7 success factors for exploration with impact
In this era of change, both small and large companies are (starting) to realize that just focusing on operating their current business model is not enough to survive in the longer term. More and more they are thinking about how to better structure their 'exploration' activities. Continuous innovation and recalibration of existing business models is necessary for long-term survival. But how do you ensure that the exploration activities will actually contribute to the operating result? How do you ensure that exploration has an impact?
In this article we explain which best practices we include when we help companies structure their exploration activities.
First, we explain the difference between exploration and exploitation.
Let's start on the right side of the picture, because this is the most common perspective for businesses.
Exploitation focuses on getting the most out of the existing revenue model(s). You earn money with the current business model and continuously optimize internal and external processes. As a result, you continue to deliver value to the customer and you create profit for the company itself.
Exploration focuses on discovering and developing new revenue models, either through new products, services, business models and/or by entering new markets. This activity is characterized by great uncertainty, and the uncertainty increases due to the new nature of the development, or the distance from the current core activities.
7 success factors for exploration
Over the years, we have experienced that for a structural approach to exploration, the following factors must be applied to increase the chances of success:
- Determine a clear innovation strategy
- Top Management buy-in: provide the preconditions for innovation
- Transparency: provide an overview and insight into what is happening
- Apply appropriate development process for specific types of innovation
- Constant influx of ideas and clear selection process (idea management)
- Stimulate cross-functional and diverse teams/collaboration
- Learn and adapt
We will explain these 7 factors in more detail.
1. Determine a clear innovation strategy
We would like to illustrate this point with the famous quote from Alice in Wonderland. If you don't know where you are going, you will eventually end up somewhere.
However, if you are able to tell your staff, customers, suppliers which direction you are going, you will get there much faster. Because if you clearly define the boundaries of the 'sandbox you play in', it becomes much easier to come up with ideas within that space.
Of course, the limits should not be too small, because then only small improvements are possible. Too broad is often too vague. So yes, something in between.
2. Top Management buy-in: provide the preconditions for innovation
Unfortunately, we have seen too often a department or a group of people being sent to innovation training. When they come back, the issues of the day just start again and nothing changes. What's wrong here?
To operate according to the latest innovation management principles, both the structure and culture of an organization must support innovation. This means that:
- Management supports innovation strategy (walk the talk)
- KPIs linked to innovation for (middle) managers and insight into exploration activities
- Sufficient budget and resources
- Cross-functional teams
- A corporate culture that supports and encourages innovation
- Willingness to experiment and learn and accept risks (innovation culture)
If the organization does not have the preconditions in order, it will be very difficult to actually implement the newly acquired knowledge. Only the brave, the real innovators, will make an attempt, but this often turns out to be a very demotivating attempt.
3. Transparency: provide an overview and insight into what is happening
There is often a lack of real overview within companies. This is because most companies work in silos. When they work internationally, they often work in fairly autonomous business units.
Questions that an organization should be able to answer are:
- What kind of exploration projects are currently underway and what do they want to achieve?
- Who is working on what?
- What kind of project/type of innovation is it actually?
If you don't have the right overview, work is done twice. If you don't know that your colleague on the other side of the world is working on the same challenge, you will never work together.
To provide transparency, you will need to start categorizing so that people can easily search and find projects. And this is the starting point of innovation portfolio management.
4. Apply appropriate development process for specific types of innovation
In previous articles we have discussed 3 Horizons model described. We believe it is important to distinguish between 'standard' product development for less risky projects and 'new innovation' for projects that involve more uncertainties. For the latter type, we prefer the design thinking approach.
5. Constant influx of ideas and clear selection process (idea management)
The fact is that the best, most viable ideas come not from management, but from the people in the field who interact with customers and other stakeholders. However, they hardly get a say in innovation. Companies need to organize themselves better so that ideas can be easily submitted by both internal (employees) and external stakeholders (customers, suppliers, sellers, in short: the ecosystem)
6. Stimulate cross-functional and diverse teams/collaboration
To promote creativity, have multiple perspectives and avoid tunnel vision, it is necessary to work with diverse and cross-functional teams. However, the diversity is not only in personalities, but also in background (ethnicity, social background, etc.).
The team must be able to put themselves in the shoes of their future user and have an in-depth understanding of the user's challenges.
7. Learning and Adapting
We don't believe in one size fits all processes. There is a process to help people help out, not to limit and rein in people. We do believe that processes can help people think about things they hadn't thought of before. For example, to encourage customer focus, we usually include the value proposition canvas (link) in an innovation process. Our starting point is always the existing process and best practices within the organization. We use this input to arrive at a changed process that incorporates the latest insights from innovation management practice.
We like to make a 'prototype' of this process first, and test it in practice on a small scale together with the employees. We see process innovation as an innovation project in itself. And of course we listen to the feedback and we iterate. Just like you would with a customer innovation project. Realizing all this does not happen overnight, just as it takes time for a company to improve or adapt its operating processes.
And just as you invest in ERP and CMS systems to improve operations, sometimes you will also need to invest in systems that help exploration activities. We'd love to talk about that in a future blog!
In this article we have explained the difference between exploitation and exploration. We have discussed the 7 success factors that are needed to further develop exploration and make it run better. As with exploitation, this is a process that takes time. A process in which we are happy to guide your organization!
Authors: Joyce Oomen & Peter Stooker – Pimcy Innovation & Portfolio Management