Eight years ago, we proposed a 5-level innovation maturity framework that can be used as a mirror to quickly assess the innovativeness of an organization and help the managers in deciding a future course of action. Earlier this year, I wrote about the level-4 challenge and how organizations struggle to go from level-3 to level-4. In this article, I would like to take a step back and propose a defining characteristic for each of the five levels so that the assessor can generate an initial hypothesis about where the organization stands very quickly – say in five to ten minutes. This is an initial proposal and inputs are welcome.
[Level-2] Defining characteristic: Innovation dashboard: Every organization that is serious about innovation, tracks it in some form or the other. Of course, outsiders may not know it because innovation dashboards are not published, unlike the accounting statements. Then how do we know this? Well, over the last decade many organizations have begun to publish a part of their innovation dashboard in the annual report. For example, many listed companies in India like Voltas, Amara Raja Batteries (ARBL), Titan, Mindtree, and TCS disclose various parameters of their innovation dashboard under the section titled “Intellectual capital”. A manufacturing company like Voltas reports (AR2020-21) R&D centers, R&D strength, no of new SKUs, and no of 5-star energy efficiency SKUs. Mindtree reports (AR 20-21) parameters like innovation hubs, centers of excellence, No of patents, etc. And even for organizations like TVS Motors (AR 20-21) which doesn’t present “intellectual capital” in a separate section, one can find parameters like “New product launches”, R&D expenditure, and expenditure on technology imported in the last 3 years etc.
I feel a good innovation dashboard should have indicators for pipeline (small, medium, big bets), velocity (e.g. experiments, champions, hackathons, reviews, dedicated teams), and business impact. It should be a combination of process (e.g. hackathons, reviews) and outcome (no of ideas, prototypes, revenue, saving) parameters.
The main point is a simple innovation dashboard is a defining characteristic of level-2 innovation maturity.
[Level-3] Defining characteristic: Rigor and rhythm of innovation review: You could use an innovation dashboard like a status reporting tool for years. And that might not be very effective. The question is what kind of decisions and resource allocations are you doing after reviewing your dashboard and innovation projects?
Over the past decade, I have had the opportunity to sit through a number of innovation reviews. Moreover, I have had discussions with many executives on how they conduct an innovation review. Good innovation reviews are rigorous despite the uncertainty surrounding various aspects like feasibility, desirability, scalability and viability. It questions the speed and quality of hypothesis testing. As Ken Kocienda, the father of auto-correct feature in iPhone points out in the book “Creative selection”, Steve Jobs used to review prototypes of major features himself. And Ken gives a detailed account of how such a review happened in the book. Jeff Bezos’ big bet review seems to be rigorous and yet mostly doesn’t involve return-on-investment language and cash flow projections.
If I were to pick only one thing to observe in the organization to gauge its innovation maturity, I would choose an innovation review. It reveals management seriousness based on who attends, the clarity (or lack thereof) on strategic challenges, showcases key innovation projects along with their champions and experiments, and kinds of questions asked, and reveals the commitment through resource (re-) allocation.
[Level-4] Defining characteristic: innovation sandbox: In our book “8 steps to innovation”, we identify three big bet enablers: innovation sandbox, platforms and open innovation. However, if I were to pick one big bet enabler, I would pick innovation sandbox.
Innovation sandbox: Unlike a lab that can start with a technology focus, a sandbox needs 3 to 4 constraints within which the experimentation capacity is to be built. For example, having an Artificial Intelligence lab is not enough. It needs to be combined with a strategic challenge area relevant for the company such as healthcare diagnostics for a broad customer category such as hospitals or end-consumers but typically not both. An innovation sandbox combines strategic focus, experimentation capacity, and dedicated resources, all are crucial for big bet incubation. Amazon Go sandbox was built around image recognition and cashier-less offline retail idea while Alexa sandbox was built around speech recognition, display-less, cloud-connected personal assistant idea.
Many companies such as automobile, aircraft, and phone manufacturers and many technology companies have product platforms. These are used mostly to churn out newer product variants at a faster pace. They are valuable for variant generation at a faster pace. However, I wouldn’t consider them big bet enablers. Creation of a new platform would need a sandbox focus. Facebook has been a super successful platform. However, most of their subsequent big bets like WhatsApp and Instagram have been acquisitions. I am sure their most recent big bet Metaverse would have needed a lot of strategic focus and experimentation.
Sandbox hesitancy hypothesis says that management tends to be hesitant in building a sandbox due to their inability to identify those 3 to 4 constraints and commit resources to build experimentation capacity.
[Level-5] Defining characteristic: 30% revenue from innovation in last 5 years: Philips annual report in 2020 mentions that “Around 60% of revenues from new products and solutions introduced in the last three years” under the “intellectual capital” section. Instead of revenue, a company may look at growth contribution from innovation. For example, 3M mentions in its 2020 annual report that “For the full year, our priority growth platforms grew 7%, outperforming the markets they serve.” These priority growth platforms include indoor air quality, biopharma filtration, and automotive electrification from a list of close to 50 platforms that it has developed.To summarize, innovation dashboard (level-2), rigor and rhythm or innovation reviews (level-3), innovation sandbox (level-4), and 30% revenue from innovation in the last 5 years (level-5) are defining characteristics for the 5 levels of innovation maturity respectively.