The “Debits and Credits”​ of Corporate Innovation: Mastery of Innovation Basics

By: Phil Gibbs, Principal, The Disruption Lab


Many C-suite executives find themselves struggling with how to roll out innovation in their organizations and, more importantly, how to avoid being disrupted. They know they need to innovate, and their boards and shareholders expect action, but sometimes innovation seems like a black box.

Unfortunately, many of us contribute to the problem. Well-intended efforts by consultants, academics, and educated professionals lead to a proliferation of acronyms, models and complex explanations, with little meaning to practitioners. The unintended consequence is more complexity, confusion and frustration. We own the problem.

Executives often fall back into their comfort zones and some pursue acquisition strategies to address innovation. They scan the environment for shiny objects to acquire. In most cases this doesn’t work. Some take a PR and marketing approach and open “innovation centers” that digitally display advances the company has made over the years. Obviously, this doesn’t create the future. Some digitize the old suggestion box and form innovation councils to identify the best ideas, but this is inadequate at best.

Perhaps most troubling are the senior leadership teams who have made a real commitment to innovation and transformation, and yet are paralyzed by uncertainty about what to do. Yesterday’s accounting and finance courses still apply today, but the innovation courses . . . wait, there were no innovation courses. As they wade into the deep end of the pool without ever having studied the debits and credits of innovation, the task is daunting—complex and costly with no clear answers.

Clay Christensen taught us that when a product or service becomes complex and expensive, we have an opportunity to innovate and disrupt by making it simpler, more accessible and affordable. I wonder if we are at the point where this principle needs to be applied to innovation itself. As C-suite executives, imagine if corporate innovation was simpler, more accessible, and affordable!

I am not suggesting that we simplify for simplicity’s sake, but rather that we are at an inflection point in our understanding of innovation where what actually works is being clarified and validated. In other words, there are a few simple “debits and credits” of corporate innovation that every executive needs to master in order for their organizations to survive and grow in today’s rapidly changing environment.

If you master the following concepts, you will not know everything you need to know about innovation, but you will know enough to lead innovation in your organization.

Innovation Basics

1.    Focus on Jobs to be Done

2.    Think in Terms of Hypotheses, not Great ideas

3.    Constantly Experiment

4.    Validate before Scaling

Innovation Functions

5.    Improve efficiency

6.    Sustain existing products or services

7.    Grow the organization

Innovation Alignment

8.    Align Technologies and Business Models

9.    Align Customer, Job and Product

Innovation Organization

10. Structure the Organization Dependent on the Function of the Innovation

A simple description and underlying reason why these are the debits and credits of innovation follow:

Focus on Jobs to be Done

Again, it was Christensen who reminded us that customers have jobs to do that they search for products and services to hire to do the jobs.

Search for Product to Do Job +

Find Product that Does Job =

Purchase Product

If your product or service offerings are not addressing jobs customers are searching for products to do, you will not have an ongoing business. In corporate innovation, we tend to focus more on problems with existing products than the jobs customers have. This perspective can lead to spending time and resources solving problems that are irrelevant or marginal at best when we take a closer look at the job to be done,

When your innovation initiatives continually create a match between the job your product does and the job customers are searching for a product to do, you have innovation and a sustainable business.

Your Product or Service

(matches)

Customer Job to be Done =

Innovation and Sustainable Business

Problem solving is important and necessary, but not sufficient. It was Deming who said that putting out a fire does not improve a building. Understanding the “job customers have to do” gets us focused on a robust starting point and expands our perspective to include both improving existing offerings and creating new products and services.

Think in Terms of Hypotheses, Not Great ideas

While simple, this has several layers. First is the concept of “great ideas”. Almost any innovation initiative can get hung up on the search for great ideas. But Michael Schrage says good ideas are bad for innovation. On the surface that doesn’t seem to make sense. Innovators and entrepreneurs are continually searching for great ideas.

So, what underlies this counter intuitive concept? First, the absence of what are considered great ideas can delay the start of innovation in an organization. Without starting there can be neither innovation success nor failure. (I said it was going to be simple.) And, perhaps more importantly, when we start with what we think is a great idea, we tend to defend, advocate for and try to prove our idea, and often are blind to real opportunities for finding the product-job fit described above.

The alternative is to start with a simple hypothesis—if we do this, we will get these results. I know this sounds academic, but it is language that reflects a mature understanding of what works in innovation.

Hypothesis—if we do this,

we will get these results . . .

Almost every organization is littered with hundreds of failed great ideas. But starting with a hypothesis assumes that the idea has to be validated before it is labeled a good idea and implemented. It is the foundation of Deming’s PDSA cycle and the Build-Measure-Learn cycle in Lean Startup.

Recently while studying innovation in Singapore, we spent time with Dr. Steven Chan with The Woodlands Health Campus. Twice during our short visit, he responded to questions with, “The hypothesis is …”, as opposed to our typical response of “Our approach …” or “Our solution …”. Dr. Chan’s response reflected a mature understanding of a concept that is core to innovation.

Constantly Experiment

There are many processes and models of innovation, but the core methodology is experimentation and testing. When you start with a job to be done and have a hypothesis about a product that will do the job, then experimentation is the obvious next step. The natural tendency has been to go directly to implementation and thus the many failed initiatives. The experimentation should be rapid and inexpensive as advocated in the Lean Startup.

The results of experimentation imply iterations and sometimes pivots. If through the experimentation process you end up at a very different place than you started, as any experienced innovator will tell you that you almost always do, you realize that starting with a great idea or even good idea is almost irrelevant—just start.

Starting with a great idea or even good idea

is almost irrelevant—just start.

Corporate innovation should not be built on copying other companies, but we should learn from exceptional companies and experimentation is core to Amazon’s success. Jeff Bezos says that Amazon is constantly experimenting and when they find something that works, they double down on it. And have they!

Validate Before Scaling

The purpose of experimentation is to validate product-job fit, which implies that a repeatable and scalable business model is identified. Using Lean methods, the validation is accomplished as quickly and inexpensively as possible. Once validated, the product or service is integrated into the existing business or a new business is created to scale the product. When this happens, you are ready to move from innovation to operations.

These are the four basic activities of corporate innovation: focus on jobs to be done; think in terms of hypotheses, not great ideas; constantly experiment; and validate before scaling. Master these and you are well on the way to understanding innovation. Fortunately, there are many tools to assist in doing these such as one-page business model canvases, PDSA, Build-Measure-Learn, MVP, and Design Thinking.

The second layer to mastery involves understanding what function the innovation serves—what you are trying to accomplish through innovation. Almost all corporate innovation falls in one of three functions.

Improve Efficiency

Most corporate innovation, by far, is aimed at making current products more efficient by taking time, resources, and cost out of the system. This is a requirement for survival in a competitive market. This is often labeled efficiency innovation.

Sustain Existing Products or Services

The second function is to make existing products better by adding features and functions. Of course, when you do this, you can charge more and make higher margins. A challenge is that as you move up the value chain, the available market becomes smaller.

Grow the Organization

The third function of innovation, and strategically possibly the most important, is growth. Ironically, this involves making products and services simpler, more accessible and affordable. The logic is simple—if people have a job to be done but the product or service that does the job is difficult to access and expensive, they are unlikely to be consumers.

If people have a job to be done but the product or service that does the job

is difficult to access and expensive, they are unlikely to be consumers.

If you make the product simpler, more accessible and affordable, they now can become consumers. This drives real growth and often disrupts companies whose products remain complex and expensive.

Christensen has helped us understand the differences among these functions and they are foundational to implementing corporate innovation just as the the core concepts are—focus on the job to be done; think in terms of hypothesis; experiment; and validate before scaling.

The third layer of concepts is where the basics and functions start to come together. This involves the alignment of technologies and business models to create products and services, and the alignment of the customer, job and product to create value.

Align Technologies and Business Models

Sometimes innovation is equated with technology. While technology is important, technology without an aligned business model is, well, just technology. Granted, some technologies themselves are really interesting and some are even referred to as disruptive technologies, but they must be accompanied by a business model that allows value to be experienced by customers. While mastery of every new technology is not a requirement to lead innovation, a knowledge of technology is a prerequisite to leadership in today’s world. And knowledge of new and innovative business models is just as important. Major trends like the decentralization of everything, the share versus own economy, digital transformation, and big data are driving many of the new business models.

Align Customer, Job and Product

The real fun in innovation is orchestrating the alignment of the customer, the job to be done and the product. As an orchestra leader may start with strings or horns or percussion, you may start the innovation process with the customer, or the job, or product. You are constantly tweaking and adjusting each—focusing on slightly different customer group; modifying the job to be done; and iterating the technology and business model—until harmony or alignment is achieved. When the three are in perfect alignment, the music is exhilarating, and you are ready to scale.

Structure the Organization Dependent on the Function of the Innovation

Finally, since we are focusing on corporate innovation, there must be purposeful structuring of the organization to support innovation. The appropriate structure is dependent on the innovation function you are trying to achieve—improve efficiency, sustain existing products, or grow the organization.

Both efficiency innovation and sustaining innovation are focused on current operations and can be carried out inside the organization’s existing structure. This does require supportive leadership that provides time and resources to not only operate the current business, but improve efficiency and add features and functions to existing products.

Growth innovation is grounded in a very different set of practices than the current operations. When the function is to grow the organization, the innovation has to move to the edge or outside of the organization. If it is not, antibodies come out and kill the innovation. Growth or disruptive innovation involves creating products and services that are simpler, more accessible and affordable than the incumbent products. They simply do not make sense to the existing organization. In fact, they may disrupt the current operation. By moving to the edge or outside of the organization, they can be developed and validated without the resistance they would encounter inside the organization.

Here are the debits and credits of innovation:

1.    Focus on Jobs to be Done

2.    Think in Terms of Hypotheses, Not Great ideas

3.    Constantly Experiment

4.    Validate Before Scaling

5.    Improve Efficiency

6.    Sustain Existing Products or Services

7.    Grow the Organization

8.    Align Technologies and Business Models

9.    Align Customer, Job and Product

10. Do Efficiency and Sustaining Innovations Inside and Growth Innovations at the Edge or Outside the Organization

Master these ten basics, and you can move Innovation alongside Accounting and Finance as core competencies on your resume, and lead innovation in your organization.


Phil is the founding Principal of The Disruption Lab, where he focuses on disruptive innovation and corporate growth. His experience bridges the corporate and entrepreneurial worlds and includes manufacturing, technology and healthcare.

For over a decade, he led Executive Learning, one of the country’s leading firms supporting continual improvement (sustaining and efficiency innovation), particularly in healthcare, and including work with industry leader HCA and the Institute for Healthcare Improvement (IHI).

His entrepreneurial experience includes co-founding multiple companies, including E|SPACES and LifeFilez. In addition to his startup experience, Phil has served as a principal in an early-stage investment firm and worked in/consulted with multiple large organizations, including the Oak Ridge National Laboratory early in his career. His interest in innovation began with his doctoral research at The Ohio State University focused on understanding how organizations achieve both high productivity and high innovation.

You can connect with or ask Phil a question through The Disruption Lab community at https://thedisruptionlab.community/.

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