“Innovation ecosystem” – just pair of buzzwords, or something you should actively build into your company?
“My take on innovation ecosystems is, essentially: Stop thinking about your organization’s innovation as a silo or an island in the sun,” said Dan Toma, author of “Innovation Accounting: A Practical Guide For Measuring Your Innovation Ecosystem’s Performance,” in a virtual Introduced talk.
“Think about all the connections that one particular innovation department has with other departments within your organization, and see how you can make those connections work [between], let’s say, legal innovation or acquisitions innovation,” he said. “Basically, it’s about doing internal innovation, not relying solely on mergers and acquisitions or partnerships to be able to move the innovation needle for your organization.”
In other words, your company’s innovation ecosystem is about making sure that all of your teams can work and innovate together, as well as combining the skills you may have in different departments so that you don’t always have to seek external solutions.
Innovation is not R&D
The concept is fairly simple, yet easy to misunderstand. You should not, for example, confuse innovation for R&D (research and development).
“People need to make a distinction between R&D and innovation,” Toma said. “R&D is the process for which you’re converting money, probably earned by the core business, into ideas. Innovation is the process that’s converting those ideas back into money.”
Toma cites the computer mouse as an illustrative example:
“The story is that it was a technology researched and developed at Palo Alto Research Center, but they didn’t know exactly what to do with it,” he said. “They didn’t have any idea how to commercialize and market it or where to put it to use. And they sold the IP to Apple back in the day, when Apple was a startup. And Apple bought that technology and they started producing the mouse that we use today. So there’s a big distinction between research and development and innovation. I think startups are typically really good at the innovation of wearing somebody else’s technology and putting it into a good product.”
Another example, he says, is Tesla 3, which acquired its self-driving technology from other companies.
One size does not fit all
The word “innovation” is often associated with startups, but innovation applies to companies across the board, of varying sizes and industries.
“We should not apply a one-size-fits-all mindset and say all startups are innovative and corporations are not innovative,” Toma said. “Depending on the industry, you might find that startups are actually better at innovation than corporations, or the other way around. Take pharma, for example. There’s a lot of innovation happening in pharma, and most of the innovation comes from the corporations. In business-to-consumer industries, startups are probably killing it there. If we’re looking at banking again, retail banking is a place that’s dominated by startups [and] the corporations are playing catch up. We need to first of all look at how we define innovation within our industry within our sector, and then decide if one party is more innovative than the other.”
Toma’s definition of innovation: “A new idea or a new process that contains a novelty element, combined with a sustainable business model. By sustainable business model, we typically mean something that has an impact on your financial results.”
You can’t measure innovation using a single indicator
Toma stresses that there is no single indicator that measures all types of innovation.
“Innovation is not ‘Lord of the Rings,’ with one ring to rule them all,” he said. “We should not find one indicator to rule them all. We need to look at an array of indicators that are telling us if we are on the right track, if it makes sense to continue investing in innovation [and] if innovation is a viable growth engine for [the] organization.”
That said, there are some useful indicators, including:
- The new product vitality index, defined as the percentage of this year’s revenue coming from ideas that you’ve launched in the past three years.
- Efficiency of your innovation investment: “For every $1 of new revenue you got this year, how many dollars have you spent in the past three years?”
- Portfolio distribution, or how many of the new ideas that are currently generating revenue are of different types, such as transformational or adjacent.
Watch the full video here: