Building Innovation Demand

Most businesses who invest in innovation do so to improve their innovation supply. 

More ideas generated, more opportunities tested, more business cases developed, more new products and services launched.

However, as any Level 1 Economics student can tell you - that’s only half of the equation. To really create sustainable innovation within your business - you also need to improve your demand for innovation.

What does this mean?

Demand for innovation is the genuine desire and willingness for an organisation to invest in innovation. This is a leadership function - and the tipping point occurs when senior leaders recognise that they are the ones responsible for innovation.

The traditional model of innovation tends to put it in the margins - out in the world of the techies in an incubator, or designers in new product development. 

The result?

Innovation is somebody else’s responsibility. It is not a genuine desire for any senior leader - and there is little willingness to invest in developing innovation across the board.

Organisations that encourage supply without demand are typified by:

  • A range of ideation events that deliver ideas - but nothing more;
  • Lengthy product cycles and constant delays on launches;
  • A lack of learning from investment;
  • No mentoring or development of the innovation pipeline.

How do you foster demand?

Within small businesses - this demand often comes naturally. You need to innovate to maintain growth and stay ahead of competition.

In larger organisations, however, it is easy to lower the expectations significantly. One survey of fifty large (and, I mean massive companies - many with revenue over $50b) found that less than 50% of managers felt responsible for innovation. Of those who did, less than 20% were allocating more than 4 hours a week to driving innovation.

However, a few large companies have managed to buck this trend - such as GE and Emerson Electrical. How?

By focusing on three key areas.

1. The Budgeting Process. 

These organisations have required each operating unit - not just R&D - to allocate a percentage of their operating budget for radical new ideas. 

As expected - when this was introduced - there was pushback! Managers argued that they needed each dollar to meet their current objectives.

But each time, the executives answered - “No. We expect you manage both short-term focus and long-term growth.” 

There were growing pains - but this increased the demand for innovation.

 

2. Management Compensation. 

Similarly, these businesses created a new set of metrics for evaluating the managers’ performance - putting innovation into the mix. Managers were asked during their reviews:

- What is the financial value of your innovation pipeline?
- How fast are ideas progressing through this pipeline?
- What percentage of budget is currently devoted to innovation projects?

Simple metrics, that encouraged managers to become pro-innovation - as they were compensated for this!
 

3. Stretch Goals.

When Jeff Immelt became CEO of GE, he gave each business leader responsible for a new goal. 

Each year, they must work on three new ideas that each have the potential to generate an extra $100m over the following 2-3 years. This short-term goal requires innovation. They cannot achieve this by maintaining the status quo. 

Effectively - this manufactures demand for innovation. The business leaders want ideas that will help them meet their goal - so prioritise accordingly.

Unfortunately, not many of us are in the position to make these sweeping changes within our organisation. However, if you have a management position, seek to create innovation demand in micro-ways.

  • Allocate a small percentage of your budget for innovation - regardless of what area you work in. Make this available for your team to access.
     
  • Arrange a small reward for when your team practices innovation - a dinner, or some small compensation for their new effort. Show that you are invested in this process.
     
  • Create a goal for your team that is just out of reach. If you achieved a 10% growth last year - aim for 16%. Create a goal that requires new tactics and approaches - to call out the best of your team.