2 How to identify the innovation needs of a business problem
InnoSupportTransfer – Supporting Innovation in SMEs 2. How to identify the innovation needs of a business problem 2.1. Innovation Audit 2 How to identify the innovation needs of a business problem 2.1 Innovation Audit Keywords: Innovation audit, knowledge, innovation, diagnostic tool, innovation auditing After reading the component you will have acquired a basic knowledge of what an innovation audit is, why it is useful as well as where and how you could organise it for your company. You will also be able to recall basic steps in order to properly implement it. It will take 40 minutes to go through this module, but if you will complete the suggested tasks it will take more. Introduction Today many companies are seeking to improve their innovation performance by having a clear view of both their current and potential innovation capability. It has been a common desire in the business world that companies must be able to be constantly innovative to maintain or improve their position in the market. They also recognize that successful sustain innovation is a proven route to drive organic growth and that it has an impact on revenues, margins and share price1. However, innovation is a highly complex topic and not easily measured and managed particularly with the traditional methods. The point with innovation measurement or assessment is not simply to collect data but to use some measures to drive improvement of the innovation process. As the quality guru, W. Edwards Deming, pointed out, “If you don’t measure it you can’t improve it”. This module explains the concept of an innovation audit, which comes to serve the above purposes and support SMEs in this complex task. 2.1.1 What is an “Innovation Audit” and why use it The Innovation Audit is a method for identifying the major company’s needs, possible weaknesses and strengths as well as the relative opportunities and threats of all factors affecting innovative performance. It is a fact-finding technique, which identifies how the company performs as well as the strong indications of what the company really needs. The objective of an Innovation Audit is initially to develop a suitable set of metrics to better address the particular organisational context, which affects the innovative performance of a company, and then to obtain some quantitative 1 www.innovaro.com/inno_updates/Innovation%20Briefing%2007-07.pdf © InnoSuTra 1/11 12-01-2009 InnoSupportTransfer – Supporting Innovation in SMEs 2. How to identify the innovation needs of a business problem 2.1. Innovation Audit and qualitative results by surveying all the suitable stakeholders involved in the innovation process. The overall objective is to analyse the results and provide a clear identification of company’s first priority needs as well as the strengths and opportunities that should be taken into consideration. It also assists the company to prioritise and identify the more significant actions that it should adopt. The innovation audit provides an opportunity for managers to determine whether the organisation has the required resources, infrastructure, culture, and processes to seriously consider either focusing on or improving the current state of innovation. Among others, some of the more specific innovation audit’s objectives are to: • Understand current innovation performance in the main areas of strategy, process and the organisation • Benchmark this performance against best practice, both within sector and overall at a cross sector level • Assess your current capabilities before making expensive changes • Learn how to improve the use of all resources involved in the innovation process • Develop an action plan or roadmap to implement for future development. Only with a reliable, validated and integrated Innovation Audit that encompasses the appropriate assessments and brings together in a coherent manner, can organisations establish the basis for moving forward and achieving their mission and vision2. The objective is not only to perform the audit but also to develop the program to correct the problems and progress with new opportunities. Content of an innovation Audit An innovation audit is a diagnostic tool and should include questions or statements covering all areas affecting innovation. While preparing an innovation audit managers should think that there is no such thing as an absolute innovation audit recipe for all organisations. Nonetheless, it is possible to develop a number of metrics and indicators, which give some indication of the innovation capability of a company. The following indicative list contains the most important areas should be included in an innovation audit list and it can help you begin the process of auditing innovation. Indicative list of areas should be investigated during an innovation audit Organizational resources Level of bureaucracy Organizational infrastructure Decision making, power & politics Current culture, climate Acceptance of change, tolerance of failure Leadership, management Use of consultants Identification of new opportunities Quality of work life 2 http://www.innovaro.com/inno_updates/Innovation%20Briefing%2007-07.pdf © InnoSuTra 2/11 12-01-2009 InnoSupportTransfer – Supporting Innovation in SMEs 2. How to identify the innovation needs of a business problem 2.1. Innovation Audit Source: http://www.innovaro.com/inno_updates/Innovation%20Briefing%2007-07.pdf Please stop and think for a while, which of the above-mentioned areas play an important role in your company’s innovation capacity. • Which do not appear to cooperate with your innovation needs? • Are there important problems or important margins for improvement? • Is it the current culture, the current level of bureaucracy or something else which you should analyse more in an innovation audit? • Are there enough indications that current leadership is positive in relation to innovative thinking and innovative behaviour? • To what extent is the current decision making policy hindering or supporting innovation? • Are the majority of employees satisfied with the quality of their work? Don’t you think that in order to start a suitable innovation policy the above mentioned questions should be somehow answered or at least addressed? 2.1.2 Where to use an innovation audit Innovation management is important in all sectors regardless of whether it is a highly technological sector or a traditional sector. The nature of innovation, which is horizontal, can support many other business process and areas like finance, production, supply chain, marketing, strategy, etc. Moreover, the important effects innovation can have to a company’s overall performance make us believe that no sector should be excluded from the innovation audit course. In addition, you shouldn’t forget that innovation requirements might refer to a new management method or practice and therefore an innovation audit can help all companies independent of their sector, size or other specific problem. Among others there are several business cases, where auditing innovation has increased priority and is highly recommended, these include: Urgent market changes An innovation audit can help a lot a company to better analyse its current position and decide what future steps to follow to face major market changes like a new and strong competitor in the market, an important market share loss, etc. People say that in many past cases the real innovation didn’t occur from someone sitting in his/her desk watching the growing figures in company’s financial statement but from someone who was in the edge of collapse and he/she more or less was trying to “survive”. © InnoSuTra 3/11 12-01-2009 InnoSupportTransfer – Supporting Innovation in SMEs 2. How to identify the innovation needs of a business problem 2.1. Innovation Audit Strategy formulation To utilise its results successfully, innovation management shouldn’t be considered as an easy task or a simple and quick method. Although innovation results seem to occur suddenly, systematic management needs time and long term efforts and therefore, must be an important part of a company’s strategy. That said the innovation audit is an important vehicle for identifying many important strategic gaps due to the broad range of areas it investigates and because of its holistic nature, and can help managers to better align the innovation dimension during strategy formulation. Technological progress In the knowledge economy and in highly competitive sectors, product life cycles have been reduced and major technological changes can impact overnight on the production platform a company uses. In addition, a completely new competitive or substitute product or processes can emerge and eliminate a company from the market. Therefore, during such periods, implementing an innovation audit can reduce the above mentioned risks and keep a company’s innovative performance at a high standards. Innovation audit frequency Innovation and its main prerequisites, which are creativity and knowledge, are to great extent ecological in nature. Therefore, managers shouldn’t see innovation as an item, which can be easily measured and managed simply by following some innovative methods. What is more important for managers in innovation is to be able to cultivate the suitable environment for innovation. However, a company’s context (corporate or external) particularly in competitive sectors and markets, changes continuously in an unpredictable manner. If we take this into account we can easily conclude that an innovation audit must be done frequently or at least must be reviewed periodically following market changes. It is estimated that a periodic review of the innovation policy every 12 months is enough. However, in knowledge based sectors a more frequent innovation audit might be needed. In any case you should try to balance and compare all the costs incurred during an innovation audit with the possible benefits for the company. 2.1.3 How to implement an innovation audit The procedure followed in order to carry out an innovation audit is described below: © InnoSuTra 4/11 12-01-2009 InnoSupportTransfer – Supporting Innovation in SMEs 2. How to identify the innovation needs of a business problem 2.1. Innovation Audit 1. Company decision for Innovation Audit 2. Initial phase (team, strategy fit, questionnaire) 3. Interviews, data analysis and report phase Step 1. Company decision for Innovation Audit As with all new management interventions, top management must clearly express his/her willingness when deciding to implement an innovation audit. However, in small SMEs some managers might not be able to even identify if they need more systematic innovation management. In some other cases the decision for an innovation audit might come from a company crisis or might be the result of a management briefing with executives or an idea highlighted during a brainstorming session. In addition, European competition policies during the last decades have suggested that innovation should be a top priority for SME’s and many useful tools are offered to support innovation in SMEs. Regardless of the origin of the idea for an innovation audit (i.e. crisis, strategy formulation, by chance, E.U policy, etc), management need to be fully aware, accept and be supportive by allocating the required time and in some cases the budget to begin the innovation audit process. Management’s decision and active involvement in the innovation audit has a political role and will ensure the commitment of all stakeholders involved and ultimately the audit’s success. Step 2. Initial phase (Team, strategy fit, questionnaire) Team building Innovation audit shouldn’t be seen as a quick solution. To get maximum value from it you shouldn’t take the process lightly and allocate tasks before your team is ready. It is highly recommended that the innovation audit team comprises executives to ensure the inclusion of the required multi-perspectives (innovation is holistic and ecological). To address innovation dynamics in a real business environment like your company, you have to analyse the company as a living organism which is affected by many interrelated factors similar to a real ecosystems. However, in some cases, such as, where a company has a complex strategy, with several premises and units and with a high number of staff, the know-how of some experienced innovation consultants might be required. © InnoSuTra 5/11 12-01-2009 InnoSupportTransfer – Supporting Innovation in SMEs 2. How to identify the innovation needs of a business problem 2.1. Innovation Audit Strategy fit This stage involves the alignment of the innovation audit with the business strategy. Revisiting current strategy documents are a prerequistie for this stage because to have success, an innovation audit must be very well aligned with the current business strategy and aimed to fill in existed strategic gaps. Therefore and before starting drafting the innovation audit questionnaire, an important step for the team is to discuss strategy documents openly, have some briefings with the top management, check the current status of company’s sector and try to answer questions like: What are the current competition forces? What do we know about the competitor’s situation? What elements make us competitive? What are the important past problems we have had with customers, products, personnel? Please stop for 5 minutes, revisit paragraph 2.1.1 (content of innovation audit) and check the indicative list of the possible areas to be investigated during an innovation audit. Where do you think your company suffers? Which of these areas seem to be a priority for being audited? Questionnaire In this stage, the innovation audit questionnaire is developed and customised to ensures that it meets the company’s specific needs. The general model for an innovation audit questionnaire which we suggest you use has been developed by Gerard H. Gaynor. Before customising the questionnaire, we advise you to follow the link 3 and see the questionnaire in its original form. In addition, during the ’strategy fit’ step the innovation audit team will acquire new information and other useful details which will result in a more customised innovation audit questionnaire/survey. The team will need to select the most important areas to be audited (see the list in paragraph 2.1.1), to properly phrase questions, to use company and sector terminology and to organise pilot surveys to test the questionnaire.4 3 Innovation by Design: What it Takes to Keep Your Company on the Cutting Edge By Gerard H. Gaynor, Published by AMACOM Div American Mgmt Assn, 2002 4 http://www.trainmor-knowmore.eu/26260557.en.aspx © InnoSuTra 6/11 12-01-2009 InnoSupportTransfer – Supporting Innovation in SMEs 2. How to identify the innovation needs of a business problem 2.1. Innovation Audit Step 3. Interviews, data analysis and report phase (action plan) Interviews Undertaking the survey. Here, as an innovaton audit team you will have to decide which method to use in collecting the data. Some schools of thought suggest that respondents should read the questionnaire and then be interviewed while others suggest a follow-up discussion in order to clarify issues after the questionnaire is completed. Thus, the audit team has to plan interviews in advance, preferably with all staff. Although interviewing all staff might increase the cost and duration of the audit, we suggest this because innovation is the result of many environmental factors co-existence, it originates and is defined by the human behaviour at work nobody should be excluded from such a survey. Previous innovation audit projects suggest that such interviews last longer than other surveys and should be conducted in a manner, which would help respondents to reply with honesty. 5 Data analysis Data analysis and evaluation. This step is important and it requires basic know-how of statistics or better a simple table to find out tendencies (orientation to positive or negative) for some important innovation factors. In some cases some more advanced statistics might be required. The statistical methodologies used here are based on the data format in which the replies were given to the various questions. However, in many cases simply using some very basic statistics like the average percentages of a reply may give clear indications about the possible problems with regard to innovation as seen in the following example. Let’s take one of the questions in the suggested questionnaire model from the “current culture” session: Are employees knowledgeable about the purposes for which the organization exists? YES NO If the great majority (lets say 80%) of interviewed staff reply “No” to this question, then it is obvious that the mission and strategy of the company being studied have not been communicated well and broadly enough to all staff. Managers and the innovation audit team now have a clear indication about one of the possible areas for future changes and management interventions. How do they expect to motivate personnel, if 80% feel that they are not well informed about important issues like the company mission? How can they expect staff to be committed, energized and focused on the right things when not all staff are “in the same boat” in terms of strategy awareness? 5 http://www.trainmor-knowmore.eu/26260557.en.aspx © InnoSuTra 7/11 12-01-2009 InnoSupportTransfer – Supporting Innovation in SMEs 2. How to identify the innovation needs of a business problem 2.1. Innovation Audit Report phase Presentation of results and preliminary discussion on the findings. The first innovation audit results should be presented to and discussed with managers before preparing the final action plan. This step is required because it is very likely that managers will give a deeper insight into certain findings while also asking the audit team to refine some of the initial findings.6 Traditionally, innovation audits have been used to identify a gap or deficit, and then use this “gap analysis” to drive performance improvement. It is very important that the innovation audit is used to reach conclusions about the organisation’s innovation management, perhaps for different innovation issues. It is vital that the audit ends up in an action plan with precise conclusion as regards the necessity of, for example, of culture change, information sources, creativity tools, project organisation, resources, time management, etc7. In terms of timescale, we find that such an audit typically takes four weeks to complete from initial scoping and tool design to completion of draft findings8. Now it’s your turn to test if after reading the article you are well prepared to do an innovation audit. Follow the link with the questionnaire model and take your time to respond. Did you find it difficult to do it on your own or did you find some questions not suitable for your company? Then as suggested earlier, you need to adapt the questionnaire with the help of other managers or staff from different units... Don’t you think that if all staff gave honest replies for these questions many hidden areas and problematic situations hindering innovation in your company would come up and would help you to address innovation more successfully? Possible obstacles to implementation Most stumbling blocks are not linked to environmental conditions or other factors. Most impediments are internal to the firm with people frequently at the top of the list.9 • Resistance to change, lack of motivation, fear of failure, resource constraint and corporate structure were the main constraints to entrepreneurial behaviour. Moreover the mere act of asking questions or seeking opinions in an audit is enough to make many employees nervous or outright fearful, especially those who 6 Ibid http://www.innovationfactory.nl/innovation-culture/innovation-audit.html 8 http://www.innovaro.com/inno_updates/Innovation%20Briefing%2007-07.pdf 9 www.alliedacademies.org/Publications/Papers/AEJ%20Vol%2011%20No%201%202005%20p%2089103.pdf 7 © InnoSuTra 8/11 12-01-2009 InnoSupportTransfer – Supporting Innovation in SMEs 2. How to identify the innovation needs of a business problem 2.1. Innovation Audit covet status quo. Thus, confidentiality must be guaranteed and perhaps independent auditors should be used10 • An innovation audit team usually operates through persuasion and personal influence, they need to have strong interpersonal, communication and presentation skills as well as being energetic relationship builders. In addition, this implies that elements such as flexibility and ability to adapt to uncertainty are key traits for any team members. The innovation audit team need a high degree of autonomy so that they can deal with situations and solve problems as soon as they occur11 • Employees often perceive an audit as an opportunity to unload negative feelings about the organisation or specific individuals. The auditor can learn a great deal from this information but must protect everyone’s interests while retaining highly determined to grasp the reality of the climate12 • Managers will claim the organization is very innovative until someone asks that the innovations be identified • Many managers don’t have a full idea of what is involved in the innovation process • Too few managers think about new-to-the-market or breakthrough innovation • Organizations lack information about their resources, including having insufficient information about the usable competencies of their people • Managers lack knowledge about the fundamentals of project management. They know about all the tools but can’t do the up-front work effectively. Do you think these obstacles would emerge in your organisation as well? Name which of obstacles or other factors that are not included above, would probably emerge in an innovation auditing procedure. Summary of Key Points An Innovation audit is a diagnostic tool used to help an organisation to identify its innovation capability, how it performs, as well as providing a strong indication of what the company really needs. It can be implemented by all kind of firms regardless of size and sector. Organisations should follow recommended steps in order to successfully implement a reliable, validated and integrated Innovation Audit that encompasses the appropriate assessments and ends up producing an action plan. This plan will lead the organisations to establish the basis for moving forward and achieving their mission and vision. 10 http://www.innovaro.com/inno_updates/Innovation%20Briefing%2007-07.pdf http://www.trainmor-knowmore.eu/6F47C5E9.en.aspx 12 Ibid 11 © InnoSuTra 9/11 12-01-2009 InnoSupportTransfer – Supporting Innovation in SMEs 2. How to identify the innovation needs of a business problem 2.1. Innovation Audit After reading this module you will have learnt the essentials on the “innovation audit”: What an innovation audit is, where you could use it and why it is important. You will also have acquired basic knowledge of the implementation procedure you should follow in order to produce and implement an innovation audit. Special tips have been provided which will be very useful for you. Bibliography Innovaro Limited, last viewed 17th November 2008, <http://www.innovaro.com/inno_updates/Innovation%20Briefing%2007-07.pdf> Innovation Factory, 2008, last viewed 17th November 2008, <http://www.innovationfactory.nl/innovation-culture/innovation-audit.html> Allied Academies, 2002-2008, last viewed 17th November 2008, <www.alliedacademies.org/Publications/Papers/AEJ%20Vol%2011%20No%201%202005 %20p%2089-103.pdf> Quality Improvement Agency for Lifelong Learning Excellence Gateway, last viewed 17th November 2008, <http://excellence.qia.org.uk/page.aspx?o=ferl.aclearn.resource.id6755> Trainmor-Knowmore European project, 2006, last viewed 17th November 2008, <http://www.trainmor-knowmore.eu/6F47C5E9.en.aspx> Trainmor-Knowmore European project, 2006, last viewed 17th November 2008,<http://www.trainmor-knowmore.eu/26260557.en.aspx> Innovation by Design: What it Takes to Keep Your Company on the Cutting Edge, 2002, Gerard H. Gaynor, Published by AMACOM Div American Mgmt Assn. FURTHER READING Brown, David, Innovation Management Tools: A review of selected methodologies, European Commission, 1997 Gardiner, Paul and Rothwell, Roy, Innovation: A study of the problems and benefits of product Innovation, The Design Counsil, 1985 © InnoSuTra 10/11 12-01-2009 InnoSupportTransfer – Supporting Innovation in SMEs 2. How to identify the innovation needs of a business problem 2.1. Innovation Audit Gross, Clifford M., The right fit – The power of ergonomics as a competitive strategy, Productivity Press, Portland Oregon, 1996 Kelessidis, Vassilis, Report produced for the EC funded project INNOREGIO – Benchmarking, Thessaloniki Technology Park, 2000 Tidd, J., Bessant, J. and Pavitt, K., Managing Innovation, Wiley, 1997 Twiss, Brian, Managing Technological Innovation, Pitman Publishing, 1992 http://www.prdpartnership.com/diagnostics.htm: General description of an innovation audit http://cbi.imit.se/tools.asp: It offers a brief introduction of the tools used for innovation auditing and its application areas. http://www.lu.se/o.o.i.s/9657: This website includes an introduction to innovation management and tools for management of innovation, such as: Technology Forecasting, Patent analysis, Communities of practice, Tools to scan the internal environment and Audits, etc. http://www.circa.ie/index.php?article=innovation_03: A case study of innovation audit application. CIRCA Group has undertaken a detailed innovation audit of the BMW Region and a pilot innovation implementation project with 17 SMEs in Northern Ireland. http://www.cambridgestrategy.com/page_c5_summary.htm#2 : Cambridge Strategy Publications was formed in 1993 with a mission to put the tools of business best practice directly into the hands of senior managers around the world. It offers around 40 company self-assessment audits and seven full Portfolios available. http://www.urenio.org/tools/en/technology_audit.pdf : A guide for innovation where you can find innovation and knowledge management techniques. Robert M. Peterson, Kevin D. Johnson, 2004, “The entrepreneurial audit: Innovation efficiency in the 21st century”, The Entrepreneurial Executive, 9, pg. 51-67 Brown, David, Getting the Best from Innovation Management Techniques, Centre for Small and Medium Enterprises, Warwick Business School, University of Warwick, United Kingdom, 1997 © InnoSuTra 11/11 12-01-2009
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