The Unexpected Path to Innovation

Dan Toma's journey into the world of innovation was far from conventional. With a background in engineering (electronics, and telecommunications), his early career took a detour when he ventured into entrepreneurship, starting his tech startup. Little did he know that this experience would serve as the catalyst for his deep dive into innovation.

However, a turn of events led Dan into the corporate world, where he was offered a position as an innovation expert by a large telecommunications company in Germany. This transition, while promising on the surface, quickly unveiled the stark contrast between the startup mindset he had come to embrace and the structured, risk-averse approach prevalent in large corporations.

The Corporate Conundrum

Dan's short time as a corporate employee showed him the disparities in innovation methodologies. While startups thrive on agility, experimentation, and a relentless focus on the customer, large corporations often follow a more conventional and risk-averse path. Some bigger organizations tend to allocate substantial budgets upfront, initiate development processes, and conduct market research without first understanding the genuine needs of their customers.

Dan found himself at odds with this approach, leading to a personal mission to challenge the status quo and share his insights with the corporate world. This journey ultimately culminated in the publication of his first book, "The Corporate Startup," a foundational work that addresses the broader aspects of building an innovation system within a company.

Defining Innovation: A Common Language

One of the fundamental challenges Dan Toma highlights is the ambiguity surrounding the definition of innovation within organizations. In many corporate settings, the term "innovation" is casually thrown around, yet its meaning remains elusive. To address this ambiguity, Dan recommends a powerful exercise: gathering key stakeholders and asking them to define innovation in their own words.

The result is often a collection of diverse definitions, even within a small group. This exercise serves as a wake-up call, emphasizing the pressing need for a common language and a shared understanding of what innovation means for the company. Without this foundational clarity, organizations can face internal conflicts, misalignment, and confusion regarding their innovation goals and strategies.

Defining Innovation: From Invention to Profitability

Dan stresses the importance of distinguishing between invention and innovation. Invention represents the creation of a new idea, but true innovation goes beyond this. It involves not only introducing a novel concept but also ensuring its viability and profitability within a business context. In essence, innovation is about turning ideas into sustainable and revenue-generating solutions.

Building a Repeatable Innovation System

To drive innovation effectively, companies must build a repeatable innovation system. Dan Toma outlines five key building blocks that constitute an effective innovation system: Strategy, Governance, Practice, Culture, and Leadership. These elements must work together cohesively to create an environment where innovation becomes a sustainable and integral part of the growth journey.

Strategy: An innovation thesis, portfolio management, and clear innovation goals are essential components of defining the company's direction. Having a well-defined hypothesis about the future and actionable steps to move toward that future is crucial.

On the question of what the difference is between an innovation thesis and an innovation strategy, Dan explains that the innovation thesis is the actionable and practical document derived from the innovation strategy. While the strategy provides an overarching view of a company's context and environment, the thesis is a tool for day-to-day decision-making. It guides decision-makers on which ideas to invest in and sets the direction for innovation within the company.

An innovation thesis typically consists of two key parts: the thesis and the antithesis. The thesis outlines the criteria for innovation investments, while the antithesis lists the ideas or characteristics the company will not invest in. This approach provides clarity and direction for both decision-makers and innovation teams.

Governance: Establishing a decision-making structure, such as a venture board, is vital for overseeing innovation initiatives. Innovation accounting plays a crucial role in measuring progress and ensuring that investments align with strategic goals. However, for these two to work, the company needs to have a clear innovation process and idea lifecycle framework.

Practice: Implementing various avenues for innovation, both internally and externally, is necessary. This may include corporate venture capital, partnerships with startups, and internal innovation programs. Providing employees with the right tools and upskilling them is also essential.

Culture: Nurturing a culture of transparency, calculated risk-taking, and continuous learning is pivotal. Inspirational events and training on innovation culture and mindset can help create an environment where innovation thrives.

Leadership: Equipping leaders with the knowledge and skills to lead for innovation is critical. It involves distinguishing between leading for the core business and leading for innovation. Leaders should empower teams and trust their expertise.

Case Study: DNB

DNB, Norway's largest bank, serves as a compelling case study of a company that successfully implemented a repeatable innovation system. They began by creating an innovation thesis focused on a number of elements. DNB Bank invested in both internal and external teams to pursue several elements of the innovation thesis.

Every three weeks, decision-makers met with the teams to assess progress, provide support, and make informed decisions. The culture emphasized autonomy for teams to make fast decisions between these check-ins. In eight months, the teams gathered enough evidence to realize that some of the items of the thesis were not well-received in the market, leading to a pivot in their innovation strategy and subsequent discontinuation of the ideas.

DNB's ability to adapt and pivot based on market feedback showcases the power of a well-structured innovation system that helps companies become truly learning organizations.

Centralized, Decentralized, and Hybrid Models of Innovation

Dan talks about three models for organizing innovation within a company: centralized, decentralized, and hybrid models. Centralized innovation involves having a central hub responsible for all innovation activities. This model provides easier management but can become a bottleneck when innovation needs to scale. This model, however, is very well suited for companies that are just starting up with innovation as it is much easier to adapt, change and manage.

Decentralized innovation means that each department or business unit manages its own innovation efforts. While this approach fosters innovation capability and diversity, it can lead to challenges related to governance, measurement, and coordination.

Hybrid innovation models combine elements of both centralized and decentralized approaches. They maintain a central function for certain innovation activities while allowing business units to pursue innovation independently. Many companies find hybrid models to be the most effective for their unique circumstances.

Toma suggests that the choice between these models often depends on the nature of the company's business lines and organizational structure. Companies with diverse and distinct business lines may opt for decentralization, while those with more coherent business lines may choose a hybrid approach.

"Centralized innovation can become a bottleneck when scaling innovation. Hybrid models often work best for companies with diverse business lines."

Leadership and Trained Decision-Makers in Innovation

Toma highlights the importance of leadership in innovation and the need for leaders who understand how to navigate the challenges of innovation. He suggests that many leaders lack experience in startups and entrepreneurial environments, which can be very different from managing traditional projects within a large corporation.

To address this gap, Dan recommends training decision-makers to think like venture capital investors rather than typical middle managers. This shift in mindset is crucial for making informed decisions about innovation initiatives.

"Legacy and long-term impact should be a consideration for leaders. What legacy are you leaving behind for the company?"

Measuring Innovation and Its Impact

Measuring innovation is a complex task that requires a combination of metrics to assess both capability and outcomes. Dan provides insights into his preferred key metrics for measuring innovation:

New Product Vitality Index (NPVI): This metric assesses the percentage of a company's revenue derived from products launched in the past three years. It helps gauge the impact of recent innovations on revenue generation.

Portfolio Distribution: Portfolio distribution measures the balance of products in the core, adjacent, and transformational categories. It indicates whether a company is diversifying its innovation efforts beyond core offerings.

Cost of Failure: Cost of failure quantifies how much the organization pays for each failed innovation initiative. A lower cost of failure suggests efficient innovation management.

Toma emphasizes that measuring innovation is not solely about the output but also about understanding why those outcomes are good or bad. It requires a level of maturity within the organization and the ability to combine capability metrics with outcome metrics.

About Dan Toma

Dan Toma is an innovation thought leader and the co-author of the award winning book ‘The Corporate Startup’ (awarded ‘Management Book of the Year for Innovation and Entrepreneurship’ by Chartered Management Institute and The British Library in 2018) and Innovation Accounting.

He started his career in entrepreneurship, being involved with technology startups across the world. Puzzled by the questions ‘why are innovative products mainly launched by startups?’, together with his team at the consultancy company OUTCOME, he focuses on enterprise innovation transformation. Specifically on the changes blue-chip organizations need to make to allow for new ventures to be built in a corporate setting.

In this capacity he worked with companies like Deutsche Telekom, DNB, Jaguar Land Rover, Bayer, John Deere, ING or Allianz.

A big proponent of the ecosystem approach to innovation, Dan has also worked with various government bodies, in Asia and Europe, helping developing national innovation ecosystems and implement national innovation strategies. Most noteworthy is his work in the economic aid program of the Finnish Ministry of Foreign Affairs in Vietnam where he helped design and manage a nationwide business acceleration program and supported the capability development activities.

The work experience gathered from the public and private sector has been translated into various experiential courses that Dan has delivered for universities such as Royal Academy of Engineering (UK) or the University of Applied Science Rhein-Main (Germany).

Dan holds a dual degree MBA from Bradford University (UK) and TiasNimbas Business School (The Netherlands) while being certified lean startup acceleration specialist by Columbia University (USA) through the Lean Launchpad program.

Dan was also featured on the Thinkers50 2020 Radar list of management thinkers to watch while also being a member of the World Economic Forum’s working group on accelerating digital transformation.