As innovation function, we have to create more and better value for our organizations from our initiatives and efforts.

Whilst in most companies, the days of innovation theatre are gone for good, still, we are finding it hard to deliver upon the promise of innovation consistently, and at scale. What can we do to raise the bar in 2022?

To tackle this fundamental issue, we’ve hosted a conversation at The Innovator's Handbook 2022 Launch Event with Greg Larkin, Author and Founder of Punks & Pinstripes, Dan Toma, Author and Co-Founder of OUTCOME, and Linda Yates, Founder and CEO of Mach49, moderated by Noel Sobelman, Author and Corporate Adviser on Innovation Effectiveness.

Below you'll find a summary of the conversation they had.

What’s the definition of “value” in the context of innovation?

We often hear about value, but what does it mean?

Dan: The definition of value depends from company to company, and every company must define value in their own way. However, the definition needs to revolve around doing something that customers want on top of which you can put the sustainable business model.

Linda: My definition of value is twofold. Number one is the longevity of a company. Are you going to be around in five years? Are you going to have a product still, will people want it, and will the business model work?

The second way I would define value is tactically in terms of the revenue and growth you're driving for your company..

Greg: Let’s start with a piece of evidence: product market fit is extremely hard to reach and what happens right after is a civil war between the new and the old guard. And so, how I define value is as an intrapreneur: Can you survive that civil war? Can you sustain the rate of acceleration? Can you stay growing in the face of that resistance? That’s what value is.

How can companies create better and more value and deliver more impact to their customers?

Value touches strategy, culture, reward systems, and impacts customers. How to create better and more value?

Linda: When it comes to value, I don't talk about innovation, I’m specifically focused on growth.

There are 4 arrows – all focused on execution – you need in your quiver to build a growth engine:

  1. Venture building - Organic venture building is the creation of new products, services, or business models from within the company. It's also about expanding into adjacent markets and leveraging your core assets in new ways
  2. Venture investing - This externalizes your innovation efforts to drive growth in new markets or adjacencies
  3. Strategic partnering - Forming partnerships with other companies to drive innovation and growth in complementary areas
  4. Targeted M&A - Mergers and acquisitions can be a great way to gain access to new markets, technologies, or customers

Often, the questions are how leadership figures out how much to invest in each of these, and how this is all governed. First of all, this has to be top-down, you've got to have the C-suite engaged. The way that we look at funding in Silicon Valley is like an onion where every layer is a layer of risk. And so the way we look at investments in innovation is very much like series A, B and C rounds, whether you're investing inside or outside: the goal is to remove the greatest amount of risk at the least amount of capital.

So, they are the yin and the yang of each other- the ventures inside take some time to mature and to get to the point where they're driving meaningful growth. That’s the beauty of having a CVC and external investing opportunities: you can invest in later-stage ventures that get you points on the board faster.

How do you invest in the future without trading off resources back and forth between future and present?

Greg: The most important thing is to test your riskiest assumption right out of the gate. You need to have a pre-mortem plan and walk through what happens when you start to gain some traction. The more you test assumptions and figure out win-win scenarios, the more you’ll be future-proof. Also, the right exit as an intrapreneur is fundamentally different than the right exit as an entrepreneur.

The more you are premeditating and recognizing your own limitations as an enterprise, the clearer the "How" will become. Let’s think about GE: they innovated to the letter of the innovation law, and they hemorrhaged $260 billion of market cap. What I'm trying to say is that there's a risk that we do things right and everything goes wrong anyway. The more you can anticipate that risk into the process, the better off you're going to be.

This also means that as intrapreneur, you have to love the impact you (want to) have more than you love the company.

You should be willing to exit only in the early stages where failure is the highest probability option, but also in later rounds you need to know what your exit might look like (even though it's trickier and there's more money at stake). You need to have exit optionality both very early and very late in the process. And where the innovation playbooks start to fall short, is when you are becoming an independent venture whose earnings are reported quarterly.

What's your exit? What if the sabotage works? What if the civil war doesn't get resolved? Very few people have a clear, premeditated game plan when they hit that point. No canvas works then.

Dan: I think the biggest issue a lot of executives forget about is that their companies get fired by the clients not because they are not innovative but because they are terrible at delivering their existing products and services.

There's so much interdependence within companies. You cannot view things disconnected or disjointed. Everything that you do needs to be connected. Otherwise, you're going to end up having a great strategy, but you have no way of putting it into practice. Or you might have a brilliant venture capital arm that's not connected with the core in any way, and they may end up investing in random stuff that doesn't move the company forward in any way.

So I think there are five pillars required for a company's innovation driving system to work: strategy, practice, management, culture, and leadership. They all need to be equally developed and in balance with each other. Or put differently- probably 90% of companies can do a moonshot project, but the real question is: Do you have a space program or you just went to the moon once and you came back?

What are some of the biggest blockers for innovation?

Are there external and internal blockers for innovation? If so, what companies can do to overcome them?

Dan: Oftentimes, leadership is what's holding innovation back.

That’s because none of the people that sit on boards of large companies have been through entrepreneurial training. And probably less than half of them have actually had their own startup. So here's the answer: they don't know how to manage uncertainty, how to build ventures, how to lead for innovation.

This might fly against traditional thinking, but I usually don't encourage larger organizations to pursue Unicorns, since they don't have the culture/motivation. They should invest in ideas that return 5x 10x, not 24x 50x as the Unicorn does. Try to have a good number of those and not replicate the performance of a Unicorn because that’s something you can’t manage with your capabilities, mindset, and legacy system.

Linda: I'd think there are three recurring blockers:

  • One of them is no methodology. There's no single business model canvas. There's no kind of one tool that you can adopt to spark innovation. However, there can be methodology, especially for large companies.
  • The second is mothership friction. There's so much red tape, so many different decision-makers that it takes forever for a good idea actually to get implemented. There is no reason large companies cannot beat the startups at their own game.
  • The third is that most senior executives fail to grow, as Dan eluded to. Very specifically, they fail to learn to adopt a venture capital mindset in our world. They don't understand the value of having a portfolio approach. They focus on net present value instead of customer acquisition and revenue.

Greg: Many times we see innovation happening at the edges of an organization. But it's not consistent, and it waxes and wanes. The only way to overcome that is to have leadership that understands how to incubate and foster those types of innovations in a more formalized way. That will help them scale across the entire company, so you don't get these wild fluctuations regarding who's innovating and where they're innovating from inside your company.

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