The CTO’s New Innovation Playbook

In a time of rapid business and technological change, chief technology officers (CTOs) and other technology leaders are increasingly looking to new methods to drive their digital technology agendas. This article focuses on equipping CTOs with a new innovation playbook for creating innovation. We will examine the widening disjuncture that disconnects corporate R&D spending from innovation -- while also proposing cheaper, faster, and leaner alternatives - the rise of so-called “innovation enablers.”

The Shift Away From Traditional Corporate R&D

The disjuncture between levels of R&D spending and innovation has long been noted. In 2011 Nokia was one of the highest R&D spenders in the world, spending $8 billion, yet for all this investment, there was little success. Automotive manufacturers from Toyota ($9.1 billion in 2014), Volkswagen ($13.5 billion), and Honda ($6.3 billion) each spend massive amounts of money each year on R&D; yet arguably the most innovative company in the automotive industry at the moment is Tesla.

Source: The Wall Street Journal

The challenge in many cases is that R&D expenditure are used to support existing conventional business, and for driving incremental innovation. And at this time of rapid change, and digital disruption, where new, innovative start-ups upend entire business models and industries, this traditional approach to innovation simply no longer works.

Meanwhile, particularly for software companies, while the organization may have highly talented engineers who desire to build new products, continuing to update and maintain the software for the existing customer base is a drag away from their ability to invest in new ideas and products. In a side note, this is one reason, why end of life support has been a growing service line for many specialist product development service providers in recent years, as it enables software companies to refocus resources on new product development.

New “Innovation Enablers” Emerge

While business executives increasingly view traditional R&D approaches with skepticism, there are ever more opportunities to drive rapid innovation, at significantly lower cost. Methods range from hackathons, crowdsourcing, collaborative design and innovation labs, “idea markets,” incubators and accelerators, to data-driven services, open source and open APIs. These methods are attractive to innovation leaders because they:

• Spur rapid prototyping and development. Time to market continues to be a critical measure. Each of these approaches helps companies rapidly develop and prototype new products and services, which can then be iteratively improved.
• Significantly lower cost than centrally funded R&D. These methods are attractive because of their lower cost, particularly in comparison with centrally funded R&D efforts.
• Foster creativity by bringing together disparate perspectives. For example in the case of hackathons, by bringing together people who would normally not work together, and whose actual day-to-day job has little to do with R&D, creativity and new ideas can be rapidly created.
• Take advantage of the increasing availability of data. New data-driven products and services can be quickly and comparatively cheaply created. With APIs, developers can access previously inaccessible data to form the basis of these new offerings.

Now, let’s examine each of these “innovation enablers” in greater detail.

Hackathons Drive Rapid Prototyping At Low Cost

Hackathons are the poster child of the CTO`s new innovation playbook. For those that consider hackathons to be a Silicon Valley gimmick, take a moment to review the very serious hackathon run by the European Organization For Nuclear Research (CERN). CERN will bring together handpicked teams of industry leading experts with the goal to solve major humanitarian and social issues. The hackathon will last three days at their center in Switzerland in late 2015.

Indeed, one of the advantages of hackathons is their simplicity and flexibility -- they can be adapted depending on your specific needs. When organizing a hackathon, make sure your emphasis goes on planning it effectively. There are a wide range of resources available online which address the specifics of planning a hackathon -- articles for example on sites such as TechCrunch and Quora which go into more detail than it's possible in this article. However, some of the best practices which we have seen work well include:

• Shift the emphasis away from writing code. While a key part of many hackathons require participants with technical skills, it is the combination of both technical and non-technical employees that generates the most powerful force for creativity and new ideas. Shutterstock, the image company, for instance has a rule requiring teams in its Hackathons to include people from at least three different departments.
• Use prizes to motivate and lay the basis of the next hackathon. The clever use of prizes in hackathons can spur motivation. For example one company included cash prizes for its winners, but had the condition that they needed to spend the money within 24 hours and then report back on how they spent the money.
• Don`t insist the hackathon is just about you. While you may hope that the hackathon will bring you your next great product idea, limiting the scope of the hackathon or setting restrictive rules will defeat the purpose. Successful companies have used the approach to provide a general theme, or goal of the hackathon, but allow as much freedom for innovation as possible.
• Follow-up afterwards. To avoid missing out on the potential of the new ideas developed during the hackathon, schedule a series of follow-ups involving product teams, R&D, and management to discuss the results. What aspects and improvements can immediately fit into your product roadmap, and which will require greater investment?

APIs Enable Data To Drive New Business Ideas

One of the key drivers behind the “Cambrian explosion” in digital startups is the emergence of open application programming interfaces (APIs).^[1] APIs enable organizations to open up select access to their data to developers, who can use that data to create new products and services.

The emergence of APIs as the spur for new innovation is closely and intricately linked to the increasing availability of data. APIs enable organizations to open up select access to their data to developers. In addition, the open data movement has led to much greater availability of previously inaccessible data, from the Open Government Initiative started by President Obama, to healthcare organizations such as Healthgrades which help individuals select a healthcare professional.

• Developing effective APIs will require investment. Key to attracting developers to create new services based on your data will be to provide them with enterprise-grade APIs --- and that means ensuring the security and scalability, as well as the user experience.
• Consider APIs as the mechanism to build a data-driven community. Opening up corporate data does not just mean creating standalone products. Rather that data can be used to from communities with other organizations working towards the same goal. For example, Deloitte´s ConvergeHealth business unit created a healthcare consortium of different players in the healthcare industry.

Particularly for those interested in the emerging world of data monetization, providing access to select data normally held behind the corporate firewall represents new opportunities to commercialize data assets.

Create Idea Markets With Innovation Management Tools

Companies increasingly recognize the need to harness the creativity and skills of all their employees, not just those at the top of the corporate hierarchy. Dedicated innovation platforms and tools help drive participation in these programs, and can also help improve overall employee engagement within the organization. For example, here at Belatrix Software we invested heavily in developing an innovation platform that relies on the principles of gamification, to encourage people to share ideas. In the first few weeks of launching, over 90% of employees accessed the platform, and nearly 70% actively participated by sharing comments and ideas.

• A variety of innovation management tools exist. While some companies remain tempted to engage with third party business consultants to help them with their innovation efforts, there are a range of tools available in the market which represent good value, and once implemented, may well represent a longer-term approach, than simply hiring a consultant for a few weeks. Vendors range from Jive Ideation, to Brainbank, BrightIdea, and Imaginatik as well as others.
• Make sure the tool supports both ideation, as well as evaluation and selection. A common challenge with an enterprise-wide rollout of an innovation tool is simply being overwhelmed by the sheer number of ideas and suggestions that are submitted. In our case, we helped solve this by providing employees with a virtual budget, which they could use to invest in what they thought were the best ideas. As a result, employees themselves at Belatrix help select the best ideas. These ideas often then form the basis of future hackathons, where we can prototype and assess them in greater detail.

Innovation Labs Provide A Path Around The Corporate Hierarchy

Major non-technology firms have set up innovation or digital labs in Silicon Valley in recent years as an ever-greater proportion of the value of their products and services come from software. For example, more and more automotive companies have opened labs and offices in Silicon Valley. As the connected car becomes a distinct, and unique computing environment, so companies from Hyundai, Ford, BMW, Nissan, Continental to Elektrobit realized they need the sophisticated technological, and particularly software, expertise that they can find in the Valley.

• Resist the temptation to bring the digital lab into the corporate fold. Companies such as Walmart who have found success with their digital labs (Walmart Labs) ensure it has a very different culture, environment, and even priorities to the main corporation.
• Ensure the digital lab looks to partnerships. Partnerships, for example with local universities and technology companies, will further drive and encourage innovation.
• Look to innovation hubs, but not just Silicon Valley. While there are many examples of traditional firms heading to the mecca of technology innovation, Silicon Valley, this should not be the only choice. AT&T Labs for instance have a presence in the Valley, but also in other tech hubs, such as Plano, Texas, and Israel. Look to high-tech clusters from London, Berlin and Bengaluru to Buenos Aires and Mendoza, to find the skills most appropriate for your needs.

Source: Microsoft Ventures

Incubators Help Firms Take A Venture Capital Mindset

Separate from setting up their own digital labs, increasingly firms are investing in start-ups and potential partners. For example, BBC Worldwide Labs is a digital media startup accelerator program at the BBC, which provides small companies with mentors, infrastructure, and partnerships. Meanwhile Microsoft Ventures brought together several of Microsoft`s previous venture capital programs, to one unified approach involving helping early stage entrepreneurs with support, all the way through to investing via a seed funding program. Companies are taking this approach because:

• Helps create a startup mentality and avoid slow moving organizations. All too often the organizational behemoth ends up smothering potential ideas. Keeping startups outside of the “mother ship” provides the freedom new ideas need to grow.
• Ensures the organization remains at the cutting-edge of developments. Particularly in this time of digital upheaval, engaging with startups will help stay on top of the latest technological developments.

Source: BBC Worldwide Labs

Recommendations

There are a myriad of possibilities to use the techniques described in this article to drive innovation, and which represent fundamentally different ways of spending your R&D budget – especially compared to what was available in the past. However despite this, with innovation also comes risks. For example, separating out an "innovation lab" to focus on new ideas may make innovation in the central organization even harder. Would it not be better to incorporate innovation and effective governance processes in the corporation? This is a valid question. However, even if this is achieved, large organizations will still require controls or stage-gates on new ideas. That's why the innovation enablers discussed in this article are attractive, because they represent solutions to the need to move faster and leaner.

If you decide to take this route and look at these innovation enablers, I recommend in particular:

1. Look to concepts such as design thinking to create new products. Creating the next generation of products and services requires an ever greater focus on the customer. Design thinking represents one approach you can use to more holistically see what customers require.
2. Partner with agile development teams. Extend your capabilities to understand and harness collaborative innovation opportunities. Likely you will not have all the capabilities in-house, so where appropriate look to partners for the skills and resources you need.
3. Develop, deploy and scale with low risk of failure. While many of these methods may be new to organizations, the costs involved for these innovation enablers is relatively low, but the potential impact is very high.

To view a recording of my recent CTO’s New Playbook for Creating Innovation, visit this website.

^[1] In 2014 the Economist argued that cheap and ubiquitous tools for digital products and services have caused an explosion in startups. Source.

About the Author

Charles Green is the Director of Thought Leadership at Belatrix Software, a leading provider of agile innovation, product development and R&D services. Charles is currently based in Lima, Perú. Previously he was the global lead analyst for the product development/ R&D services market at Forrester Research. He continues to pay close attention to the business services industry, and blogs frequently both on the Belatrix blogs here. You can contact Charles at cgreen@belatrixsf.com or find him on twitter: @cgreen0