Everyone knows instinctively that innovation feels risky, especially compared to large, established transformation projects (like IT implementations or operational restructuring).
Yet how risky is innovation actually?
According to research by Deloitte’s Doblin practice, in the majority of companies, only one in 25 innovation projects actually provides a tangible return on investment.
That means that 96% of innovation projects fail.
By any measure of success, this sort of failure rate shouldn’t be allowed in large, established companies which
Why is this?
Is it because it’s so hard to get a good idea?
Most Start-ups, design agencies or advertising companies would say that large corporations are just not as creative as they are, leading to them producing iterative new products which the consumers don’t want.
They point to famous examples of large companies who were disrupted by a nimble upstart who was better able to deliver what customers wanted.
In reality, though, this is far from the main reason why innovation is so challenging. By confusing creativity and the generation of ideas with successfully delivering innovation, companies are blinding themselves from the real reason for their failure to innovate.
Based on analysis of thousands of the world’s most successful innovators, Deloitte has discovered the core issue that companies face. As Larry Keeley, head of Deloitte’s Doblin innovation practice notes:
INNOVATION ALMOST NEVER FAILS DUE TO A LACK OF CREATIVITY. IT’S ALMOST ALWAYS BECAUSE OF A LACK OF DISCIPLINE.
Most companies, even large corporations, don’t have a lack of wildly creative ideas for new innovations. It is the challenges of delivering and scaling innovation projects which leads to their failure.
To paraphrase the famous quote, Success is 1% inspiration and 99% perspiration.
However, in that case, we would expect those large companies to be excellent at delivering innovation projects. These are usually companies that have excelled at scaling their operations and delivering large-scale transformation projects.
In most cases, the aspects of delivery for these large-scale programs can be predicted, based on the experience of how they have been run previously. After all, if it has previously taken 14 months to build an 8 story building, using the same sequence of steps and equipment you are likely to be able to repeat the process and deliver a similar outcome in a similar timescale again.
The issue with traditional program management
Managers have been trained to use standardised program management methodologies, to track progress against well-established timescales and milestones for project delivery. These methods, key performance indicators, business cases, and processes are designed to remove doubt and ensure that delivery is as efficient as possible.
It also helps focus limited resources, budget and people towards new projects which can be effectively planned with a clear, measurable outcome, and away from projects which may fail and waste these limited, valuable resources.
This reduces the risk of “failed” projects.
And for most large-scale transformation projects, they have been instrumental in helping companies scale their existing business and core offerings. This makes these program management methods the “correct” way of managing project delivery and the way that most managers are taught and assessed against.
The challenge comes later when a company needs to innovate for growth.
Innovation involves developing things which haven’t existed before, either to the world or to the company. This often means that there is no agreed final design or solution which can be planned for when a project is still just an unfinished idea.
There is also no guarantee that any one particular idea will be a success when it is finally released to the market, since customers may react to it differently than expected.
As a result, almost any innovation project will appear as risky when you try to assess it using the parameters of traditional program management KPIs. Imagine trying to put together a business case for a product where you don’t know what the design will look like, how long it will take the create, or whether anyone would even buy it. [I have done it previously, and at best you can make estimates, but these are often hit by reality the first time you get feedback from customers].
And since most companies are so wedded to their existing, effective program management processes, it forces innovation projects to try and get delivery approval using the existing processes not designed to assess innovative new ideas.
Often, innovation teams will busily be working at generating ideas and testing concepts, but once the ideas are ready to move into development, the management processes which help traditional delivery projects can hinder innovation efforts.
In most cases, truly innovative ideas and projects will be assessed as just too risky, especially when it comes to the moment when resources need to be devoted to implement and scale the project so that it actually benefits the business.
Those which do pass the first hurdle for approval may then struggle to stay aligned with the project plan the team had to make up for the business case (which itself was based on vague estimates, hopes, and dreams), leading management to assess the project as being off-track and not delivering.
Finally, even if an innovation project is successfully delivered, it then requires the business to actually adopt a change to business as usual and implement the innovation to reap the benefits. Often, the people managing the current processes for BAU can be afraid of the change, especially if they were not involved in the development of the innovation, and be the final reason why the innovation project fails.
You can’t use the same management systems and Key performance indicators for innovation projects as you do for traditional program management. They are not designed to achieve the same things. And yet most companies try to and are disappointed by the results.
Once you see all of these issues, it becomes clear why most companies have innovation success rates of less than 5%.
Yet there are companies which have learned the secret of building innovation capabilities by overcoming these issues.
By putting in place the right management structures, governance, strategy and culture to foster and deliver innovative projects, these companies have innovation project success rates of 35%, 50% and in some cases up to 70%.
Not only this, but they have begun to deliver transformation within their business which not only improves efficiency but actually helps grow the company.
By building the capabilities required to innovate, against a clear innovation strategy, these companies have unlocked the powerful new way to deliver value: innovation-led transformation.
Transformation project effectiveness combined with the adaptability and growth opportunities of innovation.
In order to achieve innovation-led transformation, companies need to build capabilities which underpin effective delivery of innovation, as well as the leadership capabilities to manage projects against non-traditional metrics and foster a culture which allows people to execute transformation projects in rapid, flexible ways.
Historically, companies have undergone transformation projects to prevent themselves from being disrupted by competitors who saw what customers wanted next.
With innovation-led transformation, these same companies can be the ones who deliver what comes next, now.