Does your company have the right skills to innovate effectively?
Some may think this is an odd question and an answer to this may revolve around client satisfaction with a current product or service offering. However, I would argue not looking deeply at how you come up with new products or services leaves opportunities on the table for your competition, and the ‘how’ has everything to do with the human resources within your organization and ‘how’ they are organized.
Innovation usually comes from modifying existing offerings (core), expanding into new business areas to serve other markets closely aligned to the current business (adjacent) or developing capabilities for markets that may not exist yet (transformational). Many articles on the subject have postulated that well performing firms typically allocate 70% of resources to core product, 20% to adjacent ventures and 10% to transformational (Larry Page from Google commenting on his company and where it invests being one of them). While there is no guiding principle to gauge success of this breakdown, as every firm is different, research shows returns on well executed plans are the exact inverse of this ratio (70% of returns coming from transformational initiatives, 20% to adjacent and 10% to core).
In looking at the returns on the type of innovation invested in it only works when you have the right skills. If by allocating 10% to transformational initiative you can get a 70% return it would seem logical that all companies should be doing this. The reality is most firms, large and small, are not equipped with the right internal skills. Developing transformational innovations does not come from analysis of a consumer research report on current trends… you are actually creating the trend. It is unearthing insights of customer preferences related to problems they are trying to solve through technology or some other means, which have not been invented. In other words, they need somebody to connect the dots of what technology developed in the right way solves that problem in a way that may not be readily apparent to them.
I have written extensively on ‘domain expertise’, people who live and breathe customer challenges with respect to the current technologies available in specific industries. Finding and utilizing their insights as well as customer preferences is a start to transformational innovation, it is not the ultimate answer. Internal skills in let’s say an engineering focused company may be excellent at developing robust and practical solutions for a particular market, but you may need more design influence to make it appealing to an entirely different user base or develop entirely new software that is easy to use for non-engineers. Depending on where you need to take the product idea to solve a particular problem and deliver value dictates who you need at the table refining those insights into actionable tasks. This is where the right outside help makes sense to work with your Team and provide assistance where you will need it.