Innovation Needs a System

SARAH GREEN: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Sarah Green. Today, I’m talking with David Duncan, co-author of the HBR article “Build an Innovation Engine in 90 Days” and a senior partner at Innosight.

Dave, thanks so much for talking with us today.

DAVID DUNCAN: Thank you for having me.

SARAH GREEN: So the article really is an attempt to kind of set out a systematic process for making innovation in a company sort of more mindful and planful and organized. At the same time, I know a lot of the amazing stories you hear about big breakthroughs make it sound the person just came up with that breakthrough by accident. And that’s the sort of common theme in a lot of science and R&D myth-making. And I’m just wondering, how much is it really even possible to set up a process for controlling that kind of creativity?

DAVID DUNCAN: Well, serendipitous ideas that turn into major innovations do happen, but they’re relatively rare. And the key thing is you don’t want the future of your company to be dependent on strokes of luck or accidental breakthroughs.

And if you think about the challenge that a large company like Procter & Gamble has just to maintain the growth trajectory that they’re on and to maintain the valuation that they have that has a growth expectation built into it, they actually have to innovate at a level of billions of dollars of revenue created every year and do that in a predictable way. And there’s just so much at stake for them that you can’t leave it up to chance and serendipity.

And so companies like that have really developed a proven methodology and a set of systems and structures and the types of things that we write about in our article as a way to systematize and be disciplined about innovations that can create value in a predictable timeline.

SARAH GREEN: So I guess I would then ask, so you talk about building this innovation engine in 90 days. I mean, when you’re talking about that level of– bring that much innovation sort of under control, 90 days feels short to me. Why not spend a year? Or why not send six months? Why 90 days?

DAVID DUNCAN: That’s a great question. And I should clarify that for Procter & Gamble, the innovation system and capability that they built took place over the course of a decade, and they invested a lot and learned a lot along the way in doing that.

But the problem with that is that not every company can afford the time and money to do that at that scale right now. And so what we’ve tried to do in what we call the minimum viable innovation system in our article is really distill the bare essentials that are required to start to take a more systematic approach to innovation.

And we chose the number 90 days not as an arbitrary number but just as a practical number. In our experience, if you’re really starting from ground zero, three months is about the right amount of time to get started and to build momentum and to also generate some tangible progress and a quick win or two if you’re really starting from scratch.

SARAH GREEN: So the first part of this process is to really think about the type of innovation that you’re after– sustaining or disruptive or that kind of thing. And I have to say, as an editor at HBR, I find those kinds of distinctions really interesting intellectually. But I can see that that might strike a manager with a million things to do as a little bit of a philosophical debate. So maybe just start by telling us why do you have people take a step back and think through the type of innovation that they’re going after?

DAVID DUNCAN: Yeah, it’s pretty common then when we work with executives, which we do. It’s the core of business to help leaders develop these types of capabilities at Innosight. We often get that reaction, that it does feel a little bit academic to start there. But it is absolutely critical to start by being very clear about the types of innovation that you want to pursue. And there’s a couple of reasons for that.

The first is that there’s simply a lot of confusion around the word “innovation.” And when companies decide that they want to make innovation an imperative for their organization and there’s a big clarion call to do that, it often propagates across the organization in a very confusing way. Because people interpret the word “innovation” differently across your organization, and they’re not really sure how to act on it.

And this is very, very common. It happens in almost every case when companies decide to get serious about innovations. So simply for the sake of communicating clearly, you need to be very precise about what you mean by that.

And the reason then that we believe you need to define more than one type is that there are actually different strategic objectives that every company needs to pursue with innovation.

So for example, in the existing businesses that you are in today, just to stay competitive day in and day out with your current competitive set, you need to be constantly innovating and improving your products and services. Because all of your competitors are doing all that as well. And you might call that “core innovation” or “sustaining innovation,” but it means improving your products and services incrementally day in and day out to stay competitive in your existing businesses. And that’s one strategic imperative that every company has.

The second one that they have is to really find new businesses or new sources of growth that might look quite different than who you are today and be innovating in that sense and planting the seeds for what are going to become your core businesses of tomorrow.

And those are very different strategic objectives. They’re universally held by every organization. Now, some companies may place more emphasis on the first. Some might place more relative emphasis on the second because they have a higher growth imperative and an greater need to change. But every company has both of them to some extent. And because those are distinct strategic objectives, you want to be able to name them so that you can manage them and measure them distinctly.

They also require very different approaches for pursuing them. The types of people, processes, structures that you need to be very good in the core types of innovation look quite different than what you need to be successful in the more new-growth, creation type innovation. And so in order to be effective in both types, you need to– again– distinguish between them and then organize to pursue them in the best way and distinct ways.

SARAH GREEN: So once you’ve come up with those priorities, how do you move from that to really starting to generate some useful ideas?

DAVID DUNCAN: So there are many ways to generate useful ideas. But there’s no substitute for getting out in the real world and observing customers or potential customers and talking to them to discover unmet needs that they might have.

And in our 90-day plan for building this minimum viable innovation system, once you’ve classified your innovation types or defined your innovation types, we recommend you spend about three weeks doing some research to generate a list of what we call strategic opportunity areas. You can think of them as fishing holes where you’d want to go look for new growth opportunities.

And you can typically generate a pretty compelling list of these in two or three weeks if you do some quick-hit market research with customers or potential customers. And then also reflect on what types of assets you might have that you could leverage that could be the basis for pursuing some new growth opportunities and looking at the intersection of those things as a way to define those strategic opportunity areas.

SARAH GREEN: As you’re talking about this, I’m starting to wonder here, who is really the person or the people doing this? Because I think a lot of companies, they sort of set up a little skunkworks team. Or they give it to their most talented people, who are usually the busiest people and maybe don’t have time to do it. I’ve seen a lot of and read about a lot of bad practices out there in terms of trying to get the right people on board and failing. So how do you suggest people actually staff this kind of project?

DAVID DUNCAN: So I think about two different types of teams. A kind of leadership team that would be responsible for shepherding and ensure that the effort gets launched and gets the right resources and maintains resources and gets protected over time. They’re kind of a shepherding team. And then a team of people who are actually going to go out and do that work, identify strategic opportunity areas and then search for opportunities within them.

The leadership team, it’s really essential that you have at least one very senior leader, ideally the CEO or the CFO, and then four or five other key stakeholders at the leadership level who are going to form that team that shepherds things through. And if you don’t have that kind of top leadership level commitment and somebody who’s tasked with doing that, anything that you kick off risks getting smothered by the urgent priorities of just running the business day in, day out.

So for example, one of the case examples we talked about in our article was Manila Water, which is the regulated water utility in the Philippines that we worked with that was looking to double in size. And they picked four members of their top management team to serve in what they called their New Services Review Committee. And this met regularly to help teams that were working on new growth ideas and to break down barriers and ensure they were researched, et cetera. So that’s one type of team.

And then in terms of the people that you’re going to staff to actually pursue these new opportunities, there it’s really important but they do be fully dedicated. And this is why it’s important have that leadership commitment, because most companies don’t typically have a lot of people sitting around doing nothing that can do this in their spare time. So they really need to make a commitment to freeing up. And typically not a large group of people. It could literally be as few as two or three people to work on defining and pursuing these new ideas.

SARAH GREEN: It’s kind of funny hear your cellphone go up just at that exact moment. You’re like, yep–

DAVID DUNCAN: Sorry about that.

SARAH GREEN: No, it’s OK. People are super busy. It was kind of like a ironic, little, audio punctuation mark. So my next question, I think is in some ways the most important question– which is that once you’ve gotten these ideas and you’ve got the right people and the right structure, how do you really make sure that you execute these ideas? That you bring them to life? That they make money?

Because I think all of us probably have had experiences being a part of a project like this and you generate create ideas, and that’s it. You just generate the ideas, and they somehow never happen. And it feels like that was a fun exercise, but we didn’t actually do anything with them.

DAVID DUNCAN: Yeah, that is another very common phenomenon. And it happens at very large scales and big companies and in small companies.

I can think of a bank that’s relatively local that, again, the board of directors and the CEO stated publicly that innovation was going to be a big priority. They’ve launched this massive, company-wide ideation exercise. And they hired some company to come in and facilitate it, and did a big idea jam with tens of thousands of people involved. And there was a lot of hype about it and a lot of excitement about it. Generated a lot of ideas, and a year later, literally nothing had happened with any of those ideas. So it’s a very common thing.

And the first point I would make about that is that’s why it’s important to think about enabling innovation as a capability that’s really a systems problem. And that’s why we use this language, the minimum viable innovation system.

Because there isn’t just one thing you need to do, like generate ideas, to really create value from innovation. You have to generate ideas, but you have to do many other things in parallel with that to enable those ideas to be prioritized– enable them to be resourced to enable them to be developed in a disciplined way that is also flexible and then funded at each level of their development and ultimately scaled.

And so there isn’t just one answer to how you make sure they move all the way through the process and get out into the market. You really need to think about having this set of types which clearly links them to strategy, clear areas of focus for where you’re going to go pursue them that makes sense given the company you are and the markets you’re in, and then the right dedicated team working on it.

And then the fourth building block that we talked about in our article is what we call a shepherding mechanism. And in many ways, it borrows from the tools and techniques of the world of venture capital-based start ups, which are really focused on results but also on experimentation. So that once you have an idea, they go into a process where the team is empowered and has the right tools to be able to rapidly experiment and test and learn on that idea. And then the shepherding committee can be the review mechanism, just like a venture capital leadership team would be to give it successive stages of funding along the way.

SARAH GREEN: So I just want to ask as we’re sort of wrapping up here, as you have worked on this system and helped develop this system, has it evolved? I mean, you talk about evolving these prototypes of different products, has this system evolved over time in your work with it?

DAVID DUNCAN: Oh, absolutely. P&G is a great case example, because they started out back when AG Lafley first took the reins really trying to get systematic and disciplined about driving growth through innovation and taking it to a new level. Obviously, they’d been very innovative in their history to that point.

But in the beginning, they were learning how to do that as they were doing that. So they were very much experimenting with the system itself, and some of the early things they did were relatively modest in terms of the resources and commitment they were making to them. And as they learned more and they built out the system and they learned what worked and what didn’t work, eventually they built it into this incredible engine that they have today.

So I think a lot has been learned over the last 10 or 20 years in what works and doesn’t work. And I think what we write about in our article is the distillation of and the simplest possible representation we could think of that would be truly the minimum viable innovation system. But it’s really derived from a couple of decades of learning.

SARAH GREEN: Well, David, it’s a really interesting system. Thank you again so much for sharing it with us today.

DAVID DUNCAN: No, it was my pleasure. Thank you.

SARAH GREEN: That was David Duncan, a senior partner at Innosight and co-author of the HBR article “Build an Innovation Engine in 90 Days.” For more, including that article, go to hbr.org.