Theoretically, innovation can be of three types. Incremental, where innovations target and serve the existing customers or markets. A refined version of a beverage (could be a new pack, a slight change in formula) will be considered incremental innovation. According to the KPMG research, “these innovations are usually closely tied to the business.” They are also called ‘Core’ or ‘Horizon One’. Adjacent innovations are an expansion to an ‘adjacent’ business or customer segment. For instance, an Uber offering UberEats will be considered adjacent innovation because it leverages the company’s core expertise of a transportation-hailing platform but adds a new dimension to the same core service, i.e. food delivery from restaurants. These innovations are often called ‘Horizon Two’ or H2. Transformational innovations are disruptive and involve the creation of entirely new businesses which cater to new markets.
Amazon came up with Amazon Web Services for its internal usage, but looking at the potential of the cloud server, it became a B2B offering and now is the source of a significant proportion of profits of the technology giant. These transformational innovations are also called ‘Horizon Three’ or ‘Breakthroughs’.
The research revealed that Incremental Innovation has been tasked to business units. R&D teams are expected to focus on transformational innovation, yet almost half of their innovation efforts end up supporting business functions on incremental innovation.
49% of the respondents were of the view that their innovations are incremental. Also, in the spectrum of innovation maturity, companies are still in the process of moving ahead (some crawling, some walking, some even running, and the unfortunate rest just gazing). In the curve from ‘ad-hoc’ (“little or unstructured innovation”) to ‘optimised’ (“innovation is part of the company’s DNA”):
- 16% companies are ad-hoc
- 43.3% are emerging
- 23.5% are defined
- 13.1% are integrated
- 4.1% are optimized
- In this journey of reaching the ‘optimised’ stage, we look at the inhibitors and facilitators of innovation.
From the survey of 270 corporate leaders, the Benchmarking Innovation Impact 2018 study found that the obstacles to innovation ranged from cultural factors to a strategic deficiency. Here is a list of the top 5 obstacles, ranked in the descending order of their degree:
1. Politics/Turf wars/No alignment 55.1%
2. Cultural issues 45.3%
3. Inability to act on signals 41.6%
4. Lack budget 40.8%
5. Lack strategy and vision 35.6%
Other obstacles include – not adopting emerging technologies; lack executive support; lack of skillset required; inability to pick on signals critical to future business; and lack CEO support.
Politics, turf wars, and no alignment
Business units are averse to other entities breaching and entering their terrain – that is one possible reason cited by the researchers for a high percentage of respondents reporting this as a challenge. There is inertia when allowing ‘outsiders’ to potentially compete for resources. Conflicting personalities, delegation of responsibilities, accountability, and ownership, and ultimately who gets recognition for any success are some of the reasons why innovation faces resistance in organizations.
Ideas which fall under the ‘transformational innovation’ category often mean getting rid of an existing product/way of working. These ideas are not just disruptive to the market, but also disrupt the current operations of a business. In established companies, the challenge is even bigger because culturally, they are accustomed to a certain culture of work, and any changes suggested may yield reasons of why innovation can’t be done by career professionals of the firm.
Inability to act on signals
The problem is not with picking up on signals. Businesses are aware of the disruptions happening in the industry – only 18% respondents in the study said that their companies had issues “picking up” on signals of change. However, the problem was acting on them. Sometimes they are slow, waiting for scheduled strategic meetings to respond to the changes in the industry. Sometimes, they do not have collaborative mechanisms and act. This inability to act on the signals crucial to the future of the business is a big obstacle for organizations.
Lack of budget
This obstacle varies from industry to industry. Industries such as aerospace, automobile, pharmaceutical, and healthcare and technology keep significant budgets aside for their R&D. Alphabet spent $16 billion in R&D, more than double the cost of its Capital Expenditure ($7.3 billion). Having said that, there are industries which still spend less on innovation. Nearly 40% of the respondents said that they were budgeted less than $5 million for their innovation efforts. 23% received less than $1 million. The researchers have drawn the inference from these small budget levels that innovation teams could be doing some “concept development work, trend scouting, or training employees on innovation methodologies — but isn’t having a broad impact on the company.”
Lack of right strategy, vision
Around 36% respondents cited a lack of vision as a problem. This means that employees aren’t clear with the kind of innovation they are supposed to do and for what purpose. And it isn’t the CEO support which is the problem (only 10% cited ‘lack of CEO support’ as an obstacle). The obstacle is the lack of expectation setting and clarity to the innovation team. It is important to have a defined strategy and vision, and ensuring that the organization sticks to it. The actions need to corroborate the vision, not contradict it.
It is important to note that all the top five challenges faced by companies increase with the size of the organization. Companies with less than 1,000 employees reported lower percentages of obstacles as compared to companies with more than 10,000 employees.
These obstacles can be tackled with some constructive enablers to innovation. We leave you with the top enablers of innovation as found out by the study.
1. Leadership support 72.5%
2. Ability to test, learn and iterate55.8%
3. Correct team, types of employees 48.7%
4. Correct strategy, vision 44.5%
5. Correct approach, tactics 32.8%
6. Correct level of funding 26.4%
7. Organisation accepts failure well 26.4%
8. Correct technology/infrastructure 18.1%