Building an Innovation Portfolio: Avoid the Classic Traps

Creating innovative products and services doesn’t just allow companies to expand market share – it provides an opportunity to enter new markets and come up with new processes to enhance productivity. When tackling these projects, there are many pitfalls and roadblocks along the way. Projects that don’t have enough direction or too many constraints can face problems. But, learning common mistakes provides an opportunity to enhance innovation and achieve your goals.

The Balancing Act
In some ways, tackling innovation is like a balancing act. Many companies struggle to strike a balance between maintaining current research and development projects while adding new projects into the mix. Having a healthy mix of innovation in different life cycles will allow your company more opportunities for growth.

Broaden Innovation Strategy
When presented with a new innovation opportunity, executives typically evaluate the opportunity’s potential for high margins. Ideas with low margins may be rejected assuming that revenue opportunities are too small. However, rejecting ideas on these assumptions can limit your company’s ability to grow and expand to new markets. Instead, research all viable opportunities (even the small ones) to determine the long-term potential.

Also, don’t get caught up in chasing the next huge hit. The potential for high margins lure many companies into chasing after the next big thing. While it’s possible to come up with the next hit on the market, don’t forget to diversify. This way, if your “huge idea” doesn’t hit the big time, your innovation portfolio is diverse enough to provide other avenues for revenue. Find a mix of high and low risk opportunities to diverse your company’s innovation portfolio.

For example, companies looking to expand innovation should have a few “potential high revenue” opportunities at the top (yielding high margins and a premium pricing point), several promising midrange ideas and a larger base of ideas that are in the early stages of planning but still have promise. This pyramid approach has achieved high results for many companies.

Make Processes More Flexible
Stringent rules and regulations don’t create an ideal environment for innovation. Although new projects shouldn’t have free reign, there needs to be a balance between having a rigid structure and creating a system with more flexibility. According to the Harvard Review article “Innovation, The Classic Traps,” creating a reserve account for unplanned expenses resulting from innovation can help your company have more flexibility.

Break Barriers Across Departments
The task of innovation shouldn’t be limited to a handful of employees and executives. It’s important that those who are involved in daily business activities be tightly connected with innovators. For example, your business could create an innovation committee, charged with coming up with new ideas, running “real life” scenarios, and getting input from employees on the front line. This will help close the gap between the “idea generators” and those who are charged with executing and delivering the new products and services to the end users.

Look Beyond Technical Skills
When choosing the players on your innovation team, don’t just choose individuals with technical skills. They should also possess a high level of communication and interpersonal skills. Having team members who possess these skills will help break the barriers across business unit lines. For example, in the Harvard Business Review article “Innovation, The Classic Traps,” it highlights Williams-Sonoma’s e-commerce group, which choose a manager that wasn’t a technology expert, but was highly skilled in assembling a strong team of employees. With this expertise, she was able to build a team with diverse skills to generate and implement new innovative ideas that helped the company grow.

The people in charge of innovation should also be natural leaders. Although the leader doesn’t need to be an expert in the specific venture, they must be able to solicit support, partner with internal experts and execute innovation to drive success. It is important to find managers with the ability to get employees passionate about ventures. This will drive creativity, teamwork and success in your innovation projects.

Look Outside of Product Innovation
Innovation teams shouldn’t be limited to creating new products or services. In fact, they can create ideas that make distribution or marketing more efficient, increase customer value and drive down costs. Having a good mix of product, service and business operation innovation strategies will help make your innovation portfolio more diverse and positively affect your revenue.

Balancing your company’s innovation leadership, team players and mix of ideas won’t just help your company come up with better strategies – you’ll benefit from better execution as well. Companies can also learn from past mistakes and implement those lessons for future success.

Resource:
Rosabeth Moss Kanter. “Innovation, The Classic Traps.” The Harvard Business Review, November 2006.

Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy,” “Selling Your Business the Easy Way,” “Enhancing Your Business Value…The Climb to the Top,” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 or click here to email Mark.

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