How to Create an Innovative Enterprise

Guest post by Curtis R. Carlson, Ph.D.

Editor’s note: Curtis R. Carlson spoke to 500 people at the 8th Global Peter Drucker Forum in November 2016. Carlson, the founder and CEO of Silicon Valley-based Practice of Innovation, asked participants, “How many of you have a value-creation playbook, meaning that you’ve trained every employee in innovation practices, and provided them with a manual describing how they can get involved and be successful at driving innovation?”

He was shocked when only five people raised their hands. As he notes in this article, which is adapted from the lead story in the March/April 2017 issue of CIMS’ Innovation Management Report, this is a striking result. Read on for highlights of Dr. Carlson’s remarks.

Companies train their staffs on project management, design-for-six-sigma, teamwork, leadership, negotiation, and many other topics. But still not innovation. As Peter Drucker said, “Because the purpose of business is to create a customer, the business enterprise has two—and only two—basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs.”

To do this, we need to move from the “what” of innovation to the “how.” How to liberate creativity, how to create a transparent organization, and how to make high-value innovative results inevitable.

We live in a global innovation economy. Technology improves exponentially fast, the world is hyper-competitive, and it has an abundance of major new opportunities. Almost every area of business has the potential for major new innovations. Consider the financial industry and emerging technologies, such as blockchain. The waste in the financial industry is estimated to be trillions of dollars per year. Just eliminating this waste represents hundreds of opportunities for major new innovative companies.

But to develop these opportunities, we must know how to innovate. Today, relatively few professionals have those skills. Big companies are going away at record rates, more U.S. companies are dying than being born, and almost all measures of innovative output are grim.

Typically, experience shows that 80 percent of the so-called “important” company initiatives create no value for the company. Most university “tech transfer” programs lose money. Even the name is wrong. Tech push does not work. National laboratory directors around the world will admit in private that, despite their huge budgets, they are frustrated at the lack of useful results produced. The waste of money and people’s potential is enormous.

Remarkably, most companies do not use effective innovation practices. Almost every CEO will say they do, but if you ask mid-level managers to describe their system, they can’t. If they can’t, there is none. That is what we find around the world—it is almost an iron rule.

That has started to change, but only at the margin. Agile and its derivatives are being increasingly adopted, but mostly for developing incremental innovations. The U.S. National Science Foundation created I-Corps, an Agile-like program, to teach students about value creation. Startup incubators are promoting more rigorous practices. The NSF and the Singapore National Research Foundation are working toward the use of better value creation practices. But these efforts have still not taken hold widely.

Learn, Search, and Create Fast

As we progress, we must also drive out bad ideas. For example, I constantly hear: “To succeed at innovation you need to fail fast.” That is a terrible idea; it is meant to be clever, but it gives no guidance about what to actually do. The goal of successful innovation is to learn, search, and create fast—not to fail fast. That learning perspective defines the concepts and practices required for innovative success. Every concept and methodology should be judged on whether it increases effective learning.

The truly innovative enterprise embraces the following essential principles, which we call Innovation-for-Impact:

Strategic Intent: Innovation is at the heart of the company’s strategy, with aligned people, practices and resources in place.

Customer Focus: Drucker said, “The purpose of a business is to create a customer.” Most executives say their companies are customer focused, but they are not. A test: “Does every business meeting start with the customer’s needs?”

Important Opportunities: The company works on important customer and market needs, not the ones that are only interesting. Are metrics in place that define what “important” means?

Value-Creation Playbook: To speed value creation, all employees understand and use core innovation concepts and processes. One of the most important concepts is the “value proposition.” Most companies have a confused or even wrong definition for this most important concept, which defines success from R&D, to business plan, and to sales. If you can’t present a compelling value proposition, you don’t know what you’re doing.

Rapid, Fervent Learning: Processes are in place to accelerate learning; those that slow it down are eliminated. I emphasize the use of Value-Creation Forums, which are recurring, multidisciplinary meetings where teams present their value propositions for critiquing by the team. Note that these are not brainstorming meetings, project management reviews, or seminars, which are ineffective when the goal is the creation of new customer value.

The comprehensive use of these practices transformed SRI International from failing to becoming one of the world’s most successful enterprises, having created many tens of billions of dollars of new marketplace value through innovations, such as HDTV, Intuitive Surgical, and Siri on the iPhone.

Experience shows that the use of innovation best practices can enable improvements exceeding 100 percent. These practices are now being used by some companies, universities and governments around the world. They are moving from the “what” to the “how” of value creation and innovative success.

To sum up: In the global innovation economy, we are effectively in the Olympics; be the best at what you do—or go home.

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