Avoid These Pitfalls when you Measure and Reward Innovation

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"If it ain't broke, don't fix it" doesn't apply anymore. If it ain't broke, its obsolete​.

Let’s face it, companies are comfortable investing in incremental innovation – fix what is broken, adopt new technology to make their operation more efficient, train their people to increase their productivity.  Outputs are the goal for innovation efforts at these businesses, not the amazing outcomes that can be achieved by truly innovative teams.  Outputs are typically measured by the number of new solutions and processes without a gauge for whether or how they made a difference.  For these companies, a team tasked with innovation who doesn’t produce a solution is deemed a failure.  Yet I would argue that the success of innovation should be measured more by the outcomes of the team learning, outcomes that open the door to completely new ways of doing business, delivering value for both customers and employees.

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Previously we introduced the idea that one of the first steps to building a culture of is to develop skills that are different than R&D.  However, to motivate teams to develop these skills, and to take a risk by exploring new ideas for innovation, individuals need to be measured and rewarded for what really matters – the learning outcomes that emerge from truly exploring a problem that your business is uniquely positioned to solve.  These learning loops are 3 – 4 month cycles of exploring desirability, feasibility and desirability of a new idea.  The intent of their investment is to learn and iterate so that the time, money and resources for innovation can be allocated incrementally based on the outcome or learning.  At the end, individuals are measured and rewarded for the quality of their insights even if they pivoted from the original idea, especially if they pivoted to an idea that has the potential to delivery greater value.

Rewarding Breakthrough Innovation

I am wired towards breakthrough innovation, looking for ideas that can if not change the world, change what I see around me.  Sure, I was always improving, finding better ways to do things around me.  But I wanted not to just do things better, I wanted to do things different.  Because different doesn’t always mean better, it was hard to get my manager on board.  If it isn’t broke, don’t fix it, eh?  So I remember distinctly the first time I worked with a leader who wanted to invest in exploring how we could do things differently.

This was a time when physical stores were starting to feel the pressure from online retailers like Amazon and eBay.  Especially for electronics stores like Best Buy where HP sold our products, online shopping was appealing to their customers and a way for the store to build loyalty.  But because it was so easy to comparison shop online, stores did not have a captive audience the way they did when someone walked into the store.  So they needed to do something different, an experience that leveraged their brick and mortar store as a capability and attracted loyalty from their online store.

Instead of just jumping in with an incremental solution, we build a space for innovation.  I rented a warehouse in downtown San Francisco.  I hired a graphics firm to print giant posters of store aisles so that the space looked like it continued in a big store.  Then we put up a few store aisles and created a separate space to look like the living room of our customers.  We only had the space for about 6 months so we quickly started inviting in our electronics store partners and our HP colleagues working on the electronics that would be sold on the shelves.  We would bring them in, immerse them in the space, and explore ideas for creating an awesome experience for our shared customers.

The outcome of this exploration was not an immediate solution but instead, a deeper partnership and shared ideas that continued to inspire new experiences for our customers even 10 years later.  And when one of the ideas stuck, when we did discover something we could do that the online only stores couldn’t match, I was the person that lead the project. 

The immediate reward for my efforts was stock options – those deeper partnerships were highly valued at HP.  But even more compelling for me, I was rewarded with greater leadership responsibilities, and a freedom to continue to innovate.  I had a manager who valued the strategic work I did; I’m not sure I have had such trust since (thanks, Phil!).

Start with customer needs

It is not difficult to institute similar metrics and rewards in your company, as long as you see the desired output from your innovation efforts as learning and growth, an investment in the long term strategy for your company.  I would start with your customer.

Exploring customer and market needs exposes you to the gaps that exist today.  These gaps are pain points, areas where current market offerings are missing the mark.  The focus of your innovation efforts ought be to fill one of those gaps, not to provide a “better” solution.  For example, the physical stores I worked with saw their website as more of a way to digitally deliver flyers to their customers, saving them printing costs, than as a way to deliver more value or solve a customer problem.  One of the pain points we discovered through our research was that managing warranties was paper based and time consuming for both the stores and the customer.  Providing a way for our stores to group their in-store warranty with our electronic warranty would deliver value to the customer through their website.

Here is a key way to distinguish whether you’re starting at the right place in your innovation efforts – are you starting with a solution, the proverbial hammer looking for a nail?  Or are you starting with a customer and market need, a gap that no other solution fills?  This is the crux of customer desirability.

Next, explore ideas that uniquely meet that need

Don’t be scared off by thinking that your innovation needs to Einstein-esque. Yes, inventors create new solutions, things that no one has heard of or thought of before.  Before anyone thought of travelling in space, there wasn’t a need for rockets.  Before anyone thought of checking email on your phone there wasn’t a need for smart phones.  These inventions are hard to find and build.  They are rare, and in a different class than the innovation you are focused on. But that doesn’t mean your ideas aren’t equally impactful for your customers.

Your innovation explores novel ways to do things that people are already doing.  They start with something your business does, something you are already experienced with, and grows it into something new.  Nike started with their running shoes and explored other needs of the runners who were their customers, developing reflective jackets and comfortable shorts.  HP took the ink heads from their printers and applied the technology to helping diabetes patients inject their insulin. 

For you, the next key step is to think about your business strengths.  Explore operational capabilities, brand value, people capabilities, key partnerships.  Every business is a unique combination of culture and people.  Compare this list to the gaps you identified.  What combination of capabilities will fill these gaps to create a solution that no one else will be able to match?  Are there areas that with a bit of development and refinement could turn into a new capability?  Feasibility is all about discovering something you can build that no one else will be able to match.

Last, think about how to deliver long-term value

This is where your metrics and rewards can kick into high gear.  Value is gained from innovation efforts that yield sustainable business value.  Challenge your innovation teams to explore how what they learned can be applied to growth and efficiency for your business.  Previously we wrote about how to use strategy tables to explore different business ideas.  Once you have a couple viable strategies identified, gather the data that provides evidence of the value to your business and your customers.  Save these business models to return to in the future; just because you aren’t pursuing today doesn’t mean it won’t work in the future.  Many of the ideas we explored in our retail innovation space were way ahead of their time 10 years ago but are viable today.

One of the things that I did not have the foresight to do when I worked on our innovation lab in San Francisco was capture our learnings succinctly, to build our institutional knowledge about the market and our insights about where it was going.  As I moved on to focus on one idea, some of that longer term value was lost.  The end of each of your innovation learning loops should be a report or data capture that shares the team’s new knowledge and recommendations.  Why?  That way the knowledge can easily transfer and used in future innovation efforts.  My stock options should not have been awarded until after I wrote that report.