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How Leaders Can Get More from Innovation Efforts    [Date Added : 10/31/2017 ]
Here are four things leaders can do to get more from their company's innovation efforts:

1. Don't Get Trapped in Your P&L: For any business to succeed over the long term, it must earn a return that exceeds its cost of capital. That is why good managers put so much focus on measuring and managing return on investment (ROI) as a basic operational practice. It is through continuously making incremental progress in lowering costs and increasing revenues that firms achieve competitive advantage in their industry.

However, organizations must prepare for the future through innovation. Innovation usually does not have defined revenue or profit goals, because their purpose is to explore new opportunities that cannot be quantified. Nevertheless, these exploratory efforts provide excellent ROI over the long term. In the public sector, return on basic research has been estimated to be between 30% and 100%.

2. Focus on Problems, Not Ideas: Another common misconception about innovation is that it is about ideas. It is not. The truth is nobody cares about what ideas you have. They care about what problems you can solve. While brainstorming about ideas can be helpful in an operational context, because problems are front and center, for innovation identifying a meaningful problem is half the problem. That is why the organizations that are able to innovate consistently - over a period of years or even decades - develop a systematic and disciplined process for identifying new problems outside the normal operational content.

3. Classify the Problem Before You Decide on a Solution: A third common issue that organizations run into is that they treat innovation as a monolith and limit the strategies available to them. They say, "This is how we innovate, this is our DNA," failing to recognize that different types of problems require different solutions. With some problems, such as curing cancer or overcoming climate change, neither the problem nor the domain is well-defined, and a more exploratory approach is required. Often, this is thought to be only for large enterprises with billion-dollar budgets, but there are a number of strategies even small firms can employ to access world-class research.

4. Build for the Few, Not the Many: Typically, when firms are evaluating investments they look for large addressable markets. That is good operational practice, but with a truly new innovation it often leads to failure. New ideas, almost by definition, are not well-understood and tend not to perform very well. So instead of seeking out a broad class of customers, you need to build for the few, not the many.

An old marketing adage is that you need to find the right customer at the right time with the right offer. In a similar way, to close the innovation gap you need to find the right problem and apply the right combination of capabilities to solve it. Innovation is not operational excellence. It’s messy and nonlinear. Nevertheless, it is what leads to business growth.

("4 Ways Leaders Can Get More from Their Company’s Innovation Efforts," by Greg Satell, Harvard Business Review, October 10, 2017. Copyright 2017 Harvard Business School Publishing)
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