Expanding innovation: It takes an ecosystem

Innovation has become omnipresent. Individuals, organizations–and even countries–either claim to be innovating already, or are seeking ways to innovate better. There are numerous examples. The 2018 Annual Reports of the top 20 businesses in the Fortune 500 mention the word innovation 165 times. And the 2018 budget papers of the European Union and the United States mention innovation more than 1,100 times.

Innovation is measured by multiple media organizations and other institutions each year. Yearly surveys of most innovative businesses are produced by Forbes, the Boston Consulting Group, the Economist Intelligence Unit, Fast Company magazine, to name only a few.

With such wide exposure and emphasis, it would seem that innovation is well understood. Unfortunately, research by the IBM Institute for Business Value (IBV) over the past 15 years suggests that this is anything but the case. Not only do individuals, organizations, and nations have wildly differing perspectives of what innovation is, they struggle to keep track of how innovation is changing as economies, industries, and business models evolve.

Among the ways that innovation is changing is how and where business is conducted. Competitors are now collaborating in ways unthinkable in the past. For example, Apple and Samsung have entered into a partnership where Apple will offer iTunes movies and TV shows on Samsung’s smart TVs.

To innovate at scale and speed, organizations also create new and, at times, unexpected ecosystems. For example, Jaguar is collaborating with Waymo (a self-driving technology development company and a subsidiary of Alphabet Inc.) to create premium self-driving cars. And Amazon, Berkshire Hathaway, and JP Morgan are partnering to create a healthcare company to offer cost-effective healthcare services to their collective employees.

Nine innovation characteristics were identified across three distinct areas: innovation organization, innovation process, and innovation culture. Organizing attributes that distinguished high-performing organizations from others included a commitment to align objectives of innovation programs directly to strategic objectives of the business. High performers also embraced open–as opposed to inward-looking–innovation, and they established dedicated innovation teams within their organizations.

High-performing organizations encouraged new ideas about processes from a wide variety of sources, ranging from channel partners, to employees, to exploratory analysis of structured and unstructured data. The outperforming group also adopted a disciplined approach to funding innovation. They created separate and distinct funding allocations, clear rules about go/no-go project decisions, and explicit process review and gating procedures. Clear innovation performance metrics focused on objective measures such as expected return on investment (ROI) and time to break even.

Regarding culture, leaders of the most successful businesses were much more likely than others to provide clear direction about the objectives and expected outcomes of innovation. They provided specific incentives for employees to engage in innovative activities and did not penalize individuals who might be associated with a project failure. And they sought to orient their businesses around innovation by embracing organizational agility and promoting transparency and trust.

Trading places

The nature of business has changed dramatically over the past five years. Industries such as banking, automotive, and retail are converging in unprecedented ways and rates. Customers who accessed different product or service categories through distinct channels are now being engaged in new, more holistic ways. Customers are engaging in healthcare discussions through telephony businesses, technology companies, or even banks. Retailers are orchestrating payment systems. Social media businesses are establishing new forms of currency. Who knows what changes we will see from innovation in the post-pandemic world?

Traditional enterprise constructs are breaking down as businesses increasingly develop porous and dynamic economic ecosystems through which they connect with customers. As many as half of the executives we surveyed indicate their organizations are orchestrating or participating in platform business models, which create value by enabling on-demand exchange between those who have a resource and those who need it. Organizations across virtually every industry are competing to have a primary relationship with customers, positioning themselves to not only provide their own products, but as curators of customer experience, which can also be an entry point for other businesses seeking access to customers