The Innovation Value Chain

When executives view their companies’ innovation processes as a value chain, engaging in a link-by-link analysis, they may be surprised by what they learn. The managers are often quick to tout their particular innovation strengths such as creativity or fast in developing products. However, according to professors Hansen and Birkinshaw, a company’s strongest innovation links are simply no good if they prompt the organization to spend money with little hope of solid returns or if the attention paid to them further weakens other parts of the innovation value chain. Managers need to stop putting all their effort into improving their core innovation capabilities and focus instead on strengthening their weak links. Indeed, professors Hansen and Birkinshaw’s research suggests that a company’s capacity to innovate is only as good as the weakest link in its innovation value chain.

Organizations typically fall into one of three broad “weakest link” scenarios.

1. First is the idea-poor company, which spends a lot of time and money developing and diffusing mediocre ideas that result in mediocre products and financial returns. The problem is in idea generation, not execution. 2. By contrast, the conversion-poor company has lots of good ideas, but managers don’t screen and develop them properly. Instead, ideas die in budgeting processes that emphasize the incremental and the certain, not the novel. The need is for better screening capabilities, not better idea generation mechanisms. 3. Finally, the diffusion-poor company has trouble monetizing its good ideas. Decisions about what to bring to market are made locally, and not-invented-here thinking dominates. As a result, new products and services aren’t properly rolled out across geographic locations, distribution channels, or customer groups. For such companies, the real upside lies in aggressively monetizing what it has already been able to develop, not in paying further attention to idea generation or idea