This newsletter is for Business Leaders who struggle with deciding when to start an innovation project, what kind of innovation to target, and how to achieve high hit rate outcomes.
Delivering an innovation is difficult for many organizations to accomplish. Innovation research data indicates that innovation projects achieve their goals only about 40% of the time. The difficulties businesses encounter when trying to innovate, and the low success rate, become obstacles that inhibit even starting an innovation project.
Successfully inventing and introducing an innovation is a difficult endeavor for many organizations. The difficulty lies in the fact that a new solution must change the status quo in the Market, Solution, and Business environments to become an innovation. Changing the status quo in three different, but related, environments is a significant challenge. But if you don’t actively seek to change the three status quo’s, your innovating project may not deliver impactful results.
The Four Classifications of Innovating Work
Innovation projects can be classified according to descriptions that are related to risk levels. It is useful to identify and understand these classifications and their success rates because they are often used to guide innovation decision making. The classifications are:
- Continuous Improvement
- Incremental Innovating
- Sustaining Innovating
- Radical Innovating
Continuous Improvement isn’t, according to our definition, a kind of innovation. This is because the work only focuses on changing the Business status quo through improvements in business performance metrics. Continuous Improvement doesn’t seek to change the Market or Solution status quo. But, Continuous Improvement has the highest probability of success because it deals with the least amount of uncertainty.
Incremental Innovating seeks to make process improvements within the constraining parameters of existing products. These process improvements occur in all three environments, resulting in changing the combined status quo. The probability of successful Incremental Innovation projects has been found to be in the range of 55%.
Sustaining Innovating seeks to make product enhancements within the constraining parameters of existing processes. These product enhancements impact all three environments, changing the user experience, the business experience, and the market experience. The probability of successful Sustaining Innovation projects has been found to be in the range of 40%.
Radical Innovating seeks to make both process improvements and product enhancements. This is the highest risk classification because of the high level of uncertainty associated with changing both processes and products simultaneously. Radical Innovation projects deliver successful results approximately 15% of the time.
Overall, the combined probability of success of Innovation Projects, considering the typical frequency and size of Incremental, Sustaining, and Radical Innovation projects, has been found to be in the range of 40%. An average 40% innovation hit rate is, and should be, a major stumbling block when considering investing in an Innovation project.
Some Factors Contributing to the Persistence of Low Hit Rate Innovating
Managers are charged with responsibility for delivering orderly business results, particularly in the short term. This responsibility results in a bias to standardized products and processes that increase the repeatability of orderly business results. This repeatability, which for the organization become behaviors that bias to the status quo, is in direct conflict with innovation. Business Leaders must manage the risk of upsetting orderly results that could be caused by innovating projects. How Business Leaders manage this risk can inadvertently suppress innovation.
Business Leaders make their decisions concerning how to improve business results within the context of an operating model tempered by their own beliefs in how the business works. Leadership beliefs about when and how to innovate, can be heavily influenced by the low probability of success for the different classifications of innovating.
Businesses that don’t actively Innovate
Some businesses don’t have an active Innovation Program. These businesses operate in a stable Market, Solution, and Business environment, and have little motivation to innovate. There are no clearly impactful short term consequences for not innovating. Business Leaders may be open to some kinds of innovation, but only when innovation becomes mission critical to business performance. These businesses often have very low innovation success rates because they don’t develop and nurture the individual skills and organizational capabilities that are critical to innovating success.
Business that focus on Continuous Improvement
Some businesses constrain their innovation activities to Continuous Improvement projects. True innovation projects get a lower priority with less visibility than Operational Excellence projects. Change in the status quo occurs, but only in the business context. Continuous Improvement projects can have a substantial impact on short term business results, but they don’t anticipate beneficial changes in the Market or Solution environments. These businesses often have high success rates for Continuous Improvement projects. But they can suffer from the same low success rates for true innovation projects, for the same reasons as businesses that don’t prioritize innovation at all.
Businesses that actively Innovate, but are ineffective
Many businesses have active Innovation Programs and try to prioritize innovating as an essential business activity. But because of the low probability of success for Incremental, Sustaining, and Radical Innovating projects, they organize their program to suppress risk rather than enhance success. Suppressing risk has the effect of focusing on preventing failure, rather than focusing on ensuring success. Common risk suppression tactics include:
- Innovating work is “departmentalized” and executed sequentially, rather than shared through-out the organization.
The effect is that, within the organization, the “left hand” doesn’t know what the “right hand” is doing. When what the “right hand” is doing is discovered or shared, the “left hand” vigorously resists the initiative, suppressing innovation. - Innovating work is not structured within a systemic practice.
The effect is that there isn’t a reservoir of knowledge, skill, or capability concerning how to innovate for the organization to draw on. The project becomes a double development effort; developing a new solution, and an Innovation Methodology, concurrently. This makes innovating overly complex, complicated, and ambiguous, yielding low hit rates. - Implementing a “fail early, fail fast, fail often” Methodology.
This a very well-meaning Methodology. The idea is based upon a belief that innovation results are completely unpredictable. Therefore, innovating success is dependent upon maximizing the number of new ideas you can generate, and evaluating them as fast as possible. By discarding ideas using the “fail early, fail fast, fail often” mantra, eventually you’ll be left with “good” ideas to develop. (This was Thomas Edison’s methodology.)
The effect is that your innovating team will be extremely busy searching for the needle in the haystack, discarding all the hay. Failure then becomes normal, expected, and institutionalized into your Program. The worst outcome is that low innovating hit rates don’t change because you can’t identify the “good enough” idea. The best possible outcome is good new solutions are identified, but extremely slowly through massive, costly, effort. Either outcome is usually unsatisfactory.
Mitigating the Factors that keep Innovation Hit Rates Low
Innovation hit rate is always a consequence of the confluence of results in Leadership, Management, and Individual skill areas. These areas include Leadership and Management capabilities; standard practices; repeatable methodologies and processes; and individual and organizational skills.
- Leadership must be adroit at piloting change. This skill starts with creating a sense of purpose, setting direction, and aligning the organization with a targeted goal to reduce innovating complexity.
- Management must provide disciplined focus on organizational practices, repeatable methodologies, and standard processes. By managing innovating work within a structured system, it is possible to eliminate complicated project execution.
- People must be encouraged, on a continuous basis, to exercise and build their individual skills to successfully innovate. The essential organizational capabilities of invention and introduction are a reflection of individual skill strengths. Individual skills only improve through exercise and practice.
These skill areas are leveraged most effectively when the organization has an integrated, systemic, Innovation Practice. Innovation research has found that up to 80% of businesses who try to innovate don’t have a systemic practice. This prevalent lack of a systemic practice is a primary reason behind the persistence of low hit rate innovation.
Conclusion
Innovating hit rate is always an outcome of the confluence of results from action leveraging several different kinds of capabilities. Innovation hit rates of 80% or greater are probable when individual and organizational capabilities are nurtured, exercised, and practiced within an integrated system. Hit rates of 40% or less are a consequence of insufficient capabilities and / or the lack of a systemic practice.
The organizational beliefs and actions that we described, which seek to reduce innovating risk, also can become an obstacle to establishing and exercising a fully integrated systemic Innovation Practice. Without a systemic Innovation Practice, low hit rate innovation often becomes a self-fulfilling outcome.
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Seek to innovate
Low hit rates are persistent
Incomplete practice
-Innovation Haiku, Kevin A Fee, February 24, 2024