Three Elements that are Conducive for Innovation

Strategy Formulation A key step in enterprise agility is outlining a 1 company’s innovation strategy: what it seeks to accomplish through innovation, and how. This strategy requires executives who are aligned, engaged, and committed to innovation. They must communicate consistent messages X X X across the enterprise about the goals, why they matter, and how every employee in every function and group can contribute. Top managers must then encourage the next level of leaders to successively spread, contextualize, and reinforce those same messages in their business units and functional areas. Strong governance is another element of the innovation foundation. This allows the right distribution of responsibility and accountability, and ensures transparency in decision-making. We recommend establishing a balanced scorecard that is consistent with the enterprise’s innovation strategy. By measuring the effectiveness of ongoing activities against a list of strategic goals, a company can focus on efforts that will deliver a continuous pipeline of innovations.

Cultural Transformation But developing and communicating an innovation 2 strategy is not nearly enough. Leaders must give their people the motivation, training, and tools to make it a reality. They must encourage continuous dissatisfaction with the status quo, while rewarding creativity. Leaders must also develop competencies in lean- agile techniques: •Empowered teams who can develop minimally viable products and services to test with customers, to ‘fail fast’ and learn from iterative attempts. •Systems thinking: focusing on how a system’s parts interrelate, and how that system works within larger systems. •Design thinking: idea-generation and problem- solving that looks at human behavior and needs, in addition to business 9 and technology factors. Leaders who commit to the lean-agile approach must also commit to rethinking where they surface ideas for improvements everywhere, including those for new products and services. Such leaders will also create an entrepreneurial work environment that extends to the edges of the company—outside (those that touch customers) and inside (those that support those who touch customers). 9 Harvard Business Review, Design Thinking, June 2008, accessed March 13, 2018, https://hbr.org/2008/06/ design-thinking

The following is what a snapshot of that environment looks like: Outside edge. Here, an agile enterprise empowers frontline people who interact directly with customers, including employees in customer services, sales and delivery, to discover unfilled customer needs. For example, it could be an idea for a new product or service offering, or a better way to deliver that product or service. Inside edge. This is about support functions such as HR, finance, legal, and procurement working to improve the ways they help their customer-facing colleagues. This means rethinking traditional ways of working that rely on narrowly defined specialized roles, predictable scope, pre-defined timelines, budgets and staffing. New thinking—about improving existing systems and service—will enable faster responses not only to the internal customers, but will improve the organization’s ability to serve external customers. For example, think of a traditional contracting process with fixed terms. If a new type of customer service option requires a more flexible scope with few pre-defined requirements, adaptive procurement, and legal functions will be poised to make that a reality faster than before. By adopting lean-agile ways of working where innovation is an everyday phenomenon, the people at the outside and inside edges of an agile enterprise will be able to create and implement new ideas more rapidly.

Yet it takes more than people and ideas. It also requires lots of agile experimentation. Two internal TCS information systems (a collaboration platform and a digital learning system) are good examples. Our company needed to enable training and development to go beyond the classroom, so that employees could be located anywhere, and learn at their own pace. Teams working on the systems used both design thinking and agile development practices to collect and evaluate ideas, and apply constraints (such as information security policies, scalability at the enterprise level, 10 and technical debt ). They used agile development methods to sharpen ideas and create prototypes. They used DevOps to push minimally viable products into production so that end users could test them and provide feedback quickly. The results: Fresco Talk, the collaboration platform, grew quickly to 60,000 TCS employees without an in-house marketing campaign before spreading out across the company globally. The digital learning platform, called Fresco Play, went through fine-tuning with end users in the real world business environment before it was rolled out to 400,000 employees. Forward-looking companies are also collaborating outside of their corporate walls to harvest innovative ideas from their ecosystem partners. A leading U.S. audio equipment manufacturer and a major toy maker are each tapping partners (such as TCS) to generate new product ideas through a structured ideation process. The two companies then flesh out the most promising ideas and test them with business stakeholders before they enter product development cycles. 10 Technical debt refers to the work a team will later need to perform to address problems that were not apparent at the time the software product was first developed. See Agile Alliance, Introduction to the Technical Debt Concept, accessed March 13, 2018, https://www.agilealliance.org/introduction-to-the- technical-debt-concept/

Focused Experimentation As the initiatives above show, leaders must set 3 up a system to vet incoming ideas for market relevancy and technical and financial practicality, by testing and improving them with feedback from customers (or, customers’ proxies, such as market experts or customer service representatives, when actual end- customers are not ideal evaluators for confidentiality or competitive reasons). An approach we have seen work is the Rapid Iterative Experimentation Process (RIEP). See Figure 5. With RIEP, a company sets up a system to evaluate incoming ideas by applying criteria consistent with its innovation goals. It builds a portfolio of the best ideas that, in light of corporate strategy and market conditions, balances risk and opportunity. It can perform experiments to determine which ideas are well suited for market introduction, and then bring the best products and services into production. The experimentation stage embodies the lean- agile approach and is particularly important. It is a rapid, iterative process of solution prototyping, concept simulation, and testing to validate ideas along multiple dimensions. This process will quickly and cost effectively prove or disprove critical hypotheses about an idea’s customer attractiveness, market viability, and technical feasibility. It gives internal investors (for example, the

IDEATE EXPERIMENT MONETIZE 1–4weeks Element Sprint ValueTests 1 nd es 1 1.X (1–5 dayseach) N 2 a 1–4weeks ue Idea ValueTests Proven/ Revised 3 l Element Sprint a ypothesElements 2 2.X (1–5 dayseach) Disproven Hypotheses 3.N V H Hypotheses 4 6 l th 5 tia 1–4weeks niow I r Element Sprint ValueTests G N N.X (1–5 dayseach) Client’s InnovativeIdea Portfolio 3.1 3.2 Customer Market Technical Concept Solution Pilots Attractiveness Viability Feasibility Simulation Prototyping ExperimentationPlanning RapidExperimentation Techniques andTools Figure 5: Rapid Iterative Experimentation Process CEO and business unit heads) the information they need to more confidently make decisions to pivot, halt, or continue with ideas in the portfolio. Large companies practicing RIEP often start with a centralized group—some call it an innovation lab or design studio or agile studio—to perform the experiments. In smaller firms such as startups, the culture demands an ‘all-hands-on-deck’ approach where likely everyone is involved.