Unfortunately, many successful organizations lack the knowledge, focus, and insight necessary to sustain the innovation required to achieve and maintain market leadership status. Liberty’s Innovation Framework helps organizations foster a repeatable innovation process. Adhering to this method provides the focus required to significantly increase financial performance and growth.
Fred Wiersema, recognized business visionary and author of The Discipline of Market Leaders and The New Market Leaders, defines Market Leadership along two dimensions:
The Market Value Index serves as a surrogate for organizational efficiency. It is calculated by market cap growth over a ten-year period as compared to peer organizations. The more efficient the organization, the greater the profits, which in turn, drive increased market capitalization. Put another way, when a company does the right things efficiently, it is rewarded by the marketplace.
The Sales Growth Index serves as a substitute for organizational effectiveness. It is measured as total increase in organic revenue growth. The company’s efforts are effective and are being rewarded by customers through increased sales. Those companies that create value in the products people want to buy have a higher Sales Growth Index, as compared to peer groups over time.
With these metrics, companies can be divided into four archetypes:
1) Ineffective + Inefficient: Organizations whose inability to generate organic growth equal to or greater to their peer group, and are inefficient as an organization are labeled as Laggards.
2) Effective + Inefficient: Organizations that have products and services that meet customer demand in the marketplace with inefficiencies are known as Growth Chasers.
3) Ineffective + Efficient: Organizations that fail to generate sales above their peer group, however execute efficiently are defined as Value Harvesters.
4) Effective + Efficient: Organizations that outperform their peers in both categories are distinguished as Market Leaders. Additionally, Market Leaders foster a repeatable innovation process, which provides them the focus required to significantly increase their performance and growth.
A vast number of executives view innovation in the same category as lightning: random, unpredictable and not likely to strike more than once. These executives find it challenging to clearly articulate their innovation strategy and confirm its alignment with overarching organizational goals. When pressed to define innovation, they limit their answers to “new products and services.” It’s not surprising that these executives and their organizations have an extremely low probability of achieving Market Leadership. Unable or unwilling to consider how the entire enterprise is organized, they overlook how various factors can impact innovation. These factors include the way the company relates to its customers, its ability to implement change, and the importance of measuring success internally and externally. All of which leaves these executives waiting in vain for luck to strike.
Conversely, Market Leaders understand that an innovation-friendly organization is essential to propel and sustain success. In order to perpetuate innovation, these market leaders create the right environment for ideas to thrive while actively employing a holistic approach. The good news is, this practical approach to defining and achieving innovation can be leveraged by any organization with ambition. Those companies willing to invest the time and effort into assessing the organizational barriers to innovation and making a real commitment to change, reap big rewards.
Imagine being able to not only know when lightning is going to strike, but to be able to summon that power on a consistent basis. That is the foundation of the Innovation Index.
Anthony Paoni of Northwestern University’s Kellogg School of Management and a Liberty Advisory Board member, led research into the relationship between innovation and market leadership. His discoveries clearly illustrate that creating an innovative organization requires a structured and comprehensive approach. Portrayed below as a spider diagram, the Innovation Index contains 15 spokes which represent key innovation drivers. These drivers are grouped into five major categories:
1) Customer Understanding
2) Organizational Agility
3) Operational Effectiveness
4) Business Platform
5) Management Metrics
Customer Understanding measures the enterprise commitment to putting the customer first in all aspects of interaction: servicing, sales, product development, support, and processes. Companies that perform well in customer understanding exhibit the following behaviors: live-in-the-life of the customer, solutions orientation & practice, and culturally support customer-centric values.
Innovation drivers for Customer Understanding are: Value Offering and Delivery, Relationship Ownership, and External Intelligence.
Organizational Agility assesses the enterprise’s ability to quickly make decisions, implement change and alter processes in the face of evolving market trends. These companies exhibit a flat/flexible structure, possess relentless leadership, develop a social architecture to facilitate execution of vision and strategy, and have a well-balanced talent pool.
Innovation drivers for Organizational Agility are: Culture & Values, Skills & Capabilities, Leadership, and Structure.
Operational Effectiveness exhibits the enterprise’s ability to act and execute upon innovation. Companies that perform well have a flexible delivery process, and are able to leverage total resources within the company and its partners.
Innovation drivers for Operational Effectiveness are: Resource Optimization, Flexible Processes, and Solutions Delivery.
Business Platform assesses the impact and utility of technology to provide timely and useful information for business decisions. Those that score high on this measure have IT investments that consistently meets ROI objectives exhibit a culture of ‘fact-based decision making’ and see information as a strategic asset.
Innovation drivers for Business Platform are: Actionable Information and Productivity Improvement.
Management Metrics rate a company’s ability to evaluate their success and, therefore, make better decisions. When the people within a company understand exactly how they are being evaluated, it generally leads to higher scores. In particular, it is important to establish clear marching orders and operating guidelines, actionable performance metrics and incentivized stretch targets.
Innovation drivers for Management Metrics are: Aligned Motivation, Consistent Evaluation and Aligned Goals & Objectives.
Leveraging the Innovation Index Framework provides an opportunity for executives and senior operational managers to gain insight into the organization’s innovation environment. Often this process highlights differences between: perceptions and action, strategy and practice, operational and executive management. What’s more, the framework can provide a context for building an innovation strategy.
It must be noted that your Innovation Index profile can look very different based on who in the organization answers the questions. Research indicates executive teams have a very different perspective than operational management who are closer to the customer. Therefore, it is important to look at these differences and take note of the misalignment.
So what’s your innovation index profile? What is holding back your organization’s ability to innovate? Applying the Innovation Index as a diagnostic tool can provide your organization with a process by which you define where you are and allow you to determine what your target Innovation Index profile should be. Delving into the 15 innovation drivers, we can help you rate your organization and discover current strengths, as well as areas of improvement.
The Innovation Index is not an academic exercise: It is a practical approach that provides an objective assessment of enterprise performance to foster and execute innovation.
Virtually every organization can benefit from mapping their innovation strategy by utilizing the Innovation Index. Partnering with your executive and operational leadership, Liberty can quickly perform the assessment and identify the areas that impede innovation.
Its application is two-fold. Most obvious is finding out if you are structured in a way to support innovation. But, more importantly, is the ability to diagnose gaps, misalignment with overall strategy, and other impediments to the free flow of innovation. Armed with this invaluable knowledge, we can work together to create the roadmap that accelerates innovation and clears a path to market leadership.