How a business can innovate

Why Innovation is Needed

Innovation is crucial for business development or maintenance. In the first case, it is about growth and expansion, where the company wants to occupy new markets and increase profits. In the second case, the goal is to catch up and regain market share in the domestic market. In times of crisis, many companies change their focus from growth to simply maintaining their existing client base.

Crises often bring new challenges, and businesses need to respond quickly:

• For example, changes in regulations from the National Bank can impact the banking industry, and SMS authorization may not be reliable in certain territories. In such situations, businesses need to find alternative solutions, such as implementing authorization through messengers.
• Another example is the need for P2P payments for people abroad who need to receive regular transfers from their families back home.

Innovation requires a new approach and the involvement of specialists to quickly implement changes. A separate innovative department with the necessary specialists can be compared to an island, distinct from the “mainland” of the company, but working towards a common goal. An example of this is the development of the Macintosh, when Steve Jobs created a separate team of engineers to work on a new version of the product at Apple’s old office, as he realized that the company’s “mainland” would not be able to do it.

How to Implement Innovation

In the past, enterprises would quickly launch a new product by purchasing a ready-made solution. They would hire a contractor and provide them with the task of developing a new product or system. The contractor would then either create it from scratch or offer a pre-made “box” solution. Buying a ready-made solution was faster but it also meant surrendering control over the final product. Nowadays, relying on a “box” solution is not always the best approach. It is more effective to develop a new product, service, or process in-house by establishing an R&D center. This center should have the necessary specialists and autonomy to work using non-standard approaches and experiment.

Step 1: Establishing an R&D Center

Creating an R&D center begins with holding hackathons where employees self-organize around innovative ideas and work towards creating a minimum viable product (MVP). A demo day is held at the end to showcase the breakthrough ideas that have potential to become new products. Some well-known products created from hackathons include Paypal and Foursquare. However, hackathons are just a starting point. The real R&D center begins when the company forms a new unit, assigns a task, and allows it to independently choose work methods and make decisions. There are several formats to establish an innovative R&D center:

1. Incubator — a team gathers to generate ideas, test and launch them, and discard unsuccessful ones. The team can continue to work on major projects. A well-known example is Y Combinator, which provides seed funding, mentorship, and resources to early-stage startups.
2. Innovation Team (Center) — a small team is separated within the company and given its own resources and freedoms, independent of the main company’s bureaucratic procedures. The team focuses solely on the innovative project until completion. A well-known example is Lockheed Martin’s Skunk Works, a division of the company that develops advanced aerospace technologies.
3. Spin-off — a subsidiary company that operates independently of the main company. A well-known example is Alphabet’s X, which was created as a subsidiary of Google to develop and commercialize new technologies such as self-driving cars and internet access via hot air balloons.

What are the risks at the first stage? The first stage of the process may face challenges from management’s reluctance to fully delegate an important task and give control to the “island.” Management may not want to change key important products and may choose to do everything the old way with personal control. This can lead to the creation of a new product not being due to autonomy, but instead due to authoritarian management. However, this approach is not effective as it is difficult to control the process and the lack of authority transferred downwards prevents people from making decisions and experimenting independently.

Step 2: Creating the Team’s Backbone

The next step is to build the team’s backbone. These people should align with the values of the company. The first person needed is the product owner or team leader, who also acts as a researcher. Next, a technical expert is needed, who will serve as a leader or architect. If the product owner is only a business expert, then a designer or UX expert can be involved in conducting research.

The risk at this stage is understaffing the team. For example, hiring a researcher and a product owner but not a technical expert can lead to an imbalance and the innovation will not be launched. Managers may seek to take all three specialists from the company’s “board.” However, for fast processes, the team culture is also important, including the extent to which team members are open to their positions. If the company does not have suitable candidates, it is better to hire specialists from outside. Another risk is failing to empower the new team. I have had a client who had a team in place but the owner couldn’t let go.

Step 3: Formulating a Hypothesis

The next step is formulating a hypothesis. This involves determining what needs to be tested to establish the viability of the idea. To validate the hypothesis, user interviews and statistical data are collected. Then, a minimum viable product (MVP) is quickly launched into the market to gather feedback on its performance and audience reach.

It is important to properly formulate the MVP. This involves determining the minimum that can be released to the market. There may be a fear of releasing something “raw,” but if the team is independent, they will not be afraid to take risks and release the product without complex authorization.

The risk at this stage is launching an R&D center without an approved approach for hypotheses and experiments. The process should be clear, including how the validation will take place, how the hypotheses will be tested, and how the budget for these experiments will be formed.

Creating an MVP requires a cross-functional team. Developers need to be hired to create the solution architecture, and specialists who have experience in creating the type of product are important. A marketer may be hired later to support the product owner in product development, and this team can become the core.

Step 4: Progress Monitoring

The next step is to monitor your development progress and determine the desired speed of development. Based on this, adjust your command accordingly. The danger at this stage is aimless hiring of new employees, as simply adding more developers does not guarantee improvement in the product or team efficiency. It’s essential to understand exactly who you need, as a product owner, for example, may be needed by multiple teams in some cases. To avoid this, it’s advisable to consult with experts and implement effective frameworks tailored to your needs before scaling up.

First Results in 100 Days

Evaluate the results of your R&D center after approximately 100 days. This period is considered the same as evaluating a president’s work, as it’s believed that it’s too early to measure anything before that. The countdown should start from the moment you hire a product owner. After 100 days of work, you can assess if the investment in the idea was reasonable. Based on the effectiveness of the activity, make a decision to continue working on the product or to close the project.

To determine the effectiveness of your R&D center, it’s important to track additional metrics, such as time to market — the speed at which you release new products to the market.

Instead of Conclusions

The Ukrainian market is constantly evolving with new opportunities and challenges, and the speed of product implementation is crucial. Therefore, it’s important to approach experimentation as straightforwardly as possible, considering the potential cost. However, it also has its benefits, especially as classic corporations are increasingly adopting the product company approach and require a startup mindset to succeed. Rather than trying to make the entire company a startup, it’s more effective to create an “island” that allows you to launch an innovation, get initial results, and then plan the next steps for the island’s development and integration with the “mainland.”