The writers Ara Tähtinen B.Sc. (econ.) and Herbert Lundström M.Sc. (agric.econ.) are partners of Structured Profitability Oy (Ltd)
The global business environment is undergoing an unseen speed of change. Different research papers indicate, that sustainability development and innovation management are the two top key areas, where top management needs to focus on in a time perspective of 2-4 years. Digitalisation is seen as the number one driver. Leading companies can already acquire reasonably priced software, robotics and AI solutions fitting their needs and strengthening their competitiveness. In addition, due to closed international treaties and changing consumer behaviour, law makers are willing to continuously tighten environmental legislation. These facts in combination with fierce competition in most industries, leave businesses with no other choice, than to invest heavily in their innovation competitiveness. It is more or less a “do-it-or-die“ scenario.
In this article we focus on the holistic picture of innovation management. A managerial area full of potential but also containing quite a list of existential challenges.
Innovation management has its own place in the strategic architecture
A company should be managed in accordance with its strategic business goals. Innovation activities are a natural part of this strategic architecture, but in our opinion unfortunately also one of the most neglected. Too a few businesses have such a written down and holistic view of their innovation activities, such as presented in Figure 1.
Innovation could be evaluated and planned on three different levels in a company (Antola & Pohjola 2006)
- Renewal strategy (or innovation strategy) level, at which top management, synchronizing the innovation strategy with the approved business strategy, defines the innovation strategy goals and guidelines. This level includes vision and mission statements, innovation portfolio at hand and management responsibilities, in order to support the practical innovation work.
- Innovativeness culture level, where the preconditions for innovation activities are presented. Guiding values and norms are defined together with leadership style to strive for an organizational culture, that nurtures and maintains curiosity and innovation
- Innovation practises level, containing of goal setting procedures, processes, existing toolbox and, that supports measurement supporting success and efficiency.
In this article we focus on the two upper levels: the strategic outlines and the culture. As the daily innovation management is normally very shattered, the Chief Officer in charge needs to pay real attention to coordinating innovation activities. To carry out this successfully and effectively, you need firstly a set of relevant goals for the initiatives, and secondly, to ensure that these goals and the innovativeness strategy are aligned. An innovation management communication plan is also inevitable. With these you are on your way.
However, it is a fact that a director in charge of should, compared to his director colleagues, be a different kind of soul, This individual should be unbiassed, hold a more progressive view on development, be a bolder risk taker and trust her or his intuition more than his fellow directors. Relevant and accurate data is normally scarce, so a great deal of the decisions made are more or less based on “qualified guesses”.
Innovation is the life-buoy of your business
Innovation as a term can be defined and described in a number of ways. The most common one is to consider innovation as:
- a new product or service,
- a unique process
- some other sophisticated way of producing new wealth.
For sure the task of innovation is to generate future wealth, effectiveness, or well-being. The most typical categories of innovation are listed in Figure 2.Innovations are vitally important when a business is striving for growth and increased economic wealth. Most likely you also need superior abilities to productize and brand your innovation to make it attractive and a “must have” for your customers. The following list tells us why innovations are so crucial. There are real challenges to cope with, aren´t there (Caprelli 2021)1.
- Supporting creativity development. Growth starts with innovation. To get a new offering out on the market is based on both innovation and the ability to notice and understand new trends. A business needs completely new product and service concepts, but you can`t neglect to upgrade or renew your traditional offering either.
- A culture of continuous improvement, Innovation is an insurance of having your business survive. It is top managements priority to continuously upgrade both your products and your product or service portfolio. Thus, creativity must be fostered and encouraged ongoingly to make it visible in daily business and innovation activities.
- Reinforcing your brands. Basically, reinforcing the brand and creating added value to your products are activities needing creativity. As we know, strong brands are one vital key driver of business success. That´s why branding is a highly prioritized top management activity
- Making the most of what you already have. In an innovative organization culture it is a normal daily responsibility to streamline present and well working procedures. You have at least some well working business processes, customer acquisition activities and sustainability management procedures in place. Keeping up achieved performance levels should be a natural part of daily managerial activities.
- Understanding the competition, demand and trends and reacting to them accordingly. Solidly executed innovation management supports not only current needs of the customers, but also wants to identify business opportunities within emerging trends. If available, customer data management could help innovation management identify changes and provide evidence of first real signs of changes in customer preference and behaviour.
- Unique selling point or proposition, USP. Customers start appreciating an innovation only after having noticed what added value it is bringing them. Especially in saturated markets, customers are expecting more value (fancy design, more features, improved user interface…) for their money.
- The use of social media. Most B2C and B2B customers are actively operating on different social media platforms, both commenting and giving feedback on both the offering and the company itself. Inventors have access to all that communication. This information stream could generate ideas, which in due time could result in both product improvements and real innovation.
Creativity, and hence innovation management, cuts all business processes in very much the same way Quality and Efficiency Management do. Undoubtedly, the research and development function handle the basic product development process.
On the other hand, business and business process innovation could happen anywhere in the company. This innovation is often, partly, or fully, based on adapting new technology, either available directly on the market or specifically developed for own purposes. See Figure 3.
The business culture as a driver of success
The key driver for flourishing innovation is the large-scale cross pollination of people and ideas. Successful innovation teams should consist of members, with different backgrounds, ages, work experiences and education. These kinds of teams generate not only more ideas, but ideas of better quality as well. In addition, the members are better equipped to evaluate the usability of the specific ideas and to foresee the success potential their innovation ideas hold.
Creative sparring partnering is vital for innovation activities. The sparring partnering process is energized by team members that are analytical, openminded, curious and creative.
It is an advantage for the innovation initiative if the director in charge is persistent and has a fair amount of mental strength. The risks involved could be quite big, but without risk taking most likely no real breakthrough happens. However, real breakthrough innovations are rare, but their impacts on the other hand are ”revolutionary”. That opens up needed space for narrower, traditional teams to exist. As a matter of fact, these innovation teams on average show somewhat better results in more limited innovations assignments, typically product or process improvement assignments (Fleming 2024)
It is especially curiosity that fuels innovation activities. Top management should really encourage personnel to be curious in their work. A better business case using management time probably doesn´t even exist. Fostering curiosity gives the following benefits (Gino 2018)
- Fewer mistakes in our decision making
- When our curiosity is triggered, we are less likely to fall prey to confirmation bias, i.e. we are looking for information that supports our beliefs rather than for evidence suggesting we are wrong. Consequently, our decisions are better grounded as we are also paying proper attention to risk factors.
- Curiosity inspires us and we take a more positive hold towards change.
- We are conducting more collegial discussions from which we learn new and more sophisticated ways of handling certain issues. By doing this it is likely that also our own performance improves.
- We are shared hints and experience how to solve tricky situations. When we get advice and even help in solving tricky business problems and conflicts our stress levels are better controlled.
- Curiosity decreases the number of conflicts
- Curiosity encourages team members to step in the shoes of colleagues and listen to what ideas and opinions your co-workers have. The extended mutual understanding means fewer quarrels within the business community and most likely team performance also improves.
- A positive work atmosphere fosters transparent internal communication and sharing of opinion
- A collegial dialogue is a great forum for internally expressing opinions and ideas. Both between teams and between individuals. Transparent communication is a key factor for building work satisfaction.
A main barrier for increasing curiosity is that taking care of all work routines fills our days. When time is allocated for curiosity activities, managers fear they can´t keep full control and costs are accelerating. In addition, Gino (2018) indicates that innovation activity declines over time for those managers, who are holding the same position for too long. A remedy for encouraging managers’ curiosity, is then to extend the list of their personal goals with one or two innovation management goals. In Figure 3. practical measures are shared, how to feed the curiosity of your co-workers.
Psychological safety creates the foundation
A characteristic feature of creative organizational cultures is the high level of psychological safety these hold. Professor Ann Edmonson from Harvard University minted this expression in 1999, when she in her research was studying the relation between work environment issues and organization performance levels. This was the beginning in learning, that innovation springs higher and better in organizationally safe environments.
A working environment is safe, when the following four criteria are fulfilled:
- you feel you belong to your working community and you are getting personal appreciation
- you experience that you are allowed – both professionally and personally – to learn and develop
- your opinions are listened to and they matter and you therefore can impact your own working issues
- you are allowed to challenge the existing state of affairs, and can come forth with ideas without fear of being punished, discriminated, or belittled.
This way workers and teams are given – within agreed upon limits – functional preconditions and authorization to investigate, try and fail, and retry. At the same time, they can show their best me to their work community.
On the other hand, a bad leadership style generates an atmosphere of either fear or indifference. Basically no one is on daily basis all-in, trying to accomplish significant progress. As a consequence, innovation activities tail off within the workplace and a remarkable amount of business potential is either unnoticed or not repatriated.
Psychological safety is the right of every co-worker. The harsh fact is, that one single member feeling psychologically unsafe at work, could indicate that the entire working community is not psychologically safe. Psychological safety works bottom-up. The chief officer in charge has to face the unscrupulous fact, that the co-workers are the ones doing the measuring, whether the workplace is psychologically safe or not. In the list to the left, we give practical tips on how managers can foster psychological safety in their units.
Design Thinking and Innovation Management in symbiosis.
Chief officers in charge of innovation activities requires the innovation process to meet three crucial criteria:
- accomplishing winning innovative concepts
- cost awareness and controlled risk taking
- total commitment from co-workers to implement the end results
Thus, chief officers need or to show interest in progress and findings and provide support when obstacles are harsh to dismantle. As the Design Thinking framework has a very systematic approach for executing the innovation initiative, it is also an excellent tool for the managers to follow-up the progress the innovation teams are making. (Liedtka 2018).
Design Thinking brings forth both effectiveness and follow-up procedures to the innovation process. With Design Thinking methodology the innovation team works systematically throughout the assignment. From understanding the customer needs to a tested, hopefully well working innovative product, service, or process. Initially Design Thinking was used in pure product development initiatives. Today it is also frequently used when innovating business functions and processes. The original model of Stanford University consists of five pillars (Stanford University):
A working environment is safe, when the following four criteria are fulfilled:
- Empathize. In the first stage the goal is to clarify the standing point and fully understand the present operations of the customer.
- Define. In the second stage the customer needs are defined, and the team´s own findings should be listed and reported
- Ideate. In the third stage present assumptions are challenged, ideas are suggested, and a prioritization is made, as to which ideas go live to concretization first.
- Prototype. In the fourth stage, modifying and concretizing approved ideas start off, prototypes are created and submitted to first trials under alert observation and iteration and finally needed corrective action is taken.
- Test. In the last stage proper and fundamental testing is done, preferably in real customer business environment. Final development efforts, calibrations, and preparation for production phase take place.
Being a strongly iterative framework, Design Thinking is an excellent tool for the earlier mentioned cross pollinated teams. In addition, the starting point of Design Thinking is the fundamental understanding of what customer or user needs to be fulfilled. In other words, Design Thinking provides a fully human centric approach of solving existential user expectations.
When running into an ominous barrier, you can always go backwards to an earlier stage, rethink your assumptions, and rerun the entire process. Design Thinking kills undevelopable ideas almost immediately or at least in a reasonably short period of time. Thus, resource losses stay small.
.Start-ups also benefit from using the Design Thinking framework. However, you are facing challenges. With an undeveloped business model and a limited number of real customers there is substantial risk that the innovation process requires a larger number of iterations.
In addition, it is likely that innovation teams are not cross pollinated enough with professionals from different backgrounds. Thus, defining functionalities of the innovation relies much on best guesses. Investors and innovators have to realize this and have patience seeing real customer solutions evolve.
The agenda of managing innovations
A precondition for successful innovation management is also, that innovation management itself is a subject of renewal and innovation. Old business management models relying on efficiency and control must be substituted with fresh, renewed ones. The harsh change of today’s business environment forces organizations to become more resilient, creative and innovation focused. The well-known management guru Gary Hamel prophesied already in 2007 that enterprises, aiming at industry leader positions, must strive for being “Serial Management Innovators”. That will not happen, if Innovation management is not a constant object of continuous improvement evaluation and activities
Unfortunately, work is still undone in this sense. As a supporting tool, Hamel recommends ”An Agenda for Management Innovations”. This agenda consists of the following steps:
- Management must be courageous and willing to tackle big challenges
- The company´s own agenda of innovation management should frequently be followed-up and updated
- In order to respond to change in the business environment, the enterprise culture strives for becoming agile enough and capable of adjusting its own offering and processes accordingly
- Every employee shares the responsibility of generating innovations
- Uphold an organizational culture, where everyone is stretching towards tough goals, and also provided with the support needed to be successful
To reach the Serial Inventor status is a time consuming process. The starting point is to understand cause-consequence relations between your managerial troubles and the unwanted results. However, all old should not be debunked. Taking one development step at the time and using accurate measurement indicating your progress on your chosen path you can complement your innovation management set-up with the missing elements.
It is an undeniable fact, that innovation management causes challenges to the business management process all over the company. While top management sets the agenda and direction for innovation activities, the rest of the organizations is responsible for carrying out practical innovation initiatives. Certain activities of the innovation management are general management issues. For instance, improved psychological safety has a positive impact on the company in multiple ways, However, surprise elements are a natural part of innovation management. Many innovations are given birth outside the planned activities. The value of such an innovation is not understood at first, but when management´s eyes open and the innovation gets proper funding, it can significantly shift the focus of the entire business strategy.
ToDo -lists of our Innovation Managers still have quite a few basic activities to get hold of. Simultaneously new demands keep dropping in on their ToDo -lists. To catch up is tough, but seen from a competitiveness aspect there is no other choice, but to try hard.
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Caprelli, L. 2021. 7-reasons-innovation-is-important. Lisa Caprelli homepage:https://lisacaprelli.com/7-reasons-innovation-is-important/
Dyché, J. 2015. The New IT – How Technology Leaders Are Enabling Business Strategy in the Digital Age. McGraw&Hill.
Fleming, L. 2004. Perfect Cross-Pollination. Harvard Business Review Vol. Sep. 2004.
Gino, F. 2018. The Business Case for Curiosity. Harvard Business Review Vol. Sep-Oct. https://hbr.org/2018/09/the-business-case-for-curiosity
Hamel, G. 2007. The Future of Management. Harvard Business School Press
Liedtka, J. 2018. Why Design Thinking Works. Harvard Business Review Vol Sept-Oct. 2018
Ludema, J. & Johnson, A. 2018. Avoid Risk, Make Innovation Possible_ Psychological Safety As the Path to High Performance. Forbes 9/2018. https://www.forbes.com/sites/amberjohnson-jimludema/2018/09/24/avoid-risk-make-innovation-possible-psychological-safety-as-the-path-to-high-performance/?sh=7bf92383
Schein, E.H. 1999. Yrityskulttuuri – Selviytymisopas. (Eng. Organizational culture – A survival guide). Laatukeskus Excellence Finland
Stanford University. 2023. A guide to innovation management. Webpage: https://online.stanford.edu. https://online.stanford.edu/guide-innovation-management
Stanford University: An Introduction to Design Thinking. PROCESS GUIDE (Publ.year unknown).: https://web.stanford.edu/~mshanks/MichaelShanks/files/509554.pdf.
The writers Ara Tähtinen B.Sc. (econ.) and Herbert Lundström M.Sc. (agric.econ.) are both partners and senior management consultants of Structured Profitability Oy (Ltd). Both of them are experts in managerial development. Mr. Tähtinen also helps business with their profitability and cash flows issues, while Mr Lundström acts as project director in business change management initiatives, and also works as a professional leadership coach.