Most budgets for innovation are heavily weighted towards short-term improvements to sustain existing product lines. Catering to what your best customers can buy this year or next seems to make sense. But since improved products are typically replacements for the old, it doesn’t create new growth. At the same time, most organizations under-invest in creating breakthrough innovations that typically take five to ten years to deliver impact. As a result, startups and new entrants are often the ones that capture the biggest opportunities as industries and customers change.
Long-term growth from innovation is so rare because there isn’t just one factor working against it. It isn’t just the battle for resources in which short-term needs of the core business are presented as more urgent. Psychological impediments are also a major factor. If people in general find it hard to embrace the ambiguity of an unknown future, managers in particular tend to be oriented to the status quo, protective of their turf, and wary of the demands of upstart ventures and transformational efforts. At the end of the day, most managers are strongly inclined to exploit what they already know.
OVERCOMING ROADBLOCKS VIA LONG-VIEW LEADERSHIP
But it doesn’t have to be that way. Even in a world of continuous disruption and accelerating change, transformational innovation can become an on-going, integral part of strategic planning, rather than a disconnected “hail mary” play. But this kind of innovation can’t be delegated. It must be driven with the full force and backing of the senior leadership team.
Innosight has worked on precisely this challenge with scores of companies across industries. Our prescription for creating and transforming markets starts with asking three simple questions senior leadership needs to answer:
- Where are we going?
- How will we get there?
- How will we resource it?
Read our HBR article “Breaking Down the Barriers to Innovation”
A ‘FUTURE BACK’ APPROACH TO GROWTH
These simple questions are at the core of a strategic planning method that we call “future back” due to its distinct method of defining a future state and working backwards, in reverse time-lapse fashion, to setting near term priorities and milestones. It’s a method that enables you to open a new way forward—to imagine new businesses and business models for the future that can be prototyped and tested today.
The future-back approach is necessary due to the long gestation time between idea and impact. Seeing a big vision through hurdles both inside and outside the enterprise requires building a capability with key components that few organizations have been able to put together. These components include ways to identify new opportunities, launch foothold ventures, and allocate resources that are protected from the normal budgeting process.
Through our work, we have discovered that long-term innovation often fails due to the lack of strong linkages between these components. After all, such as system must integrate strategy, organizational change, and human creativity. Yet these connections too often break down over time as attention shifts, as managers fall back into protecting existing markets, and as plans evolve.
CREATING A FUTURE STATE PORTFOLIO
To galvanize the organization, leaders increase their chance of success when they define marketplace opportunities, or “white spaces,” that are aspirational and inspirational platforms for new growth—typically where at least $1 billion is up for grabs. For focus, most large organizations typically need a portfolio of between three to five major opportunity areas.
The key to identifying these new market opportunities with confidence is to aim for an understanding of the customers of the future and their anticipated “jobs to be done” in the context of key global trends that point to how value will be created in the new world. When this is done strategically, the innovation portfolio becomes an engine for growth that may take seven to ten years to be fully realized. That is what we mean by long-term innovation.