Where Successful Innovation Lives

It’s not enough to say: “innovation lives everywhere across our organization” or “it’s everybody’s job to innovate around here”. 

Yes, innovation needs to live in the business units and in a separate innovation unit. But innovation must also live with the CEO to have an impact (or with someone who reports directly to the board of directors.) 

So while everyone in the organization can contribute towards different types of innovation, it’s essential that innovation has a main address with the CEO.

This post is based on the introductory Keynote presentation by Alex Osterwalder (Lead Author of The Invincible Company) at this month's StratChat webinar called Where Successful Innovation Lives.

Watch the 8 minute video of the presentation where he explains exactly how Logitech and Ping An have been able to scale innovation across their organizations. 

Why innovation needs to live inside your organization

Innovation happening externally, for example innovation through acquisition, is no longer the easy option. Startups like Discord are now rejecting offers from major companies, like Microsoft, worth tens of billions of dollars.

How is this possible and what does this mean for established companies?

1. Startups are more well funded than ever before.

If you’re an established company, you should be concerned. Competition is getting tougher in what’s already a volatile business environment. Startups are better financed than most corporate innovation programs. 

2. Startup valuations are skyrocketing.

Whether or not you believe we’re experiencing a bubble, it does mean that acquiring startups is becoming more expensive. CEOs are starting to recognize the need to prioritize internal innovation.

Innovation lives in both your Explore & Exploit Portfolios

Some innovation needs to happen in your existing business units. We call this your Exploit Portfolio. But now we also need to focus on exploration because otherwise we face disruption from well funded startups entering the market. 

There are three main types of innovation that happen across your exploit and explore portfolios.

1. Efficiency Innovation is about improving processes and existing business models and refining value propositions.
2. Sustaining Innovation is about replacing and extending value propositions, new channels and new geographies.
3. Transformative Innovation is about new business models, value propositions and new growth engines.

These types of innovation can live in different parts of your organization. Everybody can help make the business better in the form of efficiency innovation. But not everyone needs to be an internal entrepreneur, trying to build new growth engines for the future.

The one place innovation needs to live above all else

Innovation needs to live at the very top of your organization otherwise it won’t succeed on a large scale. 

Here are a couple of examples to illustrate this point.

Invincible companies like Logitech and Ping An know that innovation needs power and legitimacy to be successful. If your CEO spends less than 40% of their time on innovation, what kind of message do you think it sends? (The Rita McGrath Test.) How seriously do you think the rest of the organization will take it? 

Logitech

Logitech is a Swiss company and they’re well known for computer accessories like mice. But they were under pressure to pivot their business model. So they hired a new CEO called Bracken Darrell some years ago who infused entrepreneurial spirit in the company again. We call this type of person, the entrepreneurial CEO. He spends 40% - 60% of his time on innovation. This goes to show how important it is that innovation lives in the highest level of your organizational hierarchy. We don’t mean a Chief Innovation Officer who reports to the CEO. We mean the CEO themselves or someone who has as much power as the CEO as we’ll see in the next example.

Ping An

A decade or so ago, Ping An was a traditional finance conglomerate. Peter Ma, the CEO at the time, then hired Jessica Tan to manage the Explore Portfolio at Ping An and she became the Co-CEO responsible for innovation. Later on, they hired a CEO, Yonglin Xie. She was completely focussed on their Exploit Portfolio, running their core businesses next to Jessica Tan as a Co-CEO. They went on to hire a third CEO, Jason Yao, who would build a bridge between them, focussing on technology. They made sure innovation would live everywhere across Ping An, be it efficiency innovation, sustaining innovation or transformative innovation.

This is a different model to Logitech. But the key message here is the same; if innovation doesn’t live at the top of your organization it will never take off at scale.

If you’d like to find out more about how companies like Logitech and Ping An are scaling innovation, register for our Virtual Masterclass: Building Invincible Companies.