In today’s ever-evolving business landscape, innovation is crucial for sustaining growth and competitiveness. However, the challenge lies not just in having groundbreaking ideas but in creating a system that turns these ideas into tangible outcomes. In our recent podcast episode, we delve into the “Fantastic Five” components that form the bedrock of a robust capital-building innovation system. These elements are designed to streamline and enhance your organization’s approach to innovation, making it repeatable and scalable.

The Overwhelm of Building an Innovation System

Starting an innovation system can indeed seem daunting, especially when compared to the century-long evolution of performance systems. These performance systems, ingrained in business practices since the early 20th century, focus on efficiency and productivity. On the other hand, innovation systems are relatively new and require a different approach. To simplify this complexity, we’ve identified five key components—known as the Fantastic Five—that can significantly impact your organization’s innovation capability.

The Fantastic Five Components

1. Portfolio Management Approach

A critical first step is adopting a portfolio management approach. This involves categorizing innovation efforts into different portfolios based on their objectives. For instance:

• Optimized Portfolio: Enhancing current performance.

• Growth Portfolio: Expanding reach or offerings.

• Renew Portfolio: Reinventing or reframing existing solutions.

• Maximize Portfolio: Extracting maximum value from assets being phased out.

By managing innovation as a portfolio of investments, you can better align these efforts with your overall strategic goals, ensuring that resources are allocated effectively and risks are managed appropriately.

2. Next Development Process

The second component is having a clearly defined development process, often referred to as the Next Cycle. This process serves as a roadmap from ideation to execution, guiding teams through stages of discovery, experimentation, and validation. The Next Cycle ensures that ideas are systematically evaluated and developed, reducing uncertainty and increasing the likelihood of successful outcomes.

3. Decision-Making Criteria

A well-defined decision-making criteria is essential for maintaining alignment and focus across all levels of the organization. The “Super Seven” questions can serve as a robust framework:

• Does the innovation align with our strategic goals?

• What assumptions are we testing?

• What are the expected outcomes?

• How do we measure success?

These criteria ensure that all stakeholders—from executives to innovation teams—are on the same page and making informed decisions.

4. Operating Principles

Operating principles define the rules of engagement for innovation activities. These principles distinguish between the performance and innovation contexts, allowing for flexibility and agility in the latter. For instance, innovation teams might have faster procurement processes and more discretionary funding to encourage rapid experimentation. Clearly, articulated operating principles help prevent friction between the Now and Next systems, ensuring smoother transitions and greater cohesion.

5. Next Funding Model

Traditional annual budgets do not suit the uncertain nature of innovation. The Next Funding model addresses this by providing flexible, stage-gated funding based on the progress and potential of innovation projects. This approach mitigates the risk of overcommitting resources to unproven ideas while ensuring that promising innovations receive the support they need to reach maturity.

Real-World Application: Tesla’s Gigafactory

Tesla’s Gigafactory is a prime example of successfully integrating performance and innovation systems. While optimizing the production of electric vehicles, Tesla continually pushes the boundaries of innovation—reducing battery costs, increasing production efficiency, and exploring new technologies. This dual approach enables Tesla to maintain its competitive edge and drive significant advancements in the automotive industry.

Conclusion

Building a culture of innovation requires more than visionary ideas; it demands a structured system that supports continuous development and execution. By focusing on the Fantastic Five components—Portfolio Management, Next Development Process, Decision-Making Criteria, Operating Principles, and Next Funding model—you can create a robust framework that drives sustained innovation and capital growth.

Ready to transform your approach to innovation? Visit Solve Next to learn more about the Fantastic Five and how they can revolutionize your organization’s innovation system. Then, join us for our next podcast episode as we delve deeper into practical steps for building an effective innovation system.

Embrace the challenge, and go out and make the next happen.