Study after study shows that “innovation” has a premier spot on the Top Management Agenda. True, the word “innovation” may be overused. So for example, upon learning that the “Peanut Butter Pop Tart” was one of the most important innovations of a USD 15B food company, the Wall Street Journal remarked: “Some CEOs spray the word ‘innovation’ as if it were an air freshener“.
But there is indisputable evidence that truly innovative firs capture more revenues and more profits from their innovation efforts than firms who are not excellent in innovation.
Innovation success does not depend on R&D spending
One might initially assume that heavy investment into R&D correlates with innovation success. However, this is not the case as numerous studies have shown, for example in “The Most Innovative Companies” (BCG, 2014). In fact, R&D investment is a necessary but not sufficient condition to innovation success.
The best innovators allocate their innovation investments to the most relevant areas. They are better in capturing the noise in the business environment and read the innovation signals contained there. They perform better in translating these signals into insightful ideas. They find clever ways to co-innovate with the best and brightest outside the firm. And finally, they empower their innovators to grab the ideas and run with them.
The innovation machine of the best innovators
If R&D spending is not the key driver for innovation success, where does it come from? Actually, there are a number of elements that make up a successful innovation engine. At the core there are strategy, processes /IT, management / governance, culture and innovation networks (ecosystems). Plus some enabling factors like the absorptive capacity of the organization.
Out of these element’s dimensions, we picked “processes/IT” as focal point for a study that we conducted with leading firms.
Excellence in the whole idea-to-product process
If one focuses on the “process/IT” element of innovation excellence, one finds that there are two major sub-processes. The first is about reading the environment for impulses and creating strong, well-defined innovation options. The second is about successful execution of these options, including all the many details that need to be fleshed-out, ending with the successful market introduction of a new product, service or business model.
Now, excellence in the “execution phase” is widely spread. Living proof of this are widely shared Best Practices, standard Phase/Gate processes that almost every large firm has implemented and Product Lifecycle Management and Project Portfolio Management systems that support all these activities.
It’s the early phase that is key to innovation success
It is early phase in which “the right innovation things” are picked that has the biggest influence on innovation success and innovation results.
And yet this is a part of innovation management where there is no clear-cut “how to.” So firms are trying and testing a lot of approaches such as, among others, Open Innovation, Collaborative Innovation on Enterprise 2.0 platforms, ambidextrous structures that separate breakthroughs from incremental “bread & butter” innovations to serendipitous search for breakthrough ideas and many more.
A closer look at the Fuzzy Front-End
The term “Fuzzy Front-End” (FFE) has been coined for the early innovation phase where “fuzzy” refers to the fact that not all of the activities – in particular the creative process leading to insightful ideas – can be planned and executed as a stringent business process.
The FFE is not an isolated process. It is linked with other business processes such as the strategy process, the resourcing process, the IP Management and Technology Management processes.
The “optimal” FFE depends on the firm
It would be wrong to imagine a one-size-fits-all FFE. Every firm needs to define its “optimal” FFE which depends on its industry characteristics as well as its internal characteristics and external business environment.
For example, external factors are things like industry clock speed and disruptive risks while internal factors comprise innovation strategy and the innovation culture in the company.
Software for the FFE
Firms are using software in the Fuzzy Front-End to support one or more of the following key activity areas:
- Analytics – Capturing the noise and elicit meaningful insights from the market, from technology and existing IP.
- Ideation and enriching ideas.
- Connecting new ideas with existing ones and with relevant experts.
- Use the “wisdom of the internal crowd” to select the best ideas.
- Concept writing and discussion.
- Solve tough technical challenges by finding the right experts from original and from other domains.
For the last number of years, software to support the FFE was a niche product in the overall market for enterprise software. Recently, SAP released software explicitly targeted at supporting the FFE. This software addresses the point mentioned in the list above and offers some unique new features. Based on SAP’s footprint in the market for enterprise software, SAP’s move will most likely increase the interest and the budgets that firms will allocate for optimizing their FFE.
Background and Study Goals
Given the importance of the FFE and in the light of recent developments in the market for FFE software we decided to conduct a study in order to find answers for three questions:
- Where do firms focus on currently, and in the future, in developing their FFE?
- Which are the key areas for software support?
- What are the biggest advantages and barriers in working with these new expert service providers?
We conducted 17 in-depth, structured interviews with leading firms from 5 industry sectors. The industry sectors where chosen to capture a wide variety of external factors that influence the FFE design. For instance, industries with a high clock-speed such as Consumer Packaged Goods (CPG) and industries with a high disruptive risk such as Utilities.