How Structured Innovation Systems Provide A Competitive Edge
One of the biggest challenges organisations face, is not the question of whether to embrace innovation, rather how exactly to make it work. A recent survey of European businesses has shown that 88% intend to increase their Research, Development and Innovation (RDI) investments over the next five years.1 Often there is real desire to bring a more innovative focus, but many organisations struggle to make innovation work in practice. Organisations are not lacking in commitment to the innovation agenda. In 2017, businesses across Europe accounted for 66% of total European R&D Expenditures.2 Experience shows that a more structured approach to developing innovation systems can overcome the difficulties organisations face and unlock the desired benefits behind most innovation drives. In this article we discuss how structured innovation systems function and can be developed in any organisation, detailing the benefits these more conscious approaches to innovation bring.
Explicit Innovation Model
The first feature of note that makes structured innovation systems (SII) stand out, is their ability to make explicit the innovation model for the entire organisation. By doing this an SII allows for the communication of all aspects involved in innovation across an organisation, as well as how these processes and assets integrate with one another, and where they have touch points with other systems and processes of the organisation. In particular an SII will make explicit the resources, capabilities, processes, lines of communication, lines of authority and progressional lines for innovations and innovation decisions. This includes establishing familiarity and training with innovation methods for staff at all levels.
By making the model of innovation explicit, an SII reduces the ambiguity and confusion that can arise so easily in an organisation’s innovation efforts. This limits the amount of leakage that can occur in the innovation pipeline, as innovations are no longer lost due to confusion and miscommunication. More innovation leads will be generated by staff as they are both more competent and confident when engaging in the process. Ultimately these effects lead to a higher innovation ROI as more successful innovations emerge from the pipeline at a higher rate.
Role Definition
Linked to the explicit nature of a structured innovation system is the definition of roles and lines of authority within the organisation’s innovation framework. An SII will clearly and concisely lay out where responsibilities and authority lie for different gates in the innovation process. However, more than this, SII’s provide role definitions for innovation champions and mentors as well, two crucial yet often overlooked roles in innovation. Taken together, the explicit outlining of these roles is a powerful feature of structured innovation systems, and one of the major advantages an SII has over ad hoc efforts.
There are several benefits this sort of role definition brings. To begin with, it enables faster RDI processes, as decision ambiguity is cut to a minimum. Also, by defining roles in this manner for gatekeepers, champions and even mentors, greater buy-in is generated across the organisation. Intuitively, staff assigned a role are more engaged in the innovation process. However, there can be a wider increase in buy-in across front-line staff, as they know who to work with on innovations earlier in the process and also receive mentoring and training from those designated in these roles.
Resource Appropriation
One of the more subtle features of a structured innovation system, is the manner in which it establishes resources appropriation. While resource allocation decisions are often a source of organisational conflict in general, resource appropriation relates to the pre-identification of resources for specific purposes ahead of time. In the context of an SII, this means certain resources are pre-allocated for specific innovation initiatives while others are pre-allocated for opportunities that have yet to be encountered. These innovation resources are often thought of in terms of project finance and budgets. However, it is worth remembering that repeatedly the key bottleneck in innovation initiatives is staff availability, rather than budgetary resources. A recent BusinessEurope survey found that 68% of businesses across Europe found the availability of skilled staff an obstacle to RDI investments.1
Resource appropriation achieves a number of important benefits when engaging in RDI efforts. Firstly, it prevents the emergence of bottlenecks in the innovation pipeline, as appropriation manages resource deployments over time in a smoother manner. Also, resource appropriation allows for the deployment of resources as soon as they are needed to spur on high-value innovations. Another major benefit is the reduction in political conflict for resources around innovation decisions. This enables organisations to unlock more collaboration, as mid-level managers and innovation champions are no longer incentivised to beat their ‘internal competitors’. Taken together, these benefits accelerate the advancement of valuable innovations through the innovation pipeline while also increasing the speed at which innovations generate and return value.
Project System Integration
One major factor in why executives choose to develop structured innovation systems, is the manner in which they integrate with the project management system of the organisation. By making an innovation system more explicit, an SII allows individual innovation initiatives to be given form as projects or programmes within the organisations project portfolio. This enables more explicit management of innovation initiatives while also ensuring that the innovations and general change activity of the organisation are moving in tandem. Depending on how the SII is designed, it is possible to integrate it with classical waterfall, agile or even hybrid project methodologies.
When a structured innovation system is combined with a well-defined project management system in this manner, an organisation benefits from stronger innovation portfolio management and improved implementation of innovations.3 This means more innovations coming online for the organisation at a faster pace, as the project management processes can reduce roll-out times and increase the clarity of implementation paths much earlier in the innovation pipeline.
Knowledge Management
One of the most subtle and perhaps most powerful features of a structured innovation system, is the way in which it enables knowledge management. An SII, with its predefined processes and knowledge store, will allow for the capture of more data and information across all innovation efforts and protect these precious learnings that could otherwise be lost. Importantly, an SII ensures that knowledge is gathered from all innovation leads and potential innovations, no matter how far they progress along the pipeline. This is hugely important for organisational learning, as often some of the most important learnings are to be found in failed innovations. Best practice here is to be aware of the various levels of knowledge that exist around innovations, including individual, group and organisational level knowledge.4
An SII’s ability to integrate and drive knowledge management leads to a number of benefits. Firstly, the knowledge captured on winning innovations allows them to progress to market faster, while also informing the best roll-out paths for future innovations. However, sometimes the most valuable knowledge captured by an SII comes not from the winners, but from the failed innovations that were cut along the way. Often this knowledge is useful to the progress of future virtuous innovations, not to mention its value in identifying problematic leads that will never progress to market and only serve to use up precious resources needed elsewhere.
Multilevel Innovation
Another feature of a structured innovation system that helps bring clarity and cut through ambiguity, is the manner in which an SII discerns between the different levels of innovation and how they relate to one another. Broadly speaking, innovations can be classified as occurring at one of three major levels; process innovation, product and service innovation or business model innovation. Figure 1 below demonstrates these levels of innovation showing their relative challenge to implement but also their long-term ROI.
Figure 1. Levels of Innovation by ROI and Challenge
Depending on the industry they are operating in, organisations may be much more dependent on either product-driven technology or business-level innovations.5 Therefore it is important to recognise that each of these different levels of innovation offer something crucial to the long-term transformation and success of the organisation. By explicitly recognising these different levels of innovation, a structured innovation system allows for the careful management of each of these different forms of innovation. Also, an SII ensures that all parts of the organisation are advancing in step together, rather than becoming fragmented and creating internal conflict. If an organisation were to focus on one level at the expense of the others, very soon part of its operations and processes would fall behind the pace of change in an industry and cause a competitive disadvantage.
Boundary Management
One very important feature of structured innovation systems is their explicit setting of innovation boundaries for the organisation, and definition of how these boundaries are to be managed. This allows an SII to set the rules for how open or closed the approach to innovation is, as well as defining when and how external partners will be involved in RDI. There is no one-size-fits-all approach that works, and studies have shown that firm adoption of open, semi or closed innovation strategies is also dependent on the industry they operate in. With the drive to go digital central to transformation in many industries, it should come as little surprise that digital maturity plays a role here. Studies have shown that only 33% of early stage organisations engage with external innovation partners compared to 80% of more digitally mature organisations.6
By setting the boundaries for innovation, an SII can offer both greater access to external capabilities and greater control of core and secret innovations, all within the same innovation portfolio. Depending on how close an organisation is to the horizon of technology development in their sector, they may benefit from the adoption of a more open or less open approach to innovation. Based on OECD classifications, studies have shown that 30% of low-tech firms make use of semi-open strategies in comparison to 46% in high-tech industries.7 For SMEs in particular, semi-open systems of innovation offer strong benefits, due to their need to access external capabilities and their ability to absorb the resulting value of generated innovations. Organisations who balance system openness in this manner, can advance much faster than their competition when bringing innovations online and thereby secure first mover advantages again and again.
Strategic Roll-Up
The final feature of a structured innovation system, that offers one of the most powerful benefits, is its ability to facilitate the strategy process through strategic roll-up. An SII allows for the integration of the innovation portfolio, and its management, with strategic decision-making across the management of programmes, projects and initiatives. This creates a bridge between the organisation’s long-run strategic objectives and the actual change efforts underway at any given time, facilitating greater information flow and more impactful change and transformation.
The major benefit from this type of strategic roll-up comes in the provision of more accurate and timely information on the progress of the organisation’s innovations. This in turn facilitates smoother transformation and more accurate decision-making, ultimately putting more power in the hands of senior leaders sooner. With this information it is easier for senior leaders to intervene faster when corrections need to be made, or more resources need to be deployed to empower an emerging winner. Over time, this acceleration generates a rolling strategic advantage for the organisation compared to those competitors who lack integration between their innovation system and strategy process, as the flow of innovations under a well-managed SII are both steadier and more sustainable.
Conclusions
Innovation and investment in RDI have always been a core area of focus for organisations. As new disruptions continue to emerge and the evolution of industries accelerate, managing innovation is becoming more challenging. Structured innovation systems provide a means to tackle this challenge head on, making use of the unique features discussed above. These features bring powerful benefits such as reductions of conflict, waste and loss in innovation while also increasing ROI from innovation initiatives and facilitating easier transformation efforts. In this way, structured innovation systems offer a real edge to those who wish to lead in their industry, and one of the few forms of sustainable competitive advantage to be found in the age of disruption and change.
References
- BusinessEurope, Research and Innovation in the New European Political Cycle. 2019: Brussels.
- Eurostat, First Estimates of Research & Development Expenditure. 2019: Brussels.
- Davies, A., Innovation and Project Management, in The Oxford Handbook of Innovation Management, M. Dodgson, D.M. Gann, and N. Phillips, Editors. 2013, Oxford University Press: Oxford.
- Leonard, D. and M. Barton, Knowledge and the Management of Creativity and Innovation, in The Oxford Handbook of Innovation Management, M. Dodgson, D.M. Gann, and N. Phillips, Editors. 2013, Oxford University Press: Oxford.
- McKelvey, M., Science, Technology, and Business Innovation, in The Oxford Handbook of Innovation Management, M. Dodgson, D.M. Gann, and N. Phillips, Editors. 2013, Oxford University Press: Oxford.
- Kane, G.C., et al., Accelerating Digital Innovation Inside and Out. MIT Sloan Management Review, 2019: p. 1-18.
- Barge-Gil, A., Open, Semi-Open and Closed Innovators: Towards an Explanation of Degree of Openness. Industry and Innovation, 2010. 17(6): p. 577-607.
