Innovation ecosystem: enabling environments that foster dramatic transformation
Postmodern society thrives on individualism, tending to attribute both major achievements and dramatic failures to individuals, rather than institutions or societies. Thus, Steve Jobs is hailed as one of the greatest innovators of all time. But his run at Apple was the exception, not the rule.
Companies that are consistently innovative over a period of time do not tend to rely on one or two brilliant individuals – they consciously foster a culture of transformation that allows employees to harness their creativity and contribute to cutting-edge products.
True innovation – whether it is in a start-up or a large corporation – can only happen when there is an enabling ecosystem around it. This article focuses on what this system would look like, why it is so important for companies to invest in creating one and how they can go about doing so.
What is an innovation ecosystem all about?
To really understand what an innovation ecosystem looks like, its biological equivalent provides a useful example. The biological ecosystem is one where both living organisms (biotic factors) and their physical environment (abiotic factors) exist together as one cohesive unit. A good model of this is a coral reef – it provides a structure that supplies food, protects fish and enables marine organisms to thrive.
An innovation ecosystem is similar. It refers to an environment that brings together key elements, which help change to thrive. As a case study, take an early-stage start-up that is building a cutting-edge AI product. What kind of environment will help this start-up to create new products and systems at the pace that it needs to?
Some elements of this environment are:
- access to funds;
- collaboration with university researchers working in the same area;
- partnerships with bigger technology companies that could provide a potential customer base; and
- frequent meetings with subject matter and functional area experts.
The reason that incubators like Y-Combinator are so far ahead of its competition is because they have cracked the code when it comes to a healthy ecosystem for the companies that it mentors.
Innovation ecosystems look different for each company. Larger corporations, for instance, cannot build one in the same way as a start-up. Their focus would be more on empowering internal teams by providing them with both external resources (eg, funds, cutting-edge research or subject matter experts) as well as an internal work structure that encourages creativity and innovation.
While most innovation ecosystems are restricted to the company itself, in some cases companies end up working together to build a system that works for each of them. For instance, Cisco built the Cisco Hyperinnovation Lab, collaborating with other giants such as Caterpillar, Airbus and DHL to solve the urgent technology problems that all three companies had in common.
Approaches for building an innovation ecosystem: The success stories
A smart company realises early on that if it is going to disrupt its industry, it needs to shake up the way that it operates. A great company acts on this realisation. Below are three examples of how large companies have successfully built innovation ecosystems that have resulted in long-term industry leadership. Each company’s path is unique to its business context.
Intuit: Making innovation a part of everyone's job
Most companies tend to look at innovation in a silo, by creating a central group or incubator responsible for innovation in the company. Intuit realised that to build a truly effective innovation ecosystem, it had to make innovation a part of every employee’s job. Its core belief is simple: “if you show people how to innovate and give them the time and space to do it, they will surprise you with game-changing innovations wherever they are.”
As a result, Intuit trains every single employee on core innovation capabilities. These training modules are called Design for Delight and Customer Driven Innovation and help employees become more innovative in their daily work.
This leads not only to more innovative products, but also to transformations in business processes. For instance, the hiring team at Intuit applied the Design for Delight principles to create a hiring programme called Assessing for Awesome. Potential candidates go through a real project as part of the evaluation process. Candidates feel engaged through the hiring process, employers can actually assess candidate skills and the right person gets hired faster.
Cisco: incentivising innovation
Cisco figured that the key to developing an innovation ecosystem was to bring out the latent entrepreneurial spirit of its employees. Over a two-year process, Cisco perfected an innovation ecosystem that transformed its entire culture.
In the first year, it launched the Innovate Everywhere Challenge, in which cross-functional teams submitted ideas that were then evaluated in an open forum that comprised peers and the leadership team. This exercise had a few gaps: there was not enough support from managers, the judging process was somewhat random and the focus on where to develop was lacking.
Learning from this, Cisco launched its second challenge by introducing the concept of ‘founders’ and ‘angels’.
Founders were given a loose problem statement (thereby closing in on the important issues) and were to build a solution around it, complete with a go-to-market plan. Angels – usually managers and senior leaders – were expected to invest in these ideas, generally with their time, energy and department budgets.
Three winners were chosen and were each awarded $25,000 in seed funding to see their innovations through. The success of Cisco’s strategy can be seen in the enthusiasm that it generated – 50% of its 72,000 employees participated.
GE: using an innovation framework to go to market faster
The behemoth GE was struggling with its lengthy product development cycle. It needed to reduce its cycle time for new products in order to stay competitive, so it collaborated with Eric Reis of Lean Startup fame to come up with the ultimate innovation framework – FastWorks.
FastWorks was introduced in the company in 2014 to speed up new product introduction, but it ended up bringing about a large-scale transformation. The framework has a huge scope of influence – affecting everything from how employees decide priorities and fund projects to how they conduct reviews.
FastWorks’s intense focus on customer pain points and its ‘fail fast’ philosophy has transformed GE’s performance, not only with regard to new product introduction, but also in the day-to-day functioning of its technology teams.
How to develop an innovation ecosystem?
As seen above, there are a number of different approaches in building an innovation ecosystem. The specific approach that a company uses is not as important as the way that it executes it. According to Dan Toma, Tendayi Viki and Esther Gons’s book The Corporate Startup there are five main principles that companies use when developing an innovation ecosystem.
One: innovation thesis
Innovation cannot exist in a silo. For an ecosystem to become successful, it has to perfectly align with the overall strategic plan of the company. Similar to the investment theses of venture capital firms, every company must have an innovation thesis. This helps to outline the projects that the company will and will not invest in, thereby making its ecosystem far more effective in the long run.
Two: innovation portfolio
The next step is to build a product portfolio that reflects the thesis. It will have a range of output, from mature and well-established core products to incremental adjacent ones, to very early-stage, high-potential transformational creations. The goal is to have a balanced portfolio that reflects the company’s overall strategy. For instance, if it is already a product innovator and has comfortable market leadership, then core products can be emphasised, whereas if the company is lagging behind in developing new goods, it may need to look at more transformational ones.
Three: innovation framework
An innovation framework is like a unifying language. It becomes the basis of how a company makes investment decisions and develops new products. There are several great frameworks out there from GE’s FastWorks to Ash Maurya’s Running Lean. They can be broken down into three basic steps – creating, testing and scaling ideas. Occasionally, when a company wants to revamp its business model as a response to market conditions, it may decide to renew ideas.
Four: innovation accounting
Traditional accounting methods fall short when it comes to measuring the success of an innovation ecosystem. However, it is important to have the right metrics in place to ensure that outcomes are achieved. There are three types of KPI that can be used to keep track:
- reporting – these track the actual work being done as ventures move from ideation to scale (eg, validation velocity);
- governance – these help to make overall decisions on whether a company needs to keep investing in an idea (eg, time to product-market fit); and
- global – these help to examine how well the innovation has performed in the context of broader company goals (eg, percentage of revenue).
Five: innovation practice
The last step is to align product development to the framework. Adobe’s Kickbox and Pearson’s Lean Product Lifecycle both contain important tools and resources that show product teams the best strategies when searching for innovations and developing output.
An innovation ecosystem can seem like a tough nut to crack – it is so multifaceted and it is different for each company. However, this can work to a company’s advantage. When designing an innovation ecosystem, companies can choose the approach that works for them and incorporate the aspects that they need the most.
While there are different approaches to building an ecosystem, this does not mean that structure can go out of the window. It requires adherence to an overall innovation thesis, development of a comprehensive innovation framework and the use of key metrics to monitor its efficacy.
This is an Insight article, written by a selected partner as part of IAM's co-published content. Read more on Insight
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