Innovation and creativity

In this engaging presentation of the eight essentials of innovation performance, McKinsey principal Nathan Marston explains why innovation is increasingly important to driving corporate growth.

Taken together, these form an essential operating system for innovation within a company’s organizational structure and culture, thought of in two groups.
  • The first four, which are strategic and creative in nature, help set and prioritize the terms and conditions under which innovation is more likely to thrive.
  • The next four essentials deal with how to deliver and organize for innovation repeatedly over time and with enough value to contribute meaningfully to overall performance.
Testing for innovation
Companies must get these strategic, creative, executional, and organizational factors right to innovate successfully.

Aspire

Combine high-level aspirations with estimates of the value that innovation should generate to meet financial-growth objectives. Making it an explicit part of future strategic plans, helps solidify the importance of and accountability for innovation.
The target value needs to be apportioned to relevant business “owners” and cascaded down to their organizations in the form of performance targets and timelines.

Choose

Fresh, creative insights are invaluable, but it is equally impotrant to determine which ideas to support and scale.

 

Once the opportunities are defined, companies need transparency into what people are working on and a governance process that constantly assesses not only the expected value, timing, and risk of the initiatives in the portfolio but also its overall composition.

Discover

Innovation requires actionable and differentiated insights—the kind that excite customers and bring new categories and markets into being.

How do companies develop them?

Companies that effectively collect, synthesize, and “collide” them stand the highest probability of success.

“If you get the sweet spot of what the customer is struggling with, and at the same time get a deeper knowledge of the new technologies coming along and find a mechanism for how these two things can come together, then you are going to get good returns,” says Alcoa chairman and chief executive Klaus Kleinfeld.

The insight-discovery process, which extends beyond a company’s boundaries to include insight-generating partnerships, is the lifeblood of innovation.

Evolve

Business-model innovations—which change the economics of the value chain, diversify profit streams, and/or modify delivery models—have always been a vital part of a strong innovation portfolio.

As smartphones and mobile apps threaten to upend oldline industries, business-model innovation has become all the more urgent: established companies must reinvent their businesses before technology-driven upstarts do. Why, then, do most innovation systems so squarely emphasize new products? The reason, of course, is that most big companies are reluctant to risk tampering with their core business model until it’s visibly under threat. At that point, they can only hope it’s not too late.

Leading companies improve their market intelligence, in reevaluating their position in the value chain, carefully considering business models that might deliver value to priority groups of new customers.

They establish funding vehicles for new businesses that don’t fit into the current structure.

Amazon does a particularly strong job extending itself into new business models by addressing the emerging needs of its customers by offering them an increasingly wide range of services, from hosted computing to warehouse management.

Another strong performer, the Financial Times, was already experimenting with its business model in response to the increasing digitalization of media when it launched an innovative subscription model, upending its relationship with advertisers and readers.

“We went against the received wisdom of popular strategies at the time,” says Caspar de Bono, FT board member and managing director of B2B. “We were very deliberate in getting ahead of the emerging structural change, and the decisions turned out to be very successful.”

In print’s heyday, 80 percent of the FT’s revenue came from print advertising. Now, more than half of it comes from content, and two-thirds of circulation comes from digital subscriptions.

Accelerate

Too often, companies simply get in the way of their own attempts to innovate.
There’s a balance to be maintained: bureaucracy must be held in check, yet the rush to market should not undermine the cross-functional collaboration, continuous learning cycles, and clear decision pathways that help enable innovation.
Are managers with the right knowledge, skills, and experience making the crucial decisions in a timely manner, so that innovation continually moves through an organization in a way that creates and maintains competitive advantage, without exposing a company to unnecessary risk?

Companies need a well-connected manager to take charge of a project and be responsible for the budget, time to market, and key specifications—a person who can say yes rather than no.

Companies also thrive by testing their promising ideas with customers early in the process, before internal forces impose modifications that blur the original value proposition. .

Scale

Resources and capabilities must be fine-tuned to make sure a new product or service can be delivered quickly at the desired volume and quality. Manufacturing facilities, suppliers, distributors, and others must be prepared to execute a rapid and full rollout.

Extend

Flows of talent and knowledge increasingly transcend company and geographic boundaries.

High-performing innovators speed up innovation and uncover new ways to create value for their customers and ecosystem partners.

Smart collaboration with external partners, though, goes beyond merely sourcing new ideas and insights; it can involve sharing costs and finding faster routes to market.
For instance, the components of Apple’s first iPod were developed almost entirely outside the company; by efficiently managing these external partnerships, Apple was able to move from initial concept to marketable product in only nine months.

Mobilize

How do leading companies stimulate, encourage, support, and reward innovative behavior and thinking among the right groups of people?

The best companies find ways to embed innovation into the fibers of their culture, from the core to the periphery.

Companies must help people to share ideas and knowledge freely, perhaps by locating teams working on different types of innovation in the same place, reviewing the structure of project teams to make sure they always have new blood, ensuring that lessons learned from success and failure are captured and assimilated, and recognizing innovation efforts even when they fall short of success.

Big companies do not easily reinvent themselves as leading innovators.

Some companies set up “innovation garages” where small groups can work on important projects unconstrained by the normal working environment while building new ways of working that can be scaled up and absorbed into the larger organization.
NASA, for example, has ten field centers. But the space agency relies on the Ames Research Center, in Silicon Valley, to maintain what its former director, Dr. Pete Worden, calls “the character of rebels” to function as “a laboratory that’s part of a much larger organization.”