{"id":1046,"date":"2020-03-11T16:34:40","date_gmt":"2020-03-11T16:34:40","guid":{"rendered":"http:\/\/janbosch.com\/blog\/?p=1046"},"modified":"2020-03-11T16:34:49","modified_gmt":"2020-03-11T16:34:49","slug":"combining-innovation-and-operation","status":"publish","type":"post","link":"https:\/\/janbosch.com\/blog\/index.php\/2020\/03\/11\/combining-innovation-and-operation\/","title":{"rendered":"Combining innovation and operation"},"content":{"rendered":"\n
\"\"
Image by Michal Jarmoluk from Pixabay<\/figcaption><\/figure>\n\n\n\n

One of the well-known struggles of every company I work with is to combine innovation with efficiency-oriented operations. This is the classic problem of ambidexterity: the company needs to deliver on today\u2019s revenue and margins while securing its future. The problem is not that companies aren\u2019t aware of the challenge but that they lack the tools or mechanisms to achieve the balance in a good way. This is in some ways surprising as many reams of paper have been written about the challenge, ranging from books to research papers and from blog posts to company presentations.<\/p>\n\n\n\n

The key challenge is that the two systems of operation are \nfundamentally different. In operations, we use the classical \nassembly-line way of thinking by chopping up the work in chunks, giving \nit to different people and functions and having handovers between them. \nThe focus is on how each step in the process can be executed at the \nlowest cost. On the sales side, the focus is on tactics to make \ncustomers that have a known and established need for the product to \nchoose us over competitors and to buy now rather than later. This leads \nto waterfall processes, hierarchical organizations, transactional \nbusiness models and a relentless focus on efficiency. Resource \nallocation is based on operational needs and investments sustaining \ninnovation typically have a predictable RoI that follows a Gaussian \nprobability curve.<\/p>\n\n\n\n

Innovation, on the other hand, is concerned with finding new \nopportunities. This means experimenting with new concepts to existing \ncustomers and, potentially, selling existing concepts to new customers. \nAs we look to test as many concepts as possible against the lowest cost \nper experiment and, at the same time, the concept has to cover all \nrelevant aspects including technology, engineering, business model and \nsupport, the nature of innovation requires empowered cross-functional \nteams that engage in continuous relationships with potential customers. \nThe RoI of this type of innovation tends to follow a power function, \nmeaning that the RoI of the most successful innovation is higher than \nthe return of all other innovation initiatives combined. By its very \nnature, innovation is a high-risk, high-return game.<\/p>\n\n\n\n

Many companies go wrong in clearly separating the two operating \nsystems, resulting in a host of issues around innovation. As the \nmajority of resources are on the operations side of the business, \ninnovation efforts tend to be evaluated based on criteria driven by an \noperations mindset. This tends to lead to two extremes. The first is \nwhere any innovative idea is killed before it has had any chance to \nprove itself. As innovation is, by definition, breaking the existing \nrules of the game, it\u2019s obvious that the opinions inside the company \nwill seek to kill the idea unless it\u2019s protected. At the other end of \nthe spectrum, there are situations where an innovative concept needs to \nbe fully developed and ready for production before we\u2019re even willing to\n show it to a customer. This leads to the minimal viable elephant<\/a> I wrote about earlier.<\/p>\n\n\n\n

Combining innovation and operation is hard. In my experience, there \nare at least two tools that are useful in this context, ie the three \nhorizons model and unstructured time. The three horizons model \n(attributed to McKinsey) divides the business of the company into three \ncategories. Horizon 1 are the mature cash cow products that generate the\n majority of the revenue. The model says that this horizon should \nreceive 70 percent of all resources in the company but also that \nindividual products in this category should receive a resource \nallocation that\u2019s 5-10 percent below the growth rate. That means that if\n the product grows at 5 percent per year, it may still mean that the \navailable resources are flat or shrink every year.<\/p>\n\n\n\n

Horizon 2 is concerned with the proven, rapidly growing products that\n aspire to become future H1 products. This part of the business should \nreceive 20 percent of the resources and resource allocation to \nindividual products can and likely should grow faster than revenue \ngrowth in order to accelerate things.<\/p>\n\n\n\n

Horizon 3 is concerned with new innovation concepts that are \nunproven. This part of the business should receive 10 percent of the \nresources and these resources are allocated to running experiments with \ncustomers with the intent of finding viable options. In earlier columns<\/a>, I\u2019ve described how, in my experience, this should be organized.<\/p>\n\n\n\n

The important part is to realize that any organization needs to \nallocate at least 10 percent of the total resources to innovation. One \nway to allocate those resources is by offering employees unstructured \ntime for innovation. So, everyone who wants to can use 10 percent of \ntheir time for innovation efforts without any approval required from any\n manager. These hours can be used to build teams of people that all use \ntheir 10 percent to explore a particular innovation. In this article<\/a>, I provide more details.<\/p>\n\n\n\n

Concluding, combining innovation and operation is difficult but also essential to ensure the longevity of the company. We need to survive today and ensure a viable future. Although everyone understands this conceptually, my experience is that in most companies, these two systems of operation are conflicting, with the investment in innovation often being the victim. So, think about this: for all the talk about innovation, does your organization really conduct innovation, protect it and grow new businesses out of its innovation efforts? Or is it just \u2018feel good\u2019 talk?<\/p>\n\n\n\n

To get more insights earlier, sign up for my newsletter at <\/em>jan@janbosch.com<\/em><\/a> or follow me on<\/em> janbosch.com\/blog<\/em><\/a>, LinkedIn (<\/em>linkedin.com\/in\/janbosch<\/em><\/a>) or Twitter (<\/em>@JanBosch<\/em><\/a>).<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

One of the well-known struggles of every company I work with is to combine innovation with efficiency-oriented operations. This is the classic problem of ambidexterity: the company needs to deliver on today\u2019s revenue and margins while securing its future. The problem is not that companies aren\u2019t aware of the challenge but that they lack the … Read more<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"generate_page_header":"","footnotes":""},"categories":[9,8,10],"tags":[],"_links":{"self":[{"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/1046"}],"collection":[{"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/comments?post=1046"}],"version-history":[{"count":1,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/1046\/revisions"}],"predecessor-version":[{"id":1048,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/1046\/revisions\/1048"}],"wp:attachment":[{"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/media?parent=1046"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/categories?post=1046"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/tags?post=1046"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}