When it’s time to come up with new ways to tackle the challenges your company faces, it’s not enough to sit in a room and throw around ideas until something sticks. A little structure can go a long way, which is why business leaders turn to innovation frameworks to help them make decisions and introduce new ideas.
Innovation frameworks are one of the key ways to remain competitive in an increasingly aggressive business environment.
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What is an Innovation Framework?
Companies often define their strategies for hiring, marketing, and other objectives. Through an innovation framework, they define the ways in which they’ll evaluate a business decision that could lead to serious change within the company. Innovation frameworks give organizations a way to effectively vet ideas, evaluate the pros and cons of each, and make educated decisions about how to proceed. With a strong framework, ideas will be focused around the central problem at hand, providing a lens for business leaders to more easily consider their options.
“There are many frameworks for tackling different types of problems in different contexts, and those collectively help you to innovate,” says Samina Karim, professor of entrepreneurship and innovation at Northeastern’s D’Amore-McKim School of Business.
These frameworks have been developed by business leaders, professors, and consultants based on their real-world experiences in the workplace. Some, like Six Sigma, are so widespread that most companies have already implemented them in their operations. Others are not so well known and filter through industries as competitors try, fail, and succeed in their own innovations.
“As a competing organization, you would have likely heard of other best practices at firms that have failed or succeeded to deal with the problem that you’re having,” Karim says.
4 Common Innovation Frameworks
The following frameworks are applicable to businesses in nearly any industry, providing them with a structure to organize and evaluate their options in various situations.
#1—Ally vs. Acquire
Karim focuses on acquisition-based problems in many of her classes and teaches frameworks designed to help companies make strategic decisions about whether to form an alliance or make a purchase and, if the latter, them how to integrate newly acquired companies into existing business practices.
The first of these helps organizations consider whether it’s a good idea to form an alliance or acquire a company instead. Acquisitions are expensive, with companies typically paying a premium of 30 percent that must be recouped before they can claim a profit. They often fail, too.
To successfully create value from other firms, whether through an alliance or acquisition, businesses must first ask themselves what they hope to get from the other company, what kinds of resources are at stake, and what the market looks like.
“There’s usually a lot of restructuring, and some of the best people leave after,” Karim says. “If the idea is that you really want to retain people, then maybe acquisition isn’t the best strategy. It may be better to form an alliance and incentivize mutual benefit.”
If the market is hot, on the other hand, organizations may not have time to get to know each other before making a purchase. Instead, they may need to put in an offer sooner than anticipated to ensure that a competitor doesn’t acquire some valuable resources.
Walking through each of the questions the framework presents—reasons for a partnership, resources involved, and market conditions—helps leaders to collect the information they need to understand their situation and make a better decision.
#2—The New M&A Playbook
Karim also teaches the New M&A Playbook framework, which helps businesses determine what to do with a new acquisition.
“It seems like a simple question, but the framework breaks this down into two ideas,” Karim says. “Are you acquiring something so that you continue to do what you do, but do it better, or is it that you really want to do something new and different than what you already do?”
In 2012, Amazon purchased Kiva Systems, a robotics company that automates the picking and packing processes at large warehouses. To Karim, this arrangement makes a strong case for integration. Because Kiva helps Amazon do exactly what it’s always done—pack and ship orders as quickly as possible—but better, it makes sense to incorporate these robots throughout Amazon’s network of warehouses. Four years after the acquisition, Deutsche Bank estimated that Amazon could save $800 million by deploying the robots at all 110 of its fulfillment centers.
The case against integration within this framework is twofold. First, if an acquired organization is doing something dramatically different from its parent company, as with Nokia’s purchase of Navteq mapping software in 2008, keeping the businesses separate may be for the best.
“The business model of how to generate revenue from Navteq’s services would be drastically different than that of making mobile handsets,” Karim says. “It’s complementing the handsets, but it’s propelling the firm to do something different.
The second argument for autonomy relates to office culture. When Microsoft wrote down its purchase of digital marketing superstar aQuantive for $6.2 billion, former employees blamed a serious culture clash for the failure. Over the five years before the writedown, attempts to combine the engineering-centric focus at Microsoft with the advertising-based culture at aQuantive proved too difficult.
Karim believes this problem may have been avoided through the use of the New M&A Playbook framework.
“If they didn’t really understand yet how this company works and their business model, maybe they should have kept it separate for longer,” she says.
Companies sustain growth through more than their alliances and acquisitions, and the popular Three Horizons framework helps them maximize opportunities for expansion without damaging current performance.
The first horizon represents the core products or services that have the highest levels of consumer recognition and profits. Once identifying this horizon, businesses should focus on improving performance within it to maximize its value. The second horizon consists of emerging opportunities that may need significant investments to reach their high-profit potential, and the third is made up of ideas for profitable growth—such as research projects, pilot programs, or minority stakes in new businesses—that will take longer to generate results.
Though many businesses fall into the trap of dealing with the first horizon now, the second one later, and the third much later, leaders should constantly be working on projects within each horizon. Categorizing new projects into horizons creates a clearer picture of what organizations can achieve and what needs to be done to support each initiative, creating space for profitable innovations across multiple timelines.
Another popular strategy, called Blue Ocean, is a simple but effective way to establish new markets. Under this framework, red oceans represent all the industries that currently exist, along with their defined and accepted boundaries, competitive rules, and intense drive to capture the limited amounts of market share available.
A blue ocean, meanwhile, is untapped. It’s full of industries that have yet to be created, allowing companies to create their own demand in a wide-open field rather than fight over it. Growth within blue oceans can be fast and profitable, encouraging organizations to consider unexplored market space for their latest product or service launch instead.
Businesses that become the first to dive into blue oceans not only capture huge amounts of market share, but they also tend to keep a stronghold on it despite the inevitable influx of competitors. From the Ford Model T, the first affordably-priced car for the average American, to iTunes, which took advantage of the growing trend toward digital music, spotting and promoting efforts in new markets rather than existing ones has generated significant returns.
Organizations seeking to adapt the blue ocean framework for their own use can consider how to best use their current business practices, products, and services in new markets, leveraging their hard-earned expertise for unique purposes.
Diving Deeper into Innovation
Strong innovation teams that understand how to inspire, encourage, and promote creative thinking are critical to organizational advancement. In Northeastern’s Master of Science in Innovation program, students learn the foundations of innovation strategy and implementation, making them stronger leaders in intensely competitive industries.
Through real-world experience gained from research, development, and testing of ideas, Karim’s students constantly take what they’ve learned in the classroom and apply it to breaking news within their fields of interest, from Microsoft’s acquisition of Skype to the challenges of maintaining large brand portfolios at VF Corporation, which owns North Face and Timberland.
“They are looking at real-life examples of innovation in firms that touch their lives all the time,” Karim says. “Executives are at firms that always need to remain competitive and innovative, and building these skills is something that I think is useful and applicative in every industry.”
For more information about how to foster a culture of successful innovation, download our free ebook, “How to Introduce Innovation into Your Organization.”