Too many innovation projects fail not because the idea was bad, but because they were dealt with the wrong instrument.

In fact, most innovation teams do not know how to decide which instrument should be used and when.

Innovation instruments are not the same as innovation methods. Incubators, intrapreneurship programs, CVC, Venture Clienting, and accelerators are examples of instruments. Design Thinking and Business Model Canvas are examples of methods. The difference is that methods can be applied and used inside the instruments- but not the other way around.

So what determines which instrument is best suited? How to choose between so many instruments? When to build a Task Force rather than an Accelerator, and when to leverage Open Innovation?

During our recent Innov8rs Unconference, Dirk Ploss, Senior Innovation Manager at Beiersdorf, showed us the Instrument Selection Framework (ISF) he has developed to simplify the whole innovation decision process and, ultimately, decide which one of the 12 major innovation instruments will be best suited for the project at hand.

Why A(nother) Framework?

It might take 250-ish different initiatives to come up with one big winning idea. To handle all of this, innovators should be able to decide very quickly which ones to pursue and which not. And you need the right instrument to sort them out. How to pick the best one without a framework that supports you?

Even when innovators decide for or against any instrument, their decision-making process may be tainted by:

  • Low hanging fruits: choosing not the best instrument but the one at hand.
  • Rolling dices: randomly choosing one instrument thinking it'd work, without really having an idea of why it should work or why it should work better than others.
  • HIPPO decision: the HIPPO (Highest Paid Person Opinion) decides which instrument to use for the innovation project. And this, as you can imagine, doesn’t necessarily lead to success. “When that happens, the initiative will most likely fail. Indeed, the HIPPOs only decide on instruments based on what's trendy or fancy, not what's the best. And thus, they create an innovation zoo”, says Dirk.

A framework helps to fix these gaps. So let’s explore its main components.

The Anatomy Of Innovation

Innovation always starts with a source, an ignition- e.g., trends, insights, competitors, inspirations, tech developments, or a problem to be solved.

“Innovation can either be an opportunity or a challenge: it’s an opportunity when we can gain something from it once on the market- new customers, market shares, etc. If it's a challenge, we should not bring it to market, or we will lose something. Making this distinction right away is crucial: we must defend our core business before we can grow in other businesses”.

To establish whether innovation is an opportunity or not, innovators should consider certain determining factors – aka determinators – that may ultimately sustain the overall innovation journey to its implementation. More specifically, you should consider::

  • Demand, competition, and growth: how many potential customers want this innovation? How many other companies are competing for the same potential customers? Is the market flat, stagnant, declining, or growing? As innovators, we can’t override these questions.
  • Urgency: you can mathematically determine urgency using the following formula [(D*G)/C * CO], where D is the demand, G is the growth, C is the competition, and CO is the challenge opportunity factor. The CO factor will be 1 if innovation is an opportunity, 1.2 if it’s a challenge (because it's slightly more urgent if it’s a challenge).
  • Penetration, frequency, and severity: “is this problem worth solving?” is probably the major question in innovation management. And here you have three different factors to consider:
    • Penetration: how many potential customers have this problem?
    • Frequency: how often do they have it?
    • Severity: is that a real problem? Because if it's something that consumers barely care about, there's not a concrete possibility to obtain great returns from it. But if it’s a burning problem, then even smaller frequency or penetration numbers might justify the innovation project.
  • Feasibility, viability, and desirability: can it be done? Is it a theme or topic variation, or is it a cutting-edge innovation? Do you have the necessary capabilities and resources internally, or do you have to find external partners who can fill that in? Is it valuable to the company?
  • Proximity: how close is the innovation project to the core business? You can judge that by considering two factors: effect similarity (does the innovation solve a problem more or less the same way as your current products?) and capabilities (are you experienced and skilled in this topic or business?). Of course, if you neither have the capabilities nor is it something closely related to the products you're already offering, then you're entering a new market.

The Logic Of Innovation: The Instrument Selection Framework

As Dirk outlines, there are twelve major different innovation instruments: basic research (aka applied sciences), innovation labs, open innovation, corporate venture capital (CVC), product development, incubator, company building, and accelerator, intrapreneurship program, task force, venture clienting, and M&A. Naturally, many subsets exist: for example, university collaborations and hackathons find space within open innovation.

What primarily differentiates these instruments is the time horizon and the topology (inside-out vs. outside-in approach).

Basic research, innovation labs, open innovation, and CVC have a long-term approach; in this same order, they range from a more inside-out orientation to a more outside-in one. While intrapreneurship program, task force, venture clienting, and leveraging startups or buying something via M&A have a very short time span (and, again, if an intrapreneurship program is an inside-out instrument, M&A is the opposite). The remaining four instruments (product development, incubator, company building, and accelerator) have a mid-term horizon.

So, how to choose the best instrument?

As you can hear form the snippet above, Dirk introduces The Instrument Selection Framework, a tool you can use to navigate between the different innovation instruments. He suggests you first define the topology and then, at each node of the flowchart, you decide where to go depending on the determinators described above.

Simply put, your decision process should be guided by the following questions:

  • Is this something we can do internally? If so, then go on the inside-out branch.
  • How urgent is this innovation project or initiative? Decide the time horizon accordingly.
  • How close is this to the core business? If it’s something that is inside the core business and has a mid-term horizon, then choose product development- because most likely it'd be an incremental innovation that enhances your current solution. If it's edgier, go into incubation. On the other hand, if you’re on the outside-in branch and the innovation has a long-term horizon (and it’s urgent), then you should choose CVC. If it's very short-term, then you would go with M&A or venture clienting, depending on where the value creation happens.

This framework can help you make specific and best decisions depending on different situations. It’s simple and binary but leaves room to move: you always must adapt what comes out of it to your company’s needs.

For instance, if you don't have a specific instrument ready to use or if it's too expensive to create the instrument that, according to the flowchart, would be the best fit, you can replace it with something else that’s still suitable. The good news is that this same flowchart can help you identify the second (third, etc.) best choice since it also sorts the instruments by order of relevance.

The framework as such is absolutely suitable for every single industry. But you have to be aware of what to expect from it and what to use it for.

"You won’t be able to build a new plane design in six months just because you’ve started an entrepreneurship program. You have to balance and manage your expectations and outputs”.

However, much also depends on the company’s culture as it defines the toolbox you can use. For instance, if you do not have an entrepreneurial culture and failing is punished, then don't initiate any intrapreneurship program because it won’t take off.