4 paths to structure innovation.

In today’s business world, innovation is a must if companies want to remain competitive. And to be successful, innovation needs to be paired with a customer-centric attitude – one that pushes the envelope on how a product or service is designed, created, marketed, and delivered.

Getting this all right requires clearly outlined strategies.

In our previous post, we talked about the importance of introducing structure into your innovation processes. Today, we’re taking a look at four different paths of adding structure to the “search” function of innovation – which is for organizations who live in the second and third horizon of innovation, rather than the executional first horizon.

The search innovation paths.

The innovation paths are categorised internal/ external and centralized / decentralized.

Here’s what we mean by each of these elements:

  • Internal: innovation happens closer to the core business and aims to evolve and create new value propositions with a range of product and services.

  • External: innovation takes place beyond the corporate boundaries, bringing in capabilities and perspectives that go beyond the company’s areas of expertise which serves as a way to create a new value proposition for your business.

  • Centralized: innovation takes place at a broad, organizational level, with consolidated buy-in from the leadership team.

  • Decentralized: innovation happens at the business unit level, addressing the future-looking needs of an individual team.

Each path represents a strategy that businesses can implement to drive forward innovation at their organization.

What each strategy looks like in practice.

Depending on what your business wants to accomplish, you may opt to implement one or more strategies. Here are some considerations around each section.

Centralized external (open innovation hubs):
makes sense for organizations that want to build a team that collaborates with external partners or suppliers to develop new business models with corresponding value propositions. Also great for those with new concepts that would be developed separately from existing products or services.

  • Overview: focused on horizons 2 and 3, it requires that businesses be forward-looking, with a solid vision of where the company is going next. This usually takes shape as an innovation hub or lab, and could also be an incubation lab or an organisation creating their own venture fund to invest. It could also be a corporate innovation hub or lab which could evolve in the creation of multiple strategic corporate startups.

  • Benefits: you can collaborate with people that operate beyond the scope of your business. This way, you’re not constrained by what you or your organization can do. In addition, collaboration with partners can help your to accelerate – as it reduces the time needed to learn a new skill and develop the necessary capabilities.

  • Limitations: once an idea is developed with this strategy, it can be difficult to get buy-in from the rest of the organization as they won’t have been involved in the process. In this situation, a mature strategy can serve as a guiding compass – a clear focus to minimise ‘endless possibilities’.

  • Example: Schiphol Amsterdam Airport created an innovation hub to actively experiment with partners and suppliers with the latest technologies – while also pursuing collaboration with startups like the Hardt hyperloop.

Centralized internal (one innovation department):
best suited for organizations with a clear focus, for whom innovation is a priority.

  • Overview: innovates for horizons 2 and 3. It requires a single innovation department that has visibility across the different business units in the organization, and the ability to collaborate closely with those teams.

  • Benefits: the team is easy to manage and maintain, as it operates with a consistent set of standards and processes. This also ensures that the team has a set of focused capabilities they can that aren’t impeded by business unit priorities.

  • Limitations: it’s not always easy for business units to get onboard with these ideas, especially if the consultative process hasn’t been deployed properly. The rest of the organization may see this team as “juvenile” or “ineffective” as they are not executing on the business.

  • Example: take the ING labs in Amsterdam and Singapore. These internal incubators aim to develop ING initiatives for different value spaces – like housing and trade – using their own structured innovation process pace. Another example is Store08 by Walmart which aims to incubate big commerce beyond Walmart’s core business.

Decentralized external (community of practitioners and partners):
deal for business units that have small-scale innovation initiatives, but don’t have the expertise to develop them in-house.

  • Overview: is typically focused on horizon 2 innovations. Allows for informal outsourcing of innovation projects to local partners or supporters. Requires a strict governance framework and enough innovation knowledge to speak the same language as their contributors.

  • Benefits: this strategy offers a lean approach to get started in innovation. It also opens the door to a broader network of experts and collaborators.

  • Limitations: with this approach, it’s harder to focus on a key initiative, and it can sometimes be difficult to find the right people. In addition, by relying on external experts, the business unit isn’t able to develop the capabilities to continue innovating in-house.

  • Example: the city of Rotterdam leverages its ecosystem in a decentralized way. Instead of creating one large innovation hub, several labs are established around specific themes, e.g. BlueCity, which focuses on around circularity & sustainability, or the Rotterdam mobility lab.

Decentralized internal (Business unit innovation teams):
best suited for large-scale organizations that have multiple business units addressing different markets.

  • Overview: in this strategy, every business unit organizes its own innovation efforts using its own budget. This allows each group to develop and adapt depending on the specific market conditions they are operating within.

  • Benefits: it’s a scalable approach that meets the needs of the particular business unit, removing potential barriers based on prioritization and available resources.

  • Limitations: there is diffused governance and direction when it comes to the broader organizational innovation strategy. There could be duplications, inefficiencies, and inconsistencies that take place between the innovation projects across business units.

  • Example: Google product teams innovate in one way, while simultaneously collaborating with different teams in other divisions to leverage research. Famously the Google 20% rules enables individuals to work on their own innovation projects.

One thing that’s important to note with these four strategies, is that there’s no one silver bullet for innovation. Many medium-sized and large organizations adopt multiple innovation strategies depending on the problem they’re trying to solve.

Taking ING for example (mentioned above), they embraced external and internal innovation by creating innovation labs at four central locations. Two of their innovations labs are dedicated to working with scaleups (external) while the other two labs serve as an incubator for their own initiatives (internal).

In the end, the strategies you choose comes down to your business model and how much you’re willing to invest. But where there’s a will, there’s always a way.

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