Innovation is becoming increasingly important as a competitive differentiator for companies. But the key question is: how can companies maximize the returns on their investment? And how can they successfully embed innovation principles within the organization? According to strategic advisory firm The Boston Consulting Group (BCG) it all comes down to six main factors. An overview of the six factors that distinguish best-practice innovators from the rest.
Get the customer involved early
Best-practice innovators get current and potential customers involved early in the innovation process. Customers participate in idea-generation sessions, offer frequent input on early concepts in order to help projects "fail fast and fail cheap," and critique current offerings in the market. The challenge involves how to add external-facing processes that enable companies to capture and efficiently use the voice of the customer.
Envision innovation as a holistic system
Managers cannot simply optimize one piece of the innovation ecosystem in isolation. In order to ensure successful innovation, companies must take a holistic approach and optimize the parts of the system that are critical to their competitive advantage. This approach begins with building a strong case for change that proves to the organization why innovation is so critical to the future success of that organization. Without this buy-in, even an optimized innovation system will fail to deliver the intended results.
Use data to drive tough decision-making
Many companies do not have a systematic way to make trade-offs. They lack consistent and comparable data across markets and product lines for evaluating investments in the innovation portfolio. As a result, the inevitable trade-off decisions are often made on the basis of the "gut feel" of executives rather than metrics.
To be effective, innovation investments need to be allocated in a differentiated way. Executives at leading innovators are able to make tradeoff and investment decisions with confidence because the decisions are made for the right reasons on the basis of the right data.
Think strategically about trade-offs
According to the consultants, best-practice companies make strategic decisions based on the size of the future opportunities and not based on historical data (e.g. last year's budget). In addition, senior leaders have the tools and procedures to make innovation investments across several dimensions, such as businesses, markets, regions and products.
Ensure senior leadership commitment
Senior leadership commitment is considerably the respondents as the most important force driving innovation. BCG advises firms to appoint the CEO as the sponsoring executive for crucial innovation programs. "Appointing the CEO ensures that innovation clearly links to and supports the corporate strategy, and that innovation efforts focus on the most important areas in meeting current and future targets for growth" according to BCG as mentioned in the report ‘The Most Innovative Companies 2012’.
Optimize intellectual property to create value
The sixth dimension is according to BCG a relatively new phenomenon. Due to the increasing importance of technology in innovations, the value of intellectual property has skyrocketed over the past decade. Top innovators lead the way in terms of intellectual property management and have the right hard (IP life cycle, processes, metrics) and soft (skills, culture) criteria in place.
All six areas?
The Boston Consulting Group concludes by stating that best practice innovators do not necessarily have to be great in all six areas, but rather identify which ones are critical to their innovation strategy and ensure they perform best in class in those areas.