Two Steps to Innovation

by James Hipkin

Innovation is a company’s future. Don’t believe me, ask the stock market.

“Today, some 70% of the valuation of the top 500 S&P companies is made up of intangible capital, value not on the balance sheet,” according to Mark Van Clieaf, CEO of MVC International.

Future growth from innovation is a significant contributor to intangible capital.

What to do? Well companies need to rethink, at a fundamental level, their approach to innovation. I don’t have the ego to say I have the solution. But, I believe that companies who follow these steps to innovation will achieve their innovation goals, validate the Wall Street’s assessment of their intangible value and secure competative advantage. First, companies should create a new position in the C-Suite, the Chief Innovation Officer (CIO). And then companies should create and fund innovation incubators.

These aren’t original ideas. The concept of a CIO has been around for a while and some would say Silicon Valley is one giant incubator built on a foundation of VC money. But are you applying these ideas to your business? Probably not.

Step One – The Chief Innovation Officer

“…innovation is not simply about developing new products or better ways to communicate to the market, but about transforming the way the entire organization thinks about the market and the company’s place in it.”

This is a statement from Heidrick & Struggles, the well known recruitment firm, made in a 2006 brochure describing the importance of the CIO position.

The CIO position needs a clear mandate from the CEO and Board to stimulate and foster fresh thinking. The CIO should have two broad mandates: support and foster innovation within the company, and lead an incubator charged with discovering and developing innovation outside traditional corporate confines.

To do this the CIO needs to consider the following:

Idea Management – Identification and development of ideas sourced from within and outside the company; new solutions, technologies, processes designed to make the business more effective. Make it easy and rewarding to bring new ideas, fresh thinking to the surface.

People Management – Identification and training of company staff, regardless of discipline, who demonstrate the skills and aptitudes to be innovators. Don’t force the right-brain thinkers out to become entrepreneurs because they aren’t great at process. Bring their skills to bear on the future of the company.

Innovation Champion – Foster innovation within the company’s culture by celebrating innovation, both inside and outside the company. The CIO needs to meet with business leaders from other innovators, and then tell the company about what they learned. They need to inject innovation throughout the company, into even the most mundane activities.

These represent the core areas of responsibility for the new CIO. Easy enough to describe, at a high level, but difficult to execute the way companies are structured today.

The biggest hurdle to innovation in most companies isn’t a lack of ideas or talent, it’s a lack of budget. The CIO needs budget and staff; budget to fund innovative thinking and staff to support the execution of new ideas. The budget should be a fixed expense and not connected to short-term revenue. To be successful, the innovation budget must be the companies investment in its future.

The CIO can and should work within the existing company structure to champion and foster innovation. This will help but it’s not the complete solution. To build a new model, to turn promising ideas into viable business models, the company needs to sponsor an incubator, an entity, led by the CIO, but outside the traditional company structure and financial requirements.

Step Two – The Innovation Incubator

IBM has done a lot of research into innovation and they report that business model innovation has the most impact on future growth. Their 2006 report, Expanding the Innovation Horizon says, “When we looked at financial performance over a five-year period … business model innovation had a much stronger correlation with operating margin growth than the other two types of innovation (Product/Service/Market innovation and Operations innovation).”

There are any number of ways a company can look at this. What is certain is they won’t have significant change, change at the business model level, without some experimentation. The Innovation Incubator is the place to do this.

Picture a small- to medium-sized multi-disciplined group of business professionals. At the core of the incubator is a think tank. The core members, the members of the think tank, have been selected carefully. They are creative and have good right- and left-brain balance. They are open minded. They are intelligent, experienced, and work well with others. Each has specific expertise in one or more areas. They are supported by another team of business professionals, also carefully selected, who provide execution expertise.

It will be the Chief Innovation Officer’s responsibility to lead the incubator. To adjudicate over decisions and direction. To achieve and maintain a culture of innovation, a culture where ideas can flourish, develop, succeed or fail.

Failing is very important. The incubator must be free to fail. In fact, smart failure should be rewarded. Keep the incubator free of entanglements and allow it to explore and experiment. The primary goal is innovation for the company sponsor. Add money to smart people and stir.

I’m not saying business considerations aren’t important. They are essential. But in order to find the simple answer a lot of mess will be created. This mess won’t and shouldn’t be rational from a business perspective. At least in the beginning it won’t. It takes time. Google wasn’t the first search company, and its success didn’t happen overnight. PayPal went through several business models before landing on the one that worked.

Bringing innovation to most companies won’t be easy. It will require strong, committed leadership from the CEO and the Board. Leadership that encourages thoughts and ideas that are out of their comfort zone. No neat packages here. My suggestions, hire a Chief Innovation Officer and fund an Innovation Incubator, are two ways to address the problem. There are others. Bottom line, companies need to do something, and that something needs to radically change business as usual, or they run the risk of joining Kodak.


James Hipkin, understands the practice of marketing as only someone with decades of practical experience can. James is an accomplished speaker and consultant, and writes about Marketing Strategy, Customer Relationship Marketing and innovation on Hipkin’s Hip Shots.

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