How to Make Better Decisions on Innovation

When we talk about innovation, we talk about making the right decisions at the right time: Which product lines should we expand, which do we discontinue? Which features do we offer? Which product concept should we continue to pursue? Should we rely on technology X, or will technology Y prevail?

Quite obviously, not all decisions are created equal in quality: Numerous studies, such as a meta-study commissioned by Strategyn, have shown that the majority of innovation projects fail or do not deliver the desired results. How can it be explained that a business process that is so vitally important (also the ISO 56000 standard declares innovation as a key factor for sustainable growth, economic profitability, increased prosperity and the development of society) shows such a bad performance?

Why is the quality of decision-making in innovation management so poor? And more importantly, how to improve decision-making so it helps create a long-term competitive advantage? We will explore these two questions in this blog (if you want to see results immediately, feel free to scroll down to the second question right away 😉).

Why is it so difficult to make successful innovation decisions?

Every innovation is a path into the unknown: something is to be developed that does not yet exist. Decisions have to be made on the basis of assumptions that may turn out to be wrong at any time in the journey. But in order to understand in detail what exactly makes decision-making so error-prone, let’s take a closer look at the object of “innovation”.

Innovations are characterized by the following features (as described in this textbook: They are novel, complex, uncertain, fraught with conflict and commercialized. It is precisely this mixture of properties that makes innovation so difficult to “manage”.

• Novelty means that a specific problem-solution combination has not existed before. While novelty is a matter of perspective – what is completely new to one company or in one market may already be a standard offering in other markets – nevertheless, the higher the degree of novelty of the innovation project, the harder it will be to make good decisions.

  This applies in particular to radical innovations, as Eberhard Häfele, Director Strategic Development & Innovation at Leica Biosystems describes: “The more transformational, the more you get off the beaten track, the trickier are the decisions you need to get when it comes to innovation.”

• Another characteristic of innovation is its complexity. A situation is complex if it is complicated (i.e., there are many elements/connections in a system) and dynamic at the same time (i.e., the elements/connections are subject to constant change).

  Thus, innovations are poorly structured problems and can only be roughly captured, delimited and described. Classic rules and routines for decision-making often fail. Complexity increases by the fact that innovation initiatives are cross-sectional tasks in the organization involving different departments with different personalities and objectives striving for consensus.

• The more novel and complex an innovation project is, the more uncertain its success. Uncertainty means that one cannot attribute subjective (based on experience) nor objective (statistically determinable) probabilities to the occurrence of an adverse event that may endanger the success of an innovation.

  The uncertainty of innovation projects is particularly high in the early phases (at the front end). Time and cost, acceptance by the customer, and technical feasibility are particularly difficult to predict.

• All of these factors increase the conflict potential of innovation, and there is certainly no shortage of potential in possible occasions for conflict. Innovations create something new by making the old obsolete and thus involve “creative destruction”.

  There are conflicts between existing products and the new product to be developed, intra- and interpersonal conflicts (e.g., due to different perspectives between R&D and marketing). Innovations can question the existing self-image, company standards, or its strategic vision. There may also evolve new ethical, moral or legal conflicts when it comes to breakthrough innovation projects.

• Last but not least, commercialization is an essential characteristic of innovation. Only by successful introduction to a market (or in the organization, if it’s a process innovation) becomes an invention an innovation. Many innovations fail precisely in this last phase, namely when market success does not materialize as hoped.

While these five characteristics have always made innovation so difficult, they are becoming increasingly important in today’s VUCA World.

How to improve your innovation management decision-making

Let’s now explore four suggestions how to make better decisions and see how the Outcome-Driven Innovation® (ODI) process can help to put them into practice.

1. Gather as much relevant information as possible – especially in the front end

First of all, it is important to reduce uncertainty in the early phases of an innovation project as far as possible. When it comes to innovation, there are – to put it simply – two major areas of uncertainty: one relates to the technology and possible technological developments, the other to the market, customer segments and customer needs.

There are established procedures such as early technology detection, technology monitoring and technology scouting to reduce uncertainty with regard to technology. See two blogs (here and here) on these topics to learn more about early technology detection.

It is usually much more difficult to reduce uncertainties on the market side – especially in the early fuzzy phases of the innovation process. Especially when targeting a new, unknown market, it is often difficult to assess how the market is structured, which segments it is made up of and what the needs of these segments are. However, it is precisely this information that is necessary in order to develop a new, innovative solution in a targeted manner.

Johannes Enders, Innovation Manager at Schaeffler, explains: “When it comes to innovation, one of the biggest challenges is to gain an understanding of the market opportunity. Quite often the technology is not the problem, but the market is not clear.”

Outcome-Driven Innovation® (ODI) is a method to reduce uncertainty about a market. Combined with methods that provide information on technological aspects and on potential competitors, ODI offers a 360-degree picture that provides the best conditions for successful innovations.

2. Generate ideas and concepts in a focused and decision-friendly way

Most innovation processes start with a so-called divergent phase in which ideas are generated, followed by a convergent phase in which concepts are evaluated and finalized. The divergent phase approaches a problem in an open, unsystematic and experimental way, in the convergent phase the different aspects should be consolidated and decisions made.

The process of Outcome-Driven Innovation® (ODI) suggests a different approach. Even before the ideas are generated, clear targets are developed based on the analysis of a market and the respective customer needs. This doesn’t mean that ODI isn’t also about thinking creatively and being open to new solutions. Rather, it means focusing and channeling the creativity and problem-solving skills of the entire team.

Ideally, strategically important fields of action for innovation are defined first, before ideas and concepts are developed using divergent methods (such as creativity techniques or Design Thinking). Not only is this approach more efficient, it also improves the quality of decisions made significantly.

3. Make decisions customer-centric and data-driven

It’s one thing to listen to the voice of the customer, but another to make decisions based on customer needs. ODI can also streamline the evaluation of new solution concepts by how well they actually meet customer needs that have been identified as central.

Behind each prioritized customer need is a set of market data derived from the qualitative and quantitative phases of the ODI project. The decision in favor of a particular product concept is thus much more evidence-driven than other criteria (which can also be used as a supplement).

Jan Tatousek, Director Research Product Management at Philips Research, resumes: “The most remarkable thing on ODI is that we are now involving the customer in the decision. Before that we were also listening to the customer, but the priorities were decided by us.”

4. Consider that decision makers are human after all

Even if you have gathered facts and figures about the market and underserved customer needs, if you have developed and evaluated concepts that perfectly fit the identified market opportunities, it is still not certain that the best possible decision will be made.

The reason is that when it comes to decisions, it’s not just facts that count: personal agendas, irrationalities, fears and the like have an influence on which decisions we ultimately make. If several decision-makers are involved, things quickly get complicated.

It is important to know that while market-based facts and figures are the basis for making good innovation decisions, they are not enough. Good decisions must be well-prepared. Decision-makers must have the chance to embrace their decisions emotionally. Therefore, it is important present data in a way of a “good story” and anchor them with images.

Outcome-Driven Innovation® (ODI) can help convey complex and extensive market data in easy-to-understand themes and images. Ultimately, it is always about a job executor who wants to get a certain job done. The job focus not only serves to create a common understanding and basis for decision-making, but it also has a motivating effect for the implementation of the decision.

What’s your recipe for success?

Consider these four tips and you will significantly improve the quality of innovation decisions in your company. Outcome-Driven Innovation® (ODI) is specifically designed to make decisions more customer-centric and data-driven. Thus, ODI makes innovation manageable and predictable, leading to much more successful decisions.

How do you make decisions on innovation? What are your recipes for success? What role do customer needs play in your decision taking? Let’s talk!

If you want to learn more about this blog’s topic, rewatch our webinar on September 7, 2022. Jan Tatousek, Director Research Product Management at Philips Research and Martin Pattera from Edizon talked about “Getting better decisions faster: the essence of Outcome-Driven Innovation®”.