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Linking Innovation To Enterprise Strategy

Well-structured governance policy links innovation to execution milestones

27Aug

I've heard a few things over the years about innovation. 

Large enterprises that have their own internal innovation efforts don't like discussing the secret sauce behind their creative process. I suspect a common approach has something to do with mixing specialists and generalists on cross-functional teams. Maybe they pick people who are naturally creative and driven, or who are misfits and need an unstructured outlet for their frustrated ambitions. I'm less interested in the interpersonal dynamics of enterprise innovation and more interested in the institutional processes that link innovation to strategy.


Prevailing wisdom holds that there are three critical paths to innovation, all of which tonight's CW Club experts understood. The first path is top-down, driven by product managers. The second path is from a distinct internal lab, like the classic case studies of Bell Labs or Skunk Works. The final path is from bottom-up intrapreneurship. I think these paths all have peculiarities that demand some kind of governance to ensure they stay on track and accomplish bottom-line results. The top-down path can be subject to internal political fights for resources and may ignore innovation that can move business units into more desirable quadrants on the BCG growth-share matrix. The internal lab can waste resources on ineffectual projects, like government scientists in the Federal Lab Consortium who sometimes churn out busy work to justify budgets. The bottom-up path intrigues me most because it can be an outlet for the pent-up creativity of unheralded performers, but it can go nowhere without incentives. I think gamification can incentivize plenty of little ideas that can later be subject to Technology Readiness Level (TRL) scrutiny.

I like arguing from first principles because it provides an epistemological foundation for whatever comes next. It's also a great way for me to show off my stellar intellect. My principles are quite bold, in bold type.

Link innovation to strategy. The top leaders of a small startup or large enterprise determine overall strategy. I mentioned the growth-share matrix above because it used to be a popular tool but its critics prefer to include more measures of profitability. That's why nature and Providence gave us key performance indicators (KPIs) and SWOT analysis. The strategy derived from these concepts should drive innovation goals that bolster strengths and mitigate weaknesses. This philosophy can prevent innovation from falling into a "paralysis of analysis" that destroys focus.

Measure innovation the way VCs measure startups. Success metrics for enterprise innovation have readily available comparables from the way VCs evaluate, fund, and manage their startup portfolios. One truism is that a stereotypical VC will look at 1000 business plans, listen to 100 live pitches, fund ten startups, and harvest one success. Let's copy that funnel and graft it onto enterprise innovation. Start with random generation of 1000 off-the-wall ideas, write the best 100 into basic proposals that are testable against the firm's KPIs, launch the best ten as live projects after assessing their net present value (NPV), and harvest one big success.

Use multiple testing methods, rapidly and repeatedly. This VC-style 1000:1 funnel helps innovators "fail quickly" by rapidly testing ideas and dropping the ones that are unlikely to succeed. Enterprises with a separate internal lab may have an advantage in testing if they can run projects that "decouple from a brand" in Lean Startup terms. Crowdsourcing and Twitter A/B testing are methods to covertly launch trial products to see if they gain CustDev traction.

Define success as meeting specific KPIs. A startup's KPIs are more growth-oriented and time-constrained than those of a large enterprise. Their definitions are different. The "success" of an externally oriented project is defined by its ROI compared to the capex spent on generating the 1000 ideas that led to its creation. The "success" of an internally oriented project can be defined as improvements in quality control or business processes that reduce cost or avoid liability.

Design a KM process to document innovation. The knowledge management role is to archive the 1000:1 process, locate the most successful iterative path from idea generation to ultimate success, and replicate that path in future iterations. KM should also track active projects the way VCs track their funded startups. The final documentation of an innovation series won't bear much resemblance to a typical BPM improvement effort. It will look more like case management with an artisan approach to photographing prototypes and archiving program code. KMWorld has an excellent white paper on BPM and case management.

Senior management's ultimate role is to link the innovation strategy that strengthens the enterprise's SWOT position with whichever of the three innovation paths resides within the firm's structure. The cultural incentives will be different for each path and the KM case documentation will be different for each result. That's the cool thing about innovation. It's always about something different. Vive la difference.

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