What High Growth Companies Share in Common

By: Uri Neren

Over the past six years The World Database of Innovation initiative has uncovered the world’s first statistics behind the practices that allow large organizations to grow and to innovate. In collaboration with innovation leaders and other experts Uri Neren and his team found 27 management structures, processes, and cultural practices are shared by the world’s fastest growing companies that make what could be called an “Innovation Management Equation.”

We have bad news: there is no formula for Innovation Management. No silver bullets, templates, one-size-fits all, or easy answers.  But, a new research project is slowly unraveling the next best thing to an “Innovation Management Equation.”

This map of Innovation Management may look familiar, but look a bit deeper and you will see that it is actually an overview world’s first empirical evidence behind the many approaches to innovation management.

In 2007, I was commissioned by The Mayo Clinic and Dr. David Rosenman to study and understand this thing called “Innovation Management.”  Dr. Rosenman was creating a curriculum for innovation and asked us to build a very interesting database of the world’s innovation consultancies and their best practices.  Our statistics and almost every expert we spoke to agreed that the practice of managing innovation is still very undefined and highly unregimented – just as the Lean and Sigma practices were in the 90’s. We saw so much chaos that after several months we separately launched the world’s first effort to gather statistics behind the methods large organizations have used to create future top line growth (or Innovation for those who prefer) and later named it The World Database of Innovation initiative.

The “database” catalogues the practices, structures, processes, and other approaches that the highest growth, or “most innovative” organizations on earth share in common.  We worked with 380+ of the world’s innovation related consultancies, large-cap corporate innovation leaders, and diversified our sources by talking with economists, anthropologists, systems concepts experts, and others who deal with transformative societal changes. We also used the best practice of researching other’s research.  This database now lives inside Innovators International, a coalition of “Chief Innovation Officers” from 42 companies around the world including 3M, Patagonia, The Mayo Clinic, SAP, and Pepsi where our staff and the members are continually developing this potentially life-long project.

Each has a text book worth of information behind it which we will be putting out to the world in time.

Below are brief overviews of the 19 out of 27 common structures, processes, philosophies, and other factors we found in the world’s fastest growing organizations.  Each has a text book worth of information behind it which we will be putting out to the world in time.   As you read, know that some of the commonalities have hard statistics, some are trends we have just begun to uncover, and others are at the early stage of having just a handful of anecdotes.  When combined, we think these practices are the beginning of an Innovation Management Equation.

While the study focused on small to large cap corporations, part of our mission is to uncover the Innovation Management equations that will allow society to both deal with the acceleration of large problems we see arising and to proactively shape our future.

An Environment in which innovation can flourish

This category may sound soft at first but we found the strongest correlations between innovation success and the following practices, philosophies, structures, and other factors we put under “Environment”.

1. The Innovation Function is Independent

A large organization’s innovation team must be close enough to the main team to capitalize on its vast resources but not so close that they are affected by the culture and structures of your organization.  Generally, this is because all organizations are designed specifically to manage and protect past products and services leaving no space whatsoever to do new things. See Tushman and O’Reilly’s Harvard article, The Ambidextrous Organization, which we found early in our study and later found to be one of the strongest studies on Innovation structure.

2. CEO Owned

The most successful organizations did not put innovation under R&D, Strategy, Business Development, or any other org function.  They put it under the CEO directly.  To be clear, this is not having a CEO who is engaged but rather a team that reports to the CEO who treats it as an independent department or business that is in charge of future top line growth.

3. Treat it as a Risk Management Exercise

It is a myth that innovative companies are better at tolerating risk and that innovation is a high risk activity.  Because this is an agreed upon myth though, we saw that the vast majority of companies put millions into innovation without a cohesive investment strategy.  This left them without any strategic spread of their investments and occasionally with the highest possible exposure.

Large organizations have a big problems with innovation because they are rewarded internally and externally for doing just the opposite.  We have seen that those that control their markets and invent new ones frame Innovation Management as a risk management exercise.  There are a few large companies who have a cohesive strategy but for real learning we had to look at practices from the world’s business incubators and funds like Mondragon in Spain or some of the Swedish and Israeli accelerators.

4. Connectivity Between Employees

From 3M to Google to The Mayo Clinic, those with the strongest market performance shared a highly connected employee population.  This makes sense in light of another finding of ours: every innovation is simply a combination of two or more old things under a new model.  So, when employees are enabled through a culture, rewards structures, and actual connective systems like internal online communities they will far more often combine ideas.  See David Gray’s book The Connected Company.

5. Dedicated budget

Innovation leaders stated consistently that a prominent problem was having their budget constantly stripped away.  This seems logical but when we looked deeper, we found that the effect was either a complete disbanding of innovation like Best Buy experienced, or a self-preservation reaction meaning the innovation team worked on nothing but short term wins/incremental improvements.

6. Definition

A fascinating correlation here:  some high growth leaders shared similar definitions for innovation.  For instance, they believed innovation focuses on changing human behavior on a wide scale, has a more noble societally-focused bent and is clearly distinct from Invention.  We also found that the definition was well understood by the entire organization as was the case at Medtronic where a maintenance worker purportedly answered to the question “What do you do?” with “I save lives.”

7. Big Question Asking

We have just begun to uncover this trend.  It is about having a process to repeatedly ask the question “What business are we in?” and to then closely redefine what you offer the world from the perspective of a solution to a real world problem.

8. Systemic Authenticity

Some people have called this Mission-Driven but we found that a broader phenomenon was the actual driver.  Having a company mission that focuses on a higher purpose seems important, but the level to which this penetrates the organization, the level to which a company knows itself and its Core Competencies, and the genuine-ness of the mission via actions all seem very important to how good the organization is at moving into adjacencies.

9. Alignment with M&A

This speaks for itself – in the buy vs. build conversation make sure the organization acts as one.  We suspect that the largest of companies should focus their innovation efforts al a GE on acquisitions and scaling but don’t have data to support this yet.

10. On and Off Ramps

One of the biggest barriers to innovation at large organizations is politics and protectionism.  Developing pre-agreed to paths, metrics, and decision processes gives innovators a highway to drive on. Not surprisingly, the worst performance came from organizations with a small team of executives making innovation investment decisions.  We did however find that companies with a senior executive investment decision council did well when there was a robust mechanism to inform the executive team.  An internal venture fund or established funding mechanism again with untouchable money works best here.

11. Talent

We predict that this will be the most interesting and highest ROI activity when our research on this category is complete.  We have already seen many studies such as IBM’s CIO Survey in 2011 that showed a very strong correlation with Talent Recruitment and Development and Innovation.   An emerging trend across several studies and our own direct observation seems to be that the most important thing in regards to your people is to simply get out of the way.  Studies all point to people being inherently innovative.  The most effective move here is to simply remove barriers in recognition, credit sharing, and measurement.

The Opportunity Discovery phase

12. Start All Innovation Here

Companies that put out high volumes of new products, services, and market offerings almost always start at this market opportunity discovery phase as opposed to the solutions or product ideas phase.

13. Pipeline of Opportunities

Just like we talk about managing a product/idea pipeline, we saw that putting some process to prioritizing all market opportunities and then deciding where to invest first led to more success.  There were several companies that made an interesting move as well:  they placed their product pipeline underneath this opportunity pipeline.

14. Problem Articulation Framework

A standard set of questions and answers that help the company fully understand the opportunity seem to be very important early and later in the funding process.  This keeps the company more objective and follows Einstein’s philosophy and Kettering’s quote “A problem well-stated is a problem half solved.”

…we found that looking backwards at market data… is sometimes the exact thing that limits breakthroughs.

15. Focus on Future Exploration

P&G’s innovation group threw away traditional market research 20 years ago following the philosophy that you can’t look at the past to create the future.  In fact, we found that looking backwards at market data and especially the questionnaire/focus group approach violates the Scientific Method and is sometimes the exact thing that limits breakthroughs.  The highest performers looked at the present via an ethnographic” practice that used the blind observation of people’s habits.  They also did future scouting per Joel Barker’s futurist practices, mapping potential future scenarios and planning for them.

The Ideation and Development phases

16. Solution Articulation Framework

Just as it is important to explain the market opportunity well, we see many companies who attach a solution framework that forces everyone to state their new product/service idea in the same manner – without this you cannot really compare potential investments.

17. Invention Methodology Toolkit

There are 162 total Invention Methodologies we found around the world.  These are structured thinking processes that have the goal of creating market success more often.  They range from brainstorming (at the less structured end of the spectrum) to the media-darling Design Thinking to the highly structured TRIZ and its derivations like Systematic Inventive Thinking.  An internal team that can bring two or three of these processes to each division’s product development teams like General Mills’ iSquad is a popular approach as it simply accelerates the work already going on in each division.

The “Introduction to Your Organization” and “To Market” phases

18. Kill Function, Pipeline, and Decision Making Process

This is part of the On/Off Ramp but is worth singling out as many leaders name the politics of killing something old as a prominent and always present barrier.  Many old studies show clearly that most new things fail at the To Market phase, but we found that a significant portion of these failures actually happen earlier when they are first introduced to the business unit.  The majority of the Innovators International membership say that a set of agreed to metrics, and a decision process by which products/services will be funded or killed would make a world of difference.

19. Strong Implementation

They make up a complex matrix and each must be adapted to your organization’s culture, structure, speed of industry, time in history, and other completely unique situation.

We have less to say about this part of the innovation process – large organizations tend to already be strong at the To Market stage.  Still, it is where the majority of inventions die and do not become an innovation.  Sometimes this is due to a lack of connection to the inventor, but just as often because a new product is implemented without alignment with Sales.  Sometimes it is the concept itself that fails, but more often it is the specific implementation that is the failure.

We did not have space for the remaining eight commonalities Split Pipeline, Link to Inventor, Qualities of Successful Products, Myths about Innovation, Iteration, Collaboration, Lead with Metrics, and Constraints but we will be writing about these in the future.

To reiterate – the aforementioned commonalities are not to be confused with rules.  They make up a complex matrix and each must be adapted to your organization’s culture, structure, speed of industry, time in history, and other completely unique situation.

For those in the corporate world these practices have the potential to bring reliability to your innovation results.  For those in government, it has very powerful use to create global competitiveness.  And, for all of us, the “equation is most interesting in how it can be used to shape our common future.

By Uri Neren