Innovation is, naturally, a critical ingredient in today’s economy.
It drives growth, brand development, and value–and is essential for enterprises to successfully navigate through the rapid and disruptive, sometimes violent, evolution of our business ecosystem. But innovation is a very wide concept and has many dimensions.
I am constantly being asked, How do we measure an organization’s ability to innovate and the value generated from those efforts? Measuring innovation is indeed a very difficult task to perform.
So I thought I’d provide some insights that may help us understand how sustained innovation can be viewed and measured.
Sustained Innovation is the state attained by organizations that have built a “culture of innovation,” capable of innovating at every point of the compass–a full 360 degrees of innovation–in all aspects of the business–management, operations, customers, suppliers, and among every team.
Several research initiatives by my own research initiative with leading academics have found similar insights in the behavior of mature organizations. A couple of years ago, we released the Sustained Innovation Index in my book The Power of Convergence, which showed that sustained innovation predicted greater capital efficiency, better margins, more revenue growth, and more contained volatility–such as evidenced by the performance of various size companies.
Sustained innovation, the index found, is composed of a range of behaviors. Creating value from innovation is a long-term and holistic endeavor; it requires both analytical and creative talents.
The study shows that the high-performance leaders, unlike their more one-dimensional peers, have built a culture that embraces both approaches to thinking, doing, and communicating. This holism finds its way not just into management, but into the cultural character of the organization as a whole. What our research found is that enterprises with a focus on long-term value creation share three common principles–comprising the glue that binds people together in productive collaboration.
The Index reports the maturity of an organization’s Sustained Innovation capability, as measured by the following scale:
To begin with, they have converged disciplines, meaning that ideas from one discipline aren’t isolated from another–management isn’t far removed from technology, for instance. In the same way that rivers and streams converge to form a delta, the disciplines in a sustainably innovative organization form a single entity.
At a more micro level, this entails cross-boundary collaboration, meaning that no enterprise–and no person or element within the enterprise–operates in a vacuum. Every leader, manager, employee, and contractor has latent ideas for latent problems. The more we can include–and the more we can connect–the people within an organization, the greater we can increase our overall capacity.
Finally, sustainably innovative organizations have sustainably innovative structures. This can take many forms; just know that the structure of your organization is going to shape the products and services you provide. Like strategies, the structures can be deliberate or emergent. The bedrock beneath all of these factors is to understand what you’re organizing for–which is largely a question of when.
As a group, Sustained Innovation leaders highlighted in the index cover a wide range of sizes–revenues ranging from approximately $3 billion to $60 billion. This diversity indicates that Sustained Innovation does not constrain itself to a particular firm size or industry sector.
Sustained Innovation leaders focus on distinct, but intimately related, practices, each of which requires convergence of many skills in order to perform at a high level of maturity. These practices include:
Cascaded Lifecycle. Like most companies with an innovation focus, leaders employ an innovation lifecycle that begins with invention. Unlike their peers, however, innovation leaders extend the innovation lifecycle to include market success, scale, and prominence.
Digital Business Models. Leaders are not content to invent new products and bring them profitably to market, they seek out new business models, which are often disruptive, not only to their competitors, but to their existing businesses. Further, these business models are based on the fundamental principal that digital models are nonrivalrous (*), that is, unlike land, labor, and capital, use by one organization or individual does not preclude its use by another.
Cultural Diversity. Innovation is a holistic human endeavor, it requires both left-brained (analytical) and right-brained (creative) talents. Innovation leaders, unlike their more uni-dimensional peers, have built a culture that embraces both approaches to thinking, doing, and communicating.
These leaders have discovered the difference between innovation and sustained innovation. It is not enough to invent things; the world of innovation abounds with tales of how the initial inventor failed to commercialize. Sustained Innovation leaders, however, don’t stop at creating successful products or services. They seek out new ways of delivering products, services, and customer experiences.
Building a Sustained Innovation organization is not easy. Crucial to success is a relentless focus on continuous improvement at all levels of the organization. Finding those advantages–and maintaining them over time–requires dedication and focus.
* Kling, Arnold and Schultz, Nick, From Poverty to Prosperity, Encounter Books, New York, 2009.