Installing Innovation (building capability)


Innovation capability is defined as

" institutional ability to innovate reliably and repeatedly over time......It relies on an orchestrated set of organisational behaviours. It turns out that when your people act and think differently over time - and when they see differently, better results emerge from these behavioural shifts..."

Larry Keeley et al, 2013

It should not depend upon luck and/or the talent of a single employee.

One of the best ways to increase innovation is to have a few successes.

The 4 components of Innovation Capability

"...To shift the behaviours of your organisation, you need to define and drive the change from multiple angles. It isn't enough just to hire more innovative individuals. Without a clear approach to guide and coordinate their efforts, the right place in the organisation to house them, and appropriate metrics and incentives to guide them, they will fail.......shifting the behaviours of an organisation and building lasting capabilities requires four distinct components - carefully designed to reinforce one another and work in concert to drive innovation reliably and repeatedly..."

Larry Keeley et al, 2013

NB Requirements for simple and sophisticated innovations are different. For example, under 'approach' (see below), simple innovations can be linear and predictable - usually based around technology and execution. The management environment for more sophisticated or transformational innovation prizes experimentation and iteration, plus it allows teams to explore opportunities that arise and follows a non-linear path. However, a disciplined approach with rigourous protocols, etc is still required.

i) approach (clear definitions for creating innovative work, ie phases, activities, deliverables and decision rights plus any specific methods and tools to be used)

An example is the Mayo Clinic

"...Uses a five phase process to vet their innovation projects: 'standing and framing' to identify opportunities; 'researching and experimenting' to develop insights; 'synthesising' to turn those insights into concepts; 'prototyping' to develop concepts iteratively; and finally, 'implementing' to launch them into the world at large..."

Larry Keeley et al, 2013

Each phase is designed to diverge and explore a wide range of new possibilities before converging on one; then it is prototyped. As ideas develop, they steadily increase in credibility and are rewarded with more resources. This helps de-risk the investments required for into innovations.

ii) organisation (location of innovation capability, eg teams, divisions, leadership, etc plus interfaces that connect to the broader organisation and world)

Some organisational options include

- greenhouses (houses innovation knowledge plus creating and developing innovation)

- service centres (uses unique expertise to support the innovation efforts of different business units

- general (highly distributed systems with innovation responsibility)

NB need to be careful of creating isolated 'skunkwork' units. It can breed tribalism and mistrust that can result in rejection when it's time to transfer to more mature parts of the organisation.

iii) resources and competencies (individuals plus skills and training needs paired with adequate resources like funding, facilities, etc)

Need multi-disciplinary groups of people, ie

"...Diverse individuals with a range of competencies, training and skills and a range of abilities for analysis, synthesis and user empathy......they represent different stakeholders and interests in the organisation..."

Larry Keeley et al, 2013

They need to be adequately resourced (finance, facilities, staff, etc), have the full support of senior management and be protected from the office politics of the rest of the organisation.

An example is Hyatt Hotels. They have around 500 worldwide hotels operating under 7 brand names. They use the concept of 'laboratory hotels' where in selected hotels, staff test new ideas which may be rolled out to the rest of the hotel portfolio.

"...Employees are encouraged to come up with new ways to solve old problems, looking to see what works and what doesn't without agonising over the details..."

Larry Keeley et al, 2013

iv) metrics and incentives (targets guide performance, measures to evaluate progress and offer incentives (financial and others) to drive supporting behaviours)

"...incremental innovation metrics tend to call for reliability; projects need to get through the pipeline efficiently and are measured primarily by forecasted and actual economic returns. Given the inherent uncertainty of something that's entirely new to the market or world, breakthrough innovations must be measured in different ways. Using a combination of input and output metrics, and leading and lagging indicators..."

Larry Keeley et al, 2013

The metrics need to be connected to staff incentives including financial and non-financial rewards. The latter can include company recognition, personal satisfaction, personal development, time, etc.

Some useful innovation metrics

  Past Future



- innovation hit rate or initiatives across the portfolio (the number of them that returned their cost of capital)

 - economic value created by innovation

- organisation's net promoter score

- customer satisfaction

- brand perception (both individual initiatives and the overall portfolio)

- number of positive media and analyst mentions the organisation receives regarding innovation

- economic value estimates (EVE) of individual initiatives and the overall portfolio

 - percentage of initiatives in the portfolio that are clearly motivated by compelling customer insights

- percentage of initiatives in the portfolio that involve co-creation with other stakeholders like suppliers, customers or partners

- percentage of innovation costs borne by you versus co-creators - for individual initiatives and the innovation portfolio




- net present value (NPV) created by innovation

 - growth in NPV across the innovation portfolio

- percentage of innovations that have survived 3 or more years in the market versus the number of initiatives in the portfolio

- revenue generated by innovation initiatives

- NPV estimates across initiatives and portfolio

 - growth in project NPV estimates across the portfolio

- size, speed and efficiency of a pipeline across the portfolio

- degree of alignment of the innovation portfolio with other strategic growth platforms

- ratio of incremental to game-changing innovations in the portfolio measured in a number of initiatives and/or expenditures           (source: Larry Keeley et al, 2013)

NB In developing the table, you should consider:

- create a balanced set of measures by having at least one measure for each of the 4 quadrants, ie external, internal, past and future

- avoidance of metric overload (keep the number of metrics to under 6)

- metrics must be meaningful (a metric that is not attached to hard numbers is meaningless; qualitative measures are useful; choose metrics that speak the language of the organisation)

In summary

"...the four components support and reinforce one another. Each is critical in driving the right organisational behaviours that power innovation. Be clear about how the capability will work before you implement; otherwise, you risk stumbling out of the gate and reinforcing many of the organisation's worst fears about its inability to size does not fit all. Some organisations will work well with a concentrated and centralised innovation function; others will demand the agility and self-direction of decentralised models..."

Larry Keeley et al, 2013

This table version may assist:

Capability Component Identify and Prioritise Opportunities Develop Concepts Build and Test Prototypes Conduct Pilots Start-up


(how will we develop innovation?)

consider changing user needs, shifts in industry structure & unchallenged orthodoxies to identify potential opportunities produce tangible new business concepts by designing innovative business models, platforms & customer experiences iterate and refine concepts by identifying key problem areas & creating prototypes (of all kinds) to test them with customers and users validate your ideas by building parts of the new businesses & bringing them to market - carefully gauging the response from clients build & launch the businesses, focusing on scaling up rapidly & attracting customers to drive growth


(where does innovation happen? Who's in charge?)

- innovation council

 - executive leader & portfolio management group

- executive leader & portfolio management group

 - development teams

executive leader & portfolio management group

 - development teams

- executive leader & portfolio management group

 - commercialisation teams

- executive leader & portfolio management group

 - commercialisation teams

resources & competencies


(who & what do we need to do for our innovation efforts?)

- competitive analysis

 - technology strategy

- scenario planning

(funded and staffed by innovation COE)

- ethnography

 - secondary research

- visual design

- business strategy

(funded  and staffed by innovation COE)

- design planning

 - evaluative user research

- competitive analysis

- visual design

-business strategy

(funding & staffed by innovation COE)

- pilot management

 - business development

- vendor management

- UX design & management

(funding and staffed by innovation COE)

- sales strategy

 - operational scaling

(funding and staffed by innovation COE)

metrics & incentives


(how will we know we are succeeding?)

- make sure you have a balanced portfolio including simple, category changing & game-changing kinds of innovation - how many concepts of prototypes are currently in development?

 (balancing breakthroughs*i)

- how many concepts of prototypes are currently in development?

(balancing breakthroughs*i)

- how many customers engage with the pilot? - revenue

 - operating income

- return on invested capital

(source: Larry Keeley et al, 2013 )


i) balancing breakthroughs assessment: how desirable your idea will be to customers, how feasible it is to make, and how viable it might be from a business and strategy perspective?


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