Do we need clearly defined innovation processes? And what should they look like?

Many companies do not distinguish sufficiently between innovation processes and product development processes, such as pre-development. As a result, they limit their capability to innovate as well as their future-viability while at the same time generating internal conflicts. In this article, we would like to point out the importance of clearly defined and tailor-made innovation processes, and provide guidance on appropriate procedural approaches as a function of the innovation level and the innovation momentum of innovation propositions.

By Friedhelm Boettcher und Karl-Michael Schumann

Innovation can be a very complex undertaking and often not successful at that. In many cases, this can be attributed to an insufficiently developed innovation culture in combination with inadequate, limited or even lacking systematic innovation management:

  • The processes and procedural models for the development of innovations are not clearly enough defined and are often not adequately managed. This situation is often encountered when the innovation proposition does not match the company’s previous fields of experience or activities.
  • The innovation project management processes do not match the desired or necessary level of innovation and the innovation momentum required for market success.
  • There is a low or underdeveloped capability or desire to act proactively and to respond quickly to changes in the business environment.

This has the consequence that …

  • … decision-makers lack the necessary confidence and decisions are not taken at all, half-heartedly or too late,
  • … innovation projects are not resourced adequately due to the competing requirements of the day-to-day business. The company’s various competencies cannot be sufficiently integrated into the innovation projects, which leads to a waste of resources,
  • … the most innovative employees are demotivated and leave the company. The challenge to “innovate” is “scorched”,  and the company’s ability to change and improve is damaged for a long time.

In order to prevent this, companies have to deal more intensively with the configuration of their innovation system, and build coherent innovation architectures[1].

Figure 1: An innovation architecture as the basis for agile innovation management

What is an “innovation process”?

The integrated operational innovation process from finding ideas to innovation success is a crucial segment of the innovation architecture.  We define the term “innovation process” here as a coherent set of activities and decisions to generate specific contributions that are necessary to successfully realize innovations. All individual contributions must meet defined success criteria.

With that said, four operational elements of the innovation process can be distinguished:

  1. The Front-End of Innovation (FEI): The development of innovation ideas and concepts
  2. The Back-End of Innovation (BEI): The development of offers and services to market maturity
  3. Go-To-Market (GtM): The execution of the launch plan to launch and disseminate the offer or service in a market or to generate a new market.
  4. Customer Feed Back and Integration: The cooperation with customers to develop a continually advancing understanding of the consequences of the purchased offer or service on the customers’ side, and to start  a new innovation cycle.

The four elements differ fundamentally in terms of (a) their achievements, (b) their starting points, (c) their characters, (d) their procedural and structural characteristics, and the competences necessary to successfully carry out the respective activities. The clear and systematic differentiation of the four elements is important because each one provides a particular, irreplaceable contribution to successful innovation. The experience of decades of innovation management (and more recently of design thinking) shows, for example, that top results from the “front-end” cannot be achieved by simple standard “back-end” activities and vice versa. Only the coordinated interplay of all four elements leads to top innovation process results.

In this article we would first like to focus on the definition and interaction of the front-end and back-end of innovation

What do we mean by “front-end” and “back-end” of innovation, and why is this distinction important?

“Front-end” activities generate a (preliminary, first) business case with a new product/service concept or a new business model that represent options for new innovations. These deliverables enable qualified management decisions on the investment of funds and resources to start a new back-end development project, and to assess the impact of these decisions on the value and balance of the company’s innovation project portfolio.

“Back-end” activities generate marketable product/service offerings and/or business models that can be produced and sold or executed, respectively. The “back-end” activities are completed when “readiness” to enter the market is achieved. In addition to the ability to deliver the offering to the customer, this includes all technical and operational factors, including trade structures, financing and compliance with regulations. The management can make qualified “go-to-market” decisions on the basis of completion reports relating to all the readiness elements mentioned. An innovation might “go-to-market” at full power, or through a step-by-step market entry that builds up a learning relationship in cooperation with the first customers.

The “Front-End” activities create the basis for the “Back-End” activities and thus precede them “logically”. The results of the front-end determine what is to be developed and what is to be invested in. In practice, however, front-end and back-end can sometimes run (at least partly) in parallel. This can happen, for example, when knowledge obtained early in the front-end already enables certain investment decisions for back-end activities, or when first front-end “prototype” products or services can or should be sold to early adopters as minimal viable products (MVP) for gathering in-market knowledge and for starting market creation.

Table 1: The key characteristics   distinguishing front-end and back-end of innovation

 

There is not only one innovation process

There is no “one-size-fits-all” solution in the design of the innovation processes for all kinds of innovations or businesses. The successful processing of innovation propositions presupposes that a) the innovation process approach is in line with the desired innovation level[2] and the expected innovation momentum of the innovation proposition[3], b) the proximity to the core competence of the company is taken into account, and c) an effective management of the innovation activities is enabled. Depending on each one of these factors,

  • different types of innovation decisions must be made, and different ways of getting to these decisions must be used,
  • different framework conditions, and different procedural models must be made available,
  • different innovation methods and tools must be used to develop the innovation propositions.

The precise design of the innovation processes depends on the specific conditions and needs of the individual companies. For orientation, generic processes for typical innovation levels, innovation momentums, and proximity to the core competence of the companies are  described below (see Figure 2).

INNVOVATION PROCESSES

Figure 2: Depending on the innovation level, innovation momentum and proximity to the core competence of the companies, three different generic approaches can be distinguished in the front-end as well as the back-end of innovation.

 

Generic Front-End-Processes

a) Embryonic FEI

Opportunities for innovative offers are identified and selected using simple methods for idea finding and idea management. Selected ideas are further “incubated” and passed on to a standard back-end product development process (PDP) on the basis of requirement catalogs.

b) Mixed FEI

A mixed FEI process is typically used whenever a simple transfer of an idea out of an embryonic FEI on to a standard-PDP is not suitable. This can occur when an idea requires peculiar feasibility assessments, functioning prototypes for testing or solutions of difficult technical problems. In all of these circumstances it is desired to reduce the risks of product development related to financial and staffing resources, and to build up technical or commercial knowledge. In many cases the mixed-FEI will also conduct advanced systematic analyses of markets, products and technologies, often coupled with Roadmapping and Scenario Analysis. In many companies, a so-called „advance development“ represents the mixed FEI. The results of this mixed-FEI process are transferred to a standard-PDP or a Stage-and-Gate back-end process.  In some cases there is also a close exchange with a Systematic-FEI possible.

c) Systematic FEI

In a Systematic FEI, new innovation opportunities, ideas and concepts for innovative offers and business models are systematically and continuously searched for and developed in such a way that they can be successfully realized via subsequent back-end processes (see Fig. 3). This FEI process includes advanced analyses of the environment with Strategic Foresight, focused Market Construction to identify new innovation opportunities, systematic idea generation, and  development of ideas into concepts of offerings, business models and business cases by using  procedural approaches that oscillate between diverging creative and converging analytical processes. The Systematic FEI is primarily used when disruptive innovations or new business models are sought outside the traditional experience and core competence of the companies. The focus here is on generating new knowledge about the needs and behaviors of customers in new markets or for completely new applications, about future markets and the development of innovative service offerings. Learning about minimal viable products in connection with the parallel development of market entry strategies is of great importance here. Results from the Systematic FEI can be transferred to all back-end processes, depending on their characteristics. In general the Systematic FEI will transfer its results to an Agile Stage-and-Gate PDP or to an Agile Innovation Circle.

Figure 3: An agile front-end of innovation process model – modular, iterative and commutative

Generic Back-End-Processes

a) Standard product development processes (Standard – PDPs)

An improved product or service offer (also as a variant or as a conventional product adaptation) is systematically developed based on a customer request or sales inquiry or based on results of the classical idea management. The technology and process principles to be used are clear but still need to be adapted to the intended properties of the product. The realization of the concept takes place in a standardized product development process (PDP) with clearly defined documents, decision points, and criteria for approvals. Line managers responsible within the development process can make decisions fast and non-bureaucratically.  The risk of using resources for unsuccessful development projects is estimated to be low. Therefore, resources for the entire project can be released at the start of the project.

b) Agile Stage-and-Gate processes

The starting point here is a “project charter” as a transfer document from idea management or from the systematic development of a business idea, e.g. via an FEI (partly including ”advance development”). The transformation of the offering concept or the business model to market maturity takes place within the framework of a defined Stage-and- Gate process. The decision points for step-by-step investments of financial and human resources into the project and the deliverables for each stage are clearly defined or definable. The decision criteria and the decision-makers to be involved are named in advance, depending on the task at hand. The risk of using resources for less or not at all successful development projects is estimated to be higher. Therefore, the release of resources for a project only takes place step by step as a “gate” decision after successful completion of a development “stage”.

c) Agile Innovation Circle Processes

Innovative offers or business ideas are implemented in an agile innovation circle when the development of the offer and the market are still in a very early phase and no standard organizational structures exist for their implementation. The learning process that started in the Systematic FEI is continued under start-up conditions. Organizational structures are being set up in parallel to the development of the offerings or business model and to their market penetration. The risk of the (possibly unprofitable) use of resources for a start-up lies primarily with the investor in addition to the innovator. In this sense, an “investor” can also be an  established company that assumes this  “startup investor” role in an internal relationship with an internal development project and the developers responsible for it.

Table 2: Evaluation criteria for assigning innovation projects to the different process models in the front-end and back-end of innovation.

The allocation of projects to the appropriate FEI and BEI process model is based on criteria such as:
a) the expected innovation level, b) the expected innovation momentum, and c) the proximity to the company’s core competence. A summary of an initial guidance for using these criteria can be found in Table 2.
The correct allocation of each one of the innovation propositions to the best suited innovation processes is one element of an active risk management approach that aims to significantly increase the probability of commercial success of the entire innovation portfolio. The assignment of the individual innovation projects in the portfolio to a process model must be constantly reviewed and adapted. As a consequence, companies can and must master all process models described here. The number of projects processed in the different types of front-end and back-end processes is company-specific and is strongly determined by decisions made, for example, in the strategic elements of the innovation architecture.

Which interpretation of the term “process” is the basis of the innovation process?

In a business context, a “process” is interpreted as a creation chain in which a commercial goal is achieved by a directional sequence of activities, and the use of defined instruments and methods. The flow path of innovation processes, however, differs from this conventional interpretation of processes, even though there is a “logical” direction and sequence of activities in each one of the specific elements of the innovation process. The innovation process is largely a learning process, which generates new knowledge about (internal and external) customer needs, about opportunities to satisfy these needs, and about ways of technical and organizational implementation. This learning process is strictly non-linear, i.e. innovation activities are not necessarily carried out in the pre-defined “logical” order, but in an order that builds on – and responds to the needs of –   the continuous acquisition of knowledge. For example, it might be necessary and important a) to process in parallel certain activities that are far distant to each other in the “logical” sequence of activities, b) to run through work packages repeatedly in iterative process circles, or c) to jump forward or backwards in the logical chain of activities[4].

This special character of innovation processes challenges the skills of innovation managers, and demands a high degree of agility with regard to the design of work packages of the operational processes, the decision-making processes and the operation of the company as a whole. These particular topics, including the establishment of the right innovation teams and the design of cooperation procedures in innovation processes, will be dealt with in later publications, depending on the course of the comments and discussions on this article.

In summary: To manage innovation more successfully, different innovation processes have to be applied depending on the innovation level and momentum of innovation propositions. There is no off-the-peg procedure. The good news is: There are evaluation criteria for innovation projects which can be used to determine how the innovation processes in the front and back end must be configured. The right choice will have a profound positive impact on the success of innovation propositions.

 

Notes

[1] A more detailed discussion of the innovation architecture is found  in our article on https://futurebizz.de/lost-in-innovation.

[2] We define “innovation level” as the degree of positive change that is caused by an innovation proposition, judged from the point of view of the user. The parameters to judge this change could be a) the impact on the user experience, b) the new habits enabled, or c) the broadness (i.e. how many users experience it) of the change.

[3] The term “innovation momentum” describes the temporal progress of innovation propositions including both their development and their diffusion. The parameters to judge this progress could be a) the pace and the changes of the pace, b) the frequency, c) the intensity (e.g. required necessity, resources, attention, relative significance) of the temporal progress of innovation.

[4] Due to the high levels of ambiguity and uncertainty of innovation projects, some organizations assume that precise definitions and descriptions of innovation processes in enterprises are not meaningful. However, in our many years as innovators, innovation managers, and business consultants we have realized that clearly defined and described, yet non-linear innovation processes provide an indispensible navigation system.  This navigation system reveals the stadium of an innovation proposition, which activities need to be processed, the way the learning process progresses, and which management decisions need to be made.

Credential: iStock/phototechno

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