“Do you have a value-creation playbook?” “No.”
The Drucker Forum, led by Richard Straub, is one of the world’s most important conferences on innovation and entrepreneurship. It honours Peter Drucker, the genius who laid the foundations for modern management. Each November it is held in Vienna, Austria where Peter Drucker was born in 1909. Many of the world’s thought leaders and practitioners are there to share progress on these increasingly important topics.
During my talk, “Creating an Innovative Enterprise,” I asked the 500 participants if their staff were given a value-creation playbook along with innovation training so they could be effective value creators. Only 5 people raised their hands. (My presentation is here: drucker-forum.)
This is a striking result given the quality of the group, but it is typical of what we have discovered around the world. Companies train their staff on project management, design-for-six-sigma, teamwork, leadership, negotiation, and many other topics. But still not innovation.
As Peter Drucker said, “Because the purpose of business is to create a customer, the business enterprise has two – and only two–basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs.” To do this, as I noted in my presentation, we need to move from the “what” of innovation to the “how.” How to liberate creativity, how to create a transparent organization, and how to make high-value innovative results inevitable.
We are in the global innovation economy. Technology improves exponentially fast, the world is hyper-competitive, and it has an abundance of major new opportunities. Almost every area of business has endless opportunities for major innovations. Consider the financial industry and emerging technologies such as block-chain. The waste in the financial industry is estimated to be trillions of dollars per year. Eliminating this waste represents hundreds of opportunities for major new innovative companies.
But to develop these opportunities we must know how to innovate. Today, relatively few professionals have those skills. Big companies are going away at record rates, more U.S. companies are dying than being born, and almost all measures of innovative output are grim.
Typically, experience shows that 80% of the so-called “important” company initiatives create no value for the company. Most university “tech transfer” programs lose money. Even the name is wrong. Tech push does not work. National laboratory directors around the world will admit in private that, despite their huge budgets, they are frustrated at the lack of useful results produced. The waste of money and people’s potential is enormous.
Remarkably, as noted above, most companies do not use effective innovation practices. Almost every CEO will say they do, but if you ask mid-level managers to describe their system, they can’t. If they can’t, there is none. That is what we find around the world – it is almost an iron rule.
That has started to change but only at the margin. Agile and its derivatives are being increasingly adopted, but mostly for developing incremental innovations. NSF created I-Corps to teach students about value creation. Start-up incubators are promoting more rigorous practices. And the US NSF and Singapore NRF are working toward use of better value creation practices. But these efforts have still not broadly taken hold.
As we make progress we must also drive out bad ideas. For example, I constantly hear, “To succeed at innovation you need to fail fast.” That is a terrible idea. It is meant to be clever, but it gives no guidance about what to actually do. The goal of successful innovation is to learn, search, and create fast; not fail fast. That learning perspective defines the concepts and practices required for innovative success. Every concept and methodology should be judged on whether it increases effective learning.
The innovative enterprise embraces a number of essential principles:
- Strategic Intent: Innovation is at the heart of the company’s strategy, with people, practices, and resources in place.
- Customer Focus: Peter Drucker said, “The purpose of a business is to create a customer.” Most executives say their companies are customer focused, but they are not. A test: “Does every business meeting start with the customer’s needs?
- Important Opportunities: The company works on important customer and market needs, not ones that are just interesting. Are metrics in place that define what “important” means?
- Value-Creation Playbook: To speed value creation, all employees understand and use core innovation concepts and processes. One of the most important concepts is the “value proposition,” as described here. Most companies have a confused or even wrong definition for this most important concept, which defines success from R&D, to business plan, and to sales. If you can’t present a compelling value proposition, you don’t know what you are doing.
- Rapid, Fervent Learning: Processes are in place to accelerate learning; those that slow it down are eliminated. We emphasize the use of Value-Creation Forums, which are recurring, multidisciplinary meetings where teams present their value propositions for critiquing (see Carlson and Wilmot, “Innovation“). Note that these are not brainstorming meetings, project management reviews, or seminars, which are ineffective when the goal is the creation of new customer value.
The comprehensive use of these practices transformed SRI International in Silicon Valley from failing to becoming one of the world’s most successful enterprises, having created many tens of billions of dollars of new marketplace value through innovations, such as HDTV, Intuitive Surgical, and Siri on the iPhone. Experience shows that the use of innovation best practice can enable improvements over 100%. These practices are now being used by companies, universities, and governments around the world. Some are moving from the “what” to the “how” of value creation and innovative success.