By: Luis F. Solis
Innovation governance translates corporate strategy into robust, results-driven portfolios. Who among the executive ranks would oppose that? With innovation governance, the short and the long-term innovation opportunities are balanced, resources are strategically allocated (especially people), and the organization acquires an improved ability to achieve both stretch growth goals and market differentiation.
Without innovation governance, short-term execution commitments tyrannize the organization. The firm may become captive to incremental thinking and doing.
Imaginatik conducted a global discussion and series of polls about innovation governance during a September 2014 webinar with James Euchner of Goodyear Tire & Rubber Company and Deborah Arcoleo of The Hershey Company. This article culls the most important insights, distinctions and highlights from our sprite conversation.
Early days of governance
Twenty years from now it is possible that many large organizations will have mastered key innovation processes like governance, with a corresponding capacity to anticipate and respond to dynamic market shifts. Today, however, innovation governance is still in its infancy. The vast majority (63%) of survey respondents (Figure 1) characterized the current state of innovation governance as “embryonic,” or an undeveloped capability. 30% believe the governance process is underway, early but in progress, whereas just 6% of respondents chose “governance is a strength of ours” as an answer.
Yet the tentative steps being taken are inconsistent with perceived value. The top four benefits of developed innovation governance were expressed as:
- Tight alignment with corporate strategy
- Predictable, consistent innovation returns
- Prioritization of innovation returns, and
- A balanced innovation portfolio
Innovation governance ensures short and long-term innovation opportunities are balanced, resources are strategically allocated, and the organization acquires an improved ability to achieve both stretch growth goals and market differentiation.
Our guest speakers extolled the value of a consistent, rigorous governance process with clear measures and indicators. Too often, however, the idea-to-market innovation continuum is confused with mere creativity, thus, there is a tendency to avoid process, structure, rules and metrics. So what gets in the way?
A number of hindering factors are evident. Amongst the 64% of respondents (figure 2) who are engaged in innovation governance today the top three obstacles are:
- Political or power line issues
- Inadequate structure or coordination, and
- Insufficient information (only 5%)
The idea-to-market innovation continuum is confused with mere creativity, thus, there is a tendency to avoid process, structure, rules and metrics.
Innovation governance dictates that the senior management team embraces broad strategic strokes. Sometimes this is difficult to achieve. When portfolio-level governance is hard to come by, it’s reasonable to expect disagreement or misalignment about specific project merits. Structure for the sake of structure can also serve as a major inhibitor. Many organizations tightly align innovation with operating units, without central coordination or a planning dashboard, resulting in occasional redundancy, waste, and lost opportunities. Excel spreadsheets and SharePoint, the work-horses of governance information management, rarely satisfy the requirement for dynamic, visual, collaborative
dashboards to embed governance into regular management flow.
Not every organization has the long-term governance track record of The Hershey Company or Goodyear. However, we believe the following five insights will assist any organization and its executive management team to experience tangible governance benefits in 2015.
5 lessons to enhance innovation governance in 2015
1. Make time and space
While an Innovation Steering Committee is just one example of how to organize an innovation effort, our experts recommend a scheduled leadership meeting (quarterly for 3-6 hours) to revisit the portfolio strategy, and check in on project progress. It matters a great deal who attends. At Goodyear, the unified gathering spans 20 global executives across all business units and disciplines; The Hershey Company prefers to empower three business units to conduct total portfolio reviews on a quarterly basis. Both experts reminded us that the right people must be in the room. Presence equals accountability.
Takeaway: The review is scheduled and attended by the right business leaders, is distinct from monthly operational priorities, and representation goes far beyond the traditional R&D ownership of innovation. In both organizations the CEO establishes the importance of this process, often inviting the individual to participate.
Our experts recommend a scheduled leadership meeting to revisit the portfolio strategy and check in on project progress.
Ask for accountability
Innovation is imprecise, sometimes difficult to measure, and may take longer to pay off than many leaders expect. It’s part science and part art, which is why innovation leaders should favor a periodic, structured review of innovation streams. The governance process is an opportunity to manage and prove credibility. By keeping track of investments and associated costs, innovation leaders enhance their ability to show that dollars are being well spent.
Takeaway: Innovation leaders must own the performance yardstick. Failure to do so makes it more likely that less appropriate measures (e.g., purely short-term economic returns) will be adopted.
Insist on tight strategy linkage
Whether the innovation function reports to the CEO, the head of Strategy, or the CTO, successful innovation governance keeps strategy at the forefront of discussions. Strategy guides decision-making against limited resources, both financial and human. A well-articulated strategy will distinguish between operational imperatives (execution) and projects to seize tomorrow’s opportunities, as well as to protect against threats (exploration), within the larger context of market growth. It is particularly important to convey priorities in terms of innovation horizons to provide the proper context for decision-making (i.e., risk, certainty, investment and size of returns).
Takeaway: Innovation governance is more impactful with the help of a clearly articulated innovation ambition to set context. Beware of the tendency to focus on just projects without regular portfolio check-ins.
Distinguish between the portfolio and projects
For many, stage-gate process management is synonymous with innovation governance, and for good reason. The stage-gate method is broadly embraced as a best practice to move good ideas through stages of activities, with gate decisions, to an ultimate market offering. While not over-limiting, the stage-gate method is ideal for closer-to-the-core products or offerings with experiential data. The further from the core, the more assumptive the analysis will become. Other methods, such as hypothesis-based testing, may play a larger role in adjacencies and transformational projects. Enter the Portfolio. At this strategic level, the firm desires to see a heat map of all major projects across two dimensions: distance from the core business, and distance from current customers and markets, including a time dimension of course.
Takeaway: Industry leaders practice innovation governance at the operational stage-gate level for core and near-core innovation, and simultaneously at the portfolio level with a strategic matrix. Many projects defy or are pre-maturely damaged by stage-gating because they may exceed the firm’s know how or experience basis, requiring judgment-based decisions instead of strictly data-driven ones.
Many projects defy or are pre-maturely damaged by stage-gating because they may exceed the firm’s know how or experience basis, requiring judgment-based decisions instead of strictly data-driven ones.
Set evaluation measures and criteria early on
Early agreement on both tiers of evaluation criteria – at both project and portfolio levels– is the best way to give innovation governance a proper chance of working, according to our webinar experts. For projects, the discussion likely will focus on stage definition and gate criteria by leadership. Good models already exist, so consider modifying an existing model to suit your firm. For portfolio construction, seek to achieve consensus on the meaning of the matrix categories. For instance, how does the firm define its core, its adjacent opportunities in terms of capability and technology, and transformational or so-called disruptive opportunities where technical feasibility may be unknown? Likewise, engage leadership on the customer benefit spectrum, from well understood and accepted, to more distant and speculative. In doing so, you will reinforce the purpose of innovation governance, which is to achieve process stability by means of consistently applying evaluation criteria to make better portfolio decisions. Leadership alignment will come easier, project teams will know when the size of the prize exceeds the expected potential, and initiatives with greater promise will receive commensurate resources.
Innovation governance relies on a set of agreed-upon definitions and language constructs to help the organization make better decisions. Tackle the definitions early, for projects as well as the portfolio design. Recognize the iterative nature of this process. Closer to the core activities are always easier to address. As technical feasibility increases and market adoption becomes less certain, be ready to rely on less quantitative methods to make “go, kill or re-evaluate” decisions.
By Luis F Solis
About the author
Chief Evangelist Officer of Imaginatik plc, Luis is a pioneer in the diffusion of innovation strategy and enterprise software in global organizations. As entrepreneur and business builder, he has taken companies public, guided global roll-ups, started ventures and turned-around software companies. A graduate of Stanford University’s Business and Law Schools, Luis recently authored “Innovation Alchemists: What every CEO needs to know to hire the right Chief Innovation Officer.”