Tenet of Innovation #10: Recognize that innovation can be managed

The process of creating commercial products involves generating information and moving from high risk and uncertainty toward very low risk and great predictability. By the time the products and services are in production, our expectations are for high quality and certain yields, cost, and performance. And yet we know that, by its very nature, risk is inherent to the innovative process.

The answer is clearly to take risks early in the process and to reduce that risk-taking as you near production. In the case of the greatest levels of innovation, a two-stage process may be needed … one stage for technology investigation or invention followed by (or in parallel with) a second stage of commercialization. As discussed in a previous post, real option analysis for valuation of these high-risk projects may be ideal for these cases, where a certain investment in a high-risk project is made, and a decision on whether or not to invest in subsequent stages is expected. Companies often have two completely different processes and metrics for these two stages. The “technology invention stage” may require a set of measures designed to encourage well-judged risk-taking, and to provide rewards that are tied more to effort than outcome. Over time, expectations for success rates during this phase can be learned and can guide later financial decision-making. However, the “commercialization stage” may be more quantitatively measured, and the people rewarded based on outcome metrics such as product performance and costs, project schedules, and costs.

The point is—by recognizing the need to transition from high risk to low risk, from high innovation to implementation—an organization can create processes, reward systems, planning systems, and resource profiles to accommodate and account for these different needs through the product lifecycle. Innovation need not feel like a process of throwing money after projects and just hoping for a good outcome. Innovation can be managed.

To conclude our conversation on the 10 Tenets of Innovation, remember that creating an innovative environment typically requires a conscious effort on the part of the product development leader. Unless you’re careful, it’s all too easy to send the wrong message to your organization, causing creative people to become more risk-averse and your products to become incremental so they lack the innovation necessary to create the differentiation your business needs. The astute product development leader will monitor the environment and his or her actions daily to ensure they are reinforcing the level of innovation that matches the business need.

Leaders need to plan on failure, and be delighted with success. In fact, zero failure does not generate enough information for the innovative organization. The innovative firm should fail often, but early, where the cost of failure is low. Processes must be created to sort through the winners and losers quickly, and apply these processes with rigor. But how we respond to failure sends ripples throughout the organization. Trust is a prerequisite for innovation.

Remember that innovation doesn’t always come from applying the “voice of the customer,” that position power can get in the way of creating an innovative environment, and that hiring a diverse workforce and watching for ideas from everywhere are keys to generating the most creative ideas. Create an environment where people say “yes, if” in order to stay in the creative process longer and sort through options. Give your people the time they need to produce the creative frame of mind, to experience autonomy, mastery, and purpose. And finally, recognize that you don’t have to feel helpless as a manager of innovation. Processes can be created to allow you to obtain the greatest leverage from your investments.