The innovation compass can help you look at possible directions, but you also need to plan in ways that help you move ahead of your competitors. You can do this through a strategic analysis of your market situation, to see if your proposed innovations have the potential to give you an advantage.
Profiling Your Innovation
One way to do this involves profiling the planned innovations against what the market wants and what your best competitors can offer. Building such profiles step by step can provide a focus for shared discussion and bring in different perspectives from across the organization. A strategy is rarely about “right” answers – there’s too much uncertainty about innovation to make that possible. So you need to explore as widely as possible to get a “good” answer. Doing this well means collecting different views of information. More minds on the job improve your overall knowledge and help build support for your decisions.
Winning Market Shares
In any marketplace, some basic requirements – “order qualifiers” – must be met just to stay in the game. If your prices are twice those of your direct competitor, you are unlikely to do much business. But when everyone offers the same price, what will differentiate your product is the something extra you offer – higher quality, more features, and sleeker design. Order qualifiers are your entry into the marketplace, but “order winners” are what determine whether people buy form you or not. You need to have an idea of both: whether your planned innovation is simply catching up (basic order qualifier) or moving ahead (creating an order winner).
Plotting an Innovation Profile
Having identified the order qualifiers and order winners in your target market, use market research to plot them on a simple graph against their importance to consumers. Then develop a scoring system for how well you and your competitors meet these requirements, and add the lines. This will give you a simple outline of where your strengths and opportunities lie in the given market. In the example, you are behind your competitor, so you either close the gap or exit from the market.
Choosing the Right Options
Using these ideas helps you see what your option are, and how they would help your organization. But you still need to decide which of these options to choose and justify that decision. Each option you pursue views opportunity costs in time and money, so it is important to select only the most promising ideas to pursue.
Deciding Where to Innovate
So how do you decide on this? You could just run with the ideas that attract you and act on your hunches. That is a little like a gambler throwing the chips down randomly or backing a horse in a race because they have a “feeling” about it. Or you could use a more systematic approach. You can never make innovation a cast-iron certainty, because there is too much uncertainty involved – will the technology work, is there a market, will the competition introduce something else before us? But you can convert the uncertainty into some form of calculating risk.
Weighing the Pros and Cons
The easiest way to do this is through a cost-benefit analysis – simply comparing how much benefit the idea will bring against how much it will cost in terms of resources. That might give you an overall feel for one project over another. But a more useful approach is some form of “decision matrix” that helps you compare many different alternatives on a number of costs and benefit dimensions. Sometimes, looking at a project in just narrow cash terms may mean you miss out on some of its other potential benefits. Like entering a new market, or learning some new skills, that you could then use in future projects.
Quick Tips: Decide Objectively
Use some form of check on innovation projects before you start on them. Will the reward you expect to be worth the risk and cost of the project?
Formulating a Decision Matrix
The decision matrix allows you to give objective scores to each innovation option. To help you make better decisions about which will be most beneficial for your business. The matrix itself can be drawn as a simple table. List the options that are competing for strategic support (A, B, and C) along the X-axis. Then list the key checks along the Y-axis. The key check can include factors as: Does the idea fit with what you already know (your competence-base)? Does it fit your overall business strategy? And how feasible do you think it would be to implement it?
You can fill these cells in with simple scores or with detailed comments. Add columns to rate the expected cost and benefits associated with the different projects. Then add a total score column that tries to arrive at some priority based on the individual cells. You can continue adding cells, depending on the range of criteria you want to satisfy. Most decision matrices use a “rough cut” version to knock out options with low potential. And then repeat the exercise with more columns to narrow the selection.