The Power Of Disciplined Innovation
Updated: Sep 28, 2019
I feel fortunate to get invited fairly often to speak at events about the importance of disciplined approach to innovation and shed some light at what it means ‘innovating with purpose’ in TD Bank. Although every team within an organization (TD itself, for example, has very diverse and thriving innovation ecosystem) may have its own specific style and approach to innovation, I believe there are some common traits and attributes that distinguish strategic and purposeful approaches to innovation from the ad-hoc 'throw an idea against the wall and see what sticks' approach.
Why do we need innovation discipline in the first place? Does being disciplined mean killing the creativity? These are very valid and relevant questions that all innovation enthusiasts, champions and their sponsors are faced with in every organization, regardless of its size.
Our own learnings and experiences in last several years of actively practicing and establishing disciplined approach within payments innovation space are a great success story within TD and a real life example of how to work together across technology and business lines as one team with common goal of achieving the fine balance between creativity and discipline.
Why Do We Need Innovation Discipline?
Every industry has lots of moving parts and ‘shiny objects’ to chase. Companies must make bets and must stay focused as their innovation budgets and available resources are always scarce and very limited. As an illustration, let’s take a closer look at an example of the payments space, in the context of popular 3 time horizon views (exact horizon timeframes, individual technologies are region and industry specific and are provided for illustration purpose only).
As we can see, there are lots of technologies that are considered mainstream today and will for sure continue being the backbone of the payments in the next several years (H1). However, there are many quickly emerging technologies in the mid-term future (H2), which will at some point (RED inflection point between H1 and H2) start taking the spotlight away from today’s mainstream platforms and establish themselves as the future main platforms. Along the same lines, there are the technologies and platforms being imagined, conceptualized and prototyped today, which may become mainstream at some distant future (that transition will happen at inflection point between H2 and H3).
Where to focus your precious resources and limited innovation budget then? As you can see from the payments industry example, it is so easy to lose focus if innovation efforts are ad hoc and not strategic and disciplined. That’s why the innovation discipline is key.
Innovation Uncertainty Principle
Unfortunately, in order to promote discipline, many business sponsors and managers of innovation initiatives are still trying to apply traditional metrics (usually ROI as they are comfortable with it) to innovation projects. They are certainly right in their desire to measure the potential and effectiveness of their innovation efforts, as innovation involves investment of funds and everything that requires investment has to be measured in order to be properly managed.
The Innovation Uncertainty Principle states that “unlike most other forms of business measurement, measuring innovation by traditional methods, could easily create problems for the process itself that is being measured, as great breakthrough innovative ideas are often hard to quantify and sell early on”.
What does this mean? Basically, it means that although traditional ROI measurements are very effective for measuring steady state improvements through incremental innovations, they can significantly impede the progress of breakthrough innovation ideas, since premature demands for numbers and analyses can kill creativity and favour short term thinking.
That may be fatal for the company’s future since it may never allow experimenting today with emerging technologies and business models to prepare itself for what may be coming 5 years down the road. That is why many passionate and true innovators frequently joke by saying that trying to apply ROI to H2 and H3 innovations, in reality ends up being nothing but “Restraint On Innovation”.
How to organize disciplined innovation process then? First and foremost, strategic approach is required. You need to look at the horizons with their own emerging opportunities / threats and then analyze and decide where to focus your team’s efforts. It is very important that we are clear on whether one is looking at the organization as a whole or from the perspective of an individual innovation lab, as the answers are usually fairly different, in those two cases.
Research shows that the overall corporate project portfolio balance, which usually yields the most optimal ROI for the organization as a whole, is the one structured as in the picture below
This is typical for the traditional industries like manufacturing, financial services, healthcare, etc. and usually considered "Golden Ratio" – focusing 70% of the effort on regular short-term future projects that rely mainly the H1 technologies and platforms, 20% effort on exploration of technologies and business models emerging from H2 and about spending max 10% on imagining the art of possible and experimenting with technologies emerging from the far future.
On the other hand, this picture would be very different from the prospective of a dedicated corporate innovation team or even high-tech company. They may want to focus their efforts differently and balance their portfolio of projects along the lines of more aggressive innovation
As expected, most of dedicated innovation teams would likely be asked to focus on using the new and emerging technology platforms from H2 and H3 in order to prepare the organization for new products and business models coming down from mid and far future.
In the end it is all about understanding your strategic mandate and prospective. Based on that knowledge, you can establish, on the strategic level, how to best balance your innovation portfolio and where to focus efforts of your particular team. That’s the key for everything else that follows.
Innovation Pipeline Management
Once we determine what kind of balanced project portfolio we want to maintain and where to focus energy and effort, we need the clear process that will help us efficiently manage the activities, expected outcomes and to ensure that the project portfolio balance is aligned with our strategic mandate. Disciplined and well managed innovation teams usually follow the process similar to the one outlined in the following picture.
Each phase has set of activities that teams regularly go through and the outcomes they generate. Ideation is concerned with efficient collecting, organizing pipeline of potential ideas and planning for their evaluation. Prioritization deals with evaluating each of the ideas from the pipeline against set of well-established key evaluation criteria. It is very important that this step is executed properly and that it eliminates personal biases and preferences as much as possible. It is also important that the set of evaluation criteria is chosen in such a way to enforce your chosen and agreed upon strategic PoC portfolio balance. Good tool (3rd party or home grown) can help with that. In PoC Delivery ad-hoc agile pods are created, and available resources assigned to produce working and functioning prototypes in series of agile sprints. The Incubation is where results, experiences and lessons learned are shared across the organization, demoed to business sponsors, or considered for LoB sponsorship. That’s the point when decisions are made which of the delivered PoCs will move further and become funded projects or turned into patents.
Ideally, innovation shall become everybody’s job, except being done by the selected few. How to achieve that? Well you can start simply by making it part of every employee’s professional objectives – 'contribute x innovation ideas per year' / ‘participate in x internal or external hackathons per year’, ‘contribute x patentable ideas per year’, etc can do wonders. Also, truly value their contributions – give people the opportunity to participate in delivering and launching the PoC / internal pilot / or brand-new customer facing product, if their idea is selected. Don’t forget to make innovation part of executives’ professional objectives too.
Removing the innovation silos is extremely important, so having widely accessible tool and platform for easy ideation, idea submission, categorization (against H1, H2 and H3 for example), with unbiased, transparent evaluation and prioritization criteria is a must.
Unfortunately, many commercially available innovation management tools, which I have personally seen and considered, didn’t cut the mustard, simply because they offered nothing but just pretty social media user interface and ‘like’ button as a key ‘evaluation and ranking’ feature. My advice is to choose the tool for your innovation pipeline management very carefully, based on outlined main principles here, as it will make a big difference in your ability to successfully build, prioritize and execute well balanced PoC portfolio in alignment with your innovation strategy
And last but not the least – please don't fall for "Shark Tank" / "Dragon's Den" type spectacles, as many of the real innovators may be turned down and won't necessarily willingly participate. That’s our experience at least and we do not practice it as part of our payments innovation activities.
How do you know whether your innovation efforts are successful or not in the end? You need to be able to produce simple dashboard like the one below over a time period and see the results of your own teams. The results below are real innovation metrics for our team of 8 -10 people. Of course, there are many other ways to organize, slice and dice your innovation data and your imagination is the only limit here.
This approach clearly worked for us and we will continue improving and refining it as we move forward through the next phases of our payments innovation journey. That being said, I hope you learned something useful today that you can adopt and apply in your particular context.
Needless to say, don't be shy to share it further and hope to see you soon at one of the future events !