Can Innovation Be Managed Like Other Business Risk?

Deeply ingrained in our culture is the mythology of the “lone wolf” inventor, working by themselves in a garage or laboratory to come up with an “aha moment”; an epiphany that changes the world. This belief has led many to conclude that true innovation is random or even accidental and therefore can not be controlled or managed. The truth is, innovation almost always involves the combination of two or more existing technologies or ideas re-imagined in a way which solves a human need. Contrary to popular mythology, it is usually the result of years of hard work and thought, often by people or organizations outside of the industries that are impacted by the radical change.

The story of Apple is a good example. Steve Jobs did not invent any of the fundamental tech that was the basis for the iPod and iTunes. Much of the hardware behind the iPod was created by others and it wasn’t even the first MP3 player on the market. His innovation was in the sleek, industrial design and simple user interface. He also understood how to market this new music format delivery system to a young audience. MP3 file sharing had been developed and introduced by Napster and others. Jobs' vision was to take existing technologies and create a product and service that was mobile, legal, convenient, cost effective and “hip”. He also gave the record labels a new storefront and payment process which allowed them to take advantage of the new format that music consumers were demanding. By combining and refining existing technology and developing a new business model, the iPod solved a human need that people were willing to pay for.

So if innovation is not some random occurrence, how can it be managed in a proactive way to generate reliable and repeatable growth? Is there a way to create processes, structures and culture which can be formalized into a set of best practices so innovation can be managed like any other business discipline? This is the question that The Mayo Clinic asked a small consulting group that later became Innovators Equation (iEQ). Mayo was in the process of creating an internal curriculum for innovation management and were interested in identifying and teaching best practices to their up-and-coming leaders.

iEQ engaged with more than 380 of the worlds largest innovation consultancies and large-cap corporate innovation leaders as well as economists, anthropologists and systems concepts experts to build a framework for studying how large organizations manage innovation. Then, during the next 10 years, they studied over 2,000 of the world’s largest companies in an attempt to uncover the innovation management systems that work, and those that do not. The research became the first scientific study of innovation in human organizations. Of over 120 innovation practices being used, the researchers discovered that only 27 were shared by the highest performing companies.

One of the most important of the 27 practices, shared by 89% of the innovative companies studied, is treating innovation as a risk management exercise (1). The data suggests that framing Innovation Management in such a way works because it uses the familiar investment strategy of diversification to mitigate risk. Most companies invest millions into innovation without a cohesive investment strategy. By contrast, the highest performing organizations are quite disciplined in their innovation investment practices. They organize themselves to analyze a moving portfolio of potential investments and make smart bets by investing small amounts in many solutions to one market opportunity with the goal of discovering the one winning solution. The very best can claim success rates as high as 40% which is well above the average. A balanced portfolio of opportunities managed in one pipeline or by one team has proven to be the most successful approach to deliver consistent growth and above average returns while mitigating risk.

Steve Snider is Principal of Sunstone Growth (www.sunstone-growth.com), a consulting firm specialized in building corporate environments in which innovation can flourish in order to produce reliable, repeatable growth.

(1) Innovators International, Inc. Copyright 2013