The What, Why and How of Innovation

Innovation is a top priority for many leaders. Yet, ironically, even though they know they “need” innovation, many struggle with defining it, especially in a way that can guide them through building the necessary innovation framework and operating system.

At the Lean Methods Group, we work with organizations of all types and sizes on their innovation programs and projects, and we often get asked questions about the why and how of innovation. First, let’s start with the basics: What is innovation?

What is innovation?

Merriam-Webster defines innovation as “a new idea, device, or method” or the “act or process of introducing new ideas, devices, or methods.” That definition covers the first theme of innovation: bringing new ideas to life. But there are three other important components of innovation: generating new value for customers, generating new value for the business and the probability of adoption by the customers.

So when we answer the question “what does innovation mean,” the Lean Methods Group takes the definition of innovation further than most. Innovation is not only a great idea brought to market but also one that’s adopted by the customer and delivers value to both the customer and the business at the same time.

Why should my organization embrace innovation?

Every organization should embrace innovation as a way to sustain and grow. The average lifespan of companies is decreasing, for example on the S&P 500 index, the average lifespan has decreased from 61 to 18. That’s because the life cycle of products, services and business models are getting shorter—and that’s because of creative destruction that’s coming from competition, changes in technology, customer expectations, market trends and globalization that lead to new ideas that replace the incumbent. So whether you’re in the taxi business, making laptops, or even something stable like rooftop shingles, you must constantly anticipate the future and be ready for it. And the only way to do that is through innovation.

Simply put, systematic innovation produces better outcomes. Today, only 10 to 15 percent of traditional innovation initiatives are successful due to the lack of a systematic process and a focus on the wrong initiatives in the first place. Much progress in innovation has been made within the last decade with the help of movements such as Design Thinking, Rapid Prototyping, Lean Startup and Agile Design. What do these movements have in common? They all have a systematic, yet rapid approach to innovation and design.

For over 10 years, the Lean Methods Group has studied, adapted and integrated the best-in-class tools and methods into a systematic innovation framework and put them into practice with clients. The results we see with this approach over ad-hoc or lone genius approaches are remarkable. In one word, they are “repeatable,” meaning there are no strikes of lightening, but a consistent flow of innovation opportunities in the pipeline. If you would like to dive deeper into the innovation process take a look at our Process Innovation and Design workshop.

Does innovation only apply to products?

No, although product innovations get a lot of attention, an innovation can also be a new service, process or business model. Researchers have noted that most long-lasting innovations were not product innovations at all, but instead business model innovations, such as brand (e.g., Harley-Davidson), revenue model (e.g., Google), customer experience (e.g., Disney) and partnership innovation (e.g., Zara).

What is disruptive innovation?

Most commonly, disruptive innovation refers to when completely new products, services or business models replace existing ones, such as the light bulb replacing the candle and kerosene lamp or the PC disrupting the typewriter.

However, there’s another definition of “disruptive innovation” developed by Harvard Business School Professor Clayton Christensen. He says there are two kinds of innovation: sustaining and disrupting. When an MRI machine is a superior diagnostic tool over the X-ray machine and is targeted at existing customers who desire high performance, that’s sustaining innovation. But for people who can’t afford that solution but still need to get the job done, they would be just as happy with a lower performing solution; that’s disrupting because a less expensive, lower performing solution has the potential to take hold with non-customers and gradually upgrade itself to compete against the incumbent. Many companies don’t focus on this kind of innovation, because they are worried about cannibalization. But if you don’t address the needs of your lower demanding customers, somebody else will and could potentially disrupt you.

Do innovation teams only include the R&D folks or just a few leaders in the organization?

No. Innovation elite firms seek the intellect and knowledge of their entire workforces. Innovation falls into product, service, process and business model innovation and can range from incremental to radical. This requires the involvement of everybody in the company. With the urgency and amount of innovation needed, tap into the collective wisdom and collaboration of all your people. You can’t afford to depend on a handful of geniuses or innovation experts in the company. The success of innovation is heavily dependent on the combined wisdom of highly diversified teams.

What is the difference between the front end of innovation and back-end design?

When you embark on innovation efforts, when assumptions are high and knowledge is low, don’t spend all your money developing new products based on your hypotheses. Instead, quickly test assumptions about customers, the idea, the feasibility of the solution, and the viability of the business model all through experiments done quickly and inexpensively. That’s the focus of the front end of innovation. Once we have validated the hypotheses about the customers, the idea, the feasibility, you can then develop the idea in back-end design. Back-end of design is resource-intensive and time-consuming and we don’t want to work on that unless we have some assurance we have the right problem, the right idea and the right concept. In other words, the front end of innovation focuses on finding the right problem and finding the right idea and back-end design focuses on perfecting that good idea.

Where should we focus our innovation efforts?

There are a couple of good guides of where to focus: 1) Focus your innovation efforts on those products, services, processes or business models that are the most important to the customer and will provide the most value to the business. 2) Focus on internal processes that have reached their potential, or the best performance they can achieve, but where customers are demanding more.

To focus more specifically, gather deep insights from your customers, market trends, technology trends and advanced data analytics or “big data” to inform and populate your innovation portfolio. Also look at places where continuous improvement efforts are no longer producing the required results, as they are areas ripe for process innovation. Then prioritize opportunities based on value to the organization and the customer. For more, see the Lean Methods Group’s Opportunity Exploration.

Does putting structure around innovation hinder the process?

Quite the opposite. A rigid structure can certainly stifle innovation. But our years of experience have confirmed that a flexible structure actually enables it by making innovation repeatable and scalable. Time and time again, the most successful ideas are generated using a systematic and flexible, but not limiting, innovation method. A systematic approach aided by required structure gets you to the right destination.

What is the connection between Customer Experience Design and innovation?

In today’s increasingly competitive world, accommodating our customers’ demand for greater uniqueness, individuality, and customization demands we design products and services that cater to these needs and expectations, empathizes with our customers’ emotions, and results in a lasting, meaningful and enjoyable experience. Customer Experience Design is the process we use to make this happen. The tools and techniques in innovation, such as ethnography, surveys, customer journey mapping and customer experience mapping are the same tools used to define the experience your customers’ expect and your strategy demands. If your customer experience strategy and analysis targets innovations, then the innovation life cycles are used to bring your ideas to life.

Should an organization pursue innovation if it is fighting for survival?

Innovation might be exactly what an organization needs when fighting for survival. Process innovation directed at sales, marketing, customer service or manufacturing may provide short-term benefits like a drastic reduction in costs or a quick boost in revenue. Long-term benefits gained from redesigning existing product and services or designing new products and services, or business model innovation may provide the next shot in the arm required to keep the business not only surviving, but thriving.

Can we do innovation on our own, or do we need outside expert help?

Outside help is typically needed at the beginning of your innovation journey and sometimes throughout. External experts can provide you with specific answers to what customers need and expect. They can identify what to innovate on and can even innovate on your behalf.

However, the Lean Methods Group believes the best model is to work alongside you—we partner our experts with our clients’ team to come up with the best possible solutions to customer and business challenges together. We help organizations gather the external insights from multiple sources so we can identify the best innovation opportunities. We facilitate teams through prototyping and final design, and we help commercialize or operationalize the solution. We remain transparent throughout the journey, teaching clients the methods and tools and helping them set up the teams and infrastructure, so they can eventually take on the work—because that’s how you truly embrace innovation!

How do I create an innovation climate or culture within my organization?

An innovation climate or culture is characterized by a vision for the future (the organization knows where it’s heading in terms of products, services, business models), systematic processes and skills, and an environment where people are not penalized when the hypotheses they are testing turn out to be false. Collaboration and collective knowledge are emphasized, and the speed at which people generate ideas and experiment is rewarded. An innovation culture creates an environment for observing ideas from everywhere, including other industries.

But culture is difficult to change; and paradoxically you do not change culture by focusing on culture. Instead culture change is a byproduct of changing the way you approach innovation, how work gets done, the infrastructure put in place and the enablement of the teams you form. In addition culture is about getting organized and leveraging your existing culture to enable innovation. If you’re at Apple and already have a visionary leader, let’s organize around that and drive the changes that drive culture. But if you’re at Samsung and you like processes and systems, let’s organize to fit that culture.

Is the innovation process the same for products, services, processes and business models?

For the most part the innovation process is similar, but there are some important differences among the types of innovation. For example, who you consider the customer will differ. With process innovation, the customer is typically an internal customer. Product and business model innovation are more complex, however, because we need to get inside the external customers’ heads and understand their needs.

Another difference is the scope of the effort. If you are doing product innovation, you need to involve marketing or external agencies to reach out to the customer thus increasing the scope. A business model innovation requires analysis of value creation, proposition and delivery, and the profit formula, which will require some different tools and approaches. But, in general the same framework and life cycle applies to any type of innovation you pursue.

Where will the next big ideas come from? What opportunities exist for innovation?

Before you can look at where the next big ideas come from, find out which problems are worth solving. What should you be searching for next? Is it a new product, process or business model? This is answered by opportunity exploration, through looking at customer insights, market trends, technology trends and advanced data analytics—all of these can lead to identification of potential opportunities.

Once you isolate a potential big problem worth solving, then you must develop the right idea by exploring not only within our industry but also other industries and nature (biomimicry). Innovation elite firms know that ideas come from outside the current paradigm and the way we think about today.

How do we really understand what the customer needs?

This is a common question because, even when you think you know your customer and the experience you are trying to create, there are many ways to fall short. First, we know that asking customers what their needs are is not a reliable method. Customers typically cannot articulate emerging or even existing needs. When asked, customers tend to offer ideas on how to tweak an existing product or service, or jump to new solutions.

The true way to get inside the customers’ mind is to conduct qualitative and quantitative research to understand customers better than they may even understand themselves.

At the Lean Methods Group, we help organizations uncover the most important needs and expectations to drive their innovation efforts. For example, we rely heavily on the use of ethnography—the science of observing, listening and analyzing the artifacts of customer behavior—to uncover the Jobs To Be Done and Outcome Expectations. We also facilitate interviews, focus groups and survey administration to collect the data needed and then work with teams to prioritize and select the opportunities that will provide the biggest return.

What is the difference between innovation and continuous improvement?

Continuous improvement is vital to maintaining your current business and managing your organization at peak efficiency and profitability. Whether you use Lean, Six Sigma, Agile, or any other method or combination of methods, the focus is on perfecting the present through flawless execution.

Innovation, on the other hand, is about architecting the future and generating new value by discovering the future through experimentation and exploration. The mindset, processes and tools of innovation are very different than the ones found in continuous improvement.

Ideally, the two will work in tandem in your organization. Every innovation solution put in place should be followed by ongoing management and improvement over the full life of the product, service, process or business model. This is where innovation meets continuous improvement. This is reflected in the Innovation Life Cycle model as we believe these are critical aspects to connect with your innovation engine. When you link innovation to continuous improvement, your advantages will not just be one-time, but for a long time.