in the future.

8. Mobilizing the workforce
To stimulate, encourage, support, and reward innovative behavior and thinking among the right groups of people, for example, leading companies directly address incentive systems in projects where there is a close link between innovation, strategy, and performance. Common metrics can encourage focus among project members.
To encourage collaboration, learning and experimentation, another possible measure is to bring project members together in a way that allows them to share their ideas and knowledge freely and in the best possible way.

Corporate culture as a success factor

So what constitutes a successful corporate culture? In 2011, this question was posed to around 200 innovation managers from a wide range of industries, and the results were published in a case study by[[8]]. In it, Jens-Uwe Meyer also summarized in bullet points what distinguishes innovative companies from their competitors:

What distinguishes innovative companies from their competitors?

• Innovation requires effort. It needs a clear vision and the necessary support from management.
• Short decision-making processes and flat hierarchies facilitate the development and implementation of new ideas.
• Teams with creative tasks need personal responsibility and the necessary freedom from their superiors.
• Innovation comes from people who have ideas, courage and passion. The right structures and processes can only support this.
• Sufficient resources alone do not guarantee innovation success.
• The heterogeneous composition of teams favors the emergence of new ideas.
• Entrepreneurial incentives must increasingly take into account the qualitative as well as quantitative innovation performance of employees.
• Also tolerate bad ideas: They pave the way for the good ones.
• An open communication culture with exchange across departmental boundaries promotes new ideas.
• If you want innovation, you must also be prepared to take risks.

---

This text is translated from the German. References and quotations are from German language sources.

This text was first published in German on GPM Blog in two parts.

---

Sources:

[[1]] „Innovationen sind die wichtigste Triebkraft für Wachstum, Wohlstand und Lebensqualität“ (Paul M. Romer, Universität Stanford). Romer erhielt 2018 den Alfred-Nobel-Gedächtnispreis für Wirtschaft der Schwedischen Reichsbank. https://de.wikipedia.org/wiki/Endogene_Wachstumstheorie

[[2]] Marc de Jong, Nathan Marston, and Erik Roth (2015) The eight essentials of innovation, Mc Kinsey Quarterly, April 1, 2015; https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-eight-essentials-of-innovation

[[3]] Matt Banholzer (2022), In conversation: The CFO’s critical role in innovation – Interview;

Mc Kinsey; https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/in-conversation-the-cfos-critical-role-in-innovation

[[4]] Vgl. Hans Lercher (2019) Big Picture Das Grazer Innovationsmodell (Big Picture the Innovation Model), Herausgeber und Medieninhaber (Verleger): Anzeigen und Marketing Kleine Zeitung GmbH & Co KG Verlagsort: Graz

[[5]] Für einen Überblick, wie sich Innovationen außerdem kategorisieren lassen, siehe z. B. Rodrigo Codero (2020) http://www.rodrigocordero.org/de/die-10-arten-von-innovationen/ od. Deloitte (2022) https://doblin.com/dist/images/uploads/Doblin_TenTypesBrochure_Web.pdf

[[6]] Dr. Volker Zimmermann, Dr. Jörg Thomä (2019), Die Unternehmensperformance unterschiedlicher Typen von kleinen und mittleren Innovatoren, in: KfW Research, Fokus Volkswirtschaft, Nr. 265, 28. August 2019.

[[7]] Curtis Ray Carlson, William W. Wilmot (2006) Innovation: The Five Disciplines for Creating what Customers Want, Crown Business, New York

[[8]] Jens-Uwe Meyer (2011) Erfolgsfaktor Innovationskultur: Das Innovationsmanagement der Zukunft - Corporate Creativity Studie, BusinessVillage Publishing, Göttingen