How an End2End Innovation Operating Model Promotes Competitive Advantage

Although innovation is a strategic priority, leadership satisfaction with innovation practices is at a record-low 3 percent (BCG 2024). The low satisfaction comes at a time when most companies have well-structured innovation processes, employee and crowd engagement programs, or even specific budgets for AI, digital transformation, or venturing. All seems to be in place, yet is not when we look at our ITONICS Innovation Playbook and Innovation Operating Model. 

 → Free Download: The Innovation Playbook

Various factors drive success and high innovation performance. Companies must have the wisdom about the right growth opportunities. They need to know where to look to win. Identifying these areas can result from concrete customer feedback, known operational inefficiencies, new and changing customer needs, technological advancements, changes in policies and laws, and collaborations with other organizations. It can prove an insurmountable task to monitor, analyze, and manage vast amounts of data from employees, partners, publications, patents, papers, and other internal and external sources. As a result, many companies react too late to these critical shifts or waste resources in unnecessary tasks.

The increasing speed of progressive technologies, products, and services demands that organizations cultivate quick response times and a proactive approach to remain competitive. Dynamic decision-making and response to signals of change should initiate rapid innovation processes that shape robust organizational architecture. Even with all the wisdom, successful innovators excel when it comes to executing as fast as needed. But how do you know how far you need to move?

Fast and appropriate responses to changing markets require strategic innovation management processes. Some of the basic components for successful innovation management are logical thought flow structures, collaborative efforts aligned to landscape changes and business objectives, rigorous planning, and implementation and monitoring of innovation activities. Steering systematic developments and innovation activities are at the core of speedy and successful innovation management. 

 In support, ITONICS has developed an approach that stimulates and organizes high-performing end-to-end innovation—backed by long-standing work with international innovation leaders and academic research.

Our holistic approach from environmental scanning to strategy, ideation, innovation portfolios and roadmapping sustainably increases the innovation performance of our clients. The deep integration of best-in-class methodology and software is unique in this respect. We are proud to  be recognized again in 2021 as one of the best innovation companies in Germany.

- Dr. Christian Mühlroth, CEO ITONICS

The end-to-end innovation operating model answering: Where to win, How to win, and When to win 

All companies innovate. In very similar ways. At its core, innovating means finding a new or improved product-market fit and receiving a (financial) return on it. Innovative solutions thus need to solve a problem uniquely or better than before. There needs to be a desire from its users. Plus, firms need the capabilities to create and provide such solutions. It needs to be feasible for them. In the end, the benefits of creating and providing it need to exceed its costs. Firms are thus interested in increasing their confidence along different innovation stages so that they will be successful when deciding how to best improve current operations, and products, or develop completely new ones. 

How companies and teams yet find confidence in such evaluations, how much risk they accept, where they find ideas/concepts, how many innovations, and how quickly they bring them to market can be very different. The ITONICS Innovation Operating Model is designed to answer these questions given a company’s ambition, its biography, and its industry dynamics.

First, companies need to explicate their strategic ambitions. They need to be precise on how much they want to grow or whether they want to focus on securing their market position. With this strategic input, innovation teams are best equipped to explore where to win and play. With higher growth ambitions, companies need to invest typically into areas further away from their core operations. They need to invest in building teams and projects for Innovation Horizon 2 and 3.   

Bob Petrie of Citi Ventures: About growth hacks & pitfalls

And so there was a lot of evolution that went on. Some of the hacks that we came up with. Number one, the establishment of a budget for innovation efforts we recognize needed to be independent of the core business. If you give that business the dollar, it's going to use it for the core operation. So establishing and approach the budgeting these things was super important. Number two, we did set up a governance committee, so to speak. So like whenever we had a cool opportunity we're working on, we wanted to make it sure we put it in front of the business to have them weigh in on what was right about it, what was wrong about it, and have them guide.

Second, companies need to have a sound process in place that allows them to grow the right opportunities with speed and confidence into new products, services, and business models. They need to know how to win. Along this line, companies can employ different innovation engines and programs, such as venturing units, crowdsourcing campaigns, foresight teams, research labs, accelerators, university collaborations, and alike. However, the usefulness of each innovation program comes from its link to the strategic ambition and the authority to own resources for opportunity exploration and execution.

Third, companies need to plan wisely when is the right time to win. Timing of execution is in so far important as moving fast creates first-mover and an innovation advantage. Innovation leaders pull off with their capability to validate the most important aspects fast, iterate and budget as needed, instead of planning years ahead.

Roman Šiser from Skoda: A Blueprint for Systematic Innovation Management

Unsurprisingly in parallel and relatively quickly, we have started to evaluate the potential of ideas and the proof of concept, which led us to create a dashboard on which we regularly kept track of all the items and their potential impact, including when they are implemented. That helped project the innovation theater onto real life for people to see.

The ITONICS Innovation Operating Model provides a blueprint for a successful innovation management system and is ready for your adaptation. It provides the innovation management framework to connect your dots and challenge the productivity of your innovation management. It also provides you with the basis for turning your innovation operations into an efficient, easy-to-access, and productive Innovation Operating System. 

The cornerstones of a successful innovation operating model

As seen in the last years (again), innovation teams become first in downsizing when economic situations get tough. We still hear that executives want to see returns on investments, yet innovation teams only have ideas that might amortize later. We still see that innovation teams deliver futuristic scenarios, while business departments have concrete business problems. We still see teams hunting for ideas and having a hard time finding funding and sponsors. 

Yet, we also see a way to escape these challenges and know there is science and a formula to innovate successfully. Organizations need to be clear on how their ambition translates into the innovation scopes/innovation strategies of their teams. Only this connection will create precise expectations that can be met. Given the ambition and scope, it is important to design an innovation organization and governance structure that fits the purpose. The right design will allow you to utilize the right resources efficiently. Next, each team needs to design an innovation process that allows them to pursue the right opportunities and do so fast enough and with the confidence needed. Lastly, all this needs to come together in an innovation portfolio that realizes more wins than losses and is strong enough to contribute to the company’s ambition.

Corporate ambition, innovation scope, and innovation strategy

Identifying your innovation scope comes from recognizing the gap to your ambition. Knowing what your organization wants to achieve is the key to identifying your innovation scope. What amount of growth is expected over the next year(s)? What growth will be achieved from market dynamics? What growth will be achieved from core improvements (horizon 1) and what else is needed to meet the ambition?

Collect the revenue outlook and match it with your outlook on what revenue can be gained by market dynamics and projects you already run. This will help you see the required portfolio contribution expected from new innovation activities. If you are certain to reach your ambition, focus on core improvements as the least risky investment. If there is still a gap estimate from where the remaining innovation contribution can come. Are there closely related business areas that are growing and in which you can easily expand (horizon 2)? Or, are there yet unrelated market options that you can enter (horizon 3)?

As a next step codify the expectations and goals. Write down the expectations and start the exploration process and the process of building a convincing opportunity portfolio that complements the expected contribution of your already existing project portfolio. Check out our innovation strategy template to support the process.

Innovation governance and innovation organization

Different scopes need different organizational designs. Every department is typically engaged in innovation activities. A key motivation for every department leader is improving the status quo which typically results from doing things differently or adding new things. That is why, it is best to keep innovation activities in the business teams that are very closely related to their current activities.  

However, it is most of the time insufficient to also ask existing business teams to explore newer concepts. To explore the new, they need time to explore which will be missed for the current activities. That is why it is more efficient to outsource activities to dedicated research and innovation teams if the tasks diverge from the core. Yet, this also requires that the exploration within Horizon 2 and Horizon 3 is of strategic importance and needed to meet the ambition. 

Another critical aspect is to not split research and development. Specific teams will also need access to resources to put their findings into practice and test assumptions. This also means that not every company needs to have venture teams if it does not have the resources or strategic ambition to grow beyond the core. 

Use the following rules of thumb to check the readiness of your organizational innovation design:

• If close to the core business, keep it in the core operation teams (e.g., marketing, product, engineering)
• If diverging from core operations, yet critical, build competence in dedicated teams (e.g., innovation teams, R&D teams, venturing teams)
• If urgent and no capability existent, source from the market (acquisition of products or companies)
• If diverging from core, interesting, yet uncritical, search for partners to reduce own risk (e.g., university collaborations, start-up collaborations, crowdsourcing)

Check out how Bosch uses ambidextrous organization to power their innovation efforts.

Innovation process, confidence, and speed

Each team has its own process to manage innovation. Not really. Over the years, a plethora of different frameworks have been promoted, each prescribing to be the perfect combination of stages to grow from wild thought to multi-billion solutions. While each framework puts some other emphasis on the importance, naming, and number of steps required, the underlying principles are the same.

The final goal is to find the best winning solution given several different options that promise the best return-cost relationship. To identify this best option, the complete set of possibilities needs first to be explored and filtered from the many to the one best option.

To do so, the innovation process is organized along different stages, each focusing on certain validation aspects and providing enough information to make a decision and filter.  In essence, every thought is analyzed about strategic fit, a (customer) need, (financial) impact, and (technical) feasibility. This is more important, the more resources are needed to validate and (later) implement. By systematically moving from one validation stage to another, firms can secure investment as only new funds are provided if enough evidence and confidence have been collected in a previous stage. If not, projects need to be killed. 

Check out the SLASH tactics to accelerate your innovation process.

Innovation portfolio returns

Reviewing an innovation portfolio effectively is crucial for organizations to ensure they are investing in opportunities and projects that align with their ambition and have the potential for significant impact. As new evidence is collected constantly, it is important to review the portfolio frequently.

Organizations thus first need a dashboard that informs about the complete portfolio and contains up-to-date information. The view needs to be fueled by opportunity and project updates.

To make portfolio-related decisions, such as taking new opportunities into the innovation portfolio, organizations should hold steering boards within a defined cadence. Most often, this happens quarterly but is also up to industry dynamics.

The steering meetings are used to control the portfolio value, costs, and timeline and compare them with the ambition. If opportunities or projects are stuck – due to no new evidence or delays, it is the best opportunity to take corrective measurements.

We have compiled these insights and more in our free-to-download Innovation Playbook. The Innovation Playbook comes with the Innovation Operating Mode and discusses each of its components precisely. For each of the components, we provide practical recommendations on how to improve it. It also presents KPIs that you can use to keep track of your innovation performance. You will also learn about the scientific formula of innovation productivity, putting you in the position to win through innovation by design.

Improving your innovation operating model

The first step to improve your innovation performance take part in our innovation performance assessment. The assessment is designed to inform you about your weakest capabilities and provide you with concrete suggestions on how to improve. 

Typical challenges we see hampering higher innovation performance are:

Ambition

• Unclear top-management direction, leading to uncertainty, efforts not fitting the context, and no support 
• Using innovation as the excuse for other organizational deficiencies (e.g., wrong culture, missing strategic clarity, missing customer/market orientation), creating unrealistic expectations
• Underrealizing that incremental innovation is also a viable innovation strategy if it fits the ambition and industry dynamics
• Lack of formal education and training

Governance

• Splitting opportunity exploration and testing into different teams
• Overuse of different innovation programs and not checking their performance contribution 
• Overestimating the potential of idea campaigns for radical innovation
• Lacking access to resources and budget authority

Process design and speed

• Investing too many resources into exploring topics without a clear connection to new business value
• Running stage-gate processes without seeing a stage as an opportunity to collect more confidence/evidence and kill projects if no new evidence is found
• Over-funding complete projects instead of using metered funding

Return on Portfolio

• Trying to argue for other performance indicators than financial returns
• Not splitting ownership for innovation to happen along Horizon 1, 2, and 3
• Measuring returns of single innovation projects instead of the expected return of the whole portfolio → even worse, not knowing the complete  expected portfolio at all

You cannot improve your innovation operating model overnight. It typically takes years. Yet, it is never too early to start.  

An easy way to start is by using an Innovation Operating System. The ITONICS Innovation Operating System comes with exciting features that will help you boost your innovation performance immediately.

• AI-Automated insight discovery: Saving scouting resources and costs, helping you to not miss any opportunity 
• Collaboration, Connection, and Work Management: The easiest way to collect and process internal & external ideas, stay informed and connected, and integrate with other tools 
• One Single-Source of Truth: Find all relevant information to innovate in one place with an intuitive interface, reduce double work and costs
• Interactive Radars: keep the complete, structured overview,
  inform engagingly about what matters
• Custom Templates, Permissions, Workspaces & Workflows: Bring any of your processes into the Innovation OS, give your teams the (no-code) flexibility they need
• Roadmaps & Dashboards: Manage execution as planned and
  make data-driven decisions