Scott Anthony discuses on the Harvard Business Review Blog what kinds of constraints spur innovation in a company and which ones kill it.
Generally companies should impose two key constraints: First, is to identify a handful of promising markets where some change in technology or consumer behavior makes it possible to address some previously unaddressed need. To prepare such a short list will require an investment in detailed ethnographic research, field visits to early-stage start-up companies or emerging markets, and numerous working sessions.
Second, is to define the financial parameters to which ideas must adhere. Instead of wasting time on developing financial forecasts, companies should set general financial goals for the innovators to accomplish. Like, what sort of revenue does an idea need to generate when it is mature? How much money is the company prepared to lose before the opportunity is realized, and for how long? What kind of margins does the offering have to provide?
Companies should also consider focusing on net margins instead of gross margins, allowing the team the freedom to introduce different business models. Setting clear financial guidelines avoids wasting time on ideas that are sure to get killed when they don’t meet them.
There are also other constructive constraints that companies may also want to consider. Those are: focusing on specific geographies, considering only ideas that can be built organically rather than through large acquisitions, or zeroing in on a specific set of the company’s portfolio of products or brands. In addition, there are three specific options a company should not take off the table. They are: First, the possibility of competing against what a company currently sells. This will cannibalize your business. Second, refusing to consider anything that performs less effectively than what you currently sell. Companies often dismiss a disruptive alternative as inferior. But disruptive alternatives are not always worse since market demands can change quickly and companies that that shut themselves off from competing on those bases are often left behind. Finally, avoid constraining anything that involves building or using a different channel to market. Try to tap different channels to capture innovative ideas.
Improper attention to constraints leads teams to avoid disruptive ideas that have the greatest chance of creating long-lasting impact. If applied wisely, constraints up the chances of corporate success.
Read more details in Harvard Business Review Blog
Are you using the right constraints for your company?