Enabling Innovation led Growth through Cross Functional Alignment

One of the biggest business challenges is the pursuit of sustainable growth. Innovation is often seen as a key pathway for delivering a substantial portion of a company’s growth ambition. However, growth can be inhibited because the business is typically functionally organized, and each function has their own priorities and performance measures. Leinwand et al. describe that “functions in many companies do not have a clear link to distinctive capabilities and tend to drive incoherence and widen the strategy-to-execution gap. Distinctive capabilities are inherently cross-functional [1].” Often the functional priorities and measures can be misaligned and even opposed to one another. For example, one function may focus on top line growth regardless of the product type whereas another function may focus on cost down or efficiency programs. Additionally, an enterprise typically has a complex product portfolio consisting of many types of products (i.e. innovations, older products etc.) with different characteristics. It’s not uncommon to treat the product portfolio as a “generic” entity by some functions, whereas other functions segment the portfolio and differentially manage the product types.

This article provides a framework that improves cross functional alignment increasing the likelihood of a sustained innovation growth program. The three key components of this framework are;

· Strategic alignment — Innovation must be integrated into the business strategy with full functional support and engagement

· Portfolio segmentation — The product portfolio can be segmented and viewed against key customer and business valued characteristics

· Cross functional dialogue — Trigger questions start cross functional conversations to ensure alignment and optimal support of the key customer and business valued characteristics

I. The business strategy, innovation capability, innovation process and product portfolio are linked

It is helpful to first highlight the connection between the innovation capability and business strategy. The business strategy contains the winning aspiration and goals, where to play, how to win, capabilities and management systems. The innovation capability brings the where to play and how to win choices to life [2]. Typically, innovation is one of the business core capabilities due to its importance for providing sustainable growth. Activities that support the innovation capability may include elements such as excellence at obtaining customer insights and determining their unmet needs or effectively bringing innovations to market. The innovation process is key because it enables the strategy to be realized with the desired outcome being a product portfolio that can deliver innovation led growth. The innovation capability and innovation process must be fully integrated into the business strategy with functional support and engagement as shown in Figure 1.

Figure 1. The business strategy includes the innovation capability and innovation process and the outcome is the product portfolio. There is continuous feedback loop between the strategy, innovation capability, innovation process and product portfolio performance to ensure optimal adjustments are made over time to deliver the desired business growth. Functions provide input to the business strategy and all elements to ensure sustained growth.

II. The product portfolio can be segmented to gain functional alignment

For the enterprise to achieve the necessary innovation led growth, all functions need to be aligned and coordinated. One way to provide further clarity of how functions can support innovation led growth is to segment the product portfolio by product type and view the different types against a few key characteristics as shown in Figure 2. The three product types are Growth, Sustaining innovations and Core products.

The characteristics are illustrative, and the functions need to determine those that are most important for the business and customer. The characteristics highlight the differences and similarities and how the functions may better support each product type. For example, supply chain can determine the most effective way to support the lead time and demand variability across the product types. This may require a “responsive” strategy for Growth and Sustaining Innovations and an “efficient” strategy for Core products vs a “one size fits” all strategy across the entire portfolio [3]. Additionally, the sales organization will recognize that future growth comes from innovations even though the initial revenue contribution may be relatively low. The innovation sales cycle may require higher relative resource allocation vs the Core products because new innovations require more customer engagement in the early launch phase [4]. A key takeaway is that the portfolio is not a homogenous entity and the different product types require different support.

Figure 3 Highlights different characteristics for the three product types. The characteristics are selected because of their importance to customers and the business.

III. How can functions support innovation led growth and what are some potential goals and KPIs?

Segmenting the portfolio by product type and comparing against key characteristics enables the functions to determine if the current support is adequate or if improvements are needed. Change requires constructive dialogue. To facilitate the discussion a few trigger questions are provided for each function (see Figure 4). At a high level, the questions are trying to answer; How can we support our customers most effectively by providing them with the most valued offering? Figure 4 also includes potential goals and KPIs that may help clarify business targets and how best to measure performance. Functional leaders may want to review the different characteristics and questions together and determine potential improvements. The cross functional review may be most effectively led by the individual(s) responsible for innovation. Below are a few examples illustrating how functions can use Figures 3 and 4 to better support innovation led growth.

For B2B companies the supply chain is typically optimized for operational efficiency and lowest cost to serve, from demand planning and procuring materials, to manufacturing and delivering products. However, in Figure 3 there are characteristics across the three product types that are not aligned with an efficiency goal. For example, Growth and Sustaining innovations may not have a long demand history, relatively low volumes and revenue and lumpy demand. As a result, supply chain may deprioritize innovations in favor of products that are predictable and have higher volumes to support their efficiency goals. However, customers may want to quickly evaluate or test the innovation prior to a major purchase to confirm value, requiring short lead times and even flexible payment terms. Use the Supply Chain trigger questions in Figure 4 help to reframe the perspective from only an efficiency view to also include a growth and customer perspective. The answers to the questions may result in Supply Chain refining their strategy to better support the 3 product types to ensure fast innovation adoption and growth while also supporting the Core offerings. Similarly, the Manufacturing trigger questions can be used to initiate a discussion about how to best support the innovation development phase. Does manufacturing provide flexibility in the manufacturing schedule to quickly produce prototypes or do they deprioritize because the prototypes don’t generate revenue. Does the timeframe meet the team’s desired development schedule? If not, how can the time be reduced to accelerate product development while minimizing impact to manufacturing output? The functions, trigger questions, goals and KPIs shown below are examples and each business should determine their key functions, questions, and goals.

Figure 4 provides some trigger questions for each function to consider along with the characteristics in Figure 3 to determine how to better support innovation led growth. Potential goals and KPIs are included that may be used to quantify current and/or future performance. The table does not include all functions, each business would need to include their key functions.

IV. Summary

Sustained growth is the goal of all enterprises, they either grow or die. Nevertheless, achieving sustained growth is one of the most difficult business goals. This article outlines how functions can become better aligned to increase the impact of their innovation growth program. All functions need to provide input to the business strategy, innovation capability, end-to-end innovation process to ensure a product portfolio that will drive the business growth ambition. Segmenting the overall product portfolio into three categories and viewing them against key characteristics enables functions to better visualize the differences and determine areas to improve. Trigger questions are used to start the conversation. Using an innovation lens and the topics outlined, improved functional alignment can be achieved. The application of these principles increases the likelihood of sustained business growth.

Special thanks to Dan Toma, Brian Cohn and Susana Jurado Apruzzese for reviewing this article and providing valuable feedback. Your inputs and insights were invaluable.

References

[1] Paul Leinwand, Cesare Mainardi with Art Kleiner, Strategy That Works, How Winning Companies Close the Strategy-to-Execution Gap (Boston, Harvard Business Review Press, 2016), p 109–110.

[2] A.G. Lafley and Roger Martin, Playing to Win, How Strategy Really Works (Boston, Harvard Business Review Press, 2013). [1] Also see the link here for Roger’s complete list of Playing to Win/Practitioner Insights for short articles on key strategy topics and questions.

[3] A Simpler Way to Modernize Your Supply Chain, D. Simchi-Levi, K. Timmermans, HBR Sept/Oct 2021, p 132.

[4] A new product launch typically requires higher resource allocation to ensure an effective Go-to-Market program compared to the support needed for existing Core products. Sales, marketing, manufacturing, product management and supply chain all contribute relatively higher resources months to years before and after launch compared to Core products.