The four largest drivers of innovation for CEOs
“Innovation is a management issue” is a widely-held view. Nevertheless, a large proportion of companies – especially those that have been in a stable market environment for a long time – appear to be lagging behind in the transformation processes of the 21st century. It is a clear leadership task to drive innovation in the company.
Insight in brief
- In order to be and remain innovative, companies currently have to deal with four fundamental issues.
- The most important prerequisite for innovation is the human being.
Derived from the Latin term “innovatio”, the term innovation effectively means “renewal”. However, innovation does not just involve creating new things, but also creating added value. Being innovative means challenging existing business models on an ongoing basis. The right people must also be brought on board, and the corporate structures adapted to changed circumstances.
In order to be and remain innovative, businesses have to deal with four fundamental topics:
1) Take the customer’s perspective
In times of total connectivity, customer focus has to be at the heart of all business activities. Companies are frequently trapped in their own structures. New products and services are developed from an internal perspective. Assumptions are made and not verified, and familiar views about customers and markets are disseminated as facts. This perspective is often not checked or not checked critically enough: what’s the customer’s problem that we actually want to solve? Who is our target group and do we know it well enough? Is our solution actually the answer to the customer’s current problem? What experience does the customer have today and how should it look in the future?
Innovation provides added value for which the customer is prepared to pay. A successful method for obtaining a comprehensive understanding of the customer’s wishes is the creation of perceptible prototypes. This allows products and ideas to be presented to customers at a very early stage of development, so that feedback can be gathered and consumer acceptance assessed. Incorrect assumptions or disagreements can be identified more quickly and major flops can be prevented, using the motto “fail fast and cheap”.
In my experience, this change needs to be driven from the very top. People with a suitable mindset should also be recruited – including from other industry sectors, because such people bring fresh insights to the company, question the status quo and usually make fewer assumptions. Especially in industries that have had a relatively stable market environment for some time, this provides great advantages.
2) The first product, developed within twelve months
For a long time, companies followed the approach that a new product should only be brought to the market when it was almost perfect, its development had been completed and it was virtually free of faults. In some cases, particularly in industrial fields, this way of thinking is still widespread. But in a world that is changing ever more rapidly, this much time is no longer available. There is a risk that other products will get to the market first, and yours will not be innovative.
In discussions with customers, I have also noticed and that the term minimum viable product (MVP) is becoming well-established. The underlying idea involves quickly going to the market with a product that features greatly reduced functionality and implementation levels, in order to validate the assumptions made. Unfortunately, the term is now used completely differently and often incorrectly. It is good to find out the customer’s expectations regarding the concept and the actual MVP at the beginning of each project. In order to be innovative, I advise customers to use the following approach in each case:
- Select the date for the completion of the product development: at the project start this should be no longer than 12 months in the future – it should be a realistic but also challenging target. It forces the team to set priorities and work in a very focused way.
- Specify which functions must be mandatory in the first version of the product: the product should impress and give rise to positive market acceptance.
- Collaboration: we recommend carrying the work out in interdisciplinary teams and with an agile approach.
3) Breaking out of the existing business model
A pattern that I have seen several times: an innovative product is finished and is brought to the market. Sales develop slowly and the numbers are below expectations for the first year or two. Companies often forget to align the existing organisation and the processes with the new product or business model. In the case of one customer, I witnessed that the sales organisation preferred to sell the existing products. This was easier and the target agreements were not adjusted, so there was no motivation to change the sales strategy.
For the successful introduction of innovative products or business models, the following components are required:
- Patience and understanding at the C-level: success rarely happens overnight; persistence is often required and assumptions have to be revised.
- Adaptation of the management: the organisation and the management systems must be developed in terms of innovation.
- Active support from the CEO: the CEO should have the new products and their success on his/her “own” agenda and play an active part in the change process.
4) Lateral thinkers as drivers of innovation
In my experience, innovation succeeds or fails depending on whether or not the right people are involved. It requires employees who take on leadership roles and challenge the status quo, who are persistent, creative, good listeners and lateral thinkers, and who also occasionally override processes. There are many companies, however, which do not use such an approach but remain hierarchical and continue to be managed with precisely defined processes. The processes often focus on efficiency and stability. In my experience, people in leadership positions often recruit people from the same industry and with similar mindsets – which is not conducive to innovation.
In order to attract the right people to promote innovation, two important key factors have proven their worth in my experience:
- Win the best people
The best people in the company have to take on key functions in innovation projects. These employees in turn attract innovative and good people from both inside and outside the company. What sounds easy in theory is more complicated in practice: these experts are in demand not only within the organization, but also on the labour market.
- Create an environment in which employees can develop
Based on my consulting assignments, one concept in particular has proven to be effective for established companies: for the most important innovation projects, a separate unit with a certain degree of autonomy, its own budget and to some extent different rules, is created temporarily. This unit should be located physically separately, at least for a period of time, preferably away from the premises of the main business. But what is often forgotten here is the importance of identifying the right time for a possible transfer of the entity back into the main organisation. Rather than making such a transfer too quickly, it has proven to be effective to preferably wait a little longer.
Successful companies realise that, in order to pursue innovation, it is strategically important to work closely and from an early stage with future users and customers, and to bring a first product to the market within a very tight time window. The product does not have to be perfect but should be impressive. This requires further development of the organisation, in particular sales and marketing units, so that the product can also be actively sold on the market.
Many of the current challenges are found not in the technical area, but with the people and their behaviour in the company. As a result, people are the most important prerequisite for innovation – the right people, with the right innovative mindset, must be put in key positions. And this, in turn, has to become even more of a management priority in the future.