Innovation is much more than just a buzzword

In the business press and in company’s investor filings, the word “innovation” has become such a truism that it has lost much of its currency. Like many business terms that have been overused, it has become for many people an empty term that lacks specific meaning or relevance – a buzzword. Yet unlike most such words, innovation still commands respect. Business leaders still acknowledge that innovation is not only necessary, but critical. Effective innovation drives the profitable growth equation –higher revenues and/or lower operating costs – and also has the potential to reduce a company’s capital expenditure requirements, mitigate risks, and achieve persistent competitive advantages in the market.

Most business leaders will agree that innovation is essential to enable growth and create competitive differentiation, but there is far less agreement about the best way to innovate, and how to do so successfully.

Approaches to innovation vary widely from freeform ideation, such as sticky notes on white boards and suggestion boxes, to highly structured methodologies, such as “idea factories” and specialized internal innovation teams that collaborate with their peers in various other organizations throughout a company.

Some corporate cultures emphasize innovation for specific functional organizations (e.g., Research & Development, Engineering, Marketing) while not actively encouraging or enabling innovation in other internal functions. This disparity isn’t limited to corporate cultures, but also extends across geographic borders to include national and regional cultures.

While there are many approaches that can work, there is no single approach that represents the only way to innovate effectively. While unstructured ideation can play a valuable role in stimulating creative thinking and concepts as outputs, it alone is insufficient as an innovation vehicle because it does not foster holistic thinking about interdependencies, implementation considerations, and post-launch viability (in terms of market dynamics, technical factors, and human- centric factors). As a result, unstructured ideation approaches are far less likely to yield viable concepts and drive activities that transform those concepts into tangible value for the organization.

Leaders at any level of an organization may reasonably wonder:

• Which approach to structured innovation is right for my industry, company, organization, or team?
• Is it possible to successfully innovate in my organization without a formal innovation charter and resources?
• What best practices should I consider when approaching innovation?

This article will address these questions and present one of the most effective approaches to structured innovation – the Working Backwards methodology that Amazon.com pioneered.

Innovation without structure is construction without a blueprint

 The criticality of innovation for business success, together with the insufficiency of unstructured approaches to innovation, together imply that a structured approach is essential. Not employing a structured approach can create inefficiency through redundant innovation efforts and resulting activities, higher than optimal operating costs and capital expenditures, foregone or diminished revenues and competitive advantage from new monetization constructs (e.g., market offerings and business models), and elevated levels of risk (e.g., business continuity, regulatory compliance, legal liability). Examples of these pitfalls are numerous, but we can take a look at two that illustrate the point.

In one case, a major telecommunications service provider was struggling to adapt to increasing industry-wide commoditization of its wireless and fixed-line market offerings and recognized an urgent need to identify new sources of growth and cost efficiency. Software vendors, mobile application developers, and Internet-based businesses had built and monetized lucrative businesses on top of the service providers network, remunerating the service provider for data traffic fees but capturing the vast majority of the value that these new businesses generated. In response, the service provider had chartered largely unstructured innovation efforts within the Research & Development organization. While these efforts generated numerous ideas, there was no process for consistently driving rigor into the holistic development of the full concept associated with each idea, nor was there an objective mechanism for critically evaluating the commercial and technical viability of the concepts, leaving the innovation efforts subject to internal political maneuvering, wasted efforts, delays in bringing concepts to market, and suboptimal viability of the concepts that the company ultimately did introduce. The service provider ultimately created a new internal team that was organizationally “walled off” from the Research & Development organization, engaged a leading management consultancy to design, implement, and operate a structured innovation process, and successfully brought 2 new and commercially vetted concepts to market in fewer than 6 months.

In another case, a major health care provider has been experiencing increasingly severe competitive pressure from its larger market rival, which had long since embraced digital transformation initiatives that improved the patient / customer experience, integrated the provider with health insurance companies and other key value chain stakeholders, and sustainably reduced operating costs. The smaller provider had taken an episodic and only loosely structured approach to innovation within different parts of its organization, spawning information siloes that reduced collaboration, limiting objectivity in decision making, and yielding relatively little tangible output that drove positive impact for patients, other stakeholders, and its business results. The CIO commissioned an innovation effort with a leading enterprise technology company, which used its structured methodology to facilitate a series of focused working sessions with teams that represented different business functions within the provider’s broader organization. Within 6 weeks, these efforts yielded a series of structured, vetted initiatives focused on digitally transforming the patient experience, caregiver experience, and payer experience, as well as the provider’s supply chain operations. The company subsequently implemented these initiatives via cross-functional teams under the executive sponsorship of the CIO.

There are many ways to make mistakes with innovation, but a far shorter list of factors to guide success

 “The man with a new idea is a crank until the idea succeeds,” wrote American author and philosopher Mark Twain. That observation neatly captures the allure of successful innovation. Another, more contemporary perspective that captures the conundrum of innovating successfully comes from American author and consultant Warren Bennis, who noted “Innovation—any new idea—by definition will not be accepted at first. It takes repeated attempts, endless demonstrations, monotonous rehearsals before innovation can be accepted and internalized by an organization. This requires courageous patience.”

If the first quote is the inspirational spark for innovation, the latter quote suggests that there are conditions that must be in effect in order for innovation efforts to succeed. It implies that a structured approach to innovation is critical, and also that there could be a checklist of factors for successful innovation. What factors constitute such best practices?

Key Success Factors for Structured Innovation

The following list is not comprehensive, but it outlines a series of factors that can increase the likelihood of innovation efforts being successful:

1. Designated executive sponsor: assigning a specific, senior-level executive to champion the innovation effort strengthens alignment between the effort and the company’s strategic priorities, while also imparting momentum and accountability
2. Cross-functional participants: assembling an innovation team that spans several organizations
3. Disciplined use of the methodology: ensuring that the innovation team follows the sequence and guidelines of the structured innovation methodology, populates templates and tools comprehensively, willingly allows the methodology to systematically select and de-select ideas, maintains objectivity (especially when the methodology eliminates a preferred idea from consideration), and synthesizes content in a way that allows it to be readily shared, understood, and used by different audiences, increases quality of outcomes and the probability of overall success
4. Leave politics at the door: taking a “blue ocean” approach that maximizes the range of possibilities and treating the innovation session as an objective way to arrive at the best possible outcomes for the organization decreases the impact of internal politics that could bias actions and outcomes
5. Business operator mindset: adopting the mindset of a business operator – someone who will actually have accountability for enabling the concept(s) that the innovation efforts generate(s), and then driving the intended business outcomes from the concept(s) – elevates the quality of the innovation effort and increases the probability that it will succeed
6. Time-boxing: organizing the innovation activities to take place sequentially in defined blocks of time imparts discipline to the team’s thinking, reduces the risk of “writer’s block” creating impasses to progress, and drives momentum and healthy urgency into the overall process

Among the many companies that undertake structured innovation efforts, relatively few disclose the structural elements of their methodologies, but many do refer to the existence of these efforts and reveal some aspects of their approaches.

Apple and 3M are two companies that have long been associated with highly effective innovation programs, and pharmaceutical companies BionTech, Pfizer, and Moderna have more recently become synonymous with the highly focused innovation processes that ultimately succeeded in developing the world’s first effective MRNA-based vaccines. In 2018, business magazine Fortune published its list of The World’s Most Innovative Companies, which is helpful in understanding where successful innovation is happening, but less helpful in understanding the methodologies that these companies are using. One company that does publicize its innovation methodology, largely by employing it to drive transformational efforts for its business partners and enterprise software customers, is Amazon.com. Amazon’s approach is unique in several ways, and because the approach is both broadly applicable and effective, it is worthwhile exploring.

Amazon innovates by working backwards from the vision

 At its core, Amazon’s innovation approach is structured. It even frames it in terms of an “innovation equation”, which is written as F (innovation) = (organization * architecture) (mechanisms * culture). The approach is based on the concept of “working backwards” from a desired outcome, and consists broadly of 4 steps:

1. defining the customer that is in-scope for the effort
2. identifying a desired future-state or outcome
3. documenting that outcome in sufficient detail to promote holistic and critical thinking about the practical considerations associated with enabling the outcome
4. documenting the business case associated with the desired outcome

Even before one utilizes Amazon’s methodology to generate innovative outputs, it is clear that the methodology itself is very innovative. It is unique in that it reverse-engineers a desired end-state and forces participants in the process to undertake a disciplined approach to codifying the strategic, operational, and technical conditions necessary to articulate the outcome’s value to the target audience (usually the customer), technically enable the outcome, and operationally enable the outcome in terms of a business model and processes required to support it. Additionally, the process is designed to anticipate potential issues in advance and explain how these issues would be addressed.

The core constructs within this Working Backwards methodology are:

• The Press Release (“PR”): this is a short, 1-2 page document that is written in the voice of a future period of time, in the form of a media announcement describing the launch of a product or service; the product or service is the desired target outcome; the PR outlines the value proposition, conveys excitement in order to impart momentum (e.g., customer adoption), and includes fictitious quotes from customers and business executives
• The Frequently-asked Questions Document (“FAQ”) : this is a longer document that outlines key issues that customers, other external stakeholders, and internal stakeholders are likely to encounter; it lists these issues as questions and provides answers to them; the purpose of the FAQ is to drive holistic thinking about the customer experience (CX) of the market offering, including factors that relate to the offering’s path to market, its technical functionality, and the company’s business operations required to support the offering and optimize the CX
• The Product Manual (“Visuals”): this is document consisting of a series of illustrations that graphically depict the market offering and associated descriptive text; it serves as an “owner’s manual” for the offering, and includes explanatory diagrams that align with the language within the PR and FAQ; the diagrams convey key aspects of the offering visually, helping innovation teams conceptualize the desired future-state outcome and the factors outlined in the FAQ; many of the illustrations contained in the Product Manual derive from initial ideation sketches that the innovation team made while defining the customer and desired future-state outcome
• The narrative: Amazon’s narrative construct is a 6-page document that individuals and teams within the company use for business planning; within the context of innovation, it codifies a business plan succinctly and in a structured format that encompasses the key activity categories necessary to bring about the desired future-state outcome; it is written as a structured proposal that seeks approval; the narrative outlines the rationale for the proposed effort, the key elements of the effort, the projected business results that the effort will generate, and the resources required for the effort; while the main body of the document is limited to 6 pages, narratives almost always have numerous appendix pages that contain supporting analysis and facts supporting the proposal; Amazon’s enterprise software business, Amazon Web Services (AWS), has incorporated the Narrative into the Working Backwards methodology that it practices

At AWS, dedicated innovation teams use this methodology to engage with select customers in structured working sessions. The objective is to develop tangible concepts that have a high likelihood of generating meaningful business value, and that are documented with sufficient detail to allow the customer to rapidly take focused action after the sessions conclude.

Customer demand for these facilitated sessions is extremely strong, and the AWS teams charged with conducting these sessions tend to be backlogged as a result. Fortunately for customers, other AWS teams and external professional services providers (e.g., management consultancies) can also utilize the Working Backwards methodology to conduct these sessions to a high quality standard.

Any type of organization can benefit from a structured approach to innovation

 The well-known global companies that have developed strong reputations for innovation are not the only organizations that can benefit from structured innovation methodologies. A structured innovation approach can be applied equally effectively to a business unit, functional organization (e.g., Supply Chain Operations), or team within a large company, or really to a company of any size. Structured innovation also applies equally well outside the commercial realm. Public sector, education, and non-profit organizations can also use it to achieve tangible, business-relevant outcomes, even if the objective is not denominated in terms of revenue growth and profitability.

Ultimately, success with structured innovation is contingent on ensuring that the key success factors are in place, that the innovation team diligently follows the chosen methodology, and that there is a mechanism in place to move forward with the concepts that the innovation exercise has created after the exercise has concluded.

Groups seeking to apply a structured innovation approach often turn to an external advisor such as a management consultant or specialized facilitator as a means of driving momentum, engagement, and discipline to the process, so that the innovation effort yields its intended tangible objectives. Aptos Partners and Kissinger Group, two boutique consultancies based in California, have partnered to bring structured innovation to organizations in a wide variety of industry contexts, solving challenges, creating new possibilities, and driving tangible business value.

Wherever your innovation journey takes you, recognize that your organization is not the first to embrace innovation as a strategic enabler, and that a structured approach based on proven methodologies and validated by prior successes can help you define and attain objectives that you may have considered to be beyond the realm of possibility.

John Mack is a management consultant with Aptos Partners and former executive at Amazon Web Services, where he led the company’s Go-to-Market Strategy and Business Development function in one of the company’s leading regions in North America.