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Article   |   Robert Nyiredy   |   19.07.2021

Fostering Business Innovation

Robert Nyiredy, VP Risk Management Consulting at Vysus Group, talks to us about being curious and opening our minds for innovations in safety.

What exactly is Innovation in Business?

First, let’s get one thing straight — invention does not equal innovation. When you invent something, you bring something new and unique into the world. Innovation involves making something unique that creates tangible value, whether it’s in the form of a new product, solution or process. Inventions, on the other hand, aren’t always valuable. For an invention to become an innovation, people must care about it. If your invention doesn’t have a ready-made audience, then it isn’t worth pursuing, from a business standpoint.

Generally speaking, McKinsey & Company has defined three different types of innovations. They are:

  • Horizon 1: an improvement or added feature to an existing product
  • Horizon 2: an adjacency improvement — when a product becomes useful to a new market
  • Horizon 3: a discovery, new product or step change above the competition

It’s recommended that businesses invest around 70% of an R&D budget into horizon 1 innovations, 20% into horizon 2 innovations and 10% into horizon 3 innovations.

How to invest in Business Innovation

Horizon 1 innovations are short-term, deterministic, low-risk and fit a known customer need; for example; a new feature requested by a customer; or a developer discovering a quick product improvement. Developers can then estimate the time and budget required to make the innovation a reality. Next, the sales team can easily predict the return on investment (ROI), based on customer feedback. This fast, low-risk type of horizon 1 innovation is almost always successful, so, spending 70% of R&D budget is generally a good rule-of-thumb. If the core market is growing very fast, it may make sense for a company to focus 100% on horizon 1 innovation. However, focusing solely in this innovation space can leave companies stuck in the short term, at risk of becoming stagnant, or displaced over time.

Horizon 2 innovations have a lower success rate, but their benefits are vast, as they can open brand new markets. Spending 20% of an R&D budget on horizon 2 innovations is considered a best practice. Horizon 3, however, can yield the largest reward, making an organisation the ‘first to market’ or the leader. However, success rates can be low, so 10% of an R&D budget is adequate for these concepts.

How to foster Business Innovation

Not every idea will be successful - foster the ideas that are working, but don’t punish those that don’t. Don’t put your eggs in one basket - always have a series of teams working on a variety of potential innovations. Follow the ‘one pizza rule’ when organising your teams — keep them to about three to four people - then re-evaluate should the concepts warrant more funding or freedom.

As the innovation team grows, it should resemble a separate organisation from the rest of the company, complete with dedicated developers, marketers and salespeople - this is an important step that can sometimes be overlooked. It’s recommended to have marketing and sales fully immersed during the incubation period, so they can better understand how to position and sell, once it’s ready for market.

These teams should have no fear of failure, otherwise they’ll tend to always flock to ‘easy’ horizon 1 assignments, leading to possible stagnation. It’s inevitable that projects will sometimes need to be shut down. When this happens, learn from the failure and don’t dwell, congratulate the team on its hard work and assign them quickly to other, more promising projects.

Open sources of Business Innovation

The term “Open Innovation” was coined by Prof. Henry Cheseborough from UC Berkeley — it promotes that ideas can come from a variety of sources — both inside and outside your organisation. In the past, I’ve seen internal expert teams refusing to accept this outside input and reject external approaches, very determined to do it alone, which of course they eventually do. However, had they ‘openly innovated’ and gathered ideas and additional expertise externally, they would have reached their goal far sooner.

I learned that innovations can be created in many ways, but precisely challenge-led innovation was the main driving force, combining operational benefits with business potential and identifying innovative solutions to safety challenges, that require broad collaboration - typically between users, customers, start-ups and other relevant key stakeholders.

Innovative digital technologies like the cloud, internet of things (IoT), artificial intelligence (AI) and machine learning (ML) are truly changing how companies do business. I’ve met some of the most astonishingly smart people to solve challenges that you would not imagine exist. Let us continue being curious and open our minds for innovation in safety.

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