There are many ways that businesses can and choose to measure the return on innovation and consequently there are many different types of models.
The Innovation Radar
The first model that we will discuss is the Innovation Radar, first described in 2006 and was developed by the Kellogg School of Management’s Center for Research in Technology and Innovation fellows Robert Wolcott, Mohanbir Sawhney and Inigo Arroniz after their research into the innovation habits of a number of Fortune 500 companies that included Boeing, ADT Microsoft and DuPont.
Although innovation has risen to the top of the CEO agenda many companies have a very narrow view of what innovation actually is. They might see innovation only as synonymous with new product development or traditional research and development but such myopia can lead to the systematic erosion of competitive advantage, resulting in firms within an industry looking more similar to each other over time. Best practices get copied, encouraged by benchmarking. Consequently, companies within an industry tend to pursue the same customers with similar offerings, using undifferentiated capabilities and processes and tend to innovate along the same dimensions. In technology based industries, for example, most firms focus on product innovation while in the chemical or oil and gas industries the emphasis is on process innovations. Consumer packaged goods manufacturers tend to concentrate on branding and distribution but if all firms in an industry are seeking opportunities in the same places then they will tend to come up with the same innovations. Thus, viewing innovation too narrowly blinds companies to opportunities and leaves them vulnerable to competitors with broader perspectives and this is where the Innovation Radar can help broaden their vision.
The radar features four major dimensions that serve as business anchors and over all plays to eight additional dimensions any combination of which can be used to increase the influence of innovation in a far more dramatic way and show that innovation is about creating new value, not just about creating new products.
The four major dimensions are:
1. Offerings (WHAT)
Offerings are a firm’s products and services. Innovation along this dimension requires the creation of new products and services that are valued by customers.
2. Customers (WHO)
Customers are the individuals or organizations that use or consume a company’s offerings to satisfy certain needs. To innovate along this dimension, the company can discover new customer segments or uncover unmet (and sometimes unarticulated) needs.
3. Processes (HOW)
Processes are the configurations of business activities used to conduct internal operations. To innovate along this dimension, a company can redesign its processes for greater efficiency, higher quality or faster cycle time. Such changes might involve relocating a process or decoupling its front-end from its backend.
4. Presence (WHERE)
Presence Points of presence are the channels of distribution that a company employs to take offerings to market and the places where its offerings can be bought or used by customers. Innovation in this dimension involves creating new points of presence or using existing ones in creative ways.
While the eight additional dimensions are:
A platform is a set of common components, assembly methods or technologies that serve as building blocks for a portfolio of products or services. Platform innovation involves exploiting the “power of commonality” — using modularity to create a diverse set of derivative offerings more quickly and cheaply than if they were stand-alone items. Innovations along this dimension are frequently overlooked even though their power to create value can be considerable.
A solution is a customized, integrated combination of products, services and information that solves a customer problem. Solution innovation creates value for customers through the breadth of assortment and the depth of integration of the different elements.
3. Customer Experience
Customer Experience This dimension considers everything a customer sees, hears, feels and otherwise experiences while interacting with a company at all moments. To innovate here, the company needs to rethink the interface between the organization and its customers.
4. Value Capture
Value Capture refers to the mechanism that a company uses to recapture the value it creates. To innovate along this dimension, the company can discover untapped revenue streams, develop novel pricing systems and otherwise expand its ability to capture value from interactions with customers and partners.
Organization is the way in which a company structures itself, its partnerships and its employee roles and responsibilities. Organizational innovation often involves rethinking the scope of the firm’s activities as well as redefining the roles, responsibilities and incentives of different business units and individuals.
6. Supply Chain
Supply Chain A supply chain is the sequence of activities and agents that moves goods, services and information from source to delivery of products and services. To innovate in this dimension, a company can streamline the flow of information through the supply chain, change its structure or enhance the collaboration of its participants.
Networking A company and its products and services are connected to customers through a network that can sometimes become part of the firm’s competitive advantage. Innovations in this dimension consist of enhancements to the network that increase the value of the company’s offerings.
Brand are the symbols, words or marks through which a company communicates a promise to customers. To innovate in this dimension, the company leverages or extends its brand in creative ways.