Innovation: from ideation to activation
A Canadian cross-sector market study
Innovation – more than just ideas
In summer 2015, EY, in partnership with the Hunter Centre for Entrepreneurship and Innovation, conducted a survey of more than 250 Canadian organizations across a variety of sectors and industries to gain insight into how organizations approach innovation as a driver of growth. Executive-level leaders from a representative sample of Canadian organizations, large and small, crossing numerous industries and geographies, participated in the survey.
If one thing about the results of the survey rings true for organizations in Canada, it’s this: truly effective and sustainable innovation is much more than brainstorming and out-of-the-box thinking — it’s the force that enables organizations to develop new, viable offerings that create value for their business.
Today, against a backdrop of increasingly global competition, rapidly evolving technology, and fiscal, demographic, and social changes, the business leaders most likely to thrive are those who embrace the critical role that innovation plays in their organizations' growth strategy.
In this report, we’ve broken down the results of the survey within six tightly integrated building blocks, which are necessary for any solid innovation strategy. We hope the findings not only provide insight, but spark ideas that will help your organization thrive in a new era of innovation.
The Hunter Centre for Entrepreneurship and Innovation is part of the University of Calgary’s Haskayne School of Business. The information contained within this report is presented in aggregate form to maintain respondent anonymity.
Innovation is the art of making hard things easy and creating value where it did not previously exist.
What is innovation?
Many organizations struggle to define innovation and lack a strategic approach for generating, capturing and implementing innovative ideas.
Innovation is a collaborative, structured process that involves different parts of the organization, as well as outside partners, to contribute, create and exploit new opportunities and find new ways to solve complex problems. The sole action of generating ideas is not innovating. An idea only becomes an innovation when it has been implemented in a form that generates value.
Innovation drives growth
In an increasingly challenging economy where costs matter, a well-balanced and focused innovation agenda can drive improved growth and, ultimately, shareholder returns. Innovation drives value for the business in a variety of ways, including: new revenue streams, enhanced engagement with staff and customers, ability to optimize operations and improved brand image.
Our market study of more than 250 Canadian business leaders found that:
- Organizations have a broad range of reasons for innovation, with the largest number doing so to increase profitability (24%), reduce costs (19%) or increase process efficiency (19%).
- 93% of leaders indicated that innovation was either important or very important to driving the growth agenda for their organization over the next two to four years.
- The importance of innovation varies by industry:
- In highly regulated industries like power and utilities, the proportion of respondents who said innovation was very important was 37% lower than the other sectors average.
- In industries like oil and gas or mining, where commodity prices have significantly impacted profitability, innovation has never been more important as a strategy for driving structural change in the cost base and potential growth in the future.
- For technology companies, innovation is the backbone of the industry. It’s very much a case of “innovate or die.”
- For consumer products and retail, product innovation is the mainstay of success.
While larger organizations often have the people in place and investment funds to warrant a separate innovation strategy and focus, innovation itself tends to be easier in smaller organizations. There, the flexible, nimble and entrepreneurial culture can foster innovative approaches to problem-solving and a rapid commercialization of those ideas. Interestingly, it appears that despite no formal structure or funding models (as exist in many larger organizations), smaller organizations are forced to see the broader picture and as a result seem more willing to experiment, pilot and learn from failures.
How important is innovation to your organization in driving the growth agenda for the next 2 to 4 years?
Ambidexterity drives success
High-performing organizations that innovate tend to successfully exploit the present by rapidly commercializing ideas, driving operational excellence, and embracing standardization, while they simultaneously explore future opportunities to drive more radical changes to how things are done. They usually separate their new exploratory units from their traditional exploitative ones, allowing for different processes, structures and, importantly, cultures. They also manage the organizational separation between the current, high-performing organization and the disruptive innovation team, through a tightly integrated senior team, recognizing the need to nurture what are essentially different types of businesses.
These organizations, equally adept at exploiting existing capabilities while exploring new growth opportunities, are called “ambidextrous.” Companies fail to innovate when they have too much focus on one or the other area — they explore but cannot scale and make money, or they exploit but fail to change and innovate when the external market changes. Ambidextrous organizations find ways to remain competitive and relevant even as their markets change, and tend to outlast their competitors.
Our survey of Canadian organizations shows that ambidextrous organizations:
- Have a well-articulated innovation strategy with very specific objectives that is separate from the traditional enterprise strategy
- Have an innovation leader accountable for enterprise-wide innovation, with a focus on disruptive innovation rather than operational excellence or sustaining innovation
- Have a dedicated budget focused on disruptive innovation
- Manage a portfolio of different innovation types — from sustaining to disruptive
- Get innovative ideas from multiple sources, not just employees
- Collaborate with external parties at both large and small companies to help explore breakthrough ideas
Key success factors
The ambidextrous organization
- Vision and values that promote a common identity but separate cultures.
- Senior team that explicitly owns the ambidextrous strategy, with shared goals and incentives.
- Separate units for scaling explore businesses, with responsibility to be different.
- Integration points so the explore business can leverage assets of the core.
- Ambidextrous leadership with the ability to resolve conflicts and allocate resources in line with goals.
Charles O'Reilly, Stanford Graduate School of Business
Innovation building blocks
Organizations seeking to reap the rewards of innovation must recognize that being innovative is not just about generating more good ideas than their competitors or taking a creative approach to problem solving. They need to create an environment where innovation can thrive.
A sound foundation for innovation should consist of six tightly integrated building blocks.
Without a balance of these, efforts to build innovation will not stand. Governance, culture and people sit at the core, but strategy, process and the all-important ideas are equally critical.
Our survey provides insight into how strong innovation is in Canadian organizations, and this report sets out the key findings, observations and analysis by building block.
90-day Innovation Roadmap
Four steps to innovate and accelerate growth
Agree on the most appropriate approach to innovation for the organization.
There are four fundamental approaches to innovation strategy – systematic, collaborative, visionary, marketplace. Pick the one that best aligns to the organization’s corporate strategy. Successful innovators have an established innovation process and methodology, regardless of strategy.
Choose how much growth will come from sustaining, adjacent, and disruptive innovation strategies.
Innovative ideas come in various shapes and sizes. A portfolio strategy will help ensure a consistent pipeline of ideas and safeguard against stagnation or complacency.
Advance the organization’s culture of innovation by embedding the four innovation pillars: People, Create, Incubate and Activate.
Innovation starts with people. Build a culture of experimentation and encourage conversations that inspire customers, partners and employees. Crowd source opportunities and partner with start-ups to curate, prioritize and filter ideas. Pilot ideas to identify investment opportunities. And, most important, activate – now!
Treat the activation of an innovation as an investment in infrastructure to improve critical business processes and give the business a competitive advantage.
Find ways to measure return on investments in innovation.
The CSO’s dilemma
Most businesses are built for efficiency in ongoing operations, not innovation.
Most CSOs want innovation, yet what gets in their way has little to do with creativity and technology and has everything to do with process and management capability.
Yes, ideas are the beginning. Yet the real challenge lies far beyond the ideas generated in ideation sessions and beyond piloting prototypes. It lies in the journey from ideas to activation.
The era of open innovation
Organizations can no longer rely on an internal R&D program alone to be innovative. The context for innovation has changed. To remain competitive, organizations must look outside.
Closed innovation, where ideas were developed and commercialized internally, was a successful approach to innovation in the past. Competing meant investing more than others in R&D while hiring and keeping the smartest employees. The rise of the mobile knowledge worker has made it increasingly difficult for organizations to find and keep the smartest employees. Rapid changes in technology and the increasing availability of venture capital and angel investors now mean that if an employee has a good idea, he or she can rapidly capitalize on that idea as an entrepreneur.
Open innovation seeks to bring in and develop ideas from outside the organization, and go beyond internal channels to commercialize ideas. Organizations that practice open innovation acknowledge that the best ideas do not always originate from inside. They seek to establish external networks and partners in the belief that a mutually beneficial relationship will provide competitive advantage.
Open innovation offers a range of benefits:
- Constant rejuvenation of knowledge workers and a much larger pool of knowledge without significant capital investment.
- An ability to fill innovation capability gaps or weaknesses (75% of respondents noted they lacked innovation capability in either exploring or exploiting ideas).
- New opportunities. Now, ideas that are not internally beneficial may still provide value through external channels.
- Industry, academe and government partnerships can be extremely valuable in innovation generation, and reduce the resource investment required to develop ideas.
Challenges to implementing open innovation
Implementing open innovation within an organization is not easy – Canadian leaders identified it as their biggest area of concern for innovation. By taking deliberate steps, organizations can overcome the challenges below.
Intellectual property is often regarded as one of the biggest challenges to open innovation. Understanding the legal requirements of proper distribution (internally and externally) of intellectual property when developed with external partners and designing this into the organization’s innovation program is critical.
Like any change program, there may be pockets of resistance to the adoption of an innovative culture. This will likely come from those who don’t understand innovation, don’t believe they can contribute to it, or see it as just another initiative. Clearly articulating the strategy and definition of innovation, and how everyone can contribute, as well as executing a proper change management program led by accountable change agents will reduce this resistance.
Filtering ideas efficiently
Initiating an innovation program can potentially open the floodgates to ideas, many of which will likely be continuous or incremental improvement. Clearly defining the scope and definition of the innovative ideas the organization is seeking may reduce this flood. Furthermore, implementing clearly articulated assessment criteria as part of a structured filtering system will allow rapid and fair assessment of ideas.
Organizations that can marshal an innovation agenda that is well balanced and focused are likely to drive improved growth faster and enhance shareholder returns in the long term. Ideas are the beginning. But the real challenge lies far beyond the ideas generated and piloting prototypes. It lies in the journey from ideas to activation, and in embracing the advantages of the ambidextrous organization: one that can exploit existing capabilities for profit, while deploying open innovation in their strategy to make the most of new growth opportunities.
High-performing organizations don’t just recognize the importance of innovation — they actively pursue it with a proper, distinct strategy, a leader responsible for innovation and a process or framework to manage it, along with an allocated budget.
Data tells us the biggest challenge when it comes to innovation is implementation and culture. The reality is ideas are worthless without effective execution and a culture that can manage that.
To be successful, leaders need to ask better questions around their organizations’ innovation ambitions:
- What are we doing to rapidly commercialize and implement innovation?
- How do we measure our results, or success?
- Do we have the right mix of skills and expertise to manage a portfolio of innovations?
- Are we collaborating externally in the right way?
For most organizations, success will depend on creating a culture that supports creativity and fosters innovation. That culture needs a strategic focus, and leaders need to ask:
- Where do we excel?
Research indicates organizations can generally only be a leader in one of: operational excellence, product leadership or customer intimacy. That means organizations need to foster slightly different sub-cultures in order to drive different types of innovation in different areas. The culture needs to be carefully managed and, in some cases, a wider enterprise culture might be more effective or sustaining in nature, and specific pockets of sub-cultures focused on more disruptive innovation might co-exist.
Innovation is critically important for organizations to thrive in the world today that is volatile and rapidly changing. Business leaders know that — but they need to learn how to “walk the talk.” Until they close the gap between their acknowledgment that innovation is important, and their commitment to a strategy to make it real — innovation will simply not occur and will continue to exist as a management fad. And if innovation does not occur, leaders should really ask themselves: how will our organization survive today, and be relevant tomorrow?
For more information on the detailed, full results of the survey — and how they may impact your business, contact a member of EY’s Canadian team.
Canadian Strategy Services Leader
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Michel René de Cotret
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Strategy and Organizations
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