4 reasons why enterprise innovation programs fail

Reason 1: Investing is not innovating

Let's assume a company decides to build an in-house innovation program. That decision, most of the, time is related to three factors:

1. The company has a large R&D department,
2. Company possesses some level of investment capital
3. People in this company think that they can connect these two thinks and drive innovation.

In the fast-paced digital era, companies globally are investing heavily in R&D. That is something you and everybody else knows. Few people understand though the fact, that investment is not straightforward correlated with innovation. Take a look at the data below.

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Figure 1

The compound annual growth rate for engineering and R&D spending is forecast at 10% through 2026, according to Bain analysis.

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-> Go to Bain article

Rising ER&D costs are partly due to the challenges of market disruption compared to enhancing current products, even with more data and computing power. For instance, achieving the doubling of chip density per Moore’s Law in 2017 needed 18 times more researchers than in 1971, as cited by the National Bureau of Economic Research. ER&D spending is projected to grow at a 10% CAGR from 2022 to 2026. With increasing costs, leaders are focusing on ensuring good returns. ER&D encompasses activities from foundational research to post-production support, including product design, testing, and infrastructure development.

In 2018 Accenture found that companies across the globe expect to increase investments by 1.8x in the next five years. The research claimed that these companies were planning to further boost their innovation initiatives, ranging from research and development to advanced technologies, to mergers and acquisitions. Regardless of whether their data predictions are correct, the research found that approximately one in seven (14 percent) of the organizations surveyed are generating significant value from their innovation investments.

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So Innovation, as we’ve long argued, is not primarily a reflection of how much you spend. To give you an example - Apple spent less in 2018 on R&D as a percentage of sales than eight of the other nine companies selected by PWC as the most innovative (Google, Amazon, Microsoft, Intel, Tesla, Toyota, Facebook and others.) — a mere 5.1 percent of sales, compared with 20.9 percent forIntel, 19.1 percent for Facebook, 14.6 percent for Alphabet, and 12.7 percent for Amazon. Yet Apple was also the only company from the 2017 high-leverage innovator list to be selected by survey respondents as being among the most innovative.

Investing is necessary, because innovation has become more expensive then ever. But it's not a sufficient condition to innovate effectively. It's just necessary.

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Reason 2: Frameworks kill creativity

Let's suppose an incubation program has been established in the company. Money has been invested, program managers hired and onboarded, resources secured. Now, what do most program managers think they should do next?

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Yes, the very first thing people managing incubation programs do is confusing the process establishment with putting everyone into sprints, cycles and frameworks.

While the allure of new methodologies, frameworks, and tools promises a streamlined approach to fostering creativity, the key to true innovation lies elsewhere: in creating an environment that encourages and nurtures innovative thinking. Or in other words - letting people who should innovate... innovate. In this "culture", the most important thing is to keep innovators as far from our processes as possible. They don't have to know they're in a process, it's CIO's and manager's responsibility to make sure everything works smoothly and according to the strategy.

Building a well optimised Innovation Resource Management system cannot involve putting a massive load of new structures, programs and rules onto often already overwhelmed employees. Innovators hate structures, rules and frameworks. They are here to break the rules not to comply with a ton of new ones.

The reasons why this environment doesn't work most of the time, we described in the article: "5 reasons why intrapreneurship culture doesn't work"

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Reason 3: Lack of purple managers

Innovation isn't just about having the right tools. Companies might get tempted by shiny new processes, ideation sprints, and other tools that promise to "boost" or "streamline" innovation. While tools have their place, they're not the starting point. The foundation of innovation lies in creating a conducive environment and ensuring there are safety nets to manage risks.

Take, for instance, the considerable innovation potential that lies within a company's engineers. These individuals often exhibit what is termed as the “purple” management style. Purple managers are known for their meticulous decision-making process. They weigh alternatives and reassess circumstances multiple times before reaching a consensus. It's this exact precision and thoroughness that ensures products like bridges, dams, or high-rises stand the test of time. Yet, while this approach is invaluable in certain scenarios, a company's entire decision-making process can't hinge on it alone.

For the Head of Innovation, it is important to identify and determine the spectrum of Innovation Capable Human Intellectual Capital. Check out an article "Intellectual Capital - identify innovators in your company".

A homogenous management style can be the downfall of any organization. A company solely relying on swift decision-makers might end up launching products that fail to resonate with its customer base. Shockingly, 72% of product launches fall short of their expected results. A balanced management approach, blending the precision of purple with the agility of other styles, is imperative.

The essence of fostering innovation is not in complicating processes but in simplifying them. Instead of overwhelming teams with complex methodologies, companies should focus on setting up basic guidelines that champion creativity. By nurturing an environment where innovation is not just encouraged but celebrated, companies can ensure that they're not just producing new products but truly innovative solutions.

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Reason 4: Silos

A meta-analysis of the available research on siloed business unit operations in large organisations reveals that this problem can have negative impacts on company development in the long-term. Silos refer to business units that operate in isolation, without effective communication or collaboration with other units.

One of the major consequences of siloed business unit operations is a lack of synergy and coordination, which can result in redundancies and inefficiencies in operations. This can lead to increased costs and reduced profits for the company. Furthermore, silos can lead to a lack of innovation and reduced agility, as different units are not sharing knowledge or working together to solve problems. Another significant problem with siloed operations is that it can create an environment of competition rather than collaboration between business units. This can lead to a culture of internal politics, where different units are more focused on achieving their own goals rather than the overall success of the organisation. In the long-term, these problems can have a significant impact on the development and growth of the company. Lack of innovation and coordination can make it difficult for companies to keep up with changes in the market and to stay competitive. In addition, a culture of internal politics can lead to high turnover rates, reduced employee engagement, and a negative company culture.

Lack of the business alignment leads to a situation, where high-risk investment decisions, made outside of the company’s investment interest, exploit BU resources creating an isolated financial risk source. In a situation, where an individual interest group is actively lobbying for bad investment sustainment, the cost (risk) grows over time. This resource exploit effect is multiplied by the growing number of similar isolated investments; however their magnitude tends to fall due to shrinking resources.

This particular observation is based on a case study of one of the S&P 500 semiconductors manufacturing company. In an observed scenario, siloed business unit lifecycle consists of four, periodic phases.

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Figure 2

The Business Unit innovation potential cycle

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As an example, in phase two, lack of sustainability leads to further resource burnout. This happens after BU resource evaluation goes down below the cost, or when the financial and social risks associated with innovation maintenance are greater than risks associated with maintaining a company's competitiveness. We can denote characteristic behaviours associated with this period such as:

• Unreasonable investment decisions caused by an urgent need for a profitable innovation,
• Over-hiring due to investments in dispersed Focus Area,
• Further Focus Area Dispersion effect caused by the over-employment,

Lack of business alignment and bad portfolio management very often means, that all other innovation projects are terminated, which often results in group layoffs and significant loss of the human intellectual capital. With depleted resources, the BU is no longer able to innovate and must be restructured.