Here is the first beatitude of capitalism: Blessed are those who put ideas to use in a profitable way, for theirs is the kingdom of business.
Alas, history is full of ingenious inventors who did not make a penny from their revolutionary ideas. In many cases, other people managed to create significantly stronger impact than the originator, since they knew how to commercialize the inventions.
Those leaders who successfully completed the initial stages of the innovation honeymoon, the unusually insightful and creative period of new employees, harvested a wealth of ideas. But if they do not take the next step of actually capitalizing on the most promising proposals, they will have gained nothing. Worse, they might actually strengthen their competitors, who, unlike the passive originators, may put the great ideas into practice and prosper!
The first step in leveraging the ideas generated, discussed and enriched in the course of the innovation honeymoon and other creative endeavors is identifying innovative gems. Importantly, I conceptualize innovation in very broad terms: I do not only include the creation and commercialization of a good or a service, which oftentimes is not sufficient for consistently outperforming competitors in a fiercely contested market. The bundle of innovations also comprises other inventions, such as internal intellectual breakthroughs. One example is a new management model, possibly created in response to a severe crisis.
Innovation leaders in all walks of life should use the art and science of what I call "strategic winnowing" to select ideas with great potential (see illustration). In essence, the process is like the separation of grain from crushed straw and husks after threshing. Idea farmers intend on sifting through the innovation honeymoon crop need a powerful tool for this purpose: the "strategic winnowing sieve". It is named after the manual device, which later was replaced by a machine, used for exposing the threshed grain to an air stream, so that the lighter chaff was blown away, but the heavier kernel was retained; meanwhile, the dirt fell through the riddle.
Using the strategic winnowing sieve, managers can rate and compare a wide array of options in a disciplined fashion. It helps these idea judges adopt a system perspective and recognize various interaction effects, including important synergies. Thus, executives do not need to rely only on gut feeling to complete their weighty task of filtering.
My screening framework contains the following two broad assessment criteria: First, value for the organization, and second, ease of implementation. Ideas can be placed into one of four quadrants, depending on whether they are ranked high or low on these two dimensions. Proposals that at the end of the overall screening exercise received top marks on both dimensions should be accorded the highest implementation priority.
The first generic criterion comprises both the potential of creating value in general and the possibility that the organization actually appropriates the value. This distinction is absolutely vital; in extreme cases, it can make the difference between corporate survival and bankruptcy.
For example, imagine a commodity producer adds customized services, such as consulting or testing, to its core product offering. These services are likely to create value for customers. But the provider might fail to appropriate it, because he may be unable to pass his opportunity costs on to the users. One reason might be the presence of powerful competitors with deep pockets, who offer the same services without charging for them.
Helmsmen should hold brainstorming sessions with a diverse team to customize my screening framework, creating a diverse set of sub-criteria under the two broad headings. Creativity, granularity and precision are of key importance during this method design phase. Innovation honeymooners should be involved in this process, since they are likely to offer fresh perspectives at this critical juncture, too. Besides, they will derive satisfaction from being able to influence the selection of their ideas instead of just handing them over to the great and the good at the top.
As regards the first generic heading, team members have to test the two hypotheses that the set of sub-criteria they suggest creates value and that the value can actually be transferred to the organization. To generate an ingenious list of diverse screening criteria, they should constantly ask: "What do I have to believe for these hypotheses to be true?" Here are some possible granular yardsticks for assessing the value of a new product for the organization. You will see that the framework design can heavily influence the nature of innovation.
If the man in the hot seat is interested in a steady course, the proposed idea's fit with the corporate direction is a necessary, but not sufficient condition for its acceptance. Such alignment makes it possible to focus scarce resource on stretch aspirations and avoids mere opportunism. Among other things, fit might be measured in terms of conformity with the company's mission, vision and strategy. If, however, the guiding spirit is interested in radical innovation that creates new industries and fundamentally changes the organization, he may not include directional fit in the strategic winnowing sieve.
The team might also add economic measures to the portfolio of sub-criteria. Again, these metrics should reflect not only the creation of value, but also the likelihood that it will be appropriated by the organization. In the case of proposed services that are to be bundled with commodities, it would be necessary to assess the return on invested capital, among other things.
Interestingly, the addition of other assessment criteria might make it possible to classify economically unattractive proposals as loss leaders and thus still justify them. For example, service offerings may help attract new customers, to whom subsequently high-margin products could be cross-sold. Other granular yardsticks are the effect of the idea on the organization's reputation, learning opportunities, as well as the likelihood that the proposal will inspire and energize the workforce.
As regards the ease of implementation, the team might include sub-dimensions such as the quantity and quality of human resources required, capital needs, technological bottlenecks, and crucial networks. Another criterion could be the formal and informal organization, which may either act as powerful enabler or hinder implementation.
Leaders often focus exclusively on attempts to stimulate creativity, thus ignoring idea selection and implementation. The good news is this: Strategic winnowing will help idea farmers purge their intellectual threshing floor, separating the seed of greatness from the chaff that should be burned!
(*Part 6 of the "Innovation Honeymoon" series. To be continued.)
"Prof. Kai on Strategic Leadership" Column Number 24. Kai-Alexander Schlevogt (D.Phil. Oxford) is a professor of strategy and leadership at the National University of Singapore (NUS) Business School and author of The Art of Chinese Management (Oxford University Press). Email: schlevogt@schlevogt.com; website: www.schlevogt.com.
