Forum for Innovation

A new McKinsey report finds American companies are deploying a large array of organizational functions all focused on one goal: innovation.  Achieving innovation, though, remains anything but simple.  

Innovation is a strange beast to corral.  Companies must capture and “domesticate” it to profitable ends.  Paired with a healthy strategy, it should prove to be a good investment.  Yet demanding too much of it too quickly or failing to integrate it will only serve to make it less valuable in the long-run.  Even the very usefulness of innovation can work against it, as it’s soon saddled with a haphazard variety of duties that tend to undermine strategic objectives. 

With so much at stake, companies today use a variety of structures to spur innovation.  The top 6 types, according to McKinsey’s survey, include: 

1. Innovation centers
2. New-business development functions
3. Emerging-business-opportunity groups
4. Emerging-technology business groups
5. Advanced-technology institutes
6. Incubators 

This diversity is both a blessing and a curse.  It means that companies are building their structures around their goals for innovation.  McKinsey finds that also means that firms may end up with scattered teams of innovators, disconnected from each other by their disparate structures. 

What are these teams focused on?  One-third of companies, the largest share of those surveyed, are driven to creating new products and services.  Over half of the respondents had successfully brought these developments to market in the past year. 

This finding is the flipside of what many noted is a short-term focus by these innovative groups.  There is an interesting correlation between having innovative groups located at a company’s headquarters and an overarching focus on profits (especially among the newest teams).  Yet the more these innovative teams were pressed to focus on profits and short-term market launches, the less likely they were to actually achieve success and profit.  Again, this finding is strongest among the newer functions; only 31% noted a successful launch, versus 81% of the older, less profit-driven groups. 

What is important then to innovation in companies?  The most important finding is that the greatest successes came from fully integrating the company’s innovative functions into its corporate strategy.  Yet only a third of company executives could confidently say that their own firms did this.  

Even if you have a company that exhibits these tenets, the actual implementation can be messy.  Firms are broadly split on how best to measure progress on innovation.  Here’s McKinsey: 

According to respondents, companies are split on measuring individual innovation performance: 30% say their functions use the same performance metrics as the rest of the organization, while 32% report the use of innovation-specific metrics and another 23% fall somewhere in the middle. 

The ultimate takeaway is that having a strategy is vitally important when it comes to innovation.  Drawing in the various functions across an organization and giving them support at the executive-level is a key first step that must in turn be met by a company strategy that includes innovation from the get-go.  While garnering a profit from innovation represents the ultimate aim, that likely isn’t the best the measure of performance.   Here again is McKinsey:

Our experience suggests that a better measure of performance is the function’s success at playing its respective role in the innovation value chain, whether it is responsible for idea generation alone or for seeing each idea through to its launch and scaling.

Innovation is not the end, but a means to an end.  The measure of innovation is in the discrete advances that complement broader value chains, strategies, and markets.