How Should Your Company Pursue and Achieve Innovation?

This past April, Michael Parent published a book entitled The Lean Innovation Cycle: A Multi-Disciplinary Framework for Designing Value with Lean and Human-Centered Design, which addresses what many companies are facing regarding pursuing innovation. His book addresses these concerns by introducing a new multidisciplinary framework for both thinking about and pursuing innovation. By taking key concepts from the quality management practices of Lean and Six Sigma, the framework augments these tools and disciplines by incorporating other problem-solving and design techniques, including Human-Centered Design. The result is a view of innovation that many business leaders will find fits nicely into their existing paradigm of strategy and operational discipline.

When I recently spoke with Michael, I asked him: “How should companies pursue and achieve innovation now?” Here is his complete answer:

Innovation seems to be on the tips of everyone’s tongues. Search social media and you’ll find an ethos of innovation behind every post. But the popularity of innovation and entrepreneurial thinking on social media has done damage to how businesses and industry incumbents should think about and pursue innovation. Especially in a world buffeted by global disruptions – chip shortages, inflation, supply chain issues, pandemics – just to name a few, companies need to have a greater understanding of what role innovation plays in their business and the different ways they adapt to a dynamic organizational landscape.

Regarding innovation, the biggest opportunities for businesses are to pursue an innovative approach styled after the principles of Quality Management. Organizations can mitigate their risks of disruption by holistically evaluating their existing processes, and shoring up gaps that put them in jeopardy. It might not be sexy, but improving supply chain reliability, capability, and in-process quality has enumerable benefits for most businesses, from increasing profit margin, to reducing expenses, to driving towards operational consistency across their entire value chain.

Equally important is how businesses should avoid pursuing innovation. Generally speaking, if you’re anything but a new start-up business, you should stay away from grandiose ideas of disruptive innovation and industry-altering advancements. These promise exceedingly high profits and growth but fail to materialize due to excruciatingly low chances of success, high resource demands, and even internal organizational disruption to the existing business.

A business incumbent has already been successful in their industry. Rather than abandoning the history and tradition of the firm through radical, disruptive innovation, a business ought to re-evaluate its existing value propositions through the lens of a fresh perspective. Amidst global disruptions that have mainly affected business operations (and left the products and marketing themselves untouched) the principles of quality management, Lean, and Six Sigma is an excellent framework to begin this endeavor.

What do you think of Michael’s perspective? What role does innovation play in your company? How is your company pursuing innovation? What have been the pitfalls?

The Six Fears that Impede Corporate Innovation

New business innovation isn’t working in most large corporations. This is true even though we have made great progress over the past two decades in understanding the mechanics and dynamics of radical innovation. We have got the methodologies for creating the businesses right, but our organizations still seem to snatch defeat from the jaws of victory.

Why is this? New business creation is thriving in the startup sector, often disrupting incumbents, so the problem is not a lack of opportunity. What is going on? 

I recently spoke with James Euchner, whose recently published book -- Lean Startup in Large Organizations: Overcoming Resistance to Innovation -- addresses such questions. During our conversation, I asked him about the sources of resistance and their connection to Lean Startup. Here is his complete answer:

Any new venture confronts uncertainty: uncertainty in customer demand, uncertainty in the timing of the market, uncertainty about new channels or new business models or emerging technologies. Corporations have gotten better and better at managing these types of risk. The Lean Startup movement has done much to help with this.

It is ironic, but the very methods that have led to success in creating product/market fit have interfered with venture/corporate fit. There are, in fact, six fears that Lean Startup awakens inside the corporation that impede innovation.

The first is the fear of chaos: the concern that the iterative and experimental approaches of the Lean Startup will lead to an unmanaged innovation process. An Innovation Stage-Gate helps to contain the chaos. 

The second is the fear that the innovation process will lead to disruption of ongoing operations. Every corporation has established norms that define “how we do things around here.” New business innovation naturally challenges some of these norms. This disruption needs to be acknowledged and explicitly managed for a new venture to succeed.

The third fear is the fear that the lean innovation process will lead the company into opportunities that the company just can’t exploit. Worse, the new directions may even undermine the identity of the firm. A company needs to innovate within clearly defined opportunity spaces to counter this fear.

The fourth fear is that the new business will succeed by cannibalizing the core: the new business will appear to drive revenue and profit, but only at the expense of the financials of the ongoing business. To counter this fear, companies need to explicitly model not only the economics of the business but the impact of the new company on the core business. Sometimes, cannibalization is necessary to the ultimate growth of the firm.

I believe that the fifth fear is the cause of the failure of more new ventures in corporate settings than any other. This is the fear that the investment in the new business will drain resources from the core. It causes the core business to react in ways that smother the new business. Countering this fear often requires separating the new company from the mother ship, at least during incubation. 

Finally, executives often fear making a career-limiting blunder when investing in a new venture. After all, the new venture, by definition, moves into spaces that are less well-understood by executives in the company. To counter this fear, companies need to develop ambidextrous leaders – those who can both execute and innovate. A key requirement is for the executives to spend time in the new ecosystems. 

What has your experience been with new business innovation? What are your thoughts on Jim Euchner’s suggestions for inoculating companies against these corporate antibodies?