Innovation is here, and it’s not leaving

November 17, 2018

Inside many Houston companies, there’s a growing sense that they need more innovation. The word is being thrown around on a daily basis in offices, meeting rooms, and board rooms across the city and beyond.

The reasons behind this activity are real and omnipresent - technology advances, startups, commoditization, competition, evolving purchasing behaviors and new marketplaces. Despite innovation efforts made by various companies, the efforts are still very young at most companies based on a KPMG-sponsored survey benchmarking innovation impact conducted by Innovation Leader earlier this year.

For most companies big and small, the first obstacle is simply defining innovation, and how it can impact their organization.

Defining innovation

A lot of business leaders have defined innovation in a variety of ways, but fundamentally innovation is broken down to three types.

· Incremental - sometimes called “core” or “horizon one,” these typically impact existing customers or markets. They involve new, improved, refined or “incrementally better” products and services. These are usually tied to the core business.

· Adjacent - these innovations often called “horizon two,” typically involve expansion to an adjacent business or customer segment. The innovations usually leverage the company’s expertise in new or innovative ways.

· Transformational - often referred to as “breakthrough” or “horizon three,” involves the creation of entirely new businesses to serve new markets and customers. Considered the most high-risk style of innovation, transformational innovation often requires new capabilities, and yields totally new products and markets.

Now what?

Making innovation happen for any company is challenging. Typically, innovation leaders point to their own company’s inability to act on signals or developments critical to the future of the business as a major obstacle. Even organizations with strong sensing mechanisms can struggle to coordinate a timely, sustained response to act on signals of change. Internal politics, culture, governance, funding, incentives, metrics and other factors have tripped up even the most agile companies.

Ultimately, an initiative can take on a life of its own and end up ensnared in organizational politics, with priorities that overlap and compete with those of other initiatives.

Leaders should consider addressing obstacles to making innovation happen by establishing the following protocol:

· Establishing an accountable leader for sensing signals of change in the market and identifying what’s relevant (cut through the noise).

· Building processes to understand the scope, scale and time horizon of potential impacts from market disruptors.

· Ensuring someone is holding the organization accountable for taking action.

· Making seed funding available to explore areas where you cannot yet assess the scale of impact and timeframe.

· Implementing a disciplined process to ensure the right innovation investment mix between incremental, adjacent and transformational.

· Considering carefully whether an innovation should be built internally, acquired or developed through an alliance.

As leaders think about innovation as a strategic priority, they need to look beyond technology, products and services and create a culture that fosters and encourages innovation. Business leaders need to create an environment that rewards innovative behavior in their people in order for the company to stay relevant. Innovative thinking can come from anywhere in a company, and we should remember that innovation is everybody’s responsibility and anyone can be an advocate for change.

For Houston, industries that have been active in innovation include healthcare, energy & utilities, financial services, government/public sector. Clearly, innovation is happening all around us, and as soon as companies can embrace the concept, recognize it’s disrupt or be disrupted, and benefit from an innovative culture, the faster they can continue to grow and prosper.

Mike Nolan is the Vice Chair of Innovation & Enterprise Solutions at KPMG LLP, and he’s based out of Houston.

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