A colleague Jared recently sent me this revealing Businessweek article; CEOs Say Investing in Innovation Is Not Paying Off. It stemmed from an Accenture survey of 519 companies in more than 12 industries.
What did it find? First of all, everyone loves 
innovation. 93% of the companies felt innovation was key to their long-term success and 51% had recently increased their spending on innovation overall. Cool, right? Well… yes and no.
Despite realizing how important innovation is and being willing to spend more on it, 82% weren’t seeing these investments pay off. Making matters worse, a lot of innovators are favoring more incremental (i.e. little and boring) and less transformational (big and exciting) opportunities. Around half (46%) said their companies were shying away from risk with a third (33%) focused on expanding existing offerings rather than braving new frontiers.
Why is this happening? Our research has found the failure rate of internal corporate ventures to be 78% (to date) if you look at raw mortality within 7-10 years of initial funding. This failure rate wanders from around 70% – 90%, depending on what company or industry you’re looking at. Accenture’s findings were right in the ballpark. Any way you cut it, the odds are bleak.
The sheer violence of this mortality makes it hard for companies to stay the course. Even the most committed innovators start to sweat 7 years into things when around 80% of their investments have died and the remaining 20% are (typically) little incremental wins rather than the big home runs they were supposed to be. Not exactly the best environment when you’re trying to increase your innovation budget for next year.
There are a lot of theories about how to improve innovation, and that’s a good thing. Whatever your favorite approach is, we should all be able to agree that companies need to profoundly change the way they innovate. It will take more than a tweak or two. Otherwise, if companies keep innovating the same way, they’ll continue to suffer the same mortality rates and predominant lackluster results. This increases the risk that the baby (innovation) will be thrown out with the bathwater (failure), just when – ironically – companies need innovation most.
Innovation is necessary. Innovation is important. Innovation is a good thing… but once in a while it sure can suck.
An entrepreneur friend told me long ago that to innovate means you must fail. I remember the comment because I’d worked for large multinationals exclusively to that point and I thought the comment was odd, just messed it fact.
Founding my own company changed my perspective on innovation – forever, and in a good way. Failing is just part of the process as you adjust your offering. The cycle of failing and adjusting needs to be done quickly is all, and preferably with the end beneficiary of your offering (in cooperation with someone that’s got a problem that needs solving and some money in their pocket).
In an enterprise grade corporation/organization we might call it, “failing forward”, just to take a bit of the sting out.
I suspect that innovation is like having a baby. If you have been through it on your own, you understand. Anything you say to someone that has not had a baby is just words to them. Only afterwards do they understand what the words mean – they have context.
Yes, many enterprises want innovation. Are you ready to fail? No, then you are not ready. Don’t wait too long though. There are more organizations being forced to change their business models today that ever before in history. Every service, product, idea and business model is perishable.
You win and your people win if you have fun while failing.
Tim is right. The chances of the stunning success of any one idea is depressingly low. However, that one stunning success can easily more than pay for all of the failures and generate almost unmeasurable RoI. That is why we have to surface as many ideas as possible, and quickly sort the good from the not-quite-as-good, as well as getting as many contributions as possible to make sure the good idea becomes the best idea. Tim Hardford, in his book Adapt, which is about why innovation success always starts with failure, suggests that the best ideas surface in a manner similar to evolution – most ‘sports’ fail, but the few that succeed, succeed spectacularly. Tim also makes the point that some of the best solutions in history, like the Second World War Spitfire, were the result of backing a maverick outsider just in case. The best idea based on the ‘received wisdom’ of the guys-in-the-know, the Boulton Paul Defiant, few people have now heard of. Churchill was convinced the Spitfire wouldn’t work against the German bombers – it was too fast, and could only fire forward.
Another key point in the book is the use of local knowledge. When in sales I had products ‘lobbed over the wall’ by marketing that I instantly knew (and could prove) were complete turkeys, but the market research said differently…. So the company wasted even more money marketing something that customers would never buy because there were far better alternatives.
That leads to another key requirement for innovation – find your winners at the lowest cost. Don’t continue to invest in bad ideas just because you have already invested a lot or because it is someone’s pet project. Get advice from the people who are closest to the customers and know their issues. Get ideas from those who know the company processes and what will and won’t work.
CEOs say that investing in innovation sucks? Well, big surprise! Most CEOs are five-star clerks. They manage their models of their worlds through short term common sense. Innovation is uncommon sense. And we all know that uncommon means rare, unsual, singular…
Speaking of “Innovation” without specifying what you are understanding by the word is useless. Most people have no idea of what “innovation” means.
Most innovations are just innovation for innovation sake and are just commercially driven artefacts, as such they are just a publicity.
Now if you come with a new vaccine curing aids… it’s a bit different.
Have fun.
Innovation isn’t about specific initiatives or projects or special groups. Organizations that consistently innovate live in a culture that embraces the kind of uncertainty and trial-n-error that comes with experimentation. Innovation has to be a core value if it is to yield results on a consistent basis.
I agree with all that is said. But sometimes the most non-economic route at first as far as innovation can turn out to be a game changer. Also I agree with one of the last posts that if a team is driven to innovate – its like catching a bug (to me) amongst a team – The wants more and is driven to innovate “just because” they have to innovate. Not because a CEO or CIO says “we innovate”. Its a raw engineering and architectural need to make things better not just for the company but mankind. This ideal gets lost in the shuffle sometimes of operational do-ing the do but the need to innovate must come from each engineers gut and infect for the good of the organization and mankind. I am in between contracts at the moment so if you know of company driven to innovate I would love to be part of the infection?
Great post Thomas… I love to see others engaging in how we need to build a tolerance for failure if we are going to truly innovate. Let’s get you more exposure for your research!
Regards,
-Matt
http://www.matthunt.co
The success/fail numbers found in the Businessweek article are remarkably similar to the statistics quoted for independent financial VCs which I don’t find surprising. The pertinent question is can corporate’s adopt a capital efficient investment methodology such as “lean startups” since they have strategic motivation to innovate.
At its core, innovation is an experiment of sorts. It requires a culture of risk, opportunity and challenge. For every innovative product that comes out of the NPD process , there are plenty of ideas that don’t. There are plenty of failures and plenty of mistakes. What’s important is that companies have a tolerance for failure and encourage risk taking. It is not enough to encourage employees to take risks. Your organization’s culture must clearly communicate how you will support innovators who take intelligent risks.
At its core, innovation is an experiment of sorts. It requires a culture of risk, opportunity and challenge. For every innovative product that comes out of the NPD process , there are plenty of ideas that don’t. There are plenty of failures and plenty of mistakes. What’s important is that companies have a tolerance for failure and encourage risk taking. It is not enough to encourage employees to take risks. Your organization’s culture must clearly communicate how you will support innovators who take intelligent risks.
My question is simple. How many innovators are willing to innovate themselves? It’s easy to question external forces, ie a better plane will do the trick. I wonder if C?O’s looked in the mirror and were willing to innovate they way he/she were doing something, and removed the human element, aka ego, how many more business’ would succeed. If that happened, many company culture’s would see something unique and want to add another factor of their own human element and give more to a company. Then the C?O would be willing to invest more into something outside to help it’s employees. Thus boosting morale at a company, thus boosting as an example sales. Thus they have innovated it’s culture. It all stared by someone looking in the mirror. Thoughts?
It’s not about the innovations of technology or a new plane, it’s the culture. Here’s are 2 examples…
1) http://blogs.wsj.com/scene/2012/09/26/why-asian-airlines-reign-supreme/
2) http://boardingarea.com/blogs/viewfromthewing/2013/04/12/why-cant-us-airlines-provide-great-service-like-the-asian-carriers-do/
I am old enough to remember the time that people were talking about Steve Jobs with a tone of sympathy-for-the-loser. Than Iphone came along and people started worshipping Mr Jobs for his “extraordinary leadership” and “genius”.. It seems to me that everyone is a fool until they succeed.
You cannot have cost-effective innovation unless you hire, train and encourage intrapreneurs. The future legitimacy of R&D, the success of America’s companies and of her economy depends on you, the R&D community, to do it right.