23.02.2021 Fabian Roschig

95% of innovations fail. Understand the 4 main reasons why and learn how you can do better.

Understand the root cause of failure and get actionable steps to prevent it.

I assume it is unnecessary to point out that nowadays external forces drastically increase the pressure to innovate.

We all know something is wrong, as innovation initiatives are delivering little return on investment and all industries are struggling to execute successful innovation.

Most executives struggle to find the key to commercially successful innovation.

Based on a McKinsey Survey in 2020:

21% of executives believe that they have the expertise, the resources, and the internal commitment to successfully approach new growth.

Even though there are countless hypotheses and articles around the failure of innovation, finally it always comes down to 4 major buckets:

  1. Strategy — Innovation is either not a part of the overall business strategy/not aligned or/and there is no dedicated innovation strategy based on their own, individual goals, strengths, weaknesses, capabilities, and assets.
  2. Culture & mindset — The necessary culture and skills that are required to be continuously and sustainably innovative do not exist.
  3. Structures & processes — They do not use repeatable innovation processes and therefore can´t achieve any plannable results. One thing I like to highlight is that many initiatives start with the idea before the actual customer problem is being defined or validated in detail. They contrarily solve the “how” prior to the “what” and the “why”.
  4. Capabilities — Teams do not have the right skills either the right tools.

Strategy

Lack of strategic alignment with parent company’s goals

Many initiatives get shut down or deprioritized as they are working on projects that hardly make a contribution to the company or are not aligned with the parent company’s strategic prioritization. Even if new products/services are successful they often turn into “orphans” as there is no internal willingness (and stakeholder) to scale them.

Almost half the respondents to a recent survey of corporate innovators by KPMG indicated that their innovation efforts were only “somewhat connected or aligned” or “not at all connected or aligned” to their organization’s overall business strategy. Only 40% suggested that their innovation efforts were considered strategic. (Data provided by Board of Innovation)

Strategic misalignment often happens because of

  1. Change of leadership resulting in a different agenda or prioritization
  2. Pursue of (technological) innovation for the wrong reason (e.g. investing in new technologies without a clear purpose/Customer problem to solve)
  3. The unclear strategy of the parent company
  4. The lack of a dedicated innovation strategy

Solution:

  • Clearly define the role and expectation of the innovation initiative
  • Gain traction with innovation initiatives and start with projects that affect organizational assets, build incremental value first, target an adjacent market, and push projects of internal influencers to gain internal visibility
  • Involve the right internal stakeholders (and influencers) systematically to get internal alignment

Lack of a dedicated innovation strategy

As I said in the beginning innovation is definitely top of mind and there is a common understanding that it is important, but the question is what the role of innovation in the company really is and often it leads to what we call “innovation theatre”.

Solution:

  • Articulate the innovation focus areas in line with your strategic objectives to achieve and define the strategic challenges to solve.
  • Define the innovation portfolio (Incremental vs. disruptive e.g. Balanced innovation portfolio enables a regular delivery of business results while also betting on long-term or disruptive innovation) with techniques such as the 3 horizon model
  • Define how we measure success? (X% of the total revenue, Y products launched in a period of time, the efficiency of internal processes, internal culture change, developing new capabilities)
  • Set a clear action plan on how to achieve it and break it down into smaller chunks to be able to continuously show the progress of the initiative

Culture

No-failure-culture and complete risk mitigation

Even though there are processes and techniques to de-risk innovation initiatives, innovation is inherently risky (especially when we talk about disruptive innovation and not only incremental improvements). There has to be an understanding in the parent company’s culture that high rewards come with high-risks and that failure is part of the journey. Most companies are risk-averse and failure intolerant.

In this context, I read a quote by Tristan Kromer at the end of one of his blog posts:

“Nobody ever got fired for hiring McKinsey “

And that's exactly what happens in larger organizations. In the end, we try to take the safe bets which normally do not come with a lot of upsides.

Solution:

To create a culture of innovation, you need to have a clear focus where people know what success looks like, you need to start small and build momentum, and be comfortable with a defined level of risk and failure.

We have to understand (and act that way) that traditional management and “exploiting” our core business requires completely different people, cultures, processes, and accountability than “exploring” new potential business.

This will take time, money, patience, and external facilitation to get there and will definitely give space for some more blog posts…

Based on Eric Ries the Startup Way

Lack of C-level/management buy-in

Even though you can run smaller innovation initiatives and create minor changes on a company level bottom-up, but you’ll definitely need the management buy-in to make larger steps, increase capabilities, change the culture and establish new processes. So the management of the company needs to play an active role in communication and change management.

Solution:

  • Present a clear, coherent action plan as described above
  • Co-create with internal influencers
  • Get people excited. Use case studies from other companies (positive what could be possible and negative cases with the consequences not embracing change)

Structures & Process

Lack of the right process

As described above we can not use the same process for exploitation and management of our current business vs. exploration of new business. It requires different tools, approaches, and tactics.

Often businesses struggle to create a process that helps to make business decisions in a world that is driven by volatility, uncertainty, complexity, and ambiguity, where cause and effect can only be perceived in retrospect and the results are unpredictable. They are optimized for stability, incremental improvements, and risk mitigation based on historic data.

Solution:

  • 1st understand that a systematic process is required to “manage” innovation
  • Understand that the process for exploiting the core business and exploring new business is completely different
  • Analyze the companies current capabilities, processes, and assets
  • Use validated innovation processes and adapt them based on your needs and strategic goals

Further reading:

Commercially viable innovation is a systematic process, not (only) a spark of genius

Governance kill new initiatives

Almost no words needed.

Found @ Board of Innovation

There are too many layers and levels of hierarchy between the “idea” and the “execution”. Budget allocation, resource allocation, different agendas, and complicated gate processes hinder innovation and speed of execution.

Solution:

  • Externalize — it will be hard to use the same people, processes, guidelines, brand to execute successful innovation within the company. It might be possible overtime when an external unit has proven that you can create successful innovation and that it makes sense to adapt the parent company’s culture, but at the beginning, you need an external speed boat.

Idea-first approach or making stuff nobody wants to buy

Possibly my all-time favorite. Houston, we have no problem / The absence of a consumer problem.

Many growth initiatives start with the solution approach before the actual customer problem is being properly defined or validated in detail.

  • Ideas-first approach — brainstorm lots of ideas and filter them and test them to see which are most attractive to customers = A company is highly unlikely to hit a target if it doesn’t know what the target is.
  • Needs-first approach — determine the customer’s unmet needs in each segment of the market and then devise solutions that will address them.
Companies rely on luck to create winning products when they employ the ideas-first approach to innovation. The chance of randomly devising a solution that addresses the customer’s unmet needs — when the needs are unknown — is near zero. — Tony Ullwick, Founder of Strategyn

Solution:

  • To create new value and products/services/experiences are actually willing to pay for, we have to spend time exploring their needs and developing empathy. What are they trying to accomplish in their lives? What are their jobs to be done? What would cause them to reach out into the world and grab our product? These questions are so foundational that if we do not answer them well, we will end up making products nobody wants to buy.

Further reading:

Ideas don’t matter. Problems do.

Capabilities

Lack of lean thinking and lean tools

Companies tend to overengineer and overthink new business approaches. There exist sophisticated business cases before many of them even had a single contact with their customer or a Business Model Canvas has properly been filled out to see where current gaps or flaws of the new approach are.

As described above, many companies tend to start with a clear idea in mind before actually validating the customer problem or define in detail how they create value e.g. with the help of the Value Proposition Canvas or other tools.

Lack of experimentation processes and culture

There seems to be a larger gap in most of the companies. After discovering a customer insight (based on research, trends, observation e.g.), the product department (or a crossfunctional team in some of the companies) develops a solution approach that will be handed over for execution without detailed prior testing to reduce problem-uncertainty (Does the problem exist?), solution-uncertainty (Is the solution designed the right approach for the problem?) and market-uncertainty (Is the customer willing to pay for it?).

Many companies lack the necessary process, speed, and culture to realize agile experiments, test during development processes, and adopt new offerings in early phases to minimize the risk of failure.

Solution:

  • Bring people on board with the necessary experience, expertise and tools, and methods to run innovation projects

About Me

Helping companies to reduce the risk of failure of new growth initiatives by applying an own, validated innovation process and develop the necessary innovation capabilities. Systematic, evidence-based, and user-centric.

Fabian is a hybrid between startup-founder, marketeer, and innovation consultant. At the intersection between enterprises and startups, he creates sustainable and innovative solutions to drive value for the business and consumers. In the past 12 years, he founded 2 startups, endued positions such as Country Manager Marketing & Ecommerce Latam, Spain, Portugal at Condor or COO & CMO at Telefónica Open Future and advised companies such as Condor, TUI Travel PLC, The Coca-Cola Company, or Germany’s leading sports magazine kicker in the area of innovation and business strategy.

He is also a mentor for several startups in the travel and FMCG space and a guest lecturer at ESERP, one of Spain’s leading private universities in the area of entrepreneurship and digital marketing. He is experienced in working with cross-functional teams, (C-Level) stakeholder management as well as agile project-based working methods.

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95% of innovations fail. Understand the 4 main reasons why and learn how you can do better. was originally published in BeyondFortune on Medium, where people are continuing the conversation by highlighting and responding to this story.

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