The 5 Innovation Practices Of Top Silicon Valley Companies

The 5 Innovation Practices of Top Silicon Valley Companies

It’s no secret that innovation is difficult. According to a top innovators list published by Boston Consulting Group (BCG), even major companies like General Electric and Proctor and Gamble, both considered highly innovative companies, rise, and fall in the rankings each year.

This points to the fact that no company gets innovation correct year after year. Enterprises that beat these trends to remain at the top of their industries include Apple, Google, Microsoft, Amazon, and other top Silicon Valley companies.

How do they manage to remain so innovative while other equally well-resourced organizations falter? To answer this question, we highlight five innovation practices these top Silicon Valley companies share.

1. They Focus More on Transformational Innovation and Not Just Incremental Innovation

The most innovative companies in Silicon Valley see transformational innovation as the key to sustained growth as compared to incremental innovation. Transformational innovations are radical initiatives that lead to entirely new products or business models. Incremental innovation, on the other hand, focuses on improving existing products to increase efficiency, profitability or market share.

Although many companies practice both types of innovation, top Silicon Valley companies differ when it comes to the matrix of such initiatives. For most companies, a typical innovation matrix involves 50% of time spent on incremental innovation/ improvements, 30% on adjacent innovation opportunities and 20% on transformational innovation.

Top Silicon Valley companies have a matrix that allocates 40% to incremental, 30% to adjacent and 30% to transformational. By allocating comparatively more resources to transformational innovation, these top companies anticipate and capitalize on market changes well before other companies catch on.

2. They Understand the Importance of Having the Right Innovation Team in Place

Resourcing competing innovation priorities must be a well-choreographed affair. Top companies understand this and so resource each type of innovation differently across the entire organization. Incremental innovation is cascaded to business units, making them responsible for improvements to existing offerings. Adjacent innovation is delegated to middle-level management, which looks for adjacent interdepartmental opportunities.

Transformational innovation is allocated to specialized teams within R&D, innovation labs and corporate VC. They are accorded the time and bandwidth to focus on aggressively pursuing transformational innovation.

For instance, Google X and Google Ventures each pursue core transformational innovation mandates that explore radically different products and business models for the parent company, Alphabet. By properly allocating human resources, top Silicon Valley companies manage to outpace other large companies on the innovation front.

3. They Support Innovation Through Effective Incentives

Benchmarking Innovation Impact 2018, a report by Innovation Leader, found that only 35% of respondents said their company incentivized innovation. The story is different when it comes to top innovative companies, 80% of which have innovation incentive programs in place. These findings demonstrate the correlation between effective incentives and developing an innovation culture. But, what kind of incentives effectively fuel innovation?

Incentives can be anything from innovation labs to offering employees time to work on innovation side projects (such as the famous FedEx Day) to offering innovation bounties. However, the underlying incentive that top companies go for is recognition. No matter what the incentive, it must provide recognition to employees who deliver innovation results. Such recognition should sweep the entire organizational hierarchy, from bottom to top.

4. They Invest Real Dollars to See Real Change

Innovation typically presents a chicken and egg situation. For innovation to attract funding, it must first demonstrate traction, impact and market wins. However, to achieve this, such projects require funding.

While less innovative companies get stuck in this conundrum, top Silicon Valley companies defy this loop by investing in ideas that may not yet have demonstrated market potential. However, they hedge their bets by investing heavily in lean and agile prototyping.

In this way, although they may have innovation budgets, these funds do not get lost in building products that have no market value. Comparatively, less innovative companies invest too much time and resources building out “innovative” products only to find out at launch that the market has moved on.

To maintain quick deployments and fast responses to market changes, top innovative companies maintain well-funded agile teams to spearhead their innovation agendas.

5. They Emphasize Innovation as Part of Organizational DNA and Overall Strategy

When Western Union sought to transform from a traditional money transfer company into a digital financial services company, it constituted an innovation team whose mandate was to infuse an innovation culture into the entire company.

The team worked on a function-by-function basis across the company to introduce innovation to the core company. Similarly, the most innovative companies in Silicon Valley approach innovation as a culture shift, rather than an operational measure.

As such, when innovation is introduced to a company’s DNA, everyone assumes an innovation mandate, even though they may not be directly involved in innovation. For instance, at companies like Google, Amazon, and Apple, every employee is encouraged to take on an innovation mantle and challenge the status quo with new and innovative thinking and ideas.

Further, when such innovations are picked up, such employees are internally recognized. When matched to the overall company strategy, having innovation as part of organizational DNA turns the entire organization into an innovation powerhouse, driven by organic impetus and not by executive mandate.  

Innovation is Not One-Size-Fits-All

While innovation practices are not one-size-fits-all, it is apparent that when customized and implemented properly, they can lead to astonishing results. One of the innovation practices at Google, the 20% program, gave rise to Gmail, the most popular free email service in the world. The program also spawned numerous other services like AdSense and Google Talk.

For companies seeking to consolidate and accelerate their innovation programs, it is imperative to apply some, or all, the practices outlined in this article, and to commit to developing an innovation culture that not only embraces change but actively seeks it out.

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