Last month consulting firm Accenture released a report (“Why Low-Risk Innovation Is Costly“) on the state of innovation at big companies from the U.S., U.K., and France.  Their survey of 519 executives at large companies concluded that most were disappointed with the return on their innovation investment.  Many of these companies cited that they were scaling back their disruptive innovation efforts and settling for more incremental innovation like product line extensions.

The report draws some stark conclusions on the failure of these innovation initiatives to meet their expectations.  While 70% of these company leaders listed innovation as a Top 5 priority only 18% of them believe that their innovation strategy is delivering a competitive advantage.  There were two challenges that were consistent across the respondents – 1) firms only perusing the conservative approach were only seeing incremental improvements and miss big step changes, 2) many firms weren’t strong in their ability turn ideas into scaled businesses.  The report concludes with some solid recommendations on how companies can drive a more formal systematic approach to innovation but it omits one very important question.  How project failure fits into this systemic methodology?

If I had the chance I would go back and ask two follow up questions of the survey respondents to better understand their innovation ROI expectations:

1. What were their expectations for the percentage of failures with disruptive innovation?
2. Did their outcomes meet or exceed those expectations?

Too many leaders have unrealistic expectations for the success rate of disruptive initiatives.  These leaders think that with a strong brand, bright minds and good funding they can beat the odds and find success significantly more than they will find failure.  They are delusional.

Over the last few months I have been collaborating on the issue of innovation failure with researcher and consultant Thomas Thurston.  While at Intel, Thurston had pioneered data science methodologies to help guide their growth investments and innovation.  Later he was invited by “the godfather of innovation theory” Professor Clayton Christensen to come to Harvard Business School and collaborate as a research fellow.  Today Thurston is CEO of Growth Science and a VC investor.

Since most companies are reluctant to share their stories of failed innovation projects, let alone their data, Thurston is in a very unique and insightful position.  As an entrepreneur who advises companies large and small on using data to drive innovation he has developed a database of over 1000 innovation projects.  After building a statistically significant sample Thurston has concluded from the data that only 22% of corporate innovation projects survive 7-10 years after their initial commitment of funding.  That is to say 78% of these projects had failed and ceased to exist 7-10 years later.  After our last discussion Thurston has made this information public for the first time on his Growth Science Blog.

So what can we take away when connecting the dots?

1. From Thurston’s research it is clear that we are far more likely to fail than we are to succeed when driving disruptive innovation.  This inevitable fact is one reason why we often hear the mantras of “fail fast,” “fail early,” and “fail cheap.”  This idea of learning quickly is a key tenant to Eric Ries’ innovation philosophy in his book The Lean Startup.
2. Driving consistent innovation requires that the work be part of a holistic formal system.  Part of that system should be the recognition that innovation projects will fail.  It is imperative to plan how the organization will respond to the failed work and the people involved before starting the work.  If you wait until after the project begins to look like it might fail you are too late.  The downward spiral of placing blame and avoiding exposure will have already begun.
3. When working with clients I suggest that they look at incremental innovation and disruptive innovation as only two pieces of their growth portfolio.  The other two components should be organic growth and partnerships/acquisitions.  Every organization will have a different mix of each in their growth portfolio based on their industry, their skill set, and their culture.  Just like a personal investment portfolio, the key is in understanding the benefits and risks associated with each of your asset classes.

Food for thought:

• Does your organization talk about innovation being a core strategy for future success?
• Does your organization talk about risk taking and possible failure in innovation work?
• Is your organization scaling back on disruptive innovation to focus on incremental innovation?