It's not that innovation is new on the CIO's agenda. Most CIOs were looking for business innovation before the economic downturn, and so were their bosses — McKinsey & Company reported in October 2008 that 65 per cent of 1,075 senior executives surveyed identified innovation as a top priority. And even during the recession, many CIOs continued to look for new, creative ways to do things — this time with an eye toward doing more with less and accelerating out of the downturn. Now, with their firms slowly emerging from the recession, Forrester's CIO customers are increasingly seeking advice on how to spur innovation.
Forrester defines business innovation as: "The transformation of a business process, market offering, or business model to boost value and impact for the enterprise, customers, or partners." This definition is wide reaching, and for a reason — in previous research, Forrester revealed how four comprehensive actions help sustain innovation. CIOs who consistently enable business innovation:
Address a broad range of innovation possibilities. Innovation isn't just the latest-and-greatest, based on new inventions. Innovation is business impact and can result from newly applied old ideas. As well, inventions aren't necessarily innovation, not until the invention is transformed into business results.
Not everyone agrees with this concept — wake most of us up in the middle of the night, and we'll tell you that innovation is radical change, applying high-risk new ideas in pursuit of strategic, high-return results. While important, Forrester has found that this is only one end of an innovation continuum. In fact, firms that sustain innovation invest along the entire continuum — from game-changing innovation to the low-risk, well-understood changes typically funded as ongoing investments.Source innovation from anywhere and everywhere. Don't expect innovation to come only from the most brilliant businesspeople and engineers. Everyone is capable of innovative thinking and we can't know where the next great idea will come from — who would have bet on Bill Gates when he first got started? Instead, address the firm's entire Innovation Network, including all employees — inside IT and across the business — as well as vendors, trading partners, and customers.
Few CIOs maintain their own R&D capabilities today — unless technology is their business, as is the case for telecom and financial services firms. Instead, to find innovation CIOs engage leverage their enterprise architects to harvest ideas from IT's own Innovation Network. Drive innovation through an innovation pipeline process. While fueled by creativity, sustainable innovation results from a defined, repeatable process that: works with separate innovation funds, managed by an innovation team separate from the IT steering committee, vetted with a different set of criteria than the ongoing investments, and developed through an iterative process that refines the requirements as it goes. This innovation process needs to balance creative, open thinking against the need for a consistent framework for finding, funding, commercialising, and rewarding innovation (see Figure 3). Make innovation part of IT's enterprise portfolio. Because innovation occurs along a continuum, there's no clear delineation between this and what should be funded through the annual planning cycle. Therefore, the collection and early review of investment possibilities has to contain the entire continuum. In addition, keeping all requests and innovative ideas in a single place provides an excellent foundation for visibility. As for any investment opportunity, IT collects information for innovative ideas — like potential business impact, required resources, interdependencies, and risks as well as post-project business results, costs, and the like. This way, CIOs and other business execs can understand the full range of potential investments, review it as a whole, and pursue funding accordingly.
How Is Innovation Success Measured?
Like everything that CIOs manage, innovation needs to be measured — to entice the engagement of business execs, to guide ongoing decisions about what to innovate, and to keep the funds flowing. But innovation itself is tough to isolate from other business initiatives. At Forrester we found that CIOs do successfully use metrics to track innovation, and here's what they told us:
Measure business results:
The CIO of a financial services firm said, "It's neither technology nor business innovation but our company's innovation — so that innovation's key performance indicators (KPIs) are along business lines and should be business KPIs. And while this approach can miss measuring innovations in the building blocks, new building blocks can only succeed if there is a result from their use." Evaluate the portfolio of innovations as a whole. In its October 2008 research, McKinsey & Company found that high-performing organisations have a greater interest in pursuing and measuring their innovations as a portfolio. These high performers — those reporting higher organic growth rates than their competitors — reported that at least 31 per cent of their organic growth comes from innovation. And they are more likely than other respondents to pursue and measure all types of innovation — with nearly a quarter (far more than other executives) saying that creating a balanced portfolio of innovations is one reason they use metrics. Track the success of the innovation process itself. A pharmaceutical CIO said, "It is easier to measure the execution of innovation initiatives than the process of innovating. You can maybe measure cultural change, creating an environment where people want to participate. And you can test how many innovation initiatives came through the execution stage that wouldn't have emerged from it at all if there wasn't an innovation process."
Track the input to the innovation process:
In the 2008 innovation study, McKinsey reported that the innovation process is rarely the focus of the metrics companies use most. But at companies where innovation is the most important strategic priority, the top three metrics are customer satisfaction, the number of ideas in the pipeline, and R&D spending as a percentage of sales — the last two tracking inputs to the innovation process.
About the author:
Bobby Cameron is vice president and principal analyst at Forrester Research