The majority of companies find innovation difficult. In fact, according to McKinsey, only 6% of executives are actually satisfied with their innovation performance.
It’s quite discouraging that roughly 11 out of 12 startups die and 19 out of 20 product innovations are said to fail. What makes it hard is that very few executives have the courage or skill to fix the problem before it’s too late.
So, how are people supposed to figure innovation out?
Although you're likely to find yourself hitting some road bumps along the way, we want to help you identify the most common blockers to innovation.
Thus, we've decided to look into the things that make innovation hard as well as the reasons behind them so that you can avoid them.
Table of contents
- Companies aren't used to managing different types of innovations
- Common obstacles to innovation
- Critical capabilities are missing
- Cultural challenges
- Lack of leadership support
- Organizational structures and processes
- Integrating innovation to the core
- Putting it in practice - Innovation Master Class
Instead of actively looking for new business models and product innovations, a lot of companies are focused on making steady incremental improvement in different parts of the business.
It’s actually quite logical that the majority of organizations are, most of the time, focused on scaling the existing business and investing in projects that make the company successful as there’s often less risk and the results are more predictable.
In general, organizations that are able to constantly get better, have a better chance of succeeding.
There are, however, different types of innovations that look beyond convention and redefine the status quo, such as disruptive innovation.
Because no system, process or industry is immune to change, more disruptive innovations are worth exploring for many. Technology, for example, can be re-purposed into new innovative solutions to provide your customers with new value.
The challenge here is that when it comes to disruptive innovation, it almost always involves higher risk compared to incremental changes and thus cannot be managed the same way as regular business projects are managed.
Maintaining quality and improving product and process development often involves standardization, whereas innovation can rarely be standardized.
Also, new innovations cannot be measured using the same metrics and value drivers as the existing products or services. To overcome this major barrier to innovation, companies should approach disruptive innovation differently compared to how they’re used to approaching regular projects.
An important concept to understand here is Innovator’s Dilemma, a theory that explains why most of the organizations fail to innovate.
In the beginning, innovation, and most specifically disruptive kind, is inferior to the existing products and services on the market.
Because product improvement takes a lot of time and requires multiple iterations, the value for the customer at this point is minimal, at the bottom of the S-curve.
While disruptive innovation initially caters only to a small and not-so-profitable customer base, established organizations are focused on serving more demanding, high-end customers using their existing value channels.
This is where the it typically has higher profit margins, which is why established companies with rational decision-making processes usually choose not to invest in disruptive initiatives in the early stages.
Once the disruptive innovation enters the mainstream, the established companies typically pick up on them again. At that point, however, it’s often too late since the new entrant is on the exponential part of the S-curve, which makes catching up quite unlikely, even with the additional resources the incumbent has at their disposal.
This problem occurs when incumbents attempt to apply new technologies to their existing value networks or refuse moving into new markets because they are seen as too small to drive growth goals or are simply perceived to have too low margins.
"Innovation is hard because the very things that makes a company thrive are exactly the same things that make it difficult for them to embrace the new.” – Steven Fahrenholtz
So, for organizations that prioritize reaching scale through operational efficiency, it makes more sense to focus on growing the business through incremental means, such as sales and marketing than it does to invest in risky and uncertain innovations.
In reality, however, organizations need to do both: simultaneously improve the core business and exploit new business opportunities. Finding a balance between these two is a lot more sustainable way to stay in the business and to grow it in the long term.
The point is to find a balance between short- and long-term innovation projects and simultaneously work on different types of them within all three horizons of growth:
- Horizon 1 – Current products
Extend and defend core businesses, optimize for profit.
- Horizon 2 – Next generation products
Build emerging businesses and next generation products, optimize for growth.
- Horizon 3 – Emerging products
Create options for future opportunities and growth, optimize for learning.
By working on projects in all of the three horizons, organizations can decrease the risk of innovation while maximizing the growth potential of their business portfolio.
To be able to dive deeper into the common obstacles organizations face, we’ve looked at around a dozen of the largest publicly available studies outlining the factors with the biggest negative or positive impact to innovation success and have aggregated the results.
There was quite a wide range of factors spread over all four of the major aspects of innovation.
What comes to organizational capabilities, lack of skill and talent and the ability to execute ideas were mentioned frequently.
New ideas and initiatives depend on the people who work for the organization. Without the right skills and capabilities, it’s a lot harder to achieve desired results.
Innovation is not about optimizing gross margins but about finding new ways to create more value. Thus, it’s important that your team consist of talented people who possess skills that are required to do that. What those are exactly, depends on your business.
There are, however, certain skills such as empathy, design thinking and technology understanding that are needed to be able to innovate.
You also need to understand the customer intent as well as the business and the market you’re operating in to be able to serve your customers better now and in the future.
Yet, talent and skill are only a half of the equation. Organizations may be filled with bright people who are capable of creative thinking and solving problems effectively but aren’t able to execute their ideas because they aren’t given sufficient resources and freedom to do so.
This obstacle can arise if the organizational structures are too rigid or the leaders fail to find a balance between freedom and control. We’ll get back to this later in this post.
At the end, it doesn’t matter how brilliant your employees are or how amazing their ideas might be if you cannot provide them with the tools, knowledge and other resources they need to execute those ideas.
Culture is often seen as the number one hurdle to successful innovation as it’s one of the slowest things to change, deeply ingrained and often tacit. It is, for example, a lot easier to pinpoint and remove inefficiencies in processes than it is to transform corporate culture.
There are as many reasons as there are organizations for why culture can become a barrier to innovation. Just like with organizational capabilities, personnel decisions related to hiring the right people is critical to culture in all organizations.
To strengthen your values, you need to carefully consider who will be hired and fired, who will be rewarded, and on what grounds. The issue here, however, is that when making these types of decisions, innovation is rarely considered.
Creating a culture of innovation requires leadership and people skills, a shift in mindset as well as concrete actions to reflect these new values.
Based on our experience, here are some common barriers related to culture that may slow things down:
- Minimal acceptance to change and risk
- Lack of systematic plan for dealing with objections
- Impatience – Cultural change doesn’t happen overnight
- Not enough repetition that new habits would stick
I recently came across an interesting video about Amazon's corporate culture and how they handle changes in their organization.
They’ve understood the value of innovation for their organization and are constantly working on new ideas and experiments without knowing the outcome.
Although it’s risky, Amazon has realized that taking risks is an inevitable part of being in business and the only way to stay relevant in the changing market.
Amazon cultivates a culture where employees are allowed to experiment and learn. They are removing every possible barrier by saying yes to the ideas coming from employees.
If someone says an idea won’t work and blocks the development process, that person has to do all the work regarding the idea.
Although Amazon has obviously quite an extreme approach to experimentation, this concrete method has proven to be effective when tackling objections.
According to The 2018 Global Innovation 1000 survey, companies with higher revenue growth compared to their competitors were more likely to say their company’s executive team was closely involved with the R&D program.
Often, the issue is that innovation isn’t treated as a priority. If it’s on a manager’s agenda – it becomes important, but if top management is lacking commitment and support, it definitely has a negative effect on all levels of an organization.
Unless you’re actively arranging time for removing blockers that might be standing in the way of innovation, it’s difficult to make any kind of progress.
Communication, training, rules and expectations prompt behaviors, such as what people say and do. Poor communication, lack of training and unclear expectations obviously won’t help reinforce innovativeness.
The leader sets the expectations and objectives, while giving people the freedom to find ways to implement reach them. At the same time, leaders need to make sure that the objectives are aligned with each other throughout the organization.
Each of the innovation studies mentioned at least one challenge related to the structures of the company. By structures, we refer to the practical things, such as the concrete organizational structure, processes and tools that are used to manage innovation.
Structures can be built in so many ways and there are so many processes and tools that can be used for managing innovation that this alone can bring a number of different challenges.
Without the right infrastructure for implementing ideas, the right processes for making decisions, and the right communication channels, very few of the ideas that people are coming up with will actually see the light of day.
Often, the issue is that innovation isn't managed very well. For example, rigid organizational structures with ‘command and control’ leadership styles can hinder innovation as they often have many layers of management where people have small spans of control and are working in independently operating functional silos.
While certain tasks, such as manufacturing, definitely need greater rigidity and control, innovation often benefits from flexibility and adaptability.
Teams working on innovation need to be able to move fast and adapt to their environment, as well as make decisions independent of the traditional ways of doing things in the organization.
However, you still need some structure and the right processes to be able to scale. Thus, finding the right balance can be challenging.
Another difficulty organizations face is engaging their customers and employees in the innovation process.
According to Capgemini’s innovation survey, 4 out of 10 respondents said that their processes and technology aren’t aligned to enable communication and interaction with their stakeholders.
This can lead to a situation where the perceived problems are quite far from the actual ones. Here, a dedicated tool for managing innovations can help.
Becoming an innovative organization takes a lot more than just opening an innovation centre somewhere – it requires a disciplined and holistic approach.
It’s not enough to do well in just one area as you have to get quite a few things right to be successful in innovating consistently.
You need the right strategy, structures, capabilities and the right kind of culture to innovate. These four major aspects of innovation management set the foundation for successful and sustainable performance.
Lack of clear alignment with the company’s strategic objectives and treating innovation as a separate unit can bring a number of challenges. Innovation is centralized in the majority of large organizations, and although there are a lot of positive aspects to it, it's not necessarily always the best option for all.
Innovation units’ efforts risk being sidelined when competing with the company’s other strategic priorities and when an organization fails to integrate innovation to the core, strategically important efforts are less likely to succeed.
John Rethans, global digital transformation strategist at Apigee says:
“I’ve seen a number of places where the innovation centre is literally a glass-walled aquarium on a busy street in which 30 or so hipsters are on display, working on MacBooks at standing desks. Meanwhile, the rest of the company toils away in the surrounding towers, working in cubicles with five-pound, 10-year-old laptops. This type of centre devolves into innovation as spectacle instead of innovation as strategy.”
Strategic alignment is important as it allows people to focus on what’s relevant and do things that will advance the overall business strategy. All business units and people should work towards a common goal regardless of the employee role.
A good way to ensure that the strategy is at the core is by aligning the KPIs, and compensation structure to the overall strategic innovation objectives. To be able to fully benefit from innovation, the whole system needs to be integrated to the actual ways of working.
Building a repeatable approach to creating innovation in your organization requires some work and almost always involves some trial and error – no matter how good you were.
With a systematic approach and focusing on the right things, you too can create a scalable machine for driving sustained innovation performance, no matter your current level.
We’ll show you how in our Innovation Masterclass Webinar in which we’ll dive deeper into some of these challenges and will also share a practical step-by-step guide to building a successful innovation program.
Get the recording of this webinar (originally aired in June 2019) and learn about actionable tips and best practices for building the momentum once you’re off the ground.
This post is a part of our Innovation Management blog-series. In this series, we dive deep into the different areas of innovation management and cover the aspects we think are the most important to understand about innovation.
You can read the rest of the articles in our series covering innovation management by clicking on the button below. Don’t forget to subscribe to our blog to receive updates for more of our upcoming content!