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.

The post Rethinking the measuring of innovation first appeared on Building Your Innovation & Ecosystem Intelligence.

The post Living in a globally connected world of Innovation first appeared on Building Your Innovation & Ecosystem Intelligence.

We don’t make all the connections we should; we are too caught up in our little world, beating our existing drum, drowned out by its own noise, to step back and appreciate something new is really happening.

Recently I was investigating one strand of thought and then bingo! Something else leads to something else and the rest, so to speak, becomes history.

I’ve been reflecting on the new era of innovation and opening myself up to exploring alternatives, different thoughts, discussions and viewpoints.

Underlying this is a growing sense of my convictions, still partly forming, malleable but trying to drive certain ‘stakes’ into the ground to keep testing and improving on a hypothesis or two; that innovation and its management definitely have to change, and fast!

Of course the cloud figures in this as a whole new different way to orchestrate innovation. More on that at another time as I need to get into some more robust discussions with one or two others on this and expand on my own position a lot more.

My recent ‘bingo’ moment was as I was listening to a round-table discussion within GE and its lighting division with a panel of outside thinkers. Beth Comstock, Senior Vice-President and Chief Marketing Officer was chairing the discussion, so it will always stay lively and stimulating and it did not disappoint on that. Her throwaway line at the end of the panel session was “Perhaps the headline here is the Big Data Mash-Up”.

Mash-up?  So am I missing a certain beat here? Or does it fit into my thinking

This started me off – Mash Ups, Ecosystems, Platforms, Big Data so how about the Big Mash-Up to help the necessary Smash up?

So off I go on one of my walkabouts, needing to plug into mash-ups a little more.

Business jargon is drawing more and more from our software and computer worlds. We have seen lean, agility, scrum and a host of others entering into our business practices in broader ways than the original application; the principles are being extended out.

So what is a mashup?

In web development, it uses content from more than one source to create a single new service, displayed in a single graphical interface. It works if it is fast, easy to integrate and has clear application interfaces that allow this to happen.

The original term of mashup, according to dear old Wikipedia, comes from British – West Indies slang, meaning to be intoxicated or a description for something or someone not functioning as intended.

I like this as it is the way many of our companies are reeling from all the disruptive changes swirling around them. Also within music, it is used when we remix and combine different aspects of music or song from one vocal track to another.

Thereby ‘mashing them’ together to create something new.

So why do I feel the innovation mashup is coming?

The main characteristics of a mashup are combination, visualization and aggregation so as to make ‘it’ (whatever it is) into something more useful, for personal or professional (or organizational) use.

We have a fair number of mash-ups going on already; in business, mash-ups to reveal actionable information, consumer mash-ups that can come through our browser interfaces (maps and info) and data mash-ups that provide new, more distinctive web services.

I’m not going to get into all the technical stuff on this, let alone the challenges but as you read about the taxonomy structures I start thinking innovation taxonomy. Don’t ask me why but I do.

Let’s smoke a little more here (I’m kidding) and think the Internet of Innovation

We have been digesting the internet of things, the internet of everybody so we need to push this a little more and ask “can a comprehensive vision of how this set of events around digital, data etc., alongside our physical needs, be translated into returns for a business wanting to engaged in greater, more valuable innovation”. These will come from platforms and connect everyone.

I hold one additional thought here “virtualizing the core business” and extending this beyond the core, to deliver innovation faster and better by orchestrating its parts to architect the future, based on responding to real needs and extending those existing deliverables that continue to provide value.

We need to manage innovation in more real-time, we need to dramatically improve the process, we need to pull together often the disparate knowledge, we need to inform better, we need to place what we are doing into a greater context and we need greater predictive decision-making.

What we have working the innovation activity is ripe for disruption. Innovation and its management is mostly operating with the 20th-century model.

The move towards digital-physical mashups

Darrell Rigby of Bains & Co., wrote a recent article in the September 2014 Harvard Business Review entitled the “digital-physical mashup”. You could imagine that got my attention in my walkabout.

His view is we are in a period of upheaval, do we see technologies as a threat or a new pathway. The growing reality is digital has the real potential to destroy our existing positions in existing markets.

We see this with digital platforms, those who lean on physical assets to attack the incumbents, take Airbnb for example in its mattress and B&B challenge to hotels or Kickstarter for alternative funding. Value creation is being rethought in totally different ways and business models and being staged on platforms.

Now, what happens when you combine digital and physical? As Darrell comments, there is a growing ‘weaving’ of digital and physical worlds to come tightly together. He cites Nike+ that is giving more than 30 million customers tracking, sharing of runs, workouts and setting fitness goals as the shoe has a built-in sensor and can work with your iPod to see data on time, distance, calories burned and can all be synced back, compared for charting your progress.

Here we see digital sport emerging, the ones not embracing technology will suddenly have their market position erode (and fast)

Then we come back to GE and Beth Comstock’s throwaway line “the big data mashup”

GE when they decide to move into something, tend to do it big time. They make “big bets on big things” according to their CEO and Chair Jeff Immelt. Big Data Analytics is one of these exploding for them. They have housed this under “Industrial Internet” and GE Predictivity TM for asset and operations optimization.

This will come from these analytic insights, through the use of sensors and other technologies in aviation, rail, oil & gas, power generation, wind, power distribution, healthcare, mining, water and process technologies, lighting and manufacturing from machines that are self-aware interacting with other machines and their human operators.

The collecting of data is impossible to manually analyse but if this can be translated into insights through analytics and big data management techniques, visualization and dashboards techniques, that can manage complex machines, save labour, downtime, direct resources and reduce costs it certainly opens up the thinking.

GE’s estimates could be as much as $20 billion in wasted deficiencies per year. Further opportunities will simply occur as this gets understood more as it gets rolled out.

Wikibon analysts believe the analytics market will be worth more than $47 billion by 2017 and Gartner reckons the rise of the Internet of Things will propel the global IT industry past the $3.8 trillion mark by the end of this year.

I can certainly see this as a valuable and seemingly ‘big bet’ sandbox to go and play in and GE is doing this on a strong execution platform. They already have scale, they are just scaling this more into a different business model and value propositions.

Big Data is coming of age, can we handle it?

Big Data is going to certainly drive IT spending in the next few years, yet it is its translation that promises to be within the value extracted, on how we interpret this through analytics, insights and what it then yields in improved productivity, new product designs and service offerings. It all signals a very healthy set of new innovation activities in new products, services and through new business model designs. The fusing of digital and physical for new opportunities is upon us.

So are we seeing the groundwork for a new industrial age where innovation will increasingly play even more of a part, one that needs us to focus on the data, our people and the whole architecture, where the ability to collaborate, exchange, network and decipher what is coming towards you in meaningful ways to turn insight into commercial opportunity seems beckoning?

So is our current innovation systems fit for purpose?

So real-time comes up against old-time innovation processes – something will have to give.

So there is a whole new world of possibilities, a mash-up of the cloud, data, analytics, digital/physical combinations, and real-time activities all crowding into the existing innovation pipeline, manually being cranked along. No, something needs to change. We need to really begin to dump these legacy systems for manual innovation and really step back here.

The BHAG for innovation is needed here
We need to take a very different perspective on the innovation process. We need a greater visual control across our organizations; we need to build a completely new end-to-end innovation management system on a platform approach.

We need to collect and aggregate more knowledge, information and data than ever, the complexity will simply grow as we connect more the digital and physical worlds and innovation is being expected from this fusion.

Fusing the parts, forming the bigger picture

We need to give up on ‘hard end of line’ measures and metrics (so anti-empathy) and go into analytics far more, for driving innovation along its new process constantly at its point of need (note that), embrace data, seek and design new deployment models like cloud and mobility, merge the architecture design of the innovation process onto a visualization platform, seek out those that can contribute both inside and outside the organization.

We need to orchestrate, and provide stunningly different user interfaces (beyond the Excel spreadsheet please) that can come into you wherever you are, tailored to the individual’s role within the innovation development process.

We need to make it highly adaptive, so at a particular time to make it flexible as an on-demand need, drag and drop knowledge into your space to make it hugely dynamic full of interactions, modular and capable of being extended within our more elastic (flexible) enterprises.

A future full of collaboration built on real-time and valuable insight

The future will be collaborative, full of mash-ups to make innovation happen. Innovation management needs to be in the driving seat of changing in response to the next revolution of digital and physical that is ushering in the next era of innovation.

Who is going to take up this grand challenge or is innovation just going to be lagging behind again as efficiency and effectiveness remain as the big brothers dominating the organization’s thinking ‘block’?

We do need a whooping big innovation mashup. By all indications, what is coming towards us we certainly will need some big innovation mashups.

The post Opening Ourselves Up to the Innovation Mashup first appeared on Building Your Innovation & Ecosystem Intelligence.

I often think of the parable of “The Elephant and the Blind Men” when I get into discussions about measuring innovation.

What are truths, what are the fallacies?  The parable implies that one’s often subjective experience can be true on your need, but not necessarily the other person’s view of their understanding of value.

You get, as the end result, a failure to account for other ‘beliefs’ or capture the real value and miss providing broader motivations to encourage the innovation elephant along.

Establishing the right metrics that motivate and yield the result you are looking for is sometimes a tough challenge. You should always start with the bigger picture, organizational needs and then design the metrics and cascade these throughout the organization.

This part of the series explores the Innovation Work Mat

In a series of articles I will be looking at each of the seven components within the executive innovation work mat to raise questions to probe and prompt the necessary thinking that needs to be made in organizations at different management levels determined to build a lasting innovation competence and structure.

Within this work mat series I’ve already offered some opening thoughts on the role of Governance and Innovation, and also the Environment for innovation matters to innovate followed by the innovating conditions for your Culture and Climate.

This is the fourth article aimed at deeper engagement and understanding of the connected parts within innovation management on Metrics and Motivations.

Raising some initial thoughts here.

We really struggle to describe, then measure and then find the right motivations and reward mechanisms and then achieve broad agreement, on something as important as innovation.

If we link metrics into the reward and compensation structure then we release all the energy, passion and anguish and these can serve in many contrary ways.

Linking compensation into all the competing motivations to manage and reward innovation activity is fraught with problems and can have many negative consequences.

Again my elephant comes back into view wandering around in your board room – it can disrupt everything as it charges after the results that it wants, trampling much that is good in its path.

Today’s particular trend of focusing on short-term performance can limit innovation significantly and has innovation consequences.

Let’s look at metrics and motivations with greater connected awareness.

At the end of the story on the elephant and the blind men, a wise man was passing; listened to all the different views of why no one could agree on what they thought the elephant was like. The wise man then replied “All of you are right; you were touching different parts of the elephant so the elephant has all the features as you all said”

Metrics and motivation can really make innovation happen

The value of the measures lies in resolving these eight different questions: 1) are they clear and simple 2) are they relevant to you and the central issues 3)are they timely in what can be achieved, 4)are they credible to the stakeholders involved 5) do they relate to the importance of the goals or trivial, 6) can we act upon them 7) are they consistent to the strategic message and aligned, and finally, 8) are all the investment in these measurements and motivators to capture and analyse, seem sensible and affordable, and lead to real impact in aiding innovation to achieve the goals required.

We do need to focus on the future innovating purpose surely?

The innovation links to any measurement system I would argue should point towards the organization’s strategic need and the innovation outcomes required. Within this there are broadly three parts: 1) knowing the organization’s future-orientated vision and the general direction that innovation needs to take, 2) along with the strategic carriers in types, priorities, functions, the indicated mix of innovation activities and then 3) the growth gap that exposes the organizations’ challenges, so as to bridge these knowledge and resource gaps.

These can build innovation capacity today for future innovating outcomes as they are focused on future work to be done.

For me the output intention of the Integrated Executive Innovation Work Mat should be driving the business case for how innovation contributes and offers the what, where, when, and why within the communications for others to be mobilized into actions and build out build upon this strategic working document.

Then we set about communicating it to the organization

I have written before about the cascading effect and communicating value that can support this. Then our metrics begin to cascade down to bring people, the process, and the innovative design of inputs and outputs turn into successful alignment outcomes can come into play. I’ll broaden out my thinking on this area in the next post.

It is within the leadership of organizations to become intimately involved in what is important in innovation for their organization, otherwise, we are back to the elephant and the blind men. All others simply believe they have the answer. Leadership needs to really engage in where it ‘expects’ innovation to yield its results and then ensures it links reward to this set of outcomes.

So what does success look like?

We should start with the ideals that our innovation activities should be pervasive, to be sustainable and we need to deliver clear business results mapped to known and potential unrecognised customer needs as our primary incentive points.

We need to layout the building blocks to ‘group’ management and employee identification with what is innovation success. It can begin to motivate all the stakeholders involved. This gives us the opportunity to evaluate appropriate resources, provide the workable benefits related to learning, encourage the identification of problems and encourage the identification of solutions and set about communicating to all involved the understanding of what success can look like.

Building the innovation metric and motivation scorecard there are hundreds of measures you could bring into anything; the skill is you need to find only the right few that focus upon the results you really need achieving. They need to somehow “talk to each other” so they are mutually reinforcing and all involved are pulling in a similar direction.

What gets measured should connect and matter – an example

I like one I came across some years back, by Cap Gemini, which firstly suggested you define what innovation was going to be about. Their example was “a robust creative process that turns out very distinct outputs with significant impact in the market place” and then worked on a scale for assessing the degree of innovativeness on a three-dimensional grid of Impact, Distinctiveness and Creative Process.

This then becomes the measuring and motivation barometer tied to the strategic need of an organization of what is expected out of innovation. That sort of complete picture can only come from the senior managements full committed to “wanting distinct outputs of significant impact in the market place”

I think Bain & Co offered also a really valuable performance measuring framework.

This framework offers a really good structure to begin to measure and link the organization. I think it can stimulate initial thinking well.

(click to enlarge)

There is a case for approaching measurement differently through the intangibles that make up most of our capital.

Measuring attempts need to take into account the many intangibles that make up innovation and make them tangible. Understanding the relationships within our intangibles allows groups to benchmark, diagnose, allocate resources, inform others and compensate employee’s efforts through their ongoing knowledge learning. The understanding of our intangibles is for me vital to crack.

Getting this right is increasingly important as the intellectual capitals are being recognized as the real value creation intersections. Establishing the metrics that focus on generating valuable innovation also helps extend ambition and future goals, pushing future innovation strategies as you grow in confidence and understanding of these dynamics.

To end we go back to avoid the story of the Elephant and the blind men.

By taking the integrated approach through the work mat, senior leaders can  offer strategic guidelines into the measures and motivations, by laying out their beliefs and expectations from innovation. They can’t afford to leave this open-ended, just being hopeful, innovation activities need essential alignment.

If we continue to allow the ‘blind men’ to offer their separate opinions and then decide in isolation of the bigger picture, they ‘see’ only their part of the elephant.

I believe if you put in place that critical strategic innovation document, wrestled out of engaging across all the work mat parts, the metrics and motivators can ‘form’ around this strategic intent. This can drive innovation performance.

Seeing the whole picture is the team sitting on (at) the top, directing the innovation elephant along its journey to the destination where they want it to go. Metrics and motivations follow as the path is clearer to measure and travel. We need those wise men to clarify this.

The post Measuring and motivating the innovation elephant first appeared on Building Your Innovation & Ecosystem Intelligence.

How do we capture all the activities that have the potential to generate wealth within organizations?  Most remain hidden as they lie within out knowledge-based capital. This the second part of two posts (part one here) discussing our need to capture and report on ALL our assets, both the tangible and intangibles.

Knowledge-based capital today is more important to understand in its make up than often the reported financial numbers. One generates the other and investors need to see what goes into an organizations knowledge capital to provide them with continued confidence or not.

Recently the OECD provided an extensive report on “Supporting Investment in Knowledge Capital, Growth and Innovation”

I spent a fair amount of my time this last Saturday working through this document from the OECD. No, it was not because I had nothing better to do, it was simply because it ‘points’ towards one area I totally believe needs resolving, capturing knowledge and where it resides and how it works.

Then we can begin to place increased focus upon improving the capabilities and capacities we all need for innovation to do its necessary work, that of regaining our growth and vitality in many markets. The problem is we often do not know which are the most valuable or critical to focus upon.

Also if we can capture this understanding well, the recognition, once and for all, that people and what they do is vital and often completely undervalued. The recognition of the importance of our intellectual capital we might begin to create more of the environments necessary to nourish it. To allow this ‘creating’ to take place more effectively than today and value it for what it truly provides.

The present impasse in grappling with this knowledge generating side within our business organizations has been a lack of regulatory requirement to disclose that much around any knowledge generating activity for fear of ‘revealing’ the competitive advantages.

What is discussed is only what management chose to provide for giving a ‘certain gloss’ to their reporting or unyielding probing by interested parties.

Certain countries, especially in Northern Europe have been able to make far more headway on getting intellectual capital statements recognized and part of a annual reporting but these are still not easy to align and compare.

Knowledge-based capital is far too important not to understand today. Yet we avoid embracing the idea, we prefer to reject this type of asset and capital reporting with cries of “too difficult”

The movement today is towards narrative formats

How can we move forward? The suggestion is narrative reporting. Generally speaking, narrative disclosure can take several forms: companies can publish an Intellectual Capital Statement or include a description of their intangible assets in the Management Discussion and Analysis (MD&A) section or the report on environmental, social and corporate governance (ESG) and sustainability.

What is recognized is that narrative reporting need not be purely qualitative. It can include some form of valuation. There is on-going argument this might be based on KPI’s tailored to an industry but realistically very few report on recognized KPI’s, comparable with others in their industry or field.

Also how would you tackle differences in national approaches. Standardising our reporting has never been easy and when you contemplate ‘capturing’ more intangible aspects, it gets significantly harder. Yet we must try.

There is a movement towards sustainability reporting as the basis for these narrative reports. For instance the Global Reporting Initiative. (GRI). This is seeking a broader acceptance of what can make up a more integrated reporting framework. Discussions have a long way to go to bring in the harder, less tangible aspects though.

Narrative formats have both risk and benefit to report upon.

Investors chase for a better understanding of what is actually going on within organizations. Organizations push back, yet attracting fresh and on-going investment is the life blood, so some form of ‘uneasy dance’ takes place while you have no regulatory guidelines or enforcement.

Information gaps are increasing, sometimes for both the investor and the manager fail to be identified and recognized, as serious warning signals. Many get caught in this inability to identify ‘what makes up’ the organizational capital and lose their investments or jobs from this lack of appropriate understanding.

Strategic and operational weaknesses need to be ‘jumped upon’ very quickly, if spotted, yet the more intangible ones often remain hidden to investors and even management and what effect this might have. High profile people, when they leave create these tensions and performance concerns.

Can you imagine if you have a real drift of your talent walking out of the door, what that does to future performance?

Achieving a greater transparency

We need to have a more transparent understanding of the value of people, of the systems, dependencies, relationships and these make up intellectual capital. The push for achieving better board governance and effectiveness does push the board to question more and more, in the depth and breadth of information they receive and act upon.

The arguments for putting in place more effective narratives of performance that connect across the business in more coherent and effective ways, surely reputations are enhanced?

By thinking about ways to align reporting and communication strategy, the ‘being forced’ to collate a coherent set of narratives and contextual information has market attractiveness advantage. It gives growing confidence. So where should the unit of assessment take place?

Stating value creation and business models has the narrative potential

One view I particularly favour has been outlined by Vivien Beattie and Sarah Jane Smith in their academic paper “Value Creation and Business Models: Refocusing the Intellectual Debate”

We should focus on the business model, even for our intangibles or by extension our knowledge-based capital. I think this is absolutely right.

The business model and how we can describe it has become more ‘top of mind’ and significantly improved in its place through visual tools like the Business model canvas by Alexander Osterwalder and Yves Pigneur.

Equally a number of other visualizing techniques caught up in this canvas modelling movement, such as the culture mapping canvas, business opportunity canvas or the different value proposition discovery methods, have the incredible potential for the most powerful way for narrative reporting to make a business come alive.

Today the people side, or the articulating of the value of the intangibles, is not adequately addressed in these canvases we have. We need to bring them into telling the business model value story far more.

We need to tell the value creation story

The business model should be articulating how the company will convert resources and capabilities into economic value. It is the ‘transformation’ of resources into future potential value that tells us the “why and how,” in their potential, to decide to  invest or not, to believe in or not.

Venture capital always looks extremely hard at the team within any start up or needing new capital. They seek to go under the bonnet and know what is making this ‘opportunity’ tick or not.

Financial statements are totally inadequate to evaluate today’s business

By not capturing the intellectual assets or all the knowledge-based capitals we are left with a totally out of date, inadequate set of financial statements. These today  totally fail to inform those on the outside as well as often those inside at the top of organizations, where the real wealth creation aspects lie.

We live far more in a knowledge based world that is generating more today than our physical assets yet we lack the ability to clarify this. We need measures, frameworks and clarity on where the knowledge lies and its make up in ways that capture these and can describe them effectively focusing upon the value creation points that will exploit future opportunities.

The Business Model can be the crucial focal point, even more than today

We need to push for at least obtaining a narrative description of the knowledge-based assets and there is nowhere better than how organization’s management perceive their business models, what and where are the drivers and value propositions and how they are communicating on their strategies and value creation and the essential enablers of this.

Incidentally with effect from 1 October 2013 in the United Kingdom, organizations will also have to prepare a strategic report as a result of changes to the narrative reporting framework in the UK, intended to increase the quality of narrative reporting and introduce a clearer reporting structure. Can this go further?

We do need to refocus many of the fragmented debates around knowledge, our intangibles and intellectual assets and for me there is no better place than lifting this up to where the business model tells the compelling story or not.

 If not, then don’t expect future investments, you will not deserve them.

Part one – the background. Pushing towards a new frontier- visualizing the future

The post Visualizing the innovating future through narrative reporting first appeared on Building Your Innovation & Ecosystem Intelligence.

We need to frame these capabilities in much better ways, as they mostly remain shrouded in mysteries to render it difficult to know what each business actually needs to  invest in, to achieve their goals.

Knowing what and where they need to improve their innovation capabilities becomes a critical need to know point for gaining unique competitive advantages.

So much of innovation activity is left to chance and it leaves all involved as vulnerable, open to being beaten to the next ‘big’ innovation breakthrough. I would strongly argue that organizations should build their innovation capabilities in systematic ways, yet few do, let alone understand what this truly means. We simply need too.

Understanding the ‘beating heart’ of organizations

One of the biggest gaps is trying to put a finger on the pulse of what makes up innovation. So much of the capabilities are intangible, locked up in those intellectual capitals of the organizations.

Those that center on  people, their networks and relationships, the make-up of the structures that support their activities or restrict them, the ability of applying good or bad practices, the every day routines of each of the individuals that work within the organization.

These touch the very nerve center of organizations; you are striking at the very core of organizations, those intellectual combinations they make up so much that determines organizational performance. They expose or they enhance organization performance.

To some degree management wants to be able to measure these intangibles but it also can provide some ‘chilling and damning’ evidence of inefficiencies and managements lack of ability to really improve internal performance, let alone market performance.

It is usually the external factor, of poor market performance, kicking in that galvanize the need for internal change. This then becomes reactionary, often too late and market advantages can quickly dissolve.

Knowledge-based capital needs fully capturing.

The critical need today is to capture the rise in the importance of all the knowledge-based capital aspects. Business organizations are recognizing knowledge-based capital.

Knowledge-based capital is critical. As shown above it is becoming more important than the product. Organizations are recognizing the value of knowledge.

Were you aware that the value of many of the world’s most successful companies resides almost entirely in their KBC. In 2011, for example, physical assets accounted for only about 13% of the value of Nestlé, the world’s largest food company. (source OECD)

What is knowledge-based capital?

OECD describes it as such: Knowledge-based capital comprises a variety of assets. These assets create future benefits for firms but, unlike machines, equipment, vehicles and structures, they are not physical. This non-tangible form of capital is, increasingly, the largest form of business investment and a key contributor to growth in advanced economies.

One widely accepted classification groups KBC into three types: computerised information (software and databases); innovative property (patents, copyrights, designs, trademarks); and economic competencies (including brand equity, firm-specific human capital, networks of people and institutions, and organisational know-how that increases enterprise efficiency) (Corrado, Hulten and Sichel, 2005).

Knowledge-intensive is the new wealth creator

As products are becoming more knowledge-intensive, educations have produced knowledge aware and savvy employees. We are pushing outside our one organization into growing networks to collaborate where this is this consistent acceleration of new information and use of communication technologies all intensifying the need to manage knowledge. Knowledge is today’s valuable commodity, yet we poorly measure it.

Equally, knowledge-based capital is essential to investment decisions and where the potential for growth can lie. The use of data analytics, external networks, outsourced R&D and our changing management practices are reinforcing that organization change is needed, yet we are not sure on where to invest or how to structure these.

We are poking around a little bit too much. More like searching for the needle in the haystack, rather than controlled experimentation and exploration.

Ben Bernanke, the chairman of the United States Federal Reserve, suggested within his speech at a conference on the New Sources of Growth project in 2012 : “As someone who spends a lot of time monitoring the economy, let me put in a plug for more work on finding better ways to measure innovation, R&D activity, and intangible capital. We will be more likely to promote innovative activity if we are able to measure it more effectively and document its role in economic growth”

Are we advancing our understanding of knowledge-based capital?

The good news today, is we are seeing some advances on capturing and measuring knowledge-based capital. Recently the OECD produced one of its usual 300 page plus reports – so few read them – on “Supporting Investment in Knowledge Capital, Growth and Innovation”

This report summarizes OECD’s attempt to provide the evidence of the economic value of knowledge-based capital and to help meet the policy challenges it raises. These are across the areas of innovation, taxation, entrepreneurship, competition, corporate reporting and intellectual property.

Something that is not easy to summarize at all, as all have simmered away under different ‘doctrines’ and ‘churches’ of denomination, pursuit and faiths.

Learning to communicate our understanding of our real internal value

We do need to find better ways to unite and describe the value creation that knowledge-based capital brings. In particular our intellectual and organization capital and the importance this has to have sustaining investment put into it for future wealth creation

Part two discusses the suggested way forward, through narrative reporting. I believe this should also be through the broader narrative of the business model as the medium for this as we slowly open up in our (long await) acceptance about the importance of our intangibles and the contributions made through these knowledge-based contributions.

Part two– a way forward. Visualizing the innovating future through narrative reporting concludes.

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This applies to a new product as much as it applies to ourselves and how we engage across society, organizations or in our teams. We actually have a set of daily impact points and we need to think about these, it can be positive and impressive, or it can be inappropriate and judged as weak. They can be proactive or just ‘set’ constantly in reactive mode.

Having a clear understanding of the different impact points can help you and those around you have a better meaning in helping to shape events and the future contributions that can make a positive difference and give you a greater sense of satisfaction.

How do we shift from that often subjective view to a more balanced one?
I’m a great believer in trying to shape events before they happen. This often requires a lot of pre-work and often some ‘spent energy’   but if I’m not prepared enough I often feel uncomfortable and not in command of myself, and my ability to explore and influence through my thoughts. This gives me that sense of insecurity and then I feel I have less of an impact on the discussions and caught up in other people’s agenda’s, often for the wrong reasons and not for the best outcomes

So what are the points of impact for innovation?

I think we need to break these down into different levels of impact. Arguably there are different boundaries of impact. For example we might have global, organizational, social, competitive and personal impact points. We can surprisingly have an influence in all of these in a highly connected world and through our organizing and influencing will partly determine your innovating future.

So I look at impact points in different ways but I tend to start at two points of impact.
1.       What are the triggers to growth?
Answering this question leads us out on the appropriate impact path. Are we, for example, in survival or in crisis mode? What is our needs for future growth (personal and organizational for instance), do we need to find an innovative response to a burning need, are we facing competitive pressures, are we seeking new market space?

Do we want regeneration in what we do? We need to discover, to explore new ideas, new learning opportunities and concepts. We need also to make some evaluation to any seen or even unseen threats to any growth approach.

2.       The second question relates to our legacy issues.
These are often ignored. We tend to layer onto what we have instead of taking a more radical approach to overhaul where we are. We often build up our innovation activity in set, established ways and don’t want to face the issue of re-engineering the innovation systems or process. I would argue we should. There are always natural tension points in any innovation process, we get caught up in inertia, the copying of other people’s best practices, the commodity trap, the extraction of ‘raw’ energy in the name of efficiency and the constant ‘quest’  to become more effective. We really do need to press the ‘reset’ button.

We should look at alignment to strategy, to challenging what we are doing in the name of our customers not just ourselves. We need to reconfigure and we need to simply challenge and let go of much of what we have built up. It is never easy but legacy resolutions release much for improving the impact.
Then we need to set about two further questions.

3.       Improving performance
The potential surrounding absorptive capacity is critical for creating the appropriate impact on innovation performance. Absorptive capacity (AC) is a critical dynamic capability in knowledge-based competition. It is the ability to recognize the value of external knowledge, assimilate it and apply it to new commercial ends. To learn how to target, absorb and deploy this external knowledge becomes critical to ‘feed’ the internal innovation process. Learning to do this and do this well, this can become a powerful source of competitive advantage, not easy for anyone else to copy.

This can become unique practice applicable to you, not best practice found across your industry. The work of Cohen & Levinthal is a great starting point, besides some of my own comments you can find on my site. It is this ‘outside in’ potential that feeds the process and raises the engagement.

4.       Tacit Knowledge
The more knowledge you require- not information or data- the more you have the potential for strategic advantage. Just look at places that knowledge is not moving as fast as its potential, collecting more knowledge or insights than others and focusing on the customer experience all the time raises knowledge, implied and explicit. Tie that back to absorptive capacity and you have powerful sources of potential impact.

My third set of impact points relate to building platforms, road-maps and in execution.

5.       Building platforms and road-maps

As we become more open within organizations and in ourselves we begin to develop a more connected sense. Separate ideas or points of knowledge need combining; they need greater collaborative efforts than before. We need to reach out to others; we need to recognize others have a greater specialised knowledge than we do so we need to learn to build more platforms that allow multiple parties to work together, each on their own parts.

It is this ability to leverage through a platform approach that yields the potential for greater impact, for more radical or breakthrough innovation through diversity yet working towards a common cause.
Innovation is complex, it needs sketching out, and it needs always a roadmap.

Innovation needs clarity; it needs a greater awareness of all the points of innovation fitness for you to navigate along as you traverse the terrain to your end point. I have a dedicated site on this area at www.innovationfitnessdynamics.com which is outlining the different aspects of dynamics needed for innovation impact understanding.

The aim is looking to improve the innovation performance engine within organizations and build fitter, more responsive and dynamic ones, around their needed innovation capacities.

6.       Execution is the last 5% of real effort.
The argument goes; ideas are ten a penny and simply it is through our execution we make impact. Execution is the tougher end of innovation not that fuzzy front end stuff. This execution end is the real point of innovation performance where you actually feel the impact of all your personal efforts. Do you meet the needs and wants of your customers?

Did you arrive with a clear winning proposition or felt you have compromised far too much within the organization that the final result was incremental at best and not what you are truly capable of. Execution is far more than ‘just’ 5%, because if you can’t execute then where is the lasting impact?

Then my last set of impact points are the ones that impact on you personally.

7.     Adapting to change.
We often struggle to adjust our thinking, to recognize that change is needed and invariably we leave it too late. It can become ‘disruptive’. We do need to combine the three e’s of evaluate, explore and exploit, we need to adapt them to changing circumstances. The value of combining these in different ways gives numerous, surprising diverse levels of impact points.

8.       Empowering and Trusting
We need greater engagement, we need powerful stories to motivate us more, and we need to seek out more meaning in what we do. The more we do this the more impact we can contribute back. This needs dedicated time in resourcing, supporting and investigating from others to support us. The more we trust each other, the more we form stronger relationships, to build better networks of understanding and place our growing trust into more effective collaborations, which have a growing impact for all to see.

9.       Measuring our success
There are many ways to measure success. There are the ones ‘handed down’ to us, there are ones we can measure ourselves against. I believe our own measures usually far exceed the ones handed down to us. If we can learn to adapt more and quicker, if we can utilise the technology around us more effectively, if we actively seek new learning and experiences, to respond to any threats in better ways, then we are really learning and making a constant improving impact within ourselves. If we can apply what we learn constantly with the aim of improving on the existing, we are then moving well beyond’ appropriate’ impact, we are building our competencies and capabilities that become visible for all to see the positive impact.

There is a self always in relationship to others.
How others see you and what sort of person are you matters. If you care for making an impact there are many ways. How do you want others to see you? It is all in alignment, how you absorb and translate knowledge and where you wish to take it.

Improving your circle of influence comes from knowing, from seeking out new knowledge, staying throughout life in that endless curiosity. As Harold Jarche (http://www.jarche.com) does put it so really nicely: “Life in perpetual Beta”

We all need a virtuous cycle, something that reinforces the good. We can make deliberate steps to change our behaviour, to make increasing contributions. How you are viewed, in turn, changes the way you are treated.

This reinforces change. The more you can contribute in positive effect, the more impact you can have. You choose the impact you want to make and you will be surprised that in today’s world you can influence far  more than you often can image, and then perhaps bring a brighter colour into your and others lives through your positive impact.

You can choose the appropriate impact points you wish, what you do need is a strategy, knowing where you can shape and what you can influence.

It is the path to improving your recognition and value and that is not such a bad point in these difficult times.

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