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 coöpe­ration 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, © 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 coördi­nated 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 coöpe­ration 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 coöpe­ration 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://boettcher-consulting.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