Three Stages to Building or Improving an Innovation Function
By: Dave Farber
Tags: Innovation, Product, Ideation, Strategy, Business

A big part of my job is helping companies build or improve their innovation capabilities. Sometimes this means starting with a clean slate; I get to build an incubator or an innovation lab from the ground up. Other times it means coming in later in the process to help an organization improve the outcomes of its innovation efforts or to tie together disparate innovation activities that are happening within the company.

Regardless of where in the process teams are or what form the innovation effort takes, I’ve found that building an exceptional innovation function is a process. It’s not an activity with a defined start and end. As with any learning opportunity, it’s hard to absorb everything at once. Teams that try to build processes while simultaneously launching digital idea platforms while also leading culture transformations tend to get overwhelmed. It feels as though there are constant fires to put out, and outputs are less than what was envisioned. Teams end up focusing on things in the wrong order because they feel like they can gain traction — say by trying to define metrics before there’s a clear mandate — or they cede autonomy in favor of advancing others’ pet projects that will at least be able to get something off the ground.

Given how complex innovation is, I put together a framework for identifying and prioritizing the most crucial elements of building or improving an innovation function. Whether your innovation team is relatively young or just looking for areas to get better, I suggest moving from cornerstones to enablers to activities as you determine where to focus.

Cornerstones

A team really shouldn’t be undertaking any innovation efforts until the cornerstones of its innovation function have been laid. These cornerstones will certainly evolve over time as the function grows and as you find better ways of doing things. But they’re an essential starting point, and they should guide the rest of the decisions you make as you build your team.

Mandate. One of the most important cornerstones is one that most young functions spend the least amount of time on. Teams that broadly define their mandate as “innovation” tend to lack focus and go only an inch deep in a lot of different areas. Rather than just waiting to see what occurs naturally, try to articulate a mandate that addresses three major questions about why the unit was formed, how it will support the core business, and how far its boundaries extend.

1. Why was the unit formed? Your innovation function exists for a reason. Maybe it was meant to push more Horizon 3 innovation while other business units focus on close-to-the-core initiatives. Maybe it’s supposed to target new customer types or geographies. Whatever the desired endgame is, ensure that your mandate is clear about where your focus will be and how your initiatives will differ from what’s being done elsewhere in the organization.

2. How will you support the core business? The next question is understanding what your relationship with the core will look like. More specifically, you need to determine whether your unit is meant to catalyze initiatives on behalf of business units or to create its own initiatives.

3. How far do your boundaries extend? Finally, you should determine whether your goal is to develop or to commercialize. Will your team stop after it has turned insights into new product ideas? Will you be responsible for commercializing new ventures? Ultimately, you’ll want to have clear expectations around what resources you can borrow from the core versus what you will need to do on your own, and you’ll want to ensure that you’re getting early alignment with how the work you do on your own fits with the core’s strategic objectives.

Process. With a mandate in place, you can begin working on the other cornerstones, keeping in mind that it will be an iterative experience rather than a sequential one. Process will be one of the next key things to define. An upfront portfolio plan will help ensure that the initiatives that move through the funnel directly support the function’s strategic goals. From there, you will also need to build a Stage-Gate process that accounts for the types of roles within your unit, your risk tolerance, and your time-to-market goals. Beyond the process, you should have clear expectations for each phase and gate, as well as tools and frameworks to ensure consistency among your different initiatives. For many organizations, it’s also important to allow for different processes (or fast tracks) depending on the size of the investment, the risk of the initiative, and the urgency of the problem being addressed.

Resources. The questions you answered about your mandate will help determine how large your unit is and how much you will be taking on. You can match your funding and headcount accordingly. Even for units that aren’t taking on everything, you’ll need to consider what roles are important. You’ll want to strike a balance between subject-matter experts and innovation experts. Think about who will lead initiatives and who will advance things through the process. Will you have product managers and designers involved? Will a single team guide the project through the process, or will the team expand over time? If projects are commercialized, who will remain in the unit? Be sure to think about how your staffing will scale as the unit grows and takes on more projects.

Governance. Governance is closely related to resources. You will need the people who can serve as the institutional knowledge and support structure even as teams and projects graduate from the unit. This also means having clear guidance on who will be making go/no-go decisions throughout the process, how often those people will meet, and whether anyone from outside the unit will be involved.

Enablers

With the cornerstones of your innovation function in place, you can turn your attention to the enablers — the factors that make innovation run smoothly. Many of these will be developed and refined over time, so they don’t need to be roadblocks in your journey. Nevertheless, they will be key in helping your unit succeed and scale.

Culture. Building a culture of innovation can be a long process, and responsibility for building that culture may or may not fall outside the purview of your function. If it is in scope for you, an article I wrote for Forbes a while back offers some helpful guidance. In either case, you’ll want to ensure that you’re communicating (both to your team and to other business units) the types of innovation you focus on (e.g., new products, services, internal processes, business models) and how what you’re offering fits with their objectives and how they’re evaluated.

Metrics. While teams often spend a while thinking about metrics, it’s an area where I often see them choose off-the-shelf measures that don’t necessarily match their goals. Many companies try to maximize volume without thinking about what that actually means. So, for example, they set a target of generating 1,000 new ideas through a digital idea-sharing platform, but they don’t actually have the resources to go through all those ideas. Think about your unit’s mandate, and allow your metrics to evolve over time. While younger units may want to focus more on inputs (e.g., number of experiments in a key strategic area), a more established unit may care more about outputs (e.g., revenue from new businesses). For most innovation functions, there will be a mix of input, process, and output metrics that cross the goals of your unit.

Communication. Most innovation units are dependent on the core business for at least some things. That means that it’s important to be able to demonstrate your value to the business. Highlighting your accomplishments will also help you attract higher-quality talent for your team. Treat your innovation function like a business. Give it a name, a website, and a value proposition. Make sure that you’re building a base of supporters back in the core business and let them tell others about the great work you’re doing. If I told you that I’d recently gone to a restaurant that I couldn’t tell you the name of, that didn’t have a website where you could check it out, and that didn’t have reviews from anyone, would you really be interested in it? Develop a clear message about what your team does, and make sure you’re communicating that clearly and routinely.

Recognition. It’s important that the outputs of your unit get celebrated, including by those with clout. If senior leadership isn’t bought in, it’s going to be hard to get others to care. For units that accelerate initiatives from the core and expect staffing support from the core, you’re going to need to highlight the benefits of working on an innovation project and ensure people that their core jobs are going to be safe even if a risky innovation bet doesn’t work out. Regardless of how your unit functions, be sure to recognize accomplishments and show that working on high-potential projects isn’t going to be a detriment to anyone’s career.

Activities

Finally, an innovation unit is only as good as what it produces. So once you know what your unit is going to do and how it’s going to do it, it’s time to start innovating. Keep in mind that it can be dangerous to take on too many different types of innovation initiatives at once. Identify the most important pieces first, then see how you can grow.

Research. Although companies approach innovation in different ways, research is often a core activity of innovation teams. That may include things such as direct customer research, trend spotting, or scanning the external landscape for interesting startups or technologies. Be careful not to let research overwhelm or steer you toward things that seem trendy but don’t fit your unit’s mandate. Use your research to spot opportunities that fit with your strategic objectives and customer jobs to be done.

Challenges. Targeted challenges or hackathons are a good way to get more people involved in innovation or to get ideas from those who might not otherwise volunteer them. While trying to make innovation everyone’s job can be a disaster, challenges give you an opportunity to ensure that broader efforts are still focused on your strategic priorities. Decide whether your team will launch these kinds of initiatives, and how they should tie in with challenges that have been launched elsewhere in the business.

Idea sharing. While it can take many forms, one key activity that most innovation units will focus on is idea sharing. It might involve reaching out to academics or startups to bring knowledge into the organization. It could be compiling a database of past / ongoing initiatives so that people know who to get in touch with if they want to work on something and so that successes are acknowledged and hyped. Or it could include creating a digital platform through which individuals can share ideas for new innovation projects. In the case of this final format, be sure to include guidelines so that submissions relate to your strategic priorities. Companies that throw open the gates for submissions without preparing typically get overwhelmed by the volume and fail to do anything with most of what they receive. Then those who submitted ideas become disheartened, and they shy away from innovation later on.

Coaching. Some innovation teams will act as coaches for other business unit teams. They might train others on innovation methodologies, “unstick” projects that businesses are struggling with, or be innovation experts on projects that are run jointly with a business unit team. Be aware that coaching can become a major strain on resources, so determine early on whether this is something your unit will focus on.

Incubation. Finally, innovation functions will often act as incubators that advance their home-grown ideas or accelerators that advance ideas from a business unit faster than that team otherwise could. In either case, if the core business will ultimately have responsibility for commercializing the idea, make sure you build that relationship early and get a firm grasp of how it will fit in with other priorities.

Whether you’re building your innovation function from scratch or trying to figure out how it can perform better, be sure that you spend plenty of time thinking through all of the things an innovation unit can do, prioritizing the pieces to work on first, and making sure that your decisions all fit together. And acknowledge that your first attempt will simply be Version 1.0. As your function grows and evolves, you should expect to revisit decisions about how you operate.

Dave Farber is a strategy and innovation consultant at New Markets Advisors. He helps companies understand customer needs, build innovation capabilities, and develop plans for growth. He is a co-author of the award-winning book Jobs to be Done: A Roadmap for Customer-Centered Innovation.