WORKING PAPER

Innovating from the Inside Out: 8 Steps
to Becoming an Innovation Powerhouse

by Stephen Wunker and David Farber

Chances are that if you tell people to innovate, many will assume that they need to lock themselves in a room and think up a bunch of crazy concepts. They would be wrong. The truth is that best practices in innovation have moved far beyond creative brainstorming. The most consistent and successful innovators don’t rely on chance, but rather have invested in building reliable processes and structures to repeatedly find new opportunities. Moreover, they’ve done this in a corporate environment, not trying to mimic a start-up when that just isn’t feasible to do.

Through our history of helping organizations large and small tackle their innovation needs, we have identified eight critical steps to bolster a company’s innovativeness.

​The eight steps encompass both organizational and project-level activities, with the two being intimately connected. Organization-level steps help senior leaders define innovation within the company and determine what internal skills they need to build. This entails making some hard decisions right from the start. For example, company leaders need to be crystal clear about why they’re innovating. They also must decide how far from the core they’re willing to go, and how they’ll support teams that are bold enough to take on the tough challenges. Closer to the ground, the four project-level steps lay out the process for creating meaningful innovation that can be repeated over time. The steps offer a concrete path that anyone can follow, regardless of whether they’re part of the innovation team, the customer insights group, the purchasing department, or any other part of the company.  

STEP 1: DEFINING YOUR INNOVATION BOUNDARIES

The first step to innovating requires consensus on both why you’re doing it and how far you’re willing to go. It sounds simple, but many companies stumble here. They either focus too narrowly and define innovation in terms of a few pet projects, often with senior execution sponsorship, or they go too broad and over-invest in areas where the broader company is unwilling to follow or lacks the bandwidth to pursue.

The most successful innovation initiatives, therefore, are firmly grounded in strategy. They focus first on internally aligning around the “why should we innovate” question. Innovation isn’t an end in itself, but a means to enabling premium pricing, market expansion, employee retention, and other corporate priorities. Answering why you want to innovate leads to concrete objectives and helps to avoid fuzzy aspirations. Once you understand why you’re innovating, teams see what qualifies as an ideal solution and what topics are clearly off the table. You concentrate on what matters.

Usually, innovating isn’t just about coming up with new products. We often suggest that companies look at ten possible domains for innovation. While there may be room to innovate around the offering itself, there’s often space for new ideas around the customer experience, the underlying business model, or services that could be sold with a product. Broadening the view is an exceptional way to make use of the diversity of perspectives among employees, combining types of innovation across the company to play chords, not just notes.

​Metrics are also critical to define early on, even if they will get more granular as you progress. Grounding people in metric-based definitions of “success” for the program creates alignment. Moreover, it concentrates effort given that innovation programs might mean so many things to so many distinct stakeholders.

STEP 2: BUILDING AN INNOVATION PLAN

Once you’ve figured out your broader innovation boundaries, it’s time to start thinking about how exactly to reach your goals. Context matters. For innovation to be sustainable, it has to leverage what’s already working in the organization, avoid landmines, and fit with company priorities.

The first issue is diagnosing the problem. Define the top areas for internal improvement, whether they’re culture change, tolerance of failure, better collaboration, or other hurdles. Then determine what’s essential to address first. Many companies ascribe their major innovation problems to culture – which is often true – but hinging everything on culture change might entail quite a wait.

The flipside of creating the diagnostic is building an overall plan for what “success” will look like. An innovation plan needs to enable the right kind of ideas to take root without dictating exactly what they should be. It should help carry forward the strategic choices you’ve made about how and why you’re innovating, addressing how much of your innovation activity will be in the core, in adjacencies, or outside the current business, as well as what sort of payback periods and investment levels are reasonable. Smart companies don’t invest in one long-shot innovation project and hope that it saves the day. A balanced innovation portfolio has projects with different risk levels, different timelines, and different objectives. It’s important for an organization to understand how each innovation project fits into the overall puzzle.

Once you have the plan, calculate what it will require in terms of ideas at various stages, knowing that many concepts will merit an early doom. Figure out the money and people required for the program as ideas progress through these stages, get winnowed down, and ultimately begin generating revenue or cost savings.

​Finally, if organizational changes are in scope, get specific about how an innovation unit can address these challenges without setting off fears of empire-building, and be equally clear about what that unit won’t do. Consider distinct activities, including awards, online communities, case studies, competitions, communications programs, and training. Determine priorities among them. Setting these parameters will be critical in protecting the unit from being captured by pet projects and politically brokered agreements about initiatives’ fates.

STEP 3: DEVELOPING THE INNOVATION PROCESS

A structured innovation process helps teams succeed by ensuring that they have guidance on where to focus their efforts, access to the right information at the right time, and proven ways to assess opportunities. Importantly, using a defined process ensures that success can be repeated over and over. The next four steps detail activities that teams can take to develop and run an innovation project. The process ensures that teams fully understand the market, develop solutions that respond to real customer needs, pitch new solutions that are built on sound business fundamentals, and stage the development and launch of new solutions in a way that minimizes risk.

Step 3.1: Map the Landscape Carrying out discovery research is a critical first step. A good discovery effort begins by mapping both what you already know, as well as what you want to find out. It’s important to understand how confident you really are in your existing knowledge and to take steps to validate assumptions. For instance, when we helped a major retailer work on its eCommerce strategy, a number of executives insisted that fear of package theft would prevent customers from switching to online shopping. Testing that theory in a quantitative survey, we learned that only 4% of customers were actually concerned about the issue. As you launch the discovery phase, think about how you can test underlying assumptions, answer outstanding questions, and identify trends that have the potential to cause the market to shift in a new direction. While desk studies are a great way to start your discovery research, there is no substitute for talking to real customers. Find out not just what they say they want, but what jobs they’re trying to get done in their lives and how totally distinct offerings may meet those latent needs. Understand what they’re really looking for. As the great management theorist Peter Drucker wrote, “The customer is rarely buying what the company thinks it is selling him.”

Step 3.2: Develop Ideas Once you understand what the market demands and how it may evolve, you can start thinking about what new offerings should look like. Brainstorming is most effective when it follows a process. Start by getting everyone on the same page about the objectives of the session and how ideas will be evaluated. Provide inputs if possible, so people have a common grounding in marketplace realities. After that, everyone should have time to reflect and come up with ideas on their own. Once team members have had a chance to think for themselves, get the group talking (potentially in 2-3 person breakouts) to hear what others have to say, organize their thinking, generate more ideas, and build out the ones that seem most promising.

Step 3.3: Plan Ahead As ideas transform into early-stage solutions, it’s necessary to focus on how to integrate them into the business. For process innovations, there may be challenges in getting employees to use a new framework, system, or set of tools. These issues need to be identified. With a new product launch, questions will center on production and revenue potential. In planning ahead, the goal is to consider a broad range of benefits and barriers or risks. These will be carefully weighed in the final decision to pursue or drop a proposed new initiative. As in the discovery phase, be careful not to assume that you have all the answers. You may still need to run some experiments or undertake additional research. Detailed action plans also account for the unknown. Trends may not play out the way you expected, or an anticipated regulation may never become law. You need to be able to adapt. Plans, therefore, should include a few possible scenarios, along with guidance on how to adjust your strategy for changing circumstances. Focus on areas of high potential impact and high uncertainty.

Remember that whoever came up with the original idea may have diminishing involvement as the project moves through the organization and evolves. A transfer plan should indicate how the project will get handed off, and to whom, as it heads toward commercialization or implementation. Ideally, those “ball-catchers” will be involved from a fairly early stage to provide input and gain buy-in.

Step 3.4: Experiment and Refine Agreeing on an idea for a new product or process is the beginning, not the end. Think through quick and inexpensive experiments can provide high-impact feedback. Consider the British confectionary giant Cadbury’s confident push into Eastern Europe in the 1990s. As communist regimes collapsed, Cadbury saw an especially attractive market in Poland. The country had a large population and relatively liberal legislation for foreign businesses. The company invested tens of millions of dollars in the country but struggled for years to sell its chocolate. Eventually, it pulled out. Too late, executives in the company realized that Polish consumers weren’t particularly interested in the sweet milk chocolate that was favored in the U.K. Their tastes were different. Some quick conversations and taste tests with actual consumers would have saved Cadbury very significant time and expense.

Building rough prototypes, conducting concept tests, and launching small pilots are just a few of the many types of experiments that companies can run early on. These tests allow companies to refine their offerings to better reflect market demand and avoid over-investing in the wrong projects. But while many companies have come to embrace early testing in theory, few have developed structures and incentives that actually encourage a test-and-learn culture. A process that compels experimentation is only part of the solution. Make sure your organization has the capability to fail fast and cheaply without causing career failure too. Beware the zombie projects that are not quite living but not dead either; this is one zombie scenario which is easily addressable. 

STEP 4: BUILDING A CULTURE OF INNOVATION

The final step in the process is building a culture of innovation. In truth, this isn’t really a step but an ongoing effort that often needs to get started early on. Before teams start running innovation projects on their own, for instance, it’s important to make sure that they are starting to use the same innovation language and that they have a strong grasp of common innovative behaviors. You want to make sure that people are trying to uncover market trends, question what they think they know, and network outside of their fields to find inspiration and challenge preconceptions. We put culture last in our list, rather than first, to emphasize that without changing some of the “hard” organizational variables discussed above, the “soft” cultural elements will never shift permanently. Furthermore, fundamental culture change takes a while, so the rest of your steps can’t be contingent on doing this first.

As people start using the innovation process on their own, provide support. Make sure that teams have access to tools and reference materials. Provide cover for those who are bold enough to take on the tough challenges. There need to be HR structures in place so that individuals won’t be punished for innovating if they do it smartly. If people fear that they’ll miss good work opportunities or suffer in their performance reviews because of their innovation work, there will be few who are willing to venture beyond the safest, usually low impact projects. Moreover, senior management must embrace both decisive action and quick iteration on innovative projects, which often means delegation exceeding what typically occurs in the business. 

With innovation underway, organizations should share success stories to embolden others to innovate. Colleagues can glean inspiration from past successes, and past team members can be a valuable resource as new innovators look for guidance and aid. The most important room for an innovation program isn’t some purple painted, beanbag-boasting Ideation Room. It’s the lunch room. When people share stories peer-to-peer, courage builds and great ideas rise to the surface.

​Sustained innovation doesn’t come from luck or flashes of brilliance. It stems from a structured process, bolstered by a careful diagnosis, holistic plan, and supportive culture. These elements ensure program impact and longevity. With that stability comes confidence, buy-in, and ultimate success.