Managing Corporate Risk Through Innovation Portfolio Management

by Barry O'Reilly

In the information age, the organization that can most effectively accumulate new knowledge and leverage that insight to make better decisions wins. 

So relying on a stale innovation strategy is tantamount to a death sentence. Companies need to avoid wasting time and money — and worse still, losing focus — on unimportant investment options. The key is diversifying their approaches to innovation.

Relying on the systems and structure that led to success even a few years ago will slow your rate of innovation and new product launches. It will cloud your thinking on the best ways to shift your business model and leverage technology for better customer and business outcomes. 

Companies in this position lose market share, fail to launch new and improved services to support their customers, and ultimately become reliant on a single product to stay alive. They loose resilience and struggle to respond to market changes.

Remember Nokia? Once the dominant player in mobile technology, they’re now a poster child for relying too heavily on past success and failing to unlearn and relearn innovation

 

Common Mistakes In Corporate Innovation

Ultimately someone has to set strategy in a company, but what I want to challenge is how that strategy is informed.

While writing Lean Enterprise, we partnered with Forrester Consulting to survey 161 decision makers. We found that 76% of companies rely solely on the opinion of a small set of senior managers or the Highest-Paid Person’s Opinion (HiPPO) to inform how they invest in innovation. And 9% have no decision-making framework at all. 

To contrast, 95% of Amazon Web Services’ strategy is informed by customer feedback data. This is why Amazon is winning — they’re seeing signals of what customers are looking for and playing in businesses where they have confidence they can win.

I predict that in coming years, the companies following this approach will dramatically outperform those that don’t, and the latter, clinging to the outdated decision-maker models, will find their ivory towers in ruins.

A related mistake is thinking that corporate innovation labs are the best or only way to innovate your way out of outdated business models and mindset. 

How many press releases have you read about the latest new innovation lab from your favorite enterprise… Rooms packed with pool tables, comfy seats, and fancy coffee machines that are going to spark ideas to save the business… 

Yet when you speak to the executives of these organizations about what impactful innovations have broken free, unsurprisingly, the direct escape velocity is almost non-existent, especially when many of these companies are the same ones leaving investment decisions to an isolated committee.

It can seem like the easiest option for innovation is to spin out a new separate function, because the current business is slow, stale, and stagnating. But this is a dangerously simplistic strategy — innovation isn’t as easy as that. 

 

Why Your Company Needs an Innovation Portfolio

Success in today’s market depends on systematic product portfolio management, and that in turn depends on developing a portfolio of options to manage innovation. It’s about risk management through diversification. 

Thinking there’s only one way to approach innovation is actually setting yourself up for failure, or at least limiting your options to succeed. It directs the focus toward outputs rather than meaningful outcomes, either for the customers or the company and its employees.

For example, a well-known bank asked me to help them improve their rate of product development and invited me to visit innovation labs in a number of their head offices. Immediately, I realized they were vanity projects, and I told them as much. 

Every major office — or in some cases, every VP in every office — was spinning out their own innovation lab because the CEO had set an objective for leaders to be more innovative. Launching an innovation lab was an easy output for an abstract objective to help the business survive. 

Essentially, VP’s and offices were competing with each other to see whose lab looked the coolest and was working on the coolest sounding ideas. Yet over a two-year period, not one of those ideas escaped the lab and made its way into the actual business where it could create impactful outcomes.

Many other companies have faced similarly uninspiring results from innovation labs, but a few have taken bold steps to move beyond them. For example, consider International Airlines Group (IAG), which owns British Airways. In 2017 a LinkedIn article lambasting innovation labs singled out BA’s 2013 launch of its lab “UnGrounded”, which quickly faded into oblivion. 

The article also cited a 2016 Capgemini report which found that corporate innovation labs were opening at a rate of 10 per week… and failing at a rate of 90%. 

However, unlike many other organizations, IAG decided to innovate on how it was approaching innovation. They did an ExecCamp with me, where we took six of their senior leadership out of the company for eight weeks, with the goal of launching six new initiatives to disrupt their existing company. 

It was highly successful — they launched a slew of new products that transformed the airline industry. For example, they created the first blockchain identity management system for the industry and machine learning algorithms that could crunch customer data and find issues in minutes that previously took months. 

 

Corporate and Innovation Portfolio Management

 

And that was just the beginning. They also had a host of leftover ideas that seemed worth exploring, but they found three hurdles. 

First, their internal innovation teams already had their plates full with other great ideas that had come from working closely with customers. Second, the capabilities needed for some of the leftover ExecCamp ideas were either lacking or unavailable internally. Lastly, they had no money to hire partners to work on these ideas.

So what would you do if you had 1) a host of great innovation ideas, 2) no budget, capacity, or capabilities, and 3) humility enough to recognize “Maybe we don’t have all the answers.”? 

What IAG came up with was both unique and brilliant. Instead of trying to do all the work, they flipped the whole model and embraced a multitude of new innovation strategies to get there— they launched the first ever venture capital group in the airline industry, called Hangar 51. 

To spur innovation, they opened up all their existing assets (e.g. customer data, flight data, and an array of proprietary systems) to startups and innovators to build new products and services for the airline industry. In return, they would get a stake in these companies.

We’ll look at one successful venture that’s grown from this novel convergence of open, crowdsourced, and ecosystem innovation strategy, but first let’s consider how this approach fits in the broader context of innovation portfolio management.

 

Finding The Right Innovation Strategy for Every Product Stage

Different stages of initiatives need different innovation strategies—for example new product development requires a different approach than improving existing products. 

For successful portfolio management, you have to balance exploring new ideas with exploiting proven business models and transitioning successfully between these domains. 

 

 

You also need to recognize when you can count on a product to sustain the business and when it’s time to phase it out. Applying a one-size-fits-all approach to these very different product lifecycle phases is doomed to fail given the pace of change in today’s market. 

So, say you’re on board with all this and you’re looking to move beyond the innovation lab. What other innovation strategies might you consider? 

I divide them into two basic categories: internal and external. I’m not going to give you a comprehensive list, because the point of innovation is to think creatively—there is no limit to how you can approach innovation. But I will share a few options to get the wheels turning.

Ways of sourcing ideas internally can include design sprints, product discovery pilots, running internal hackathons and shark tanks, encouraging teams to volunteer their best ideas, and creating intrapreneur programs. (Keep in mind that to get the best ideas from teams, they need to see and believe the ideas they put forward will be worked on.)

Then there are external strategies, looking outside the company for innovation ideas. These include open innovation, crowdsourcing, partnerships and alliances, startup investment or acquisition, and ecosystem development, to name a few. 

New innovation strategies often are not an obvious fit—you’ll likely need to explore uncomfortable, unnatural-feeling, and unknown strategies to shift your business and find the next growth curve. Enterprises are especially likely to have already extracted the majority of the opportunity from known strategies that have worked to date. 

This can require new types of investment. For example, you’ll likely not have all the necessary competencies. It could mean hiring in talent such as product managers, engineers with data science experience, or entrepreneurs-in-residence. It can be expensive, and there’s no guarantee they’ll work out. It also takes time for them to be effective, for you to create the environment for them to succeed.

This is why finding good partners to collaborate with or be coached by can be a quick, cheap, and safe-to-fail investment to test out a variety of innovation strategies to see if there’s a fit for future growth in your teams, products and business model.

 

 

 

For example, Hangar 51 found great success through a combination of external open innovation, building an ecosystem, and creating strategic alliances with startups.

One of the promising new companies to emerge from this initiative is called Assaia, whose mission is to enable affordable and time efficient air travel for the coming decades by making airport ground processes safer, more efficient, and more sustainable.

Hangar 51 gave a tremendous boost to the startup—it validated the business value of their technology, allowed them to quickly mature their product, and catalyzed a huge leap in credibility and impact on both companies’ business results.

CEO Max Diez said, “Taking part in Hangar 51 shortened our learning and sales cycle by over a year. I can’t say enough how much it’s had a positive impact on our business.”

As for IAG’s benefits, they now have the capability to empower aircraft dispatch managers to safely and efficiently handle three plane turnarounds at a time, instead of one, while capturing and addressing 100% of process deviations in real time. That translates to a strong increase in on-time flights and dramatic reduction in safety issues.  

With the number of commercial aircraft in operation estimated to double in the next 20 years, how much advantage do you think they’ll have? Wouldn’t you be more likely to fly with them?

 

How to Find the Best Innovation Path for Your Company

The first step for company leaders is to get clear on how to measure successful growth for your company, e.g. new customers, new markets, new products. 

Then consider a variety of innovation strategies and find the ones that are best for your organization and the outcomes you’re aiming for. The best way to do that is to create hypotheses for each strategy, including outcomes and options to show you if it’s working for your company, in your context, with the current circumstances, challenges or culture you have. 

Then iterate through the various strategies as quickly as possible. Often when I work with companies, I don’t know what will be the best strategy for them. We find it by making lots of little bets, trying out each of the possible strategies to find out which is going to be the most effective. This is what I mean when I say “Think big, start small, and learn fast.”

So start experimenting to find out what’s the best fit for your organization. And if you think having outside support would help in discovering and developing your best innovation strategies, I’m here to help.

 

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