Overview
In a world of constant change, it is more important than ever before for organizations to innovate.
However, one approach to innovation does not fit all situations. Some approaches start with the problem, while others start with an idea. Other approaches seek to cycle quickly and fail fast or learn continuously about complex environments through small experiments.
The approach you use should depend on the problem being tackled, the context of the organization, and even the skills of the innovation team.
What is Corporate Innovation?
Simply put, corporate innovation is an organization’s efforts to improve any new product, service, process, practice, or strategy. To be truly innovative, the improvement should be new to the business and something the world hasn’t seen or done before.
Innovations do not need to be radical. Most innovations simply tweak previous products or the application of the products. This continuous learning is critical for the long-term success and profitability of the business.
There are five well-known approaches to corporate innovation: stage-gate, design thinking, open innovation, lean start-up, and systemic design.
Stage-Gate Process
A stage-gate process, sometimes referred to as phase-gate, is the most common approach to innovation. As the name suggests, the innovation must go through a series of stages and gates that guide development.
The image below shows that after each stage, the innovation is assessed and must pass a gate to proceed to the next stage.
Adapted from Cooper, R. G. (2010). The stage‐gate idea to launch system. Wiley International Encyclopedia of Marketing.The first stage is a screen of the initial idea and the last is the product launch. Between these points are stages such as building a business case, carrying out technical assessments, and developing the product.
With each stage, factors such as costs and organizational commitment increase while uncertainty decreases.
Each gate represents a decision point where innovators review the project and ask questions such as:
- Does the innovation fit our company strategy?
- Is it attractive to the market?
- Is it technically feasible?
By asking these questions, it ensures that the product’s potential is high enough to move it to the next stage. When an innovation is rejected at a gate, it may be sent back to the previous stage, or even abandoned. Gatekeepers need to have the power to make these decisions and allocate resources.
For the stage-gate process to be effective, innovators must be willing to treat gates as true go/kill points. Roles must also be clearly defined and appropriate gatekeepers selected in order for stage-gate processes to be effective.
3M’s Approach to New Product Development
In the development of the Scotch-Brite sponge, 3M would have developed a new sponge and then proceeded through the various production, market, financial, and environmental screens to ensure the sponge would be viable, before they launched. At any point along the way, 3M could have killed the project. After the launch, the marketing team at 3M would carefully analyze the sales numbers to ensure that sponge sales met their annual sales targets. Using the stage-gate process, 3M can systematically evaluate new ideas to continuously improve their products.
Design Thinking
Design thinking is considered a human-centered approach to innovation, as it is centered on the end user or customer. Its goal is to create new innovations that better meet the user’s wants and needs and can even be used to develop solutions to social problems.
Design principles typically used to make new products aesthetically attractive, guide the entire innovation process. Designers start from a place of empathy, trying to understand the problem from the user’s perspective. This discovery process is followed by cycles of prototyping, testing, and refinement.
Unlike the stage-gate process, which is a series of linear steps, design thinking contains three fluid phases:
- Inspiration: What is the problem to be solved? Designers observe and interview users. Through empathy and collaboration, designers gain a deep understanding of the problem and the users’ wants and needs.
- Ideation: Designers brainstorm solutions and test them by developing prototypes. Rapid prototyping is considered one of the most powerful tools of design thinking as it allows designers to try out their ideas, solicit feedback from users, and iterate.
- Implementation: Organizations chart a path to market and launch the innovation to end users or customers. It is a critical phase as it determines the success or failure of the innovation.
As seen in the image below, projects loop back through these three phases (especially the first two) as organizations test and refine their ideas.
Design Thinking in Action: Kaiser Permanente Reimagines Health Care
In 2003, healthcare provider Kaiser Permanente was looking for ways to improve the quality of its services. Using design-thinking principles, an internal innovation team observed and interviewed both its patients and front-line staff. The team discovered that the existing procedure for shift changeovers was a real pain point in the patient/staff experience as it took more than 45 minutes each shift for nurses to exchange information verbally. Not only was it time-consuming, but valuable information was often not communicated, resulting in poorer patient care. Through brainstorming and rapid prototyping, the innovation team developed a new procedure and a new software product to streamline information exchange during shift changes. Using design thinking, Kaiser Permanente found more time for nurses to provide care for patients.
Open Innovation
Open innovation is a decentralized, highly participatory approach created by Henry Chesbrough of Berkeley Haas. It is rooted in the idea that knowledge is so widely distributed that no company can effectively innovate by itself. Open innovation relies on knowledge flowing in and out of the organization.
There are two kinds of open innovation:
- Outside-in: The organization sources external knowledge, ideas, and technologies as inputs into its innovation process. This is most commonly used.
- Inside-out: The organization allows others to use its underused technologies and intellectual property in their innovation processes.
In contrast, closed innovation is an approach where an organization’s internal innovation department develops and launches products with little outside input.
The image below shows the flow of internal (purple) and external (yellow) ideas flowing in and out of the organization.
Open Innovation in Action: XPRIZE
The XPRIZE is one of the most high-profile approaches to open innovation. The XPRIZE Foundation offers large financial prizes for “radical breakthroughs for the benefit of humanity.” The foundation has generated such efforts to stimulate innovation in biodiversity conservation, climate, deep tech, health, learning and space. The first prize was a US$10 million prize launched in 1996 for the pursuit of a suborbital spaceflight. Mike Melvill fulfilled the requirements for this XPRIZE on September 29, 2004, but it was deemed to have generated over US$100 million in new technologies. Numerous large companies, such as Philips, Google, and Netflix, use open innovation as a means of attracting new ideas and talent.
Lean Start-up
The lean start-up is a scientific, customer-centric approach to innovation. It was originally developed to help start-ups quickly find product-market fit. It requires innovators to fail fast and continually learn.
More recently, larger and established businesses have started to follow the lean start-up approach. It follows a Build-Measure-Learn cycle as seen in the image below.
It starts with developing a minimum viable product (MVP), which is based on the innovators’ hypothesis during the Build phase. MVPs are not meant to be fully functioning prototypes. Instead, they are used to test hypotheses and gather early and frequent customer feedback.
In the Measure phase, innovators launch the MVP and collect data on customer uptake.
In the Learn phase, managers use that customer feedback to either iterate back to the build phase or pivot the project to something new.
The Lean Start-Up Approach in Action: General Electric Develops A Business Model for A New Industrial Battery
In 2010, General Electric’s Energy Storage division developed a new battery. Instead of building a factory, scaling up production, and launching the innovation, GE decided to apply lean start-up techniques to help inform their business model and to find the right product-market fit. The innovation team met with dozens of customers to gain insights such as how customers bought industrial batteries, and how often they used them. Through this process, GE shifted their business model to focus only on one target segment: utilities. They then further narrowed their focus to the telecommunications industry—specifically, cell phone providers in developing countries with unreliable electric grids. Using the lean start-up approach, GE was able to guarantee product-market fit before building a manufacturing facility and scaling up production.
Systemic Design
Systemic design is an approach used to design innovative solutions to complex social problems such as poverty, affordable housing, or youth unemployment. Many non-governmental organizations (NGOs) use this approach, which also draws on principles from design thinking.
Instead of focusing on the user, systemic design employs systems thinking—looking at the whole system, rather than at individual parts. (Read this article which defines a system and what systems thinking is.)
Systemic design focuses on the interconnectivity between elements over time, rather than snapshots at a single point in time. This helps designers understand how proposed solutions might affect different parts of the system in both positive and negative ways.
The image below shows the seven steps of the systemic design process.
Systemic Design in Action: Improving University Student and Staff Well-Being
In 2016, a group of systemic designers set out to improve staff and student well-being at the University of Technology Sydney (UTS). The complex issue involved many different stakeholders, priorities, and ideas about what constitutes well-being. The designers ran multiple experiments to understand which interventions would be successful in pushing the system toward the desired state. The designers also engaged with multiple stakeholders and allowed their understanding of the problem, the system in which it resides, and potential solutions to evolve over the multi-year project. Using system design, UTS developed a systemic vision of well-being as being a characteristic of the university community, and an integral part of education and research, rather than an issue that needed to be addressed by a new innovation.
Recap: The table below summarizes the focus, starting point, and approach for the five approaches to corporate innovation discussed in this article and describes their strengths and limitations.
| Focus | Starting Point | Approach | Strengths | Limitations | |
| Stage-Gate | Sales, profits | Opportunity | Sequential stages and gates | Efficient Systematic Auditable Low uncertainty | Fosters incremental innovations Rigid |
| Design Thinking | User | Problem | Inspiration, Idea, Implementation | Desirable for users | Requires comfort with ambiguity Sharp focus on user can inhibit creativity Can generate unintended consequences |
| Open Innovation | Opportunity | Problem | Hackathons, trade fairs, spin-offs | Efficient Leverages external expertise | Often transactional, so innovations aren’t fully exploited |
| Lean Start-Up | Customer | Hypothesis or Idea | Customer feedback, iterative, minimum viable product | Efficient Ensures product-market fit | Potential damage to brand with MVPs |
| Systemic Design | System | Complex Challenge | Integrates design thinking with systems thinking | Positive societal impact | Little traction with for-profit businesses |