Where innovation value resides

Often surveys and reports catch you by surprise. I’ve been working through the Imaginatik Global Report called “The State of Global Innovation for 2013” and certain parts did exactly that. The sheer difficulties that organizations seem to have to quantify the benefits and value achieved through innovation worries me.

I had previously provided a review more on the Strategic and readiness part of the Imaginatik report, in my post “The coming age of innovation in 2014 and beyond” and less so on the other part discussed, the Process and Execution part.

It is the process and execution side that have more of the deeper issues to tackle and more importantly, the one’s that take considerable time if you are tacking culture and the environment to allow for innovation. They are far more complicated to provide answers too. I feel like pushing this along, here goes:

The process and execution of innovation is actually more challenging, it is where value creation lies or not.

Value creation imageAs Imaginatik comment in their report: “developing an organization’s operational capacity for innovation is challenging” as it is the translation and organizational understanding that makes it work or not. You achieve or fail in the values creating process and that influences the commitment to innovation.

Although I’d firstly argue we need to fix the top of organizations far more initially, simply as if we can’t get the essentials right from this top viewing perspective, you simply can’t get the organization to respond.  If you lack good engaged leadership committed to innovation and a well thought through alignment of strategic and innovation objectives you will end up with often mediocre and disappointing results and an organizations puzzled and left in ‘fuzzy innovation land’.

Organizations will also never get into any  consistent “innovation rhythm” unless you really get down and get your hands thoroughly dirty in fixing the organization’s capacity for innovation and that takes a long time of dedicated effort and deep understanding. Fixing it means it has to become aligned, to run at least in parallel with other systems, it has to show its worth and to do this, you must know innovations real value and contribution. You simply can’t be ‘airy fairy’ about this.

Until we recognize fixing organizations capacity to generate that good, highly prized consistent performance and expected value required, it will remain tenuous in the judgement of innovation’s value contribution at C-level and those competing for scarce resource.

If we can’t describe the benefits and its value contribution constantly, innovation remains as being constantly questioned and certainly resource-stressed, often out of ‘whack’ with the rest of the organizations structures and systems. Innovation needs to constantly demonstrate ‘return’

Innovation will continue to struggle unless we really understand its capital.

If we don’t understand where the innovation value resides we will certainly struggle to continue to build innovation’s position in the organization. Today innovation is still regarded as ‘expendable’, sacrificed on the altar of short-termism.  This creates a growing uncertainty, often reducing innovation down as that no real ‘sense of urgency’ and becomes ‘contained’ in discrete projects, failing to offer that real, substantial, ongoing value for the enterprise.

We simply don’t ‘unlock’ the real value of innovation. If we lack the understanding and abilities to build this sustaining operational capacity for innovation we have ongoing problems. There is the need as its longer term goal, to be simply fully embedded inside the organization that it ‘resides’ and simply becomes indistinguishable, it becomes the operating core, constantly aligned to the strategic needs and goals. Innovation’s benefits must be outstanding.

The Imaginatik report commented “When asked what benefits their respective organizations have received from innovation, nearly one-third of respondents said benefits were either non-descript and intangible, or were self-referential nods to improvements in the innovation process itself. Thus, the single most common answer avoided mention of any tangible, proof-positive business results from innovation efforts whatsoever.”  Surely this does not help the longer term health of innovation?

The report suggests three main conclusions that can be drawn from these findings.

First, innovation can generate real, and sometimes very substantial, value for the enterprise – capable of adding hundreds of millions, sometimes billions, to the bottom line. However, many organizations have failed to unlock any tangible value from innovation – and therefore instead cite advancements in innovation’s cultural relevance, or process sophistication, as “benefits” in lieu of anything more substantive

So why was it in this report that the most commonly mentioned innovation benefits were made around cost savings and efficiency gains? There are some real dangers in this in my opinion. Innovation needs to substantiate itself, in its importance, its role and its enabler to create growth, wealth or shareholder returns and underlying value creation.

If it cannot or we fail to articulate it, innovation will remain “expendable,” it will remain vulnerable to the whims of the short-term as it is not ‘validating’ itself enough. The value from innovation needs better articulation.

Let me offer a place to begin on value creation.

Value creation should be a core business strategy.

Why do we have such difficulties explaining the value and benefits from innovation? We need to tackle this, the earlier the better. Innovation is made up of both tangible and intangible value. It is until we recognize the underlying capitals that make innovation capital; we will always fall short on providing its real worth.

Innovation outcomes are far more explicit if you understand these capitals that make up innovation. These are often called the intellectual capitals or stocks of (potential) value. These can be financial, manufacturing but more the human, social and relationship capitals.

These capitals transform raw ideas into the commercial outcomes. Working these capitals the value of an organizations stock can be enhanced or simply preserved and can equally diminish if not managed well and thoughtfully.

How best can we explain value / value creation?

Firstly value is the total of all the capitals I mentioned above; we need to understand what ‘makes these up’ in our organization. These are unique and when applied generate new innovation capital

Also value is the benefit captured by the organization, it is outcomes (of innovation and other things) to generate the market value and present and future cash flows within organizations.

Value can also be the essential achievements of the organizations objectives, it can be value created by the organization itself or by combining with others.

Failing to articulate the value creation of innovation

So if we can’t explain the make-up of the intangibles within innovation we often simply fall back on generalizations, non-descriptive and self-referral nods to ‘improvements’ and ‘cost savings’ and that tends to group ‘benefits and value creation’ into incremental gains. Surely we can do better than this?

We must start looking for more strategically important outcomes; we must unlock the knowledge and raw data and translate this into tangible results that can be clearly seen. To achieve this innovation needs to align itself to strategy and the organizations objectives.

Innovation needs to be a mix that has growing substantive benefits; otherwise it will remain on the periphery of the organizations activity. To become central, to drive growth, to create wealth innovation needs to be seen and clearly demonstrates its value.

Leaders, shareholders, stakeholders, employees all need tangible proof-positive benefits from the business results that can be directly attributed back to the innovation efforts. Innovation efforts need to be better understood and we gain a clearer understanding of where the value resides.

Innovation will remain tentative, always stuttering along, lacking this absolutely organization innovation rhythm if it is not fully understood in where it generates it capital from and what new capital and stock it provides.

Where should we start in putting the value into our innovation efforts?

Our innovation value needs to come from our abilities to articulate the business case, an area of notorious weakness for most organizations and its alignment into the strategic direction and goals the organization needs to pursue.

Not a bad place to start is constructing the business case on four value creation pillars, shown here:

The Four Value Creation Pillars Framework To Explore

The Four Value Creation Pillars Framework

Need– We need to always understand the place and value of innovation from the customers perspective. They ‘attribute’ value, we in organizations then set about convincing them it meets their needs. We always need to search for the customer jobs they are looking to be done. This is where the real innovation value resides. Articulating these needs within the organization and delivering innovation to these needs makes for a more sustaining innovation appreciation.

Uniqueness– innovation to be valuable has to be new; it has to improve on the existing. To achieve this we need to value our other ‘uniqueness’ – the internal innovation capital and how knowledge is translated from the initial idea into a commercial offering. We need to build around uniqueness found in our organizations, but you firstly have to know where it is located!

Strategic direction– the imperative for innovation to be ‘seen’ as successful is to align itself to the strategic direction. We need to know this direction, otherwise innovation remains uncertain, often ad hoc and misaligned. It is incumbent on our leaders to align innovation and strategy. There is no better place to begin than using the Executive Innovation Work Mat to make this a comprehensive document to give this strategic guidance and create the conditions for innovation to thrive and get into a sustaining rhythm

Core competencies– we need to know what is needed. Firstly to understand the type of innovation we want to achieve to align to the strategic direction and goals. Again there is no better place to start than work through the “collaborative innovation framework” provided in a open commons platform. Building the core innovation competencies requires building the capacity to innovation, the capabilities and competencies to make successful, sustaining innovation to happen.

Value creation comes from understanding where it resides.

So to understand value you need to have a well thought through strategy. Briefly it consists of

  1.  Recognizing opportunities that are going to create new value
  2. You need to recalibrate your innovation radar and be selective on what offers new value, not just sustaining existing value,prune your pipeline to give additional ‘weight’ to what gives new value,
  3. Organize the organization into having a distinct, unique and consistent innovation rhythm of research, develop and then repeating this, time-in and time-out. 
  4. Lay in the essential rewiring the organization always needs for aligning innovation to strategic goals, by making important organization changes and rock- solid comprehensive governance structures and metrics that seek to measure ongoing value from cradle to grave and finally,
  5. Reinforce the value by knowing the success factors within the make-up of value- exploring all the capitals and stocks.

Ultimately value creation has transformation power.

Value creation is a core need both in innovation and strategy. We do need to align our value creation story far better from our innovation activities. This is one of the critical sources of misalignment innovation leadership needs to address. Understand the make-up of value creation, in the capital, stocks and flows and capture both the intangibles and tangibles better for the value creation story. If this is well seen, understood and determined, it will deliver more on that promise that innovation does provide.

We do need to work on the benefits and value story so much more, otherwise innovation remains outside the core of organizations, always lagging behind the huge effort to support the business as usual

*What was useful was a framing article by Accenture: “*Business at its Best” Published in 2011

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8 thoughts on “Where innovation value resides

  1. Paul – I agree with the proposition that innovation needs to better articulate its value and place in the organization. Innovation disciples know that its vital for ongoing corporate renewal – but there are many hand waving type gestures when pressed to quantify its value. I did a bit of work to work out better measures of innovation, and found there was not that much in the literature. Will be coming back to it in due course…

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