When we are designing innovation for the future, the search is even more centered around strategically connected value creation.

The task of searching to resolve more complex problems allows Design Thinking to step up and become a far more visible component on how we can go about this.

Design thinking needs to work in harmony with many other thinking skills to make its contribution. Here I outline some of my “must go to” frames or tools.

The need when you “cast out” and look into the future we need to make a lot of connections, these can be really different, seemingly disparate in ideas and approaches. The whole search for diversity can generate so much fresh thinking if we open our minds to the alternatives.

We need to draw on insights, creativity but most importantly have a growing sense of the context we are thinking through to search for new ideas, concepts, and eventual new innovating solutions.

We often get caught up in data far too early, looking for the real nugget that can transform our thinking. I would guard against this, we always need the “larger” context. Never allow the “narrow prism” to dominate until any concept is getting clearer in its final design.

Context is so important to understand in any problem solving or future thinking

The power of context shifts everything and then gives it ‘shape’. It provides the conditions and the circumstances of time and place and why we need to find and deliver something different. It provides the innovation marching orders.

If we place innovation in a certain set of contexts, then those setting about the task are more sensitive to the needs and understanding, they can relate or can reject this. It can allow them to work more clearly and effectively, not necessarily efficiently as innovation is inherently messy.

Context gives us certain guard rails or borders to help gain a more united focus. Where we go after that, by pushing those borders will depend on those involved by seeing a greater value in an evolving context of mutual understanding. The ‘setting it in context’ allows for dialogue, adding more value to the thinking.

Design Thinking is increasing its role in innovation thinking

Design thinking can play a richer role and be a more powerful contributor to bigger problems but it needs to evolve and be seen in a wider context and not seen as specialized, narrow and limited. It can connect to a wider universe of problems and complexity of design itself, over the centuries has broken out of past confines. Design thinking makes us all design-conscious if we allow it too. It is the human-centered design that can draw out the best of our thinking if we do allow it too.

DT encourages us to abandon the linear thinking and keeps us constantly undergoing that looping circularity as the accepted process and that needs resetting mindsets significantly.  DT to evolve in all our minds, away from those past experiments limited to narrow, linear paths of design thinking understanding is highly liberating, sometimes scary but deeply satisfying when you truly break through a complex problem.

We need to connect multiple thinking, diversity and different experiences that so often diverge initially to then collectively find the path to converge, in a common understanding, to translate the combined creative thinking into real action, achieving valuable outcomes.

Sharing my Four Friends that are good to bring to the party, to align with Design Thinking

I like to refer to four frames or tools that I think should always be available to simply map to when you are in any design thinking phase. These are not in any “magic” order here so assess the value of each and see where and how you would apply these within the thinking you are about to undertake.

I am a great enthusiast for working through the Three Horizon model.

There is a sequence shown here to help aid future thinking. We work through a series of steps discussing what is in the market today, what is changing and then what might take its place in the future. We are structuring discussions based on this visual

You can read about the three horizons by putting “three horizons” in this blog post search box. A useful one to take a quick look at is “The Three Horizons – Providing a Common Language in its Innovation Use” to open up your thinking to this framework and its companionship to design thinking.

 The second view we always need to consider is a “System thinking” one.

I really love this visual for system thinking that outlines the key insights and tools needed to develop and advance a systems mindset for dealing with complex problem solving and transitioning to the Circular Economy. Keep checking if you are connecting your thinking up. Does it go beyond the existing?

“Systems thinking is a context for seeing wholes. It is a framework for seeing interrelationships rather than things, for seeing patterns of change rather than static snapshots.” – Peter Senge

Our quest should be finding answers to why innovation is often failing to deliver on our expectations and needs. So, for me “System thinking for Innovation, as a whole” should be grabbing more of our attention.

Yet we seem not to get our heads around this “whole” part so we set about redesigning the parts. Nothing wrong with that, it has lots of moving, sometimes unique parts, improvements are certainly happening, replacing past approaches but they still remain discreet parts but overall innovation performance, does it improve?

System thinking looks at ALL the interacting parts, their interdependence and how one part fits and reacts with another. We get caught up in the linear progression of one part and not considering enough the reinforcing loops or balancing the loops to foster stability or understand the impact across the wider system.

If we don’t have a well-understood view of the whole system of the innovative design, it does not matter how many separate parts we design or apply, the end result is this either ends up the same (disappointing), poorer, as it replaces something we failed to improve what was existing from the end-users perspective, or managed some increased ‘spike’ that needs constantly improving upon to get finally right.

Then I find the Divergent / Convergent approach in thinking as highly valuable

You need both to explore and exploit the multiple possible solutions. Divergent thinking is the ability and opportunity to offer different, unique or variant ideas adherent to one theme, while convergent thinking is the (eventual) ability to find the ‘correct’ solution to the given problem. You encourage and ideate many solutions, both possible and impossible, and then use convergent thinking to move towards a realizable resolution or solution.

I use this ‘divergent and convergent’ structure for many of my workshops, it allows for broader engagement and involvement and that eventual drawing together from this process. Once or twice you have to be nimble on your feet to move from one to the other but the discipline comes from timing these as shared spaces but giving each a clear discipline of dedicated time as you do need a very different mindset to think openly then begin to narrow the options down.

Creativity makes use of divergent thinking, which is solving problems with many possible solutions, as opposed to convergent thinking, which is solving problems

The process of figuring out a concrete solution to any problem is called Convergent Thinking. Divergent thinking is the process of thinking that explores multiple possible solutions in order to generate creative ideas. It’s a straight forward process that focuses on figuring out the most effective answer to a problem.

“Divergent thinking” is the process of coming up with new ideas and possibilities. We are more in a creative and intuitive mindset. We explore lots of possibilities and stay more at this point on the conceptual abstractions. We work this through then we go more into  “Convergent thinking”, this is associated with analysis, judgment, and decision-making. We become more analytical, rational, sequential and objective. We begin to explore constraint driven issues. It is the process of taking a lot of ideas and sorting them, evaluating them, analyzing the pros and cons, and making decisions, and exploring options that reveal, over time and discussion emerging value

My fourth frame is Cynefin, a sense-making device

When we are thinking through problems or looking into the future we do need to understand the challenges we are facing. The Cynefin sense-making framework allows you to relate to different domains. The domain where your current problem might lie and then gives you a number of triggers on how you can respond to arrive at a solution or a change.

The Cynefin framework provides a wonderful way to sort the range of issues faced by leaders and us all, into five contexts, defined by the nature of the relationships between cause and effect. Dave Snowden has been explaining these consistently for years. Four of these five are; obvious (formerly simple), complicated, complex and chaotic states and requires us to diagnose situations and then to act in contextually appropriate ways. The fifth one is a disorder, often overlooked or not fully appreciated. It is when something is unclear, it is in a disorderly, highly transitory state and needs to be rapidly stabilized into one of the other four to give it a more orderly state going forward.

Exploring a process of emergent discovery for innovation with the Cynefin framework

The real challenges come from the really ‘new’ in innovation as it becomes greater in new designs, changing functionality, different technology or significant improvements on the existing that involved greater research and development the more you travel around the Cynefin framework.

You often diverge/converge constantly as you work through the potential answers. The mindset here is different and it is more one that is based on the detection. Innovation is far more demanding, pushing frontiers, exploring discoveries, dealing in a series of exchanges and recognizing emerging patterns to piece together as real ‘new to the world’ innovation activities.

We need to recognize different types of innovation need to be managed differently

You need to build flexible systems that adapt, are dynamic and responsive and need that bandwidth for innovation exploration. It is a series of challenges evolving to be exploited, not reduced or eliminated.

It is deciding what complexity your innovation might have within the innovative design and then set about building the right capabilities and framing these appropriately, where they matter.

Taking a Design thinking approach to innovation is great. What I am suggesting we do need to consider the System, we need to place any problems or challenges into the ‘greater’ context. To help we need to reflect upon the different horizons aspects (3H), and we also need to wrestle with what problems we are tackling through the Cynefin sensemaking framework and finally, allow ample time to Diverge and then Converge all the diversity of these multiple perspectives.

To have a good understanding of these different thinking-through frames allows you to explore and exploit far better. Design thinking is well suited to addressing problems, but it is the context and what you are setting out to address, that these other frameworks have great value to explore or understand, equally as well.

The post All things considered for Innovation Thinking first appeared on Building Your Innovation & Ecosystem Intelligence.

We are seeing a very distinctive advantage in embracing digitalization into innovation. The potential of combining digitalization and innovation insights offers significantly more potential for sustaining growth and building a greater connection into the needs of our customers.

Much of our innovation work today is caught up in out-of-date information, poor and inadequate data, restricted research and limited market understanding. Our innovation insights are badly lagging, with the effect being the solutions offered are not ‘tuned’ into the present and anticipated needs, as they often lack dynamic data. We need to digitize our innovation activities fully.

We need to ditch much of our existing innovation processes and practices, reliant on manual systems and so often trapped in silos of knowledge. Digitalizing innovation processes can potentially liberate us from ‘second-guessing’ customer needs and connect us into real-time understanding. This being ‘digitally connected’ can provide the catalyst to a greater level of innovative solutions that are far more aligned to customer and market needs.

Why does the combination of digitalization and innovation have such a transforming effect?

The need for speed has become paramount in responding to market changes.

We need to increasingly find time to shorten our time to market yet there is this increasing complexity in our products we are designing. They are more connected, embodied and closer to what the customer expects. We have running shoes that can track our fitness, we can monitor our health through connected technology and we can build up personal conversations with our customers. These all rely on connected technology.

All this new complexity challenges the speed to the market concept. To overcome this we are reaching out and working more on platforms of collaborators and building up ecosystems of like-minded solution providers to jointly come to market with products that have technology designed into them

The increasing need to build-in flexibility

The pressures are to gain increased flexibility by personalizing products to fit individuals needs and that requires some radical redesigns of the supply chain and manufacturing process. The final personalization has been pushed further down the production line, closer to the final product. This has required major redesigns in the design of the manufacturing process to enable it to become more flexible. We are automating the plants far more so the “change over” is at a push of a switch and the pre-programmed software directs the robot to alter their routine.

We also have far more “responsive supply chains that are fully visible and adaptive to demand and directing the finished product to the appropriate distribution channels. By automating demand throughout the process we can reconfigure and reorganize manufacturing closer to demand, this shortening down the response time between a customer ordering and receiving the good. These fully integrated manufacturing and supply chains are increasingly reliant on a dedicated ecosystem of partners, all working towards shortening response time and delivering to customer needs, as quickly as possible.

Focusing on improving quality

Automation has become essential to lifting up and maintaining the consistency of quality, combined with being more responsive. The potential in fixed, programmable and flexible automation, provides options simply impossible, in past manufacturing. Automation is improving quality in so many ways that are helping to eliminate human error, allow for greater consistency and accuracy. This automating the process is giving us the flexibility and new capabilities to create more complex goods. We can identify far more errors quicker, thereby pushing production into a high-quality cycle that is delivering quality consistently in the finished product.

Also, the introduction of robots has significantly lifted the level of quality. The level of mistakes drops, the automation of the process allows for a highly repetitive process and digitalization and advanced technological solutions are delivering the consistency of quality, right away and every time. This ‘allows’ the innovation to be valued, as industrial automation yields increased safety, reliability, and profitability. Digitalizing the process allows for Smart Manufacturing that is giving us the ability to solve existing and future problems, via an open connected infrastructure that is highly visible and responsive. Having the environment where digital connects up everything and everybody, this has the potential that allows solutions to be implemented at the speed of business, visualized, assessed and modeled, to allow for increasing responsive rates of change, creating an advantage in new value opportunities.

We are seeing increasing efficiency  

The ability to think more about the environment and design the product as more sustainable has risen in everybody’s thinking as a real market need to focus upon. The concept of product lifecycle has added more meaning and value as the product need needs extending and having more opportunities to extend life through upgrades, revisions, add-ons, etc. We have a much higher level of awareness of the progress through a sequence of stages from introduction to growth, maturity, and decline and by combining the use of digital and innovation enables that far more. Products that can be upgraded through software upgrades add greater “service” value.

Technology can extend products or services by upgrading the software, by changing the composition of the product. Within this digitalization is enabling more monitoring of efficiency in the use of material, in product and as this has a huge *thumbs-up” with many of the customers the ability to reduce the environmental impact, is yielding real competitive advantages. As manufacturers manage the lifecycle it opens up more options for innovation. As we learn to proactively manage products throughout their lifetime, applying the appropriate innovative solutions, depending on what stage products are at in the cycle we can leverage more options within our innovation activities.

Digitalization is allowing for new business models

The ability to generate, collect and analyze appropriate data the more trends can be spotted, engagements with customers made, and investigations and evaluations analysed, to clarify their usage, needs, and feedbacks. As we record and exploit data, we can open up that data and reconfigure it into different “what ‘if’s” or come across new nuggets of opportunity, that can give rise to potential new business opportunities. To often deliver to these new concepts you need to redesign supply chains, change product specification that makes them different from existing business models in channels of delivery, value offerings or pricing options. Digitalization has combined with innovation to make product and services more dynamic.

The more you develop new, data-based business models the more you can explore alternatives in product design, and delivery.  Imagine how Airbnb crunches data and learns trends, demand and destination needs. This valuable information can be sold to the travel agents to tailor packages that meet this demand.

Increased protection and security

There is a growing fear that as we increasingly rely on digitalization, we are opening ourselves up for some level of cyber-attack. Realistically that will happen from all indications but we need to prepare for this. Not digitalizing is holding back progress. We have to be ready for this often-daily occurrence in our institutions, on our banks and security, at all key locations where people and machines can be vulnerable.

Business organizations must continue to protect their strategic assets, defend their intellectual property today and in the future. Although this has a huge cost in compliance with the cost of downtime, or attacks that make a business vulnerable has a much higher cost. Digitalization has downsides but it also has higher ones in this increased protection and security in a world where we all are feeling increasingly vulnerable.  We look to being protected, not just in the technology reliance within our lives but for our physical well-being. The ones that provide this assurance or confirm they are taking necessary precautions to gain far more from customers feeling re-assured. As we increasingly rely on our data, it becomes central to our innovation insights and essential to customers feeling confident in their protection and security, in their investments in product and services. You build a circle of trust.

Each of these changes from digitalizing has a positive impact on our innovation activities

We have distinctive ways to treat data and digitalization that leads to distinct new value points for innovation and the IBM Institute for Business Value identified five distinct opportunities where digital innovation provides additional value:

1. We gain new insights that augment products and change our thinking by the generation of real-time or constant flows of market and customer-driven data
2. We improve our assets by digitalizing them. We can connect up machines, whole plants and complete organizations can be designed around the flows of data. This has an enormous impact on the potential to collaborate, to liaise, learn and build from this data, a new fresh knowledge insight. This can trigger ideas and new concepts to be evaluated as well as gain from having full oversight over the assets generating data or that coming into the company.
3. The ability today is to combine data within and across different industries. Within our move towards platforms and ecosystems the exchange of data allows for a “greater whole” to view it, add insights and knowledge and from this combined effect those within the ecosystem can gain a commercial and competitive advantage to build appropriate products, services, and business models in response
4. Each party is building up its own data. We are in times where trading data has become a highly valuable new source of revenue. Knowing weather patterns helps farmers, utility and those dependent on delivery to know and plan far better. We can trade audience data, interest in articles or newsworthy stories so others can associate with these to build more of a profile of who is engaged so they can offer products and services more tailored to their possible needs. The business of trading data is the new oil in the economy
5. Lastly, we can begin to organize data into more distinctive patterns, service capability options and build more sustainable systems where you build increasingly an accepted language that becomes codified in some way that gives new value. We can systemize thinking through data that allows for uniformity and allows multiple systems to exchange and see patterns. This is where algorithms have increased value. They can predict change.

Each of these new ways to use the evolution of digitalization to add completely different levels of innovation potential. Seeing this value is one thing, achieving the connecting aspects it requires is another.

Innovation and digitalization are as powerful as innovation and knowledge in their combination. They both combine to give new insights, new options to generate significant new and greater value. The sooner we can bring in digital solutions and processes into the innovation process, the better to realize some of the real potentials that this combination can give us, as fresh opportunities to add new value

The post Valuing digitization alongside innovation first appeared on Building Your Innovation & Ecosystem Intelligence.

I am reading a lot about the concept of value creation recently, it answers everything but tells us so often nothing about how it is made up or it is truly present. It seems to have that same ‘heady vaulted position’ as innovation in that we all talk far more about the ‘promise’ of it, we want it but still are not prepared to put the real effort into it to make it happen.

So let me try and explain my thoughts on value creation. So what is behind value creation? What drives it? What will tell us this is an organization where value creation seems to well invest in, nurtured, built and protected?

So what is value creation?

Value creation is highly dynamic, it is going on all the time and can increase, decrease or transform, in different ways, when you exploit your different capitals that will be in constant change and adjusting to reflect your organization’s business activities and eventual outputs. This is when you can begin to see the value created by the use of deploying all the capitals to build new growth and what I call “stock” that along with “flow”. I loved this explaination of the two.

Value is not just from within, it is the links our organizations are constantly making with others, in the interactions, relationships and the combining of the activities. The important need is to manage the stocks and flows of the capitals

The role of all the capitals is crucial to understand, they create or destroy value. It is the constant flow between all the capitals deployed that makes up the value creation process.

Our management within our organizations needs to know where this real value creation resides.

Understanding all the makeup of capitals needs to be approached in practical ways.

The place to focus is on recognizing the material components of what is making up the specific value creation aspects that will provide benefits that have been captured, understood, maintained and then enhanced for the additional value creation

Clearly, the ultimate objective is to enhance the organization’s abilities in the longer-term to appreciate the growth strategy. The more we know as outsiders of the value creation process the more likely this will attract greater investment. Often this is determined by the final product, service or business model outcome.

Today we lack the measures to judge longer-term adequately, that this is enough in organizations. We are judging them on their innovation activity going through the immediate pipeline and that judgment often lacks the real makeup of the application of the different capitals, invested in the knowledge that can provide the sustaining growth- today we are far too geared on immediate expectations and those are locked up in the short-term.

It is becoming critical to understand our sources of knowledge, it gives us the unique capital that differentiates one Enterprise from another. The intangibles today are up to 80% of the value assigned to the (market value) worth. Managing these intangibles is critical to our future. Yet, we still have a very poor grasp of how to capture these and drive this knowledge capital. That needs to change.

It is the Knowledge and Innovation combined that make the firm competitive. There is this positive correlation between these two. One amplifies the other, one deepens the other in the connected understanding. The basis for this comes from both human and artificial intelligence. As we learn to capture from both we build our capital base and strengthen our future potential. We make ourselves more sustainable as well as increasingly adaptive.

The greater the stock of knowledge understanding will increase the potential flows of innovation and this “powers” the future value creation.

Greater engagement or not?

We can leave this knowledge building to the management, just sit back as investors or consumers and simply expect increased dividends and new products. We actually need to dig a little deeper and push management to inform us we will not enjoy many of those nasty surprises when the results fail to materialize. The argument is that the investors, the stakeholders within a business, need to understand the business logic far more, to make a more informed decision to continue to invest or partner with a particular organization. That logic comes partly from the abilities to create value

Knowing the successful generation of all the intangible values and their transformation into tangible forms and how this is systematically being harnessed tends to confirm the realization of the business goals or what the possible risks are.

Organizations are certainly fairly reluctant to discuss these except behind closed doors to selected investment parties in their investor’s briefings. Making these more visible leads to greater accountability and to be ‘accountable’ you need to understand the makeup of your capitals.

The present incentive for business organizations to become more vocal in explaining their business models, their process for value creation and offering more insight on all their capitals is their need to grow and that comes from investors wanting to invest and customers wanted to buy something that has a sustaining future!

 Exposing the softer side of value creation is the key.

The need is to understand value creation is often coming from the ‘softer’ side, those often intangibles that remain hidden for the real value enhancing aspects of a business but are constantly at work, generating knowledge, understanding and new thinking. These need drawing out more.

The real capital that contributes to value creation is coming from knowing answers to these questions offered below.

Many of these can be reported upon and that would enhance the understanding and attract investment. By thoughtfully measuring and reporting upon these builds that external confidence that the business is focusing on the sustaining values relevant to its goals and growth objectives.

Just work through this list of aspects of value creation that we should be gaining insight into:

* The ways an organization is setting about combining and utilizing networks and relationships

* How are they actively advancing their creative and innovation capabilities and competencies? Are there specific frameworks and approaches.

* The ways they are actually seeking out in explicit ways that deepening of customer understanding

* The purposeful ways that reputation is being protected, quality is being enhanced

* How are the brands protected, enhanced and improved to add increasing value

* How they are capturing new knowledge internally and the ways this flows and gets translated into new value through specific value enhancing stores

* How the focusing on social issues and values is contributing to society and equally underpinning their value into both local and global communities

* What are the plans and intent to link social, environment and harness the intellectual capitals, to enhance and strengthen society and the organization’s linkage, and the outcomes being achieved?

* Where they are recognizing, strengthening and exploiting the value chain linkages

* Providing a greater depth of explaining and extending the organizations skills and capacities to learn and absorb, through advancing specific capabilities, and deepening capacities.

* How they continue to build loyalty and trust and what aspects need repairing or renewing due to difficult decisions or changing circumstances, showing a clear pathway of achieving this responsiveness and flexibility.

* How and where does innovation fit, for achieving the growth perspectives and discussing any shortfalls, through prescribed or alternative actions? Are you building a common sense of innovation purpose?

* Are there explicit innovation competencies, processes, and governance actively being managed, that provide support to the activities being undertaken and being consistently risk assessed?

* What is the risk appetite for innovations? How is this managed? How is this explained and celebrated?

* Lastly, what they are exploring in the different forms of evaluation, experimentation and ongoing assessment to ‘measure’ the real underlying asset wealth of the organization.

This is their learning journey and its growing value to all associated with this to achieve that better visibility into our organizations, Better outcomes and a greater relationship between investors and the organization needs to be achieved. I think it is possible but it is a journey many are reluctant to travel. Value often gets locked up, caught in the internal world of the one organization and so often never becomes value creation.

We need to talk about what makes up “value creation”.

Value Creation is really important to know about. Where is it coming from, what is being put into place to nurture, develop and allow its creation to evolve and spread, so it has the ability to attract more understanding for value and creation? The more we open up our thinking and ideas the more we can build from this. That openness offers so much more value creation possibility yet we don’t talk about it, we simply generalize it like a “buzz word”

There is a growing need to know where the value creation is coming from and what the management of our organizations is doing to protect and enhance it. Knowing the makeup of the material capitals that form into a value creation is so important to this. We should talk of value creation in specific and detailed ways. That gives those listening confidence it is being taken seriously and not just given lip service.

The post Recognizing it is all about Value Creation first appeared on Building Your Innovation & Ecosystem Intelligence.

Leaders want to hear this, the sad truth is getting a ‘decent ROI’ for innovation constructed (note constructed) is really hard. If the innovation is new to the world, how can it have a clear financial return on investment until much later, much becomes an ‘educated’ guess?

We need to appreciate new innovation balance sheet thinking

Why a balance sheet thinking? There are hard and soft measures to measuring or judging our innovation. It goes way outside financial numbers. Would we have seen the emergence of Facebook, Apple Watches, Uber etc etc if those that were determining success from their investments had actually insisted on guaranteeing the ROI before launch or within short time frames, that many of our established organizations insist upon? No it was the belief and ‘seeing’ the potential that encouraged those investing to make the initial investment and then continue on ‘future’ returns.

There was a growing recognition that a ‘flexible’ and broader set of metrics was needed, to permit time and critical mass to continued to accelerate away, so the eventual returns on the emerging business model would have the time to evolve and provide the valuation potential expected. It was the measuring of value- potential and realized – that along with the beliefs and response provided by the owners that gave ‘investor confidence’

My first thought: do we know enough about the thinking for VC’s on how they judge investment?

Venture Capital is a driving force behind entrepreneurship and innovation. It fuels the economy, creates growth opportunities for companies large and small and, it funds the business development strategies of major corporations. What can we learn to apply in established organizations for judging innovation differently so “risk” becomes higher in factoring in so as not to reject ideas far to early in their life but to encourage them.

Thankfully the venture capital community has a different set of measures to judge the longevity and potential. Clearly financial returns always loom within the thinking, possibly even more so, as those investing funds are highly focused and demanding returns. Yet it is more considered by the VC on where to invest venture capital to gain real ‘return’ becomes a portfolio of investments.

There is this continued recognition that many investments made are lost in a portfolio of risky investments. The thinking is based upon how we assess ‘our’ investment, in how many ventures as ‘we’ recognize many will be losses before we hit the jackpot and recoup all the investment over the one winner to cover all the numerous losers and make significant returns on top.

Why do we not measure the health of our innovation investment far more?

In many ways our established organizations can move far more into a portfolio of investments as they should have the confidence in their knowledge, competencies and people to make ‘greater’ investment. The problem is they most probably don’t have this confidence and part of this reason does lie in a narrow range of measurements they are taking of the ‘return’ on their investments and not looking much harder at the ‘heath’ of the organization to give this confidence.

Why do established businesses ignore the investment rationale for delivering real innovation winners that can change the fortune of their business? They often leave this ‘venturing’ to others to search and achieve transformational solutions, ones that can even radically alter existing business value propositions and then we hear them ‘crying’ over being disrupted or ‘we’ did not innovative enough? Something needs to change.

But while Venture Capital is an integral part of the global economy , the unique inner workings of venture capital firms and their processes are sometimes suggested are a well-guarded secret, so we need to tease these out and find ways to adopt many of them in our established organizations thinking as well. There is perhaps no ‘secret sauce’ just investor confidence and the imperatives to make returns or be themselves out of business.

I know some of our established organizations are attempting to do this ‘venturing’ yet we do need to ‘pool this thinking’ to open up the measurement for innovation investment in the future to be part of each organizations mind-set for measuring success.

Here are my contributing thoughts to take the health of innovation as more central in our measures.These are not VC related but underscore believe, commitment and the drive towards structured learning, in a more balanced way.

Measuring more of the ‘health’ of innovation within established organizations

Shown below are a list of the factors I feel can be major contributors (far from exhaustive), firstly into the soft side of our balance sheet that is made up of culture, climate and environment as our creative and engagement capacity. This side of the innovation balance sheet gives the commitment and sense of belief that can encourage investment, as the people side equates to the measurement of the team within a new venture. It determines much of the belief this is worth investing in.

Some of these initial suggestions of course are inter-changeable or become reliant on each other, but it gives a decent understanding of what makes up the balance sheet needs we all must have in place to have a thriving innovation organization. It needs to address the creative, engagement and relationship part that innovation always needs.

Informal mechanisms (the contributors to the left side of our innovation balance sheet)

Those that are leading to improving the softer aspects of innovation (our left side of the innovation balance sheet) that would contribute to its build and health.

• Uncovering good and emerging practices in innovation
• The value of good leadership & distinct culture creating the linkages
• Targets and partner identification for relating and collaborating
• Skill of working together effectively – team building, encouraging diversity
• Integrating external parties to leverage through networks and relationships.
• Framing ambitions and plans of strategic targets and relating those to individuals
• Engaging the outer peripheries to capture insights and needs to drive engagement
• Exchanging expertise and seeking synergy in exchanges
• Story telling/ narratives, those relating and explaining, sharing and extending
• More bottom up engagement in formulation – sharing and informing
• Seeking individual insights, encouraging an open learning environment
• Developing the agility to quickly react to changes, effective and decisive intent
• Work on speed, external orientation and improvisation,flexible and adaptive
• To promote “doing more with the same”, less rework.
• The CEO acts as the central source of encouragement and determination
• Encourage informally at all levels in exchange

The formal mechanisms (the contributors to the right side of the innovation balance sheet)

Those that contribute to the make-up of the harder aspects of innovation or our right side of the innovation balance sheet that build this part, beyond ‘just’ financial.

• Ingraining innovation as a corporate function
• Determining how you lead and manage this, how you develop this out in its parts
• Identify the constraints , articulating the resolutions, recognizing the boundaries
• Optimizing the process and structures, constantly reviewing to improve
• Determining the allocation of funds to offer the balance needed to achieve the goals
• Innovation portfolio management designed
• Type of openness to innovation flows to encourage and drive outcomes
• Embedding technology and capacity for rapid experimentation, and discovery
• Rapid ideas, discard failing ones & triple investment on good ideas
• Distance from Customer – determining the importance and setting about the connecting
• Ingrain as a corporate functionality the need to always be conscious of greater alignment
• Determining how you lead and manage through governance and design.
• Identify the constraints and boundaries, pushing and probing
• Optimizing the process and structures on an ongoing basis
• Determining the allocation of funds into the different framing activities
• Innovation portfolio management, striving for value, impact and return
• Type of openness to innovation flows and external engagements needed
• Embedding technology and capacity for rapid results and early wins
• Rapid ideas, discard failing ones & triple investment on good ideas, experiment and explore
• Involvement from both Customer and other stakeholders within your innovation process

Irrespective, for me, the health measuring equation you decide to follow has to be robust

It clearly has to account for a more holistic view of innovation – a more balance view of what ‘makes up innovation’. We need to constantly focus on the outcomes, less on the inputs or outputs, as although these are valuable to measure the effort being put in, it is my believe we should be mostly focusing on measuring the outcomes, those that are successful in learning and advancement, ones that lead to real new innovation outcomes. Those outcomes that give return, both immediate and for the future.

This can offer a different risk and opportunity assessment that can be underpinned by this ‘health’ innovation that builds what is ‘sound’ and ‘solid’ to invest onto as the metrics build more on the dynamic innovation capabilities.

This measuring of the ‘health’ of our innovation across a balanced view will give a growing confidence by the board to invest, by providing more leading indicators and engagement justifications will potentially encourage investment into a more riskier level of initiatives. Confidence grows with learning, discovery and engagement.

Pushing  for more ‘measured’ risk it certainly makes a ‘innovation portfolio’ more demanding to manage but potentially far more rewarding in its total returns in learning, in advancement, in capability and capacity building and in growth potential. Having measurements that ‘push’ learning and discovery can reveal more distinctive and radical innovation potential through greater engagement. The outcome is relating more by looking  out into the world. providing solutions that customers relate too and are more prepared to provide the stronger financial returns we want from innovation, as they see the different increasing value that is being offered.

Yes, our measurements do make a difference, it is time we took a fresh look at providing new ways to measure the health and potential to encourage greater innovation investment we need.

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Deloitte has set up different thinking tanks. An exceptional one is Deloitte University Press who publishes some really good original articles, reports, and periodicals that provide insights for businesses, the public sector, and NGOs. They break down their topics into these:

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It seems to have the same ‘heady vaulted position’ as innovation in that we all talk far more about the ‘promise’ of it. So what is behind value creation?

What drives it? What will allow us to stand out as the place to invest in?

So what is value creation?

Value creation is highly dynamic, it is going on all the time and can increase, decrease or transform in different ways when you exploit your different capitals that will change and reflect your organization’s business activities and eventual outputs.

This is when you can begin to see the value created by the use of deploying all the capitals.

Value is not just from within, it is the links our organizations are constantly making with others, in the interactions, relationships and the combining of the activities. The important need is to manage the stocks and flows of the capitals

The role of all the capitals is crucial to understand, they create or destroy value. It is the constant flow between all the capitals deployed that makes up the value creation process.

Our management within our organizations needs to know where this real value creation resides.

Understanding all the make up of capitals needs to be approached in practical ways.

The place to focus is on recognizing the material components of what is making up the specific value creation aspects that will provide benefits that have been captured, understood, maintained and then enhanced for the additional value creation

Clearly the ultimate objective is to enhance the organizations abilities in the longer-term to appreciate the growth strategy. The more we know as outsiders of the value creation process the more likely this will attract a greater investment. Often this is determined by the final product, service or business model outcome.

Today we lack the measures to judge longer-term adequately enough and organizations are judged on their innovation activity going through the pipeline and that judgement often lacks the real make up of the application of the different capitals.

Greater engagement or not?

We can leave this to the management, just sit back and simply expect increased dividends but will not enjoy many of those nasty surprises when the results fail to materialise.

The argument is that the investors, the stakeholders within a business, need to understand the business logic far more, to make a more informed decision to continue to invest or partner with a particular organization.

Knowing the successful generation of all the intangible values and their transformation into tangible forms and how this is systematically being harnessed tends to confirm the realization of the business goals or what the possible risks are.

Organizations are certainly fairly reluctant to discuss these except behind closed doors to selected investment parties in their investors briefings.

Making these more visible, leads to greater accountability and to be ‘accountable’ you need to understand the make up of your capitals.

The present incentive for business organizations to become more vocal in explaining their business models, their process for value creation and offering more insight on all their capitals is their need to grow and that comes from investors wanting to invest!

 Exposing the softer side of value creation is the key.

The need is to understand value creation is coming from the ‘softer’ side, the often intangibles that remain hidden for the real value enhancing aspects of a business.

These need drawing out more.
The real capital that contributes to value creation is coming from knowing answers to these questions offered below.

Many of these can be reported upon and that would enhance the understanding and attract investment.

Thoughtfully measuring and reporting upon these builds that external confidence that the business is focusing on the sustaining values relevant to its goals and growth objectives.

These can include but are not limited to:

• The ways an organization is setting about combining and utilizing networks and relationships
• How are they actively advancing their creative and innovation capabilities and competences? Are there specific frameworks and approaches.
• The ways they are actually seeking out in explicit ways that deepening of customer understanding

• The purposefully ways that reputation is being protected, quality in being enhanced
• How are the brands protected, enhanced and improved to add increasing value
• How they are capturing new knowledge internally and the ways this flows and gets translated into new value through specific value enhancing stores.

• How the focusing on social issues and values is contributing into society and equally underpinning their value into both local and global communities
• What are the plans and intent to link social, environment and harness the intellectual capitals, to enhance and strengthen society and the organizations linkage, and the outcomes being achieved.
• Where they are recognizing, strengthening and exploiting the value chain linkages

• Providing a greater depth of explaining and extending the organizations skills and capacities to learn and absorb, through advancing specific capabilities, and deepening capacities.
• How it continues to build loyalty and trust and what aspects need repairing or renewing due to difficult decisions or changing circumstances, showing a clear pathway of achieving this responsiveness and flexibility.

• How and where does innovation fit, for achieving the growth perspectives and discussing any shortfalls, through prescribed or alternative actions. Are you building a common sense of innovation purpose?
• Are there explicit innovation competencies, processes and governance actively being managed, that provide support to the activities being undertaken and being consistently risk assessed. What is the risk appetite for innovations? How is this managed?

• Lastly what they are exploring in the different forms of evaluation, experimentation and ongoing assessment to ‘measure’ the real underlying asset wealth of the organization.

This is their learning journey and its growing value to all associated with this to achieve that better visibility into our organizations.

Better outcomes and a greater relationship between investors and the organization needs to be achieved. I think it is possible but it is a journey many are reluctant to travel.

The emergence of the business narrative to help us.

Telling the organization story is becoming important. Our organizations need to shift their orientation and begin to provide a better, more compelling story of their business.

Perhaps the following attributes might be the place to start building a better business narrative for others to understand what is driving value creation.

This can be reflected upon in some of these suggested ways as a guide to begin in telling the unique story that makes up your organization, against another:

• More offering a predictive value that ‘projects’ the future
• Explaining how something is being achieved and will be further strengthened.
• The critical importance of explaining the context that made or makes up decisions
• Placing the emphasis on direction and not precision
• The explicit linking of strategy and execution
• The use of existing systems and processes and their life-cycle
• Offering a view on emerging and perhaps more complex systems and processes with their future fit, and what this might have in organization implications.
• The shaping of the organization’s behaviour, what is influencing and shaping it
• Enough detail to be comprehensive, comprehensible but still delivered with simplicity.

There is a growing public demand to know where the value creation is coming from and what the management of our organizations is doing to protect and enhance it. Knowing the makeup of the material capitals is so important to this.

It is the input of the capital and the processes in place that will provide outputs and eventual outcomes and that broader knowledge about the ‘inner workings’ gives us the deeper belief that value creation has a greater chance of being sustained, allowing us to better judge continuance to invest or to exit.

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Yet do shareholders really have the knowledge to judge the real source of value creation inside our organizations? I think not but they should. Does Management actually themselves, equally I often think not?

We lack a real line of sight into the true value of our organizations.

There is a pressing need to connect the real sources of value creation and these come from all our capitals and bring this clearly into the ‘line of sight’ of the management itself within our business organizations,  as well as the shareholders.

There is this chronic lack of real understanding of where the true value does come from or if it is known, given the public recognition, it deserves beyond the usual “oh, it’s in the business model” or similar assumption- what is?

Where does real value lie?

Let’s begin with the makeup of capitals. Often when you begin to talk of capital, automatically the financials come to mind. The financial decisions and results are an outcome of our ability to leverage all the other capitals making up our organizations. Most of these are intangibles and you often get that glazed look and the standard reply “intangibles are difficult to measure”.

Yet they really do need to be effectively measured and understood. They need to be really understood to know where the value creation potential does actually lie.

Knowing the values of these can determine the gaps that need plugging and the potential that can be leveraged in what you have available to you.

Understanding ALL the capitals within our organizations is essential

Thankfully understanding our capitals, beyond the financials, has been a work-in-progress for many years, we know more about it yet it still remains grossly understated within any of the reporting mechanisms organizations make.

The need to make our intangibles that remain invisible on our present balance sheets has to be addressed. These are the ones that makeup:

1) the internal structures, processes, routines, databases that contribute to the structural capital,

2) the external structures where external relationships, networks and customer capital contribute to the make-up of relationship capitals, and

3) the competencies that include individual experiences, knowledge, competencies, skills, capacity to learn, and the absorption and translation of an idea that all build and contribute to the human capital aspects of our organizations.

Turning the intangible light switch on is becoming essential
Management is still groping in the dark on measuring its intangibles, yet there is this pressing need to find the light switch and through the spotlights on the understanding of all the intangibles that make up our organizations, be these ones regarded as the classics of human, relationship and structured capital.

Often intangibles are fused with intellectual capital in discussions and that makes it often even harder to gain the serious attention of management.

Thankfully this is changing as the realization is growing that organizations must understand where their sources of value creation are actually lying, otherwise they are back in the dark, stumbling around and not sure what they are doing on the true underlying impact of their sustaining performance. It is about time they are ‘called out’ on this.

Making the business impact more explicit is required.
We can go deeper within our organizations to analyse. We can seek out  the non-financial drivers that analysts should focus upon as being measured and reported upon?

Today we are placing high premiums on the intangibles but investors lack the understanding of the value gap and what makes this up. There is a real understanding gap. We need the business to adapt far more too today’s dynamics and explain the ways they are ‘setting about’ this.

We need to gain a greater insight into many things

Those aspects that make up explicit understanding of strategic execution and organization alignment, the underlying make-up of the governance and management credibility, the quality and consistent ongoing evaluation of the strategy and the operational agility to support any changes.

Also there is a real need to understand the real innovativeness occurring within or around the organization, what is flowing in and out of the organization. Also understanding what mechanisms and structures are specifically in place to attract and retain talented people beyond existing monetary incentives or stock options.

Then what is the possible impact of significant key executive losses ‘just’ underneath the more visible board member that might have a material impact on the business.

Each has a significant impact on future earning and it is the executive that can demonstrate and show their ability to manage ‘forward’ will have the higher value premium placed on their organizations ability to attract greater investment sentiment.

Then we need to explore other dynamic factors that have a substantial impact on potential

How often do you hear thoughtful and coherent explanations of market positions, besides the market ranking, the depth in management experience?

Or the understanding of the quality and ongoing upgrading of major processes that are not generic statements but factual and measurement driven and lastly the progress made in research leadership beyond the top-level picture of “areas of focus” so you can truly assess the innovation pipeline and its potential impact beyond the immediate.

We are rapidly moving from physical to knowledge based, often very intellectual based enterprises and knowing where the real value lies is becoming absolutely essential to understand. This will require a significant shift in existing managerial mindsets.

We need to start asking real questions relating to organizational assets?

What and where are the resources that are expected to generate future sustaining benefits and growth- should they not be more viable within the organizations?

We need to start asking more specific questions:
• Are you measuring the intangible content of your organization and focusing on this strategically?
• What confidence do you have in sustaining the future growth, what are the risks and what would options are you considering for growing in alternative values?
• How do you exploit the tangible assets and relate these with the higher asset values you extract from your intangibles- how are you aligning these efficiently and more effectively?
• If you agree that intangible assets are the or one of the major sources of value, creation and sustainability what explicit plans have you in place for developing and protecting these? What are these plans?
• How do you actually combine all your assets to create existing value, productivity and innovation and where will these be changing in the future to achieve ongoing and sustaining growth?

What are your concerns on this asset combination that needs addressing going forward?

We should seek better visibility into our organizations
Better outcomes and a greater relationship between investors and the organization needs to be achieved.

I think it is possible but it is a journey many today are reluctant to travel.

It is not beyond the capabilities and ingenuity of the organizations themselves, so they can begin to map this new path. A pathway towards generating a better understanding of the non-financial assets that are making up their ongoing real performance.

We simply need to know

Knowing what makes up the real value of an organization’s total assets I think it is possible. We certainly need to go beyond just the present-day financials and some generalised statements that are not real measures of true ‘wealth generating’ understanding.

Will this change happen?

This is, of course, is another story but I believe there is a ‘wind of change’ blowing that might kick-start this dramatic shift to measuring the real value aspects of our organization and those that lie in the intangibles and we can make these far more explicit, that is for sure.

I hope it starts blowing really hard so we can finally clear away the cobwebs of old-style thinking, gathered primarily around financial capital.

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