A new way to innovate

Why are some companies better at making money from new ideas? Apparently it's all about funnels...

Last Updated: 31 Aug 2010

These days it would be difficult to find a single business leader who wouldn’t stress the vital importance of innovation. In a global market, where technology is changing all the time, you’ve always got to stay one step ahead of your competitors. Ask Yahoo – five years ago it was the king of the online playground; now Google’s stolen its lunch money and flushed its head down the toilet.

Consultancy Arthur D Little has been looking at the companies with the best record on innovation – i.e. the people who get the best return on their investment. The companies with the best innovation management can get a ten times higher return than their competitors – others spend a fortune to no avail.

‘Innovation is not about how much you spend, but why and how you spend it,’ according to ADL director Per Nilsson. So you need to start by thinking about what kind of value creation strategy you’re pursuing: are you looking to boost revenues, profits or shareholder value? Each might require a different innovation strategy.

ADL has also identified three different ways to manage the process. There’s the ‘single funnel’ approach, where various ideas are filtered down to one, which is then developed and taken to market (this works best for consumer goods companies). Then there’s the ‘double funnel’ approach, where various ideas are developed to market (on the basis that some will fall by the wayside – that sounds like multiple funnels to us, but there you go). Finally there’s the ‘mixed tunnel’, which we think is possibly somewhere between the two (although that doesn’t sound very funnel-like).

Inevitably (being consultants) ADL have translated all this theory into a natty little matrix: on the one side you’ve got Aspiration (what kind of value do you want to create) and on the other side Concept (what kind of development process does your sector require). Apparently making sure you’re in the right box is the best way to maximise returns.

Perhaps we’re not totally convinced by some of these theoretical distinctions (most revenue and profit-boosting measures will also enhance shareholder value, for example). But it definitely makes sense that the most successful innovators are those companies who try to put some kind of thought and structure around the process – rather than just locking all their cleverest people in a room and waiting to see what they come up with...

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