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The 1 Percent Innovation Solution

The best R&D is kept separate from strategic planning, but is closely linked to strategy. 

Strategic planning is different from innovation. When developing a strategy, you decide what your activities will be in the future, and you have to stay true to your predetermined course to see results. Furthermore, your plan includes a set of activities that you know how to do. But with innovation, your course of action is inherently unpredictable, and you know in advance that you’ll have to learn to do things that you don’t yet know how to do. Only after your innovation succeeds will you know what those things are.

That’s why your business strategy and your innovation practice must be kept apart: otherwise, the consistency of your plans may constrain your creativity and verve, and the surprises of innovation may distract you from your plan. At the same time, your strategy and innovation must also be aligned, or your organization will be incoherent and risk dissipating your efforts. So how can you integrate strategy and innovation, but still keep them separate?

The answer is simple in principle, but hard in practice. You probably have an annual strategy cycle of some kind; in most cases, the corporate office gives guidance to each unit, and then each unit maps out a strategic plan for the next one to five years. It is during this strategy cycle that you must ask the leaders of each unit to do two things:

1. Come up with a plan over the coming year for what that business unit knows how to do. This will involve about 99 percent of its time and activity.

2. Identify one or more innovations that the unit’s team would most like to tackle over that same year. In the face of their changing industry, what problem would they most like to solve? What opportunity would they most like to take advantage of? Their answers could include objectives that the team wants to accomplish, but has been unable to visualize or achieve in the past. Examples include reviving a declining product, appealing to younger consumer segments, or breaking through with a new, environmentally sustainable offering.

At first, putting this innovation question on the table will be a great relief to everyone concerned.  You admit what you don’t know. You have a whole year to figure it out.  And you are allowing your normal strategic planning process to proceed separately, on schedule. Moreover, the innovation cycle calls for only a small portion of time: Studies on time spent on R&D suggest that it represents about 1 percent of a business unit’s time over the coming year. This is a savings from previous years without a set cycle, when it spent far more than one percent of its time talking about innovation and related activities while remaining unsatisfied with the results.    

At first, putting your innovation question on the table will be a great relief. You have a whole year to figure it out.  

Having established an innovation goal, business units now will need to make the most of the 1 percent of the time they spend on it. This will be new to them, because innovation is a specialized activity. You need innovation specialists to serve the business units in the same way that you need accountants – they’re that important. And there are two types of innovation specialists: method experts and fund managers.

·         Method experts. To generate new ideas, most large companies conduct in-depth research and analysis on their customers’ problems, then brainstorm solutions. This produces strong problem identification but weak solutions. A method expert can help you move past these familiar practices to find ideas in unfamiliar places. For example, the method we developed at Columbia Business School, strategic intuition, uses creative combination: explicitly seeking examples of similar problems solved in many different fields, and combining those elements in new ways to spark a new synthesis.                                                                                                                                              

·         Fund managers. These specialists oversee a company-wide implementation fund for good ideas. Not all units will have a good idea every year; some will have more than one. The fund managers must figure out where the funding comes from and how to allocate it for that particular innovation. The best innovations often require multiple business units to implement them, so a central fund helps them work together. Additionally, a central fund enables those who generate innovative ideas to see them through to implementation.

However, although it’s clearly important to have specialists on board, the most important people fostering innovation are the people responsible for the outcome. The team will need senior sponsors: a group of top executives who meet regularly to provide more seasoned expertise and perspective, and to solve problems that cannot be addressed at the business-unit or innovation-team level. The CEO or enterprise leader typically should be a member of this group; if an innovation takes off, it will affect the entire company. 

Though it only takes 1 percent of a business unit’s time to focus on innovation, it’s a critical and potentially life-changing fraction of activity. After all, if this group identifies a company-wide innovation question, it likely will be involved in taking it to market – and the 1 percent will expand to 99 percent, becoming part of its strategic plan and a vital source of new revenues and profits. That’s why innovation deserves so much education, training, and practice: It might not take up much of your business’s collective time, but for the whole enterprise to succeed, you need to do it extraordinarily well.

William Duggan

William Duggan is a professor at Columbia Business School, where he teaches innovation in the MBA, executive MBA, and executive education programs.

Amy Murphy

Amy Murphy is a leading practitioner with Strategy& and advises clients on innovation, strategy, and capability development. She is a director with PwC US, based in DC.

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