Many companies are heavily investing in their innovation activities but are dissatisfied with the results. We call this the Corporate Innovation Problem™.
In our blog series that started HERE our analysis found that there are three root causes (see HERE). The first two, the ‘complexity problem’ and the ‘integration problem’, might not be solved with a general framework. There are too many industry and company specifics involved.
However, the third one, the ‘systems problem’ can be solved by using a general model. As we have shown in our last post HERE, this model has six components. Using the initial letters, we call it the ENGAGE model. So, in other words: Solve the Corporate Innovation Problem – ENGAGE the organization.
So, where does the ENGAGE model come from? In this post, we describe its foundations.
Various approaches to find the ‘top innovating companies’
As every innovation management professional knows there are a number of studies out there that rank companies according to their “innovativeness”. Some of these studies are conducted annually so they provide a good insight into what it takes to be a top innovating company on a long-term basis.
In looking deeper at the methodology of these studies one finds three principal routes that are taken:
- Peer assessment – Companies are asked which in their view is the most innovative company.
- Total Shareholder Return – Some studies look at the Total Shareholder Return generated by companies. It is assumed that companies with a larger TSR are more innovative in every aspect of the business – not only products and services but also in Marketing, Sales, Supply Chain Management, etc. – than their peers.
- Innovation Premium – Some studies look at the ‘Innovation Premium’ which is the difference between the actual company valuation and the projected future company valuation ‘ceteris paribus’. It is assumed that this is the value that investors pay for the future expected innovation performance.
ENGAGE builds on the ‘Innovation Premium’ approach
Of course, the first two approaches mentioned above certainly have their merits. But in our view, they comprise implicitly or explicitly factors which might distort the result:
- Peer assessment: There might be some heavy bias depending on the media coverage and the public image of some companies. Furthermore, there is usually a bias towards B2C companies since their products and services are more ‘tangible’ than companies which have an exclusive B2B model.
- Total Shareholder Return: External factors that do not relate at all to innovation performance might have a negative impact on the company’s TSR and hence influence its ranking. This could be some geopolitical factors or even natural disasters (e.g. Sony’s sensor production facilities were heavily damaged in a recent earthquake).
As a consequence, we started our thinking on how to solve the Corporate Innovation Problem™ on the ‘Innovation Premium’ approach.
The ‘Forbes list’, MIT and BYU
The ‘Innovation Premium’ approach builds the basis for the annual list of most innovative companies presented by the US business magazine FORBES (More in-depth insight into the methodology can be found HERE ).
Building on a global database of financial data, Hal Gregersen from the MIT Leadership Center teamed up with Nathan Furr and Jeff Dyer from Brigham Young Univesity’s Marriott School of Management to study the companies with the highest innovation premiums.
They focused on companies with annual revenues above 10 Billion US dollars and interviewed their leaders on two major questions:
- What kinds of leaders create companies that in Clayton Christensen’s terms are disruptive?
- How do their companies come up with ideas that in some instances even change their industries?
Adding Best Practices to the academic groundwork
The work done by Gregersen, Furr and Dyer provided a solid basis for creating a model to solve the ‘System Problem’ which is a root cause of the Corporate Innovation Problem™ and is actionable.
We added to their work because we felt that certain parts were missing:
- Due to the limitations of their study, they did not look at highly innovative companies below the threshold of USD 10 Billion in annual sales. Especially in Germany, there are a large number of companies below this threshold which continuously out-innovate their peers.
- The study focused on the early phase of innovation. However, as Booz has shown (see HERE ), superior innovation performance resulting in growth of sales as well as in EBITDA requires innovation execution as well. And as BCG has shown (see chart 4 HERE ), the constraints limiting innovation performance are to be found in the early phase of innovation as well as in the execution phase and in the transition between these two phases – what we call the “Integration Problem”.
As a consequence, our ENGAGE model builds on solid academic research on
- How leaders in the world’s most innovative large companies shape the innovation DNA of their companies.
- How the most innovative large companies work in the early phase of innovation.
… plus Best Practices from other leading companies that…
- add additional insights to the study results.
- show how the early phase of innovation should be connected to the execution phase and how the staff working in the execution phase could be engaged for the innovation cause.
In the next posts we will dive deeper into the six components of the ENGAGE model which helps your company to solve its Corporate Innovation Problem™ – and to generate superior innovation results.
innovation.support is an international agency focused on solving the ‘Corporate Innovation Problem™’. To achieve this, we provide consulting services based on proven, best-in-class methodology which in many cases is proprietary. The services are delivered by experienced innovation management specialists and by subject-matter experts.
Please get in touch with us if you want to improve the outcomes of innovation investments.