Recently we were working with a large engineering firm. And one of the really striking things about them was their distinctive ability to look outside their organisation and into the future, and identify potential new technologies and ways of working which could improve their operations. We were particularly struck by the range and sheer number of opportunities they have identified.
All this innovation potential comes with a challenge, though. Where in their business will they get the best leverage from innovation, short terms and long term? How much available ‘management capacity’ do they have, to handle the assessment and introduction of their innovation? And how do they prioritise and sequence the adoption, in a very complex and interconnected business, where changes in one area have significant impacts in other areas?
Doblin look at ten types of innovation, organised into three broad categories. The first looks at configuration, and the internal working of the organisation. The second looks at the offering to the customer, its features and product elements, and the benefits it can deliver, as well as suites of products and services. And the third looks at what it’s actually like, practically and emotionally, to interact with the organisation, including aspects such as service, channel, brand and customer experience. But which to choose? Many organisations choose to innovate around the offering, or bundle of offerings – that’s what the customers actually buy, right? Yes but.
The thing about an offering is this: once it’s out there, it’s totally visible and all your competitors can buy it and (literally) take it apart and see how you are getting the results you are getting and consider what that means for their own offering. So in some sectors it can be really hard to sustain advantage with product innovation alone. Other organisations focus on the customer, and where customer intimacy is key, then this can be productive. The aspect of channel is an area which can deliver high leverage, where channel is the way in which your customers find out about you, evaluate you, buy from you and how you deliver your offering to them.
In general though, and perhaps counter-intuitively, the highest gains can come from innovation in the internal configuration of your organisation. This includes business model, how you use networks of linked organisations to create and deliver more value than you can alone, how you design and structure your organisation and its assets, and process. Not the run of the mill process but a so-called signature approach which draws together expertise, ways of working and information to create something very rich – and very hard to understand and copy from the outside. All of types and classes of innovation are very valid, and there’s evidence that organisations which can innovate in more than one type at a time can create a big step change in performance beyond their competitors.
But if that’s about where to innovate, there’s another factor to consider which is about how much management capacity there is, to run the process of choosing, piloting and diffusing the innovation (if the learning from the pilot is positive). It’s really important that organisations have sufficient management capacity allocated to innovation. This is to manage the process of adopting innovation and putting in place activities to ensure its potential is realised.
Even where there is management capacity available, there’s one more challenge, and it’s about looking at a portfolio of innovations, and not just a single innovation in isolation. Adoption of one innovation raises performance in that area, which can cause problems at the interfaces to other areas. Often raising efficiency in one area can push a bottleneck to another area, as it is now underperforming in relation to the new level of demand being placed on it. So designing a portfolio of innovation efforts is about seeing a set of linked improvements and raising the performance of the overall organisation in an integrated way.
So, back to our engineering client. They have lots of ideas for innovation, some of which look at bundles of offerings, and some of which look at how they engage their customers through their product lifecycle. They have management capacity and appetite to innovate. Their organisation has a lot of points of interconnection, so it will be important to understand and manage the effect of innovation in one area on other linked areas. The start point is to select which options to take further and then manage their adoption. And having such a large number to choose from is a nice problem to have, and much better than the alternative!