As much as we all might wish for it, there is no simple recipe for sustainable, repeatable innovation. Every company must find its own sweet spot for pursuing new ventures and staying on-mission within the innovation department.
Before launching an innovation lab, companies need to determine a number of key factors including customer loyalty and turnover, the enterprise’s tolerance of risk, a realistic growth target, and the money necessary to truly invest in innovation projects – it’s a tall order. Yet even armed with a budget for innovation, that does little to provide a repeatable process for pursuing innovation projects.
For many corporate innovators, the most pressing question is, “Where do I start?”
Setting Your Innovation Investment
A recent McKinsey report found that the average R&D and innovation budget for companies with more than $1 billion in revenue fell between 12.7 and 13.7%. While that may provide a guiding star even for smaller companies, knowing how much money to invest in innovation is only part of the battle – knowing where and how to invest is much more difficult.
Much like building an investment portfolio, enterprises need a healthy understanding of their innovation landscape to determine which projects are stalled, which are beating the market and which areas of your business need additional attention. Brock Kolls, Chief Open Innovator at Atlanta’s TechSquare Labs and former Coca-Cola innovation leader, often shares a three-phase framework for identifying viable projects, testing them with users and moving toward a full product launch: Exploration, Pilot and Commercialization.
If you know you have $1 million to pursue new projects, you can identify how many product ideas are worth exploring and at what cost. The innovation lab sets goals for particular business verticals – green initiatives, demographics-focused campaigns, new technology, etc. – and align potential products into buckets. With that framework and a backlog of ideas, corporate innovators can plan to spend $25,000 on 15 exploration projects and perhaps as much as $125,000 testing five validated ideas in the marketplace.
Though it’s included in the innovation framework, full-scale commercialization budget for a proven, validated product should come from the core business unit to launch.
Three Phases of Innovation Projects
Exploration – The exploration phase of innovation is all about generating, refining and testing the viability of an idea. While most innovation labs have no shortage of ideas, the greatest challenge in this early phase is to create alignment between stakeholders in the core business unit and in the innovation lab. Facilitated innovation workshops and design sprints are often the quickest way to identify ideas worth pursuing and testing your assumptions with a small set of customers.
Under Dave Black, InterContinental Hotel Group’s design lab pursued 75 ideas in a year, validating or failing them through minimum viable product builds and prototyping. Only four were deemed worthy to move forward into more functional pilot products with market testing. Black’s group was able to sustain that level of projects by a commitment to lean prototyping and the discipline to kill ideas quickly.
— Geoff Wilson (@Geoff352) November 14, 2016
Pilot – Where the exploration phase often focuses on a single core metric to prove an idea’s worth, the Pilot phase typically requires a more robust, functional product that can be tested with an actual customer. It’s here where innovators need to roll up their sleeves and truly begin to innovate around features, business models and customer experience – you’re essentially field testing a barebones product to discover what works and what else the project needs to grow.
Within the early phases of innovation, companies should build certain stage gates along the way with individual budgets, targets and metrics to track success: evaluate consumer demand, assess the marketplace, build a prototype, monitor progress, etc. As a project works through the Pilot phase, stakeholders should have a clear roadmap for user experience, customer demand, monetization and more. In the Pilot phase, it’s more critical than ever for innovators to think beyond product features to the long-term strategy for a new business.
Commercialization – Once an idea is ready for commercialization, development is likely out of the hands of the innovation department and moved into the enterprise architecture or with an external development team.
Given the reliance on rapid testing and adaptability in the early phases, this framework works best in an innovation department free to practice agile and lean startup development methods. Yet not all companies have the freedom to quickly through idea refinement and product development. Where IHG’s design lab worked through 75 ideas in a year, many companies may only be able to sustain 5-10 projects. As you begin to find your sweet spot, understanding the natural flow of innovation can help innovators guide projects through the enterprise and create transparency with top-level executives.