An executive at a regional bank recently confided in me that while his senior leaders all agreed that they wanted to be more innovative, he believed they all had wildly different understandings of what the word “innovation” meant. The IT department was investing in new underwriting technology—was that innovation? Another business unit had made a small equity investment in a local fintech—should they be doing more of that? Then there was a research group studying machine learning applications—did that count as innovation?
All of these definitions could be valid. However, because each executive had his or her own interpretation of what counted as innovation, and there was no coordinated vision among them, everyone else in the company was confused about how they could contribute to making their bank more innovative.
This situation is not unique. Don’t assume that everyone is on the same page when it comes to defining innovation—in my experience, they are almost certainly not. Use the following checklist to get started:
What Is in Scope for Innovation?
- Types of innovation
- New products and offerings?
- New customer experiences?
- New processes and operations? (e.g., new technologies; new ways to manufacture, distribute, sell)
- Timelines for ROI:
- Incremental innovations with an expected ROI in under 2 years? (Sometimes called "little 'i' innovations")
- Medium-term innovations with an expected ROI in 2-5 years?
- Long-term ideas with an ROI in 5+ years? (Sometimes called "big 'i' innovations")
- Scale of growth
- "Sustaining" innovation at around 5 percent growth can help offset attrition in a mature market
- "Breakthrough" innovation resulting in 30 percent growth in two or three years might be possible at an agile startup, but would require a much heavier investment and higher risk at the enterprise level
- Relationship to your current business
- "Core" innovations that optimize existing products for existing customers?
- "Adjacent" innovations that expand from existing business into "new to the company" business?
- "Transformational" innovations for markets that don't yet exist?
It’s tempting to accept the broadest possible definition for innovation. This is certainly better than the alternative, which is to be overly constricting in the definition (e.g., overemphasis on developing new product offerings can stymie creative energy that could be used to improve the way those products are manufactured or marketed). But being overly broad provides little direction, and the entire point of this exercise is to set guidelines.
If you’re stuck, ask if there are types of innovation that would not be helpful. For instance, would you be satisfied if your efforts produced product line extensions for your key businesses, or would that not be big-enough thinking? On the other hand, does shooting for a billion-dollar opportunity seem like a poor fit if your organization is newer to innovation and instead craves a few quick wins to help establish momentum? Defining the boundaries—what is in scope and what is out of scope—is an important step towards making the most of your investment in innovation and preventing miscommunication.
Here's what Thomas Mangas, Former CEO of Starwood Resorts and Hotels, said when I queried him on the topic:
“If you are a Google or Amazon where you have unlimited capital from investors and no profit expectations, you should be going for moonshot after moonshot. But if you are a smaller organization in an old industry with large earning expectations, then you probably cannot afford to miss on the moonshots. You are better off having a smaller sequence of innovations that are a bit more sure thing until you build some headroom for a moonshot. Make sure your innovation goals are relevant to the business that you have, that they match what your investor capital requirements are, your expectations, and what your competitive set is doing. If you get one of the moonshots wrong, how do you survive?
As Mangas says, know your overall innovation strategy and objectives first. Then, get specific about what you’re looking for. Setting clear goals and boundaries for innovation often gives staff more latitude than they think they had, and it provides them with clarity about trade-offs to make and opportunities to prioritize.
Innovation is a wonderful word, but parsing out the details of its meaning is essential in order for innovation aspirations to be useful.
*Adapted from Wunker, Law, and Nair, The Innovative Leader: Step-by-Step Lessons from Top Innovators for You and Your Organization, 2024.