In this post I wanted to explain my thinking through on this ability to be ‘ambidextrous’, knowing the difference of when to exploit and when to explore as essential to leveraging innovation, in all its forms and watching out for some of the traps in not managing this well.

Managing this, in all honesty, though, is hard to get the balance right but highly valuable if you do achieve it, it can transform the business. Many of our organisations struggle to manage both successfully as they tend to focus more on separation mostly in organisational structures alone as their attempt to become ambidextrous. It is far more than ‘just’ this.  Get the balance right across the organisation’s design and in its leadership management, it becomes a very powerful mechanism for accelerating performances by delivering significantly new innovation and equally sustaining and leveraging the core business you have today.

Recently I contributed a blog post over on the Hype Innovation Blog ” Balancing Exploitation & Exploration for Changing Performance” that opens up the subject but then extensively dives into three examples of Apple, GE and Google that are working in highly ambidextrous ways, pursuing exploiting and exploring in their own unique ways.

The important point is that the make-up of how, when, what and where to exploit and explore, can certainly be very different for each organisation, all dealing in their different contextual settings. You need to develop a “dual mentality” in managing and be watchful for dealing with this as it can create a real deep-lying set of tensions, yet it is within these tensions and how they are managed will determine eventual success of getting this balance right.

We often face conflicts on knowledge acquisition, absorption and translation

How do you switch from the pursuit of efficiencies, from what is often well-established, into the probing of the unknown or not easily quantifiable? We need to balance the interplay between the two.

As we pursue the alignment and adaptation of the two, this is where we get into a serious conflict by attempting to manage this in one fixed ‘state’ or the other. You start questioning, looking for synergies, searching (often by default) for the complementary, attempting definitions, drawing connotations and meaning from these far too early and this has consequences. You muddle your thinking between when to exploit and when to explore effectively. Management is often looking to close something down, to make a decision based on the present known facts, exploiting as quickly as possible what we do best, yet there are many occasions they should stay open, wait and allow time to explore more, to gain more insight. Knowing when to do one or the other is the judgement needed.

You can so easily get into further conflict as exploitation tends to be built on past knowledge, or pursuing and acquire new knowledge to build on existing knowledge. Whereas the kind of knowledge needed for exploration, is significant new knowledge acquisition and requires rapid absorption, and one might not be necessarily helpful to the other, as the purpose and need are sometimes radically different.

You struggle to find the consistency of purpose or even commonality when the type of knowledge that is required can be so starkly different, built either on the known or in pursuit of the unknown. This is why gaining an absorptive capacity understanding becomes important in the context of what you are attempting to do. Knowledge ‘feeds’ advancement and equally provides the ‘fuel’ for innovation but they mostly come at you differently to manage, absorb and translate into their meaning.

Managing exploit and explore depends on your situation

Unless you have a “guiding star” that comes partly from a vision market understanding and mission, that can help you decide the emphasis between these two, it makes managing these dual activities as simply difficult. Is it one that is focused on productivity, cutting costs, ensuring ongoing quality and building reputation, or one pushing out by experimenting, adapting constantly and searching for viability and its validation, how can you determine where you put your emphasis?

I would argue it really does depend on your orientation and what you want to achieve. It is where the organisational focus lies and the necessary defining conditions  and the market dynamics will mostly decide that? How volatile or challenging is the market, is it growing steadily or rapidly undergoing dynamic growth? Do we have to pursue a more radical agenda of innovation or can we evolve on a more incremental path? Do we place our emphasis on consolidating our core or searching for concepts that radically alter our position?

Are you in pursuit of a logical and hopefully, coherent business model, leveraging all the efficiencies which need to work in an orderly, functioning, well planned and managed ways, one where you are making sure your innovation activity is built into its well-established structures and processes? Or are you wanting to encourage a greater freedom for individuals to make personal decisions and encourage the taking of initiatives to be more radical and distinctive in their innovation approaches, deliberately introducing this into their work design, offering high levels of flexibility and self-organizing, allowing for an emerging model to emerge as against fitting into a well-established and often rigid model.

The case for clear separation

There is a number of highly respected people who suggest clear separation must occur. They pose the questions: “Are exploiting and exploring at two ends of a spectrum?” Are they not so different that they need clear separation? We need to separate out the present day-to-day work, with the innovation future work. This has merit.

I think if you foresee a radically different business emerging then this clear separation makes greater sense but how do you reconcile some of the underlying values? How important is the culture, the history, the brand or image, how do you rotate or attract the necessary talent. How do you fund the ’emerging’ business, does this existing business finance this and if so, will it constrain the new business in open or hidden ways? if you create distinct entities, giving them completely different operating environment, will they be capable of being merged back later?

In my examples I used on the Hype post, the one that is a real test of management is the Google decision to separate out its moonshot’s from its core, by creating a new holding company, Alphabet, to treat them distinctly differently. As the founders, their view has been: “the whole point is that Alphabet companies should have independence and develop their own brands”, then separation becomes a clear decision. Yet it does seems there are some initial tensions occurring that will need well-managing and different management thinking to manage this transition, it will be an interesting one to watch how this evolves.

A dual management approach

The argument goes and it might surprise you, by supporting core businesses and new emerging innovation units actually requires leadership to be constantly inconsistent. They must totally live the dual agenda otherwise, it fails. It needs significant management attention to managing the tensions this duality brings. When leaders do take this ambidextrous approach, they are forcing change but it can be very demanding to get this exploit and explore balance right.

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The post So how do you manage exploiting and exploring for Innovation? first appeared on Building Your Innovation & Ecosystem Intelligence.

Adapting always seems a work-in-progress, or it is often something where we are simply making little or no progress!

We often stay ‘stuck’ in the way we do ‘things’ around here, never seemed able to break out into something new or different.

To adapt we need to open ourselves up to learning and adjusting our organizational ‘form’ in new ways.

In business, there should be a constant battle to reconfigure the assets and extend the existing capabilities. Yet often these stay ‘static’ not learning or improving.

In our innovation activities, there is an even greater pressing need to build into our thinking the ability to find more dynamic capabilities. It is a constant innovator’s dilemma to think through and get right.

What might help?
Recognizing our need to think differently
Here I am wanting to outline some opening thoughts for you to consider in becoming a more adaptive organization.

There has been a lot of discussion about finding new organizational forms that need to somehow reflect on pushing out and developing around unique combinations building into our existing structures these four distinct ‘classification’ states: a) collaborative, b) learning, c) emergent and finally d) ambidextrous.

These ‘states’ are viewed to be really helpful in accelerating an organization’s growth potential and improving greatly on the innovation cycles.

Partly this is being driven by a recognition that we are becoming more dependent on a growing set of challenges that include: a) gathering and synthesizing far more knowledge than ever before, b) the fact we are increasingly becoming dependent on the performance of others, c) the assets that we simply own and have in place are just not good enough today and d) our abilities to “read, react and respond” to changes occurring that just seem to be constantly accelerating away are becoming more difficult to keep adjusting too in our present organizational structures.

Somehow we need to respond in more agile, fluid and adaptive ways. Roger Martin suggested some time back “that modern leaders need integrative thinking to embrace complexity, tolerate uncertainty and manage tension in searching for creating solutions to problems“. It is learning to make different choices in a far more creative process, often more disruptive to our established norms.

All these are challenging our existing organization’s systems, structures and processes and it is a growing process of understanding that will emerge to form these new ways of operating, far more reliant on technology, rapidly available and adaptive systems and flexible thinking and design.

The need to become bolder in our thinking

We need to encourage fresh and bolder investments in knowledge, in infrastructure, systems and in managing these. Ones that focus on activities that pursue new approaches that lead to exciting innovation, that really does spurs growth. These are about learning, searching and delivering the winning value on the new innovation value scale of ‘new generation activity’ from recognizing how we balance out exploitation (extending the life) and exploration (new understanding). We need to appreciate the separation effect for innovation.

Most of our organizations today struggle with applying the ‘appropriate’ resources into these two ‘dual’ approaches. Many try to separate them, often hiving off the more radical innovation development part to protect it from being overwhelmed by the often overbearing focus on the short-term and exploitation. Yet this is a real mistake, as they are necessary to be combined to improve what we have, as well as add in a significant change to keep the business healthy (efficient and effective) and equally growing (through innovation)

We are living in a world of apparent contradictions

We need to manage with one eye on austerity, the other on emphasizing the need for innovation. The popular ‘answer’ to this is simultaneously exploring and exploiting, yet these two organizing and managing styles are hard to find the right balance we need. We want to have a stable environment but we need to equally be dynamic, constantly improving and introducing new innovations.

These are a significant range of questions we have to consider before we decide to establish the ‘appropriate’ position of how much we need to emphasise on the exploit and explore, both needed to be balancing the stability and delivering the dynamic. Much is dependent on the diversity and dynamism of the business environment we are operating under, the resources we have available or can call upon, the market conditions we are facing, as well as predicting where all of it is heading. Easy huh!

Equally, it is dependent on what we are attempting to do.

Exploitation is the “refinement and extension of existing competencies, technologies and existing knowledge” whereas exploration is “our ability to experiment with new alternatives” and each is certainly built on our learning and accumulating experiences. Exploitation on its own, or if heavily emphasized to the exclusion of exploration, can eventually lead to failure, whereas too much exploring and experimentation can limit exploitation. Each can become a “failure trap”.

The “success trap” is when exploration leads to exploitation and exploitation to more exploration, a reinforcing cycle through clarity of mindset and managing between routines and experimentation. These can have very different activities to manage and are the cause of many of the tensions within the balance needed in organizations to innovate the new and manage the existing. Each is often competing for scarce resources, a constant interplay.

The argument for establishing an ambidextrous organization has proffered different opinions for pushing for variations based on: a) clear separation, b) developing the abilities to switch, c) become self-organizing or d) using an external ecosystem thinking to establish the right mix between exploit and explore. Each is determined by a unique mix of considerations.

The answer for each of us is that it really does depend. It has a paradox only you can solve in your unique situation. It comes down to trade-offs. So what do we need to consider? Do you tightly couple these or seek degrees of separation?

We need to seek balance, strive for dynamism and accelerate innovations
With this ever-increasing set of tensions, we are in real need to shape capabilities. It has been suggested * that we have to resolve four closely interrelated ‘tensions’ to help us in leading to understand what, where and how we design ambidexterity into our management within organizations.

We need to consider how we would balance these four tensions:

1. Differentiation and Integration. How do we separate our exploitative and exploratory activities into distinct organizational activities or units? Integration is deciding the mechanisms that can address these. This deciding point between these two will often boil down to the degree of importance placed on the need for exploitation and exploration; these should not become mutually exclusive positions.

We must balance in constantly adaptive ways this duality. It is the specific task or activity that can largely determine this but it needs a conscious designing in.

2. Individual or at the Organizational level. The ability to ‘fuse’ any approach across multiple levels of need at organizational design and the individual’s ability to explore and exploit together, or at separate times, needs resolving. Having different teams, one exploring, one exploiting or having individuals who have a higher propensity for one or the other, to be blended into a diverse team solving a complex challenge that needs this dual thinking purpose are some suggested approaches.

Again it comes back to the challenges that need to be addressed, as the management of contradictions and conflicts needs different alternatives, in our creative thinking. The orientation between the short-term and longer-term need equally to be well thought through. We need to fit innovation into its appropriate context, contributions and characteristics of the people working on this.

Finally, here, it is the diversity in knowledge coupled with experiences. that give us richer linkages for innovation. It is the working consciously on the alignment and adaptability within the mix and at these different levels required. There is a fluid need to move between these levels of design and need.

3. Static versus dynamic perspectives. We do need to find a way to simultaneously pursue the two activities of exploring and exploiting. We need to reduce the static and emphasis the dynamic, by constantly adopting ‘certain’ configurations to meet the innovation needs we are working towards. Achieving a sequential state or pushing for a simultaneous pursuit of the two becomes the key consideration.

The key is to repeatedly and intentionally orchestrate the firm resources; it is striving to gain interactions not separating them. Hiving exploring off into a discrete unit creates problems in any down the line handing off back to the operating unit responsible for the execution of innovation. There is this real need to think through a more comprehensive innovation life cycle here, as innovation is certainly far more dynamic (or should be)

4. Internal versus External Acquisition and Interplay. The need is to gain and utilize the knowledge and this ideally comes from both internal and external resources. The stronger we have in place alliances, outsourcing arrangements and partnerships, we are building our ‘combinative capabilities’ and how we can consciously apply a more absorptive capacity approach to synthesize, apply, acquire and absorb knowledge.

This allows us to develop a higher degree of knowledge flexibility across organizational boundaries and find different ways to integrate this into our innovation thinking. We are always in need of novel, diverse alternatives to any innovative thinking.

Knowledge diffusion becomes vital to manage the exploit and explore and this needs to flow across the organization, not stay limited within one part, reducing the opportunities to leverage this acquired knowledge. Here lies the seeding of corporate renewal.

Each of these interrelated tensions needs a high level of resolution.

The level of insights into the strategies, structures and processes that allow them to be in this ‘dynamic tension’ for innovation to occur, is one we must constantly strive towards a balance and harmonization between the two activities of exploitation and exploration. These tensions will actually require a high level of constant and often contradictory levels of requirements. How can we design this into the fabric of the organization?

This set of challenges does require this deeper thinking about the development of a more ambidextrous approach to innovation. How can the organization be designed in adaptive ways around this constantly evolving innovation need.

The real hard questions to answer will eventually lie in asking “what are the similarities, differences and interactions between the individuals, a group’s and an organization’s creative capacity, diffusion capacity, absorptive capacity for knowledge and risk-taking capacity”.

Where are the balances needed to be achieved in organizational adaptation, innovation need and learning? How can we design the type of dynamic environment that I believe can evolve by an appropriate design unique to you, one that I regard as requiring the understanding of building our innovation fitness landscapes

Building these changing landscapes to meet opportunities and situations to respond to, at you need to adapt,  manage and operate within; then determining what you need to have available, knowing the how to go about bridging the gaps, to arrive at a state of being constantly adaptable as your goals adjust and change?

It is certainly complex and we all need to learn, adapt and work through this balance in our exploitation and exploration needs. It is one critical part of future organizational design. It does need individually working through to meet your own specific needs for growth and protection.

It does mean that the level of sensing, seizing and reconfiguring is critical to work upon and that means it has to be highly dynamic, in building the dynamic capabilities required for innovating because nothing can be static for very long in today’s world.

The key reference used is drawn from the paper “Organizational Ambidexterity: Balancing Exploitation and Exploration for Sustained Performance” written by Sebastian Rush, Julian Birkinshaw, Gilbert Probst and Michael Tushman. This paper has been at the core of the post.
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The post Striving for the innovation balance: between exploring and exploiting. first appeared on Building Your Innovation & Ecosystem Intelligence.

How do you sustain innovation, is it more through the structuring of everyday work, by creating a particular set of social rules and resources that foster specific routines? Or something different?

We work really hard at maintaining these re-occurring processes, never willing to extend and push them in different and new ways. We have actually become very static in our approaches and learning, we are not learning anew.

We often simply end up with incremental innovation that might just ‘nudge’ the growth needle but does little more than sustain us in the present and can be ‘contained’ in a tidy process that makes many, including the ‘bean counters,’ very happy until someone changes the game.

Then we need to think differently but this is usually far too late.. As demand is more volatile today we need to experiment, explore, learn and adjust. What becomes more important is the ‘work to be done, and how we go about tackling this and not the work done where we often simply ‘default too. Surprisingly Adam Smith identified this important difference in work way back in 1776.
This can be explained as the ‘work done’ is the accumulated knowledge, which has built up and been embodied in the firms results with the innovations achieved in the past and is seen as the tangible capital that we continue to leverage..

The work to be done is how well it can adapt to change or what needs to be brought in to help in this new work. In the past century we operated in mass production era, with systems with standard goods and stable market conditions the ‘work done’ was equivalent to the ‘work to be done’.

In today’s global market, with its rapid technology diffusion, disruptive and constant change, with an emphasis on serving the ‘work to be done’ as more important than the ‘work done’ and identifying and growing our intangible assets are fundamental to this. This is where we need a more radical, evolving innovation set of capabilities to push our business growth beyond the normal.

Work to be done is the need for our future growth and well-being to be derived through innovation activities. These are so much made up of intangible parts, the growing innovation capital, that will provide the new wealth of organizations in the knowledge sharing economy of today and the near future.

Certainly I buy the argument that Innovation should become part of everyone’s job on a daily basis so they have the space and potential to work on it constantly but what does this require? This is part of our journey within seeking innovation fitness through its dynamics.

Part of our innovation debate is what is “dynamic” or “routine” for managing future innovation success?

For me the argument points to the capacity to build “dynamic capabilities for innovation” around the critical situation we are all finding ourselves in, that we are all in an age of rapid ongoing change.

‘Rapid change’ calls for constantly developing and leveraging new understanding, building knowledge that is based on dynamic capabilities, it evolves and changes all the time. These need to be fully understood so the appropriate resource and commitment can be placed behind them.

The world of innovation is based on something that is very clear: it is consistently changing and challenging, has never-ending competition, a constant price/performance rivalry, increasing quest for improving returns and the ‘creative destruction’ of existing competencies all certainly contribute to rapid change no doubt.

This is a highly dynamic environment we are all living and operating in today. Are you building those skills and capabilities to adapt and react?

Building new capabilities or stuck in the past?

Are our organizations building the capabilities to become highly dynamic or are they stuck in the past, looking for routine and repeating established procedures expecting these to get them through this volatile world? They will find this path of repeating established practices like the one to their own demise and eventual destruction.

What are the firm-specific capabilities that can be sources of real evolving but equally lasting advantage? How can combinations of competencies and resources be developed, deployed, nurtured and protected? These need to be difficult-to-imitate combinations and integrative enough to give new sources of competitive advantage to stimulate new growth and financial return.

In my work, I have spent considerable time investigating what makes up the dynamics that accelerate our abilities to innovate in better ways, so it sustains and equally evolves to ‘battle’ the increasing volatility we will be facing on an ongoing basis. These

Strategic innovation often changes the ‘game’; what it explores and exploits to stay dynamic.

Firstly we need to go back and understand “What are dynamic capabilities?

Dynamic capabilities are those skills, processes, routines, organizational structures and disciplines to build, employ and orchestrate intangible assets that are not replicated easily by others and constantly change to meet customers’ needs.

Dynamic Innovation Capabilities need to advance knowledge creation and absorption, extend and integrate what is learnt into something more worthwhile, something new. These capabilities need to learn how to modify constantly the way we operate, reconfigure and redeploy.

This involves the dynamic of sensing, seizing and transforming (Teece et.all) at the three interdependent levels of the individual, firm and network to coordinate/ integrate, learn and transform constantly and to reflect the constant change that is taking place.

Two different academic views but does one lead to the other?

Dynamic Capabilities are defined by Teece, Pisano & Shuen in their different papers on the subject as “the firm’s ability to integrate, build and reconfigure internal and external competencies to address rapidly changing environments so as to achieve new and innovative forms of competitive advantage”.

Everyday Dynamics are where people know what is expected of them and what to expect from others and have a common ground for negotiating collective action in particular situations that create an ongoing social fabric where innovation naturally flows. Zollo & Winter suggest a dynamic capability “is a learned and stable pattern of collective activity through which the organization systematically generates and modifies its operating routines in pursuit of improved effectiveness”

Both definitions require learning through equally exploiting and exploring
Both of these ‘dynamics’ arise from learning and this within organizations more likely to come from systematic methods.  Innovation nearly always requires structure, process and being worked through in systematic ways unless you perhaps are a sole inventor/ innovator.

To work with others successfully you need a certain structure, a process and a given environment and culture to deliver innovation.

We have to realize that capabilities for innovation are complex, they are structured and multi-dimensional.

Often today organizations strive to keep these far too much in “equilibrium” (zero level) but the reality is that our markets being served are not in this ‘equilibrium’ and are constantly being disruptive, more ‘dynamic’ than ever. We cannot keep a ‘business as usual’ mindset we need to recognize we are operating in a potential set of constantly unstable circumstances. Business is a complex adaptive affair.

We need to become far more aware of the dynamics that surround us that are needed for innovation to work constantly. We need our journey to evolve.

The post Building the new dynamics into our capacity to innovate first appeared on Building Your Innovation & Ecosystem Intelligence.

Option pathways are those viable alternatives available when you are suddenly confronted with the need to change.

By being proactive, anticipating and structuring the options ahead you can be more prepared for disruption, you can respond with more thoughtful reactions. Have you ever considered option pathways?

Having available options so you can react to sudden changes, as more sketched out scenario’s that are representing possible variables, the better prepared you might be to respond thoughtfully.

Preparation for blunting or neutralizing possible attacks, vulnerabilities and changing business conditions is more than helpful, because you have made some investments in different possible options and far more ready to respond in thoughtful ways and not simply in those knee-jerk reactions, simply needing to respond.

Considered response, with significant parts already thought through, can safe significantly on ill-considered ones.
Also, it is valuable to begin to prepare and cost out different decisions ahead to be ready, have these fleshed out, then discussed across the people involved in those disruptive force decisions so you are ahead in your thinking on how to respond.

One recommendation suggested by Haydn Shaughnessy a proponent of this thinking (link to White Paper ) is having these option pathways walked fully through with the CFO, so it gives him the understanding well before hard decisions are being made, when you are in the middle of handling the dynamics of disruption.

This seems to help work out option pathways well within my mind, of their value in our needs to be far more prepared for our disrupting moments, bearing in mind these are occurring more frequently.
What more can I learn or even add to this?
I decided to widen the idea out a little and came across some (nearly buried) academic papers, but thanks to Google they came alive for me. These identified Adaptive Pathways and they fit within a policy approach.
The two papers that ‘worked for me’ in what I was looking for were mainly dealing in the environmental change dynamics where you had to have a lot more adaptive thinking within the planning process that describe different types of actions (for example mitigating and hedging actions).

The view here is as we anticipate and determine, we experience and learn, as the future unfolds.
The more we are open to this the more we can become responsive to disruption. The more we talk and describe “uncertainty” where we can paint different visions, or by using Haydn’s “decision model canvas” to promote learning and awareness, so we have ‘options’ in place when situations change, or even when you feel the conditions are right for you to prompt that disruption yourselves.

Let me offer a couple of visual here from the two papers (details shown below)

And the more dynamic thinking

I think these are useful as thinking through the sequence, with some adjustments to account for a business environment and its planning and future casting needs. I felt these two frameworks help me add even more to Haydn’s option pathway thinking.

Mapping the terrain of options of where you would like to be.
You need to develop a preferred road map of where you want your innovation to take you but you certainly need to have developed your options, as no pathway is straight and uncomplicated. By fleshing out your ‘terrain of different realities,’ you are able to describe much of the work, design, thinking and preferences that give you an enduring strategy.

You are formulating a fluid plan that sets out detailed reasoning of how you can disrupt others or react to disruption from others, simply by the amount of organizing principle and details you build into these option pathways. Identifying these potential future forces shape your choices and ‘informs’ your innovation activities you need to develop and provides the scoping possibilities to be far more ready to respond to these forces of disruption.

The crafting of your possible options
Any option pathway needs crafting, it certainly needs fleshing out, it can help inform yourselves and others around you about different alternatives and actions.

Thinking through disruption is not just very healthy to do but essential, in order to survive and prosper. We need to look towards the future and be as ready as we can, in anticipating its disrupting forces that are constantly bearing down on us.
Sources:

• Download Haydn Shaughnessy’s White Paper written for Hype entitled “How companies address the disruption challenge”. This was the triggering point for me to go off and explore option pathways.
  

• Academic papers both from Utrecht University, Department of Geosciences, Twente University, Department of Water Engineering & Management
• Designing Adaptive Policy Pathways for Sustainable Water Management under Uncertainty: Lessons Learned from Two Cases Marjolijn Haasnoot, Jan H. Kwakkel, Warren E. Walker
• Dynamic Adaptive Policy Pathways: A method for crafting robust decisions for a deeply uncertain world . Marjolijn Haasnoot, Jan H. Kwakkel, Warren E. Walker and Judith ter Maat.

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Publishing note:  This blog post was originally written on behalf of Hype and with their permission I have republished it on my own site with some small adjustments. I recommend you should visit the Hype blog site where they have a range of contributors writing about a wide-ranging mix of ideas and thoughts around innovation, its well worth the visit.

The post Anticipating disruption by preparing adaptive pathways to respond first appeared on Building Your Innovation & Ecosystem Intelligence.

I recently provided a post on a very upbeat PwC report on innovation and its growing importance to growth in the coming years. The PwC report “Breakthrough innovation and growth” was a survey of 1,757 C-suite and executive respondents, on their thoughts on innovation and where the new growth was coming from in approach.

The top line was companies are seeing innovation transforming their businesses and their need to take a more sophisticated approach to innovation, so as to achieve the growth plans they are setting for the next five years.

There was a strong indication that the innovation that was going to be pursued was going to follow a far more radical set of innovation practices that have the potential for offering a real impact on companies future growth ambitions.

Yet I have also been reading another report issued by Corporate Executive Board (CEB), a leading members-based advisory company called “Growth Readiness- prioritizing investments to drive executive commitment” discussing the secret to effective investment prioritization is demonstrating your organization’s readiness to pursue growth. (N.B You need to fill out the form to obtain the report)

Both correlate on the strong need for growth. CEB suggests as the global growth has stalled that in response, companies have planned to boost non-incremental growth investments by almost two-thirds.

The CEB defines non-incremental investment as a large growth opportunity that requires some change to the business.

The PwC report enthuses about innovation and reports

“Growth is a top priority for most (80%) of the companies we interviewed and their plans are ambitious. Executives are planning for 35.4% growth, on average, over the next five years, the equivalent of 6.2% per year. Over a quarter of executives (26%) say that they are aiming for ‘aggressive growth’ over the next five years”

Yet there are dark clouds of concern in the Strategic Office

Yet in a associate blog from CEB written by Marc Austin, who has primary responsibility for research and product research at CEB, he discusses one big if not huge issue that will hold any investment decisions back, and this lies clearly in the board room.

“When I talk with heads of strategy – mostly, they talk about their frustration with the C-suite. Strategists describe the senior executives in their organizations as analytical, tenacious, and gifted in the art of getting things done. Yet the growing trend across boardrooms is indecision, especially when it comes to deciding on big, higher-risk growth bets.

As one strategist explained, “I only had head-nods, not real commitment.” This isn’t just a problem. It’s a big problem… At the end of the day, it’s getting executives to follow through, to defend their decision, to ensure funding and resourcing for the big bets happen and don’t get derailed. Without commitment, there is really no point to strategy.”

There are some serious issues seemingly raised around strategy according to the CEB report..

One of the critical points within the CEB report is suggesting that the lack of commitments to non-incremental investment can cost a company 3.25% less return (above hurdle rate), or a 34% lower profit than they might

So do we sense we might be having a real problem here?

It seems a real tension is occurring between desire and reality? Between strategic intent and follow through? Certainly this will be between how innovation is intended to lead growth through the strategic intent? The CEB report discusses the important changes taking place around risk and talks about risk readiness.

Is innovation riding in to offset risk?

Yet in a further PWC recent study: Unleashing the power of innovation, three quarters(74%) of CEOs regard innovation as equally important to the success of their company as operational effectiveness, if not more. This is the first time in recent history that innovation has been in parity with operations in the C-suite.

The latest PwC report  on breakthrough innovation and growth goes on to mention that “the push to create new value is not so surprising in itself. What is most surprising is that in this challenging economic climate, where many companies still face enormous pressures to reduce costs and become more efficient, many executives are telling us they see innovation on a par with operational effectiveness”.

If these ambitious rates of growth are to be achieved, companies recognise that they will need to look beyond the more traditional options for growth, such as mergers and acquisitions and traditional R&D.

It does seem broader types of innovation might have finally arrived in the boardroom. There seems in CEO’s minds a clear correlation between innovation and growth.

PwC point out “The widespread rejuvenation of innovation should have a profound impact on the way businesses plan for the future”. The leading innovators in their study are targeting a higher proportion of breakthrough and radical innovations, particularly around products, services, technology and business models

PwC does caution companies, “they need to determine whether they should adopt a ‘Play to Win’ or a ‘Play Not to Lose’ innovation strategy. ‘Play Not to Lose’ is a defensive posture appropriate for groups that are risk-averse or unable to be leaders that generate winning innovations. In some competitive environments this makes sense: it is better to play conservatively and avoid taking large risks” (pg24).

Companies are looking across the innovation cycle to get into the right shape to implement this shift in strategy towards a very high organic growth one and be able to execute on innovation.

With acceptance that growth gaps need resolving it seems risk will raise its head.

Will business leaders overcome their current higher concerns for taking risk and will that come from more radical innovation? It seems this is a very open question. There seems a desire to ‘talk up’ innovation, to leverage it more but the reality of managing the risk seems the issue that needs managing.

Yet recent market changes have altered how executives make decisions and develop commitment.Prior to the recession, commitment could be captured on the basis of the opportunity’s inherent attractiveness.Today the basis of commitment to major growth bets has fundamentally changed.

There also seems a shift in strategic approaches.

To prioritize investments based on growth readiness, strategists must consider the three enablers of growth readiness, Risk Readiness, Capability Readiness and Stakeholder Readiness.

Equating the two reports

Although the interview ‘universe’ is different, one  is global (PwC), one more contained in the USA (CEB) I think they justify this need to be brought together as risk readiness and growth through innovation need this equating.

I think reading both the PwC report “Breakthrough innovation and growth” alongside the CEB one on “Growth readiness” needs some narrowing of the dealing with risk, innovation and readiness, if companies  actually determined to really work towards radical or breakthrough innovation.

I think the present mind set of risk mitigation might need some thoughtful thinking through and the discussion about risk readiness needs to take place within boardrooms if they are about to deploy innovation in greater ways.

Otherwise risk will impede innovation and then frustration then grows with innovation failing to deliver the expected results.  The real frustration has actually as its real source the inabilities to quantify ‘acceptable’ risk and not having guidelines.

Innovation is inherently risky from often its inadequate data and market quantification. Clarification at board room level needs to be made on how to treat innovation when it is pursuing more radical, new business model or breakthrough approaches.

Strategic planning for innovation will need different thinking and tools to manage it adequately.

An early board room discussion should be about achieving a consensus over the growing recognition that innovation, at its most powerful, is a driver for rapid and profitable revenue growth but what will be the acceptable risks.

If companies are targeting a higher proportion of breakthrough and radical innovations, particularly around products, services, technology and business models, it can dramatically deliver improved competitive positioning, higher customer satisfaction, and decreased costs with the right innovation solutions, but it has risk.

Risk mitigation needs to equate as much of the uncertainties you find in exploring a breakthrough or radical approach to business. These discussions will have some high tension points, that need clearer guidelines otherwise we continue with growing strategic and innovation frustrations. The board needs to lead here.

Many of the challenges arise from the way innovation is managed and handled. Another early strategic boardroom discussion should be around the operating models and metrics for ‘business as usual’. These will conflict with those needed to drive innovation for ‘new growth business’.

Risk readiness needs to be well thought through, otherwise more radical or breakthrough innovation will struggle to get out of the door, let alone into the board room, if risk is not equated differently going forward. Risk versus opportunity needs to be constantly evaluated.

It will be the ones that can articulate the value, create the right narratives for this innovation growth, by taking these bolder approach decisions to innovation will less than perfect data.

They will succeed in gaining organic growth through innovation by understanding its parts in detail. It is those who can equally manage uncertainty by advocating a new risk readiness pathway to growth will be in better shape to pursue a broader innovation approach.

We will need to ‘marry’ risk and opportunity through our innovation activities far better and prompt some very important board room discussions to enable innovation to take this centre stage for growth.

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