Value realization comes through innovation and our business models.

Everything, it seems we work towards in business, is for seeking out new value creation, for new growth, for wealth creation, for providing improved returns on the investments we have been making.

To achieve this we consciously have to set about the value capture and what contributes to its realization. This is where innovation plays such a vital part. If we don’t build our innovation capital we will certainly have a much harder, perhaps even impossible time of realizing new value. We are more than likely to just maintain our existing value or see it steadily decline. So a constant focus upon renewal is always needed. Do we consciously do that on a daily basis or just once a year at annual review time?

Value-adding activities need to be central in nearly all of our decisions. The how we can turn our resources into being more productive, more creative is increasingly becoming one our biggest strategic areas of  future investment decision. Our resources are those all-inclusive assets, capabilities and processes that make up the Enterprise.

Yet it is clear management is spending far more of their discussion time and focus on the ‘harder assets’ that are made up of land, buildings, equipment and machinery – the ‘heavy’ financial capital investment decisions. Any new investment in IT, processes, software are usually well identified in the accounting or discussed within the narratives that support the reported numbers. We constantly report on these in our annual reports to validate and justify management’s decision.

Where we still seem to remain far too silent upon is our ‘softer capabilities’ Of course we extol the virtues of our employees for their hard work, for their vital role within any result, yet we still struggle to go beyond ‘simple’ articulation and quantify this value. Why is that?

Managing the innovation ‘stock’ and ‘capital’ potential

We do need to know our ‘innovation stock’, a large part of our wealth generating capital and where it can be best put to use. We are valuing the knowledge perspective far more and with this we are increasingly recognizing the importance of the intellectual capital that makes up the organization.

We are still caught in old world value reporting systems. We are not assessing our organizations for their true ‘invested’ worth. As the more intangible side is completely under-reported we make educated guesses. We are valuing firms on what we ‘feel’ they will generate in future innovation value but those internally as well as us externally lack the real ability to measure this. Yet we can if we took the same amount of time to understand the ‘make up’ of these.

We are needing to value the knowledge perspective far more. Far more intangible assets and the knowledge available is being recognized as the valuable aspects of the potential future of a business. These are the more ‘dynamic’ parts that come under human capital (competency, sharing, collaborative, learning quickly, collective competence and enduring value for the future), creative capital (creativity, fast prototyping, design and development, replacement & renewal), the relationship capital (responsiveness, retention, absorption, empowerment, networking), customer capital (the customer base, engagement, the potential and the ability to connect), entrepreneurial capital ( risk- taking, venturing and exploring)  and finally, the process capital (productivity, cycle time, process yield, on time delivery) are becoming far highly valued today. It is these contributing capitals that make up the unique mix we find within our innovation capital. These significantly deliver the value creating abilities.

We need to know the multiple capitals that make the true value of a business.

It is these different capitals that together are making up the intellectual, wealth generating parts. It is those that are more dynamic, the contributing parts of our capitals that should be highly prized today for the investment premium.  Yet often this ‘premium’ is often no more than an educated guess on what we suspect on past track records, assumed as the basis for the possible ‘promise’ in the future. We need to change this guessing into much more harder validation. Lets move away today from those traditional assets ‘seen’ and well measured on a balance sheet (buildings, machinery, the physical more static assets) and capture and report on the real value generating ones that create the innovation growth.

We need to make much more of a concerted effort to identify these intellectual and knowledge providing capitals and perhaps ‘house them’ under this broader innovation capital. As it is innovation that renders that different, unique set of value outcomes far more. Surely it is this innovation capital that is at the core for future wealth, that value creation potential. Innovation capital must be treated as the essential strategic asset and is it is central it needs to be far more reported upon by the management of organizations. Of course it constantly gets mentioned within the narratives by management today but often lacks quantifiable and substantive validation.

For years there has been this call for a far more integrated reporting mechanism, one that ‘accounts’ for identifying the intellectual capital to provide this better understanding. The struggle with this argument is it still seems to be a ‘pipe dream’ as management seemingly fails to understand the mechanisms within these. Can this change, if so how?

 Maybe we should reframe the measuring of intangibles differently?

Today we are operating in business environments that are highly diverse, specific and subject to rapid change. This reacting to this volatility and our ability to spot new opportunities is what is often keeping management up at night and certainly giving the investors equally sleepless nights, trying to second guess organization performance so as to make the decision to continue to invest or begin to divest.

The value creation being created simply needs articulating better. Markets and investors need the value generating perspective far better framed and explained. Today this is often random, ad hoc, left to individual interpretation in their presentation; it needs some form of uniformed framework to bring this together to allow for clearer, more transparent comparison and judgement of real value. It does need a more integrated framework of value creation.

The focus should be on value creation through the business model

Last week I read an excellent paper written by Vivien Beattie and Sarah Jane Smith called “Value Creation and Business Models: Refocusing the Intellectual Capital Debate”. I was kindly sent this by Vivien Beattie after the abstract caught my eye. It has triggered much of my thinking in the last week.

Of course! The Business Model, this is the place for us to gauge measure and gather a real sense of the dynamics that are making up the organization. Today there is certainly far more of an emphasis upon understanding the business model, so why not make this even more central to reporting?

The quality of the business models is paramount to the value proposition to the customer and this triggers even more of value identification within the value proposition, so central to the Business model canvas.

Within the business model we need to gain a real sense of the dynamics that make this up. Where is the intellectual capital being applied to create new innovation, where are the new business opportunities? It is the abilities to ‘connect’ these, in how we acquire, combine and utilize those unique and valuable resources with the business idea. It is this dynamic ‘combination effect’ that delivers the value (proposition) to the customer.

The Business model is the new unit of analysis for evaluating future value

Arguably the business model is holistic and is becoming increasingly the new unit of analysis, that spans the organization and ‘articulates’ its capital and strategic value capturing parts.

Can we achieve a more integrated set of disclosures that combine the Business model, its strategic approach, what makes this up and clarifying its value creating process?

This potential approach does need to place a much heavier emphasis on the innovation capital and all the knowledge creating aspects that make up intellectual capital. It would need a significant shift in management’s understandings as they would need to articulate the critical components far more, they would have to find a common communicating language. Where better than the ‘heavier’ use of the business model canvas or the layering structures that makes this understood?

Externally we can also judge far more the potentials within the stated ‘interactions’ between the critical components of the business model. Management does not have to ‘give the store away’ in their competitive position to its competitors but they certainly can do a better job to convey much of the dynamics that make this up, in better, thoughtful ways. Make this more financial contingent for future investments.

Beyond narrative reporting, we need to push further.

Narrative reporting has been suggested as the step for this to happen. To make the business model an essential mandatory part of the management reporting. I think this can even be pushed further. Whenever management has been ‘pushed’ by regulatory forces it has taken the time to learn and understand the parts that make this up. Our intellectual capitals are part of this learning as equally knowing the ‘dynamics’ that make up the innovation capital becomes essential.

The business model, the intellectual capital and the innovation capital simply make up such a significant part of the Value Creation process. Realization of this ‘make up’ and understanding its critical connections is needed far more today to understand. Knowing these can move us towards value our organizations far better than we can do at present.

Communicating the value creation and business model is critical today

Today and in the future, it is the ones that can articulate and ‘point towards’ what makes up the value creation will attract and command investors premium. Those that can describe how they are setting about sensing and seizing opportunities by knowing the more dynamic ‘interactions’ will be in a far better shape to exploit and capitalize on them.

The organizations that understand their unique mix of capitals and how it is made up in this broader sense, will be able to deploy their innovation capital towards the ‘value proposition points’ far better. These will will be through constantly evolving business models, to convert opportunity to their gain, repeatedly by directing their innovation capital far more effectively.

The key today is they need to know what to invest into as the critical resources and this is far less the ‘hard’ assets but more the softer competencies, capabilities and capacity parts that are made up through knowing what contributes into the innovation capital.

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Leaders need to engage and drive innovation

It continues to amaze me; actually it is depressing that although our business leaders constantly confirm that innovation is in their top three priorities yet they stay stubbornly disengaged in facilitating this across their organizations, especially the larger ones. Of course I am not suggesting this is all our business leaders but I would argue innovation and its ‘make up’ remains a mystery to nearly all our leaders. They are more than willing to allocate responsibility down the organization, failing to recognize their pivotal role in managing or orchestrating innovation engagement themselves, or even ensuring the mechanisms are fully in place. Why is this?

Time and time again you read one report after another, about the leadership gap in innovation or issues relating to innovation disconnecting from the top of the organization. You can read reports from Booz, Allen Hamilton, Boston Consulting, the Conference Board, Harvard Business Review, IBM, A T Kearney, A D Little and many others all reporting issues and gaps in connecting innovation at the top of our organizations. Can they all be wrong, if not then why aren’t our CEO’s listening? Why are we not resolving this and only just keep reporting it?

In March of this year Capgemini Consulting and IESE issued their report called the “Innovation leadership study” and this went deeper than most into the problems.

The study revealed that “the absence of a well-articulated innovation strategy is by far the most important constraint for companies to reach their innovation targets.”

In the report they mentioned not just the lack of many formal mechanisms were missing but the total environment for innovation was missing this explicit innovation strategy. That is a serious failure at the top of organizations in my opinion. How can leaders expect innovation if they remain unclear of their role and function in facilitating and encouraging it? Can this change?

A collaborative effort

Jeffrey Phillips of Ovo Innovation and myself have collaborated on a number of different innovation frameworks over the last twenty-four months or so. These have been  to offer concepts or frameworks that we felt were missing or needed explaining. We have set about the offering up of possible solutions to reduce much of this ‘mystery’  that seems to still surround innovation.

As we shared and exchanged views, we have mutually recognized our personal frustrations on this continued leadership gap towards innovation. This has been triggered even more by this Capgemini report and so we decided on a way forward as our ‘tipping point’ to set about studying this and seeing if we could find a solution to this innovation leadership issue.  Or at the very least, advance this recognition, beyond debates from this constant recognition of a problem, into offering an emerging framing on the ways to begin to resolve this.

A soft launch will happen offering our integrated innovation ‘framing’ as a solution.

We think we have now arrived at a further tipping point and will ‘soft’ launch the integrated innovation framework this coming weekend, starting Sunday 9th September 2012. We will build within a series of seven articles, one per day over a week, which we believe make up the component parts. We will attempt to explain what we see as an integrated executive innovation framework that will be delivered through a work mat methodology approach. These articles will be published initially through www.innovationexcellence.com to gain an audience of innovators and then will be taken out further by our two respective organizations in further field work, validation and consultation.

I recently wrote a series of articles in August and one is perhaps worth reading again, this is “From a buzzword to the imperative.” In this I discuss this need for a framework and then go on and explore different components within a series of subsequent articles, that I felt needed leadership attention.

The present argument needs moving on and resolving

There is no argument surely that we need to break into this leadership gap around innovation? We need to offer suggestions towards their role, to address this lack of engagement or awareness? We need to provide an organizing framework that achieves alignment into the organizations goals and provides the structure across innovation that can ‘cascade’ down and across an organization. The end aim is that so all those involved within the organization, or closely associated with it, can relate too and ‘gather’ around an overarching framework, articulated and constructed from the top, that guides innovation.

We want to narrow this leadership gap and organization understanding so as to achieve a specific connection between leaders and their role in how they can facilitate and bridge this clear divide and present seen ‘impediment’ for innovation. The leaders of organizations are no different from all the employees working within the company, they are all looking to secure a sustaining future and participate in a vibrant one that primarily comes from the innovation engine needed for all businesses and economic growth. The contribution of the leaders within organizations falls mainly on defining their role, laying out its parts in a coherent way for all to relate too. We believe this framework approach can be one of the primary organizing ways for that engagement and identification so much needed.

Tune in please and we certainly hope you can relate to what we are offering

We believe this integrated framework will require some real leadership engagement but we believe the outcome can offer four significant benefits:

  1. The framework can create cohesion and consistency of innovation purpose that will reduce many existing barriers and uncertainties around innovation
  2. As the leadership does become engaged this will demonstrate a significant commitment and promise that will certainly increases the visibility of innovation, lowers risks, encourages more involvement and generation of better ideas.
  3. The framework itself will generate work flows that connect, become more dynamic to explore and promote the innovation skills, capabilities and competencies needed. They become more cohesive, coordinated and focused
  4. As the framework connects, in its understanding and as its impact grows, we certainly believe confidence builds. Both formal and informal areas are addressed in parallel, growing all-round identification and alignment.

A challenging road to travel

To get to this tantalizing promise needs a lot of recognition, engagement, investment and commitment. You don’t suddenly arrive at enacting such a change without some ‘hard yards’ to cover and tough issues to resolve.

We are only at the starting point by offering this integrated innovation framework. We have confidence it will help, what we need is the right audience to listen and simply say “I get it.” For the leaders, to hopefully see its organizing value and fit and their critical role to play in supporting innovation through this organizing and integrated framework so the organization initiates and delivers what is expected, better than today.

Do we see bumps on the way, of course, do we feel they can be navigated, again of course; otherwise you don’t start the journey. We are equipping ourselves for some demanding challenges.

We continue to invest in this framework as we see it does offer real potential

We feel this period of research, investment and consistently exchanging between us both has certainly increased in intensity over the last six months. We have built a structure; a methodology and a guiding set of approaches that help facilitate and provide the CEO and his leadership team with a way to radically reduce that innovation leadership gap.

We can offer a clear ‘way forward’ for engagement and alignment that can help, perhaps radically, the organization to establish innovation firmly into the minds of the boardroom and their vital role to play within this real need for all to engage in.

We seek to bridge the innovation leadership gap

All I can do at this stage is ask you to please explore this series of articles, don’t rush to judge and dismiss, take the more explore and reflect, approach. We simply want you to have a similar identification and equally ‘I get it, maybe we need it’ at this stage. We hopefully begin to bridge the innovation leadership gap and the role they need to play and we feel we offer a way to address the lack of innovation leadership that is clearly ‘out there missing’ in nearly all organizations.

In organizations this needs internal discussions to recognize this ‘gap’ and then gain the leaderships attention to how this can be addressed. The proposed integrated innovation framework might be the place to start and our arguments might be the catalyst.

We launch our “emerging thoughts” in this series of articles on the different innovation domains needed to be explored at the leadership level, this coming weekend 9th September 2012, and each day, during that week. We outline these through the frameworks different domains themselves. Do take a look and I hope you agree, we offer a way forward and are wanting to engage and deploy this framework to the leadership of innovation.