Viewpoint / CXO of the Future

Innovation: The State of Play and Current Best Practices

More pure technology, more innovation-as-a-service, and less disruption

In partnership with Peter Temes, Founder & President at the Innovation in Large Organizations Institute, we recently interviewed around 60 innovation leaders focused on guiding change and adding value to their respective large organizations. This was a varied cohort including leaders in CPG (Coca-Cola), Technology (Microsoft), and Healthcare (University of Michigan Health System).

Perhaps unsurprisingly, we found a remarkable variety in the level of influence, org structures, and responsibilities of innovation leadership, and far less consistent practice, or even agreement on what best practices are, than we observed five and ten years ago.

And yet several major shifts are clear, as noted in our key findings below. We see fewer firms establishing or supporting Chief Innovation Officer titles, and more innovation practices landing in operating roles, or shared-services roles like Data and Strategy. Overall, when a Chief Innovation Officer departs a large firm, the most likely replacement is nobody.

At the same time, many more mid-level staffers have “innovation” in their job titles. In some cases, this is positive. At firms like AT&T, DFW Airport, and Accenture, innovation as a mindset and mission has been successfully established as part of many people’s jobs, rather than as a special-purpose role. In other cases, the spread of the title is more lip-service than substantial positive change.

Most commonly, the role of innovation has begun to consolidate: its core function has become the exploration and deployment of new technology towards existing operations and goals. This is especially critical in light of the boom around generative AI – many innovation teams today are heavily focused on integrating this exciting new technology across the broader organization. This is trend is likely to continue, unless the boom loses steam. We expect this phase to last at least five years, at which point there may be a cyclical swing back to business-model and more strategic innovation activities which are typically downstream of the adoption of new technology.

The Process:

We conducted deep interviews with about 30 innovation leaders in large organizations across industries whom we recognize as strongly effective in their roles, and group interviews with about 30 more senior innovation leaders. We define the head of innovation as the key executive who has most of the responsibility for the processes that identify, test, and hand-off early-state new products, new business models, and new operational processes.

Key Findings:

  1. Large organizations are less likely to have a Chief Innovation Officer or Senior Head of Innovation today than they were five years ago – and yet more innovation activity is alive and growing at lower levels of the org chart.
    • At one large US-based insurance company, after their Chief Innovation Officer departed, the Chief Digital Officer took over the function, and eventually saw his title change to Chief DIgital and Innovation Officer.
  2. Very few innovation programs are pursuing “disruptive” innovation. The vast majority of innovation leaders at large firms rely on existing functional leaders to shape the innovation agenda, and to supply or approve innovation projects.
    • One innovation leader at a large food and beverage company explained: “I don’t try to sell anything internally.”
    • A lead innovation executive at SAP shared: “We don’t have appetite for radical or step-change innovation. SAP doesn’t need it…we call [the function] innovation, but it’s more like let’s quickly assess what should be the first proof points and applications of LLMs, as an example.”
  3. Business-model innovation has dropped off the agenda for innovation leaders across industries, quite dramatically. Understanding and deploying newly maturing technologies – AI and LLMs in particular – has replaced business-model innovation as the top agenda item.
  4. Innovation functions are viewed internally as helpers and drivers, rather than challengers, in most of the large organizations we studied.
    • At Google, one innovation director explained: “My group sits within the generative AI engineering team. I report to the VP of our conversational AI technology. We explore how we can take our domain knowledge and better understand the use cases. Then how we can triangulate that to customers.”
    • At a large financial-services firm, the VP of Innovation Development shared: “We are really careful to build a culture that avoids the spotlight, and is service oriented. We don’t want to take 12 weeks for a product that’s killed because the interest beyond our team isn’t there.”
    • At SAP, one innovation leader shared: “It’s really important to me that I can always point to the senior leadership team to say they’re ultimately in charge. Otherwise, whenever I engage with VPs of Engineering, or others, I’ll have problems with their engagement.”
  5. In most cases, small budgets for core staff and some operating expenses come through annual budgeting processes, generally under a CIO’s budget (in a few cases, from the strategy function or R&D), with more extended efforts funded by business units.
    • The head of innovation at a large financial-services firm explained that beyond his core team’s funded HR cost, “getting the buy-in from all the different businesses is the recurring challenge. Any initiative in terms of innovation has to come from the businesses – they have the budget.”
  6. Senior innovation leaders are more likely to be strongly credentialed technologists, and more likely to have risen up internally, reflecting the shift toward a service-and-exploration agenda, compared to the larger points of emphasis on disruption, business-model change, and organizational change.

The Four Clusters:

We found successful leaders clustering into four main groups, as follows:

  • Innovation as a strong, centralized, strategic function: AXA, Vertiv, Top Build, KPMG, HP (prior to shift), The Coca Cola Company, UM Health System.
  • Innovation as a shared service, with a modest strategic voice: HSBC, DFW, Salesforce (new iteration), UAB Medical Center, SAP
  • Innovation as a subsidiary to sales or product groups: Bloomberg, Salesforce (prior to shift), JLL, Microsoft, Harley-Davidson, HTC
  • Innovation as a subsidiary to digital/data: Nationwide, Humana, Centene, Vertiv, HSBC

On The Record Interviews

Big Four Accounting Firm Vice Chair for Innovation

I started doing this job that didn’t previously exist: Head of Innovation. The goal was building connections, finding out who’s doing what’s new, better and more forward looking, and linking things together.

There was no charter – there’s more of that now, but not compared to a traditional operating company.

The multi-level structure of our firm is a positive when it comes to the variety of what’s being done. The leadership of our partners is very important – they understand what the account teams and service teams are doing – and as a result, are better able to better see (and elevate) what’s new. This helps make connections happen, and helps a new best practice today become a standard practice across the firm tomorrow.

The measures of success for our innovation function are dollars and cents – customer pull, retention, account growth, and the firm’s competitive status in the market.

Chris Massot, Director of CEO Office Customer Co-Innovation, Microsoft

I’m part of a small team, very collaborative, and one of many innovation teams at Microsoft.
Our job is to build a business case for new innovation that come into our company at the highest level, from conversations with important customers at the highest level. Exit criteria from our corner of the organization is agreement at the executive level (and enthusiasm that the concept is correct).

We’re not interested in one-offs (single-purpose) and are instead focused on building things that are both scalable and extensible.

We’re often looking for thought partners inside our organization who can help us measure capacity, readiness and fit for our own teams, and we find those people mostly through word of mouth, experience, and interpersonal relationships. The go-find function, and the go-share + go-support functions are very important to our work across the company. There’s still a culture here that your success comes from relationship and influence, rather than hierarchy. If you need help, go get it. Not in terms of a “survivor alliance” kind of network, but more building a network of helpful people, and creating mutual value.

Luke Mansfield, VP of Motorcycle Management, Harley-Davidson

I was previously Chief Strategy Officer, and now my title is VP for Motorcycle Management, which means that I oversee motorcycles, parts & accessories, consumer insights, and innovation. Because of that structure, we’re able to decide whether or not something is an innovation program or not.

My innovation team has created strategies around both safety and technology. As a new product group, we also decide which investments into new technologies make sense (and which don’t). There’s an annual program around new product development where ideation is assessed by my team in conjunction with our commercial colleagues. We decide where the potential value lies and what returns are most likely. As a part of this process, I collaborate with design, engineering, and other development functions within the executive team.

Our engineers are good at assessing necessary spending and timing – you give them something and they can draw you a resource curve for something new. We created a forum for decision making, the Motorcycle Review Board, which includes the CEO, CFO, Heads of Engineering, Design, Marketing, and I. Our CEO has the tie breaking vote if there’s a stalemate. But in practice, this is rare.

Experimentation doesn’t often occur without the approval of the motorcycle review board. That’s the appropriate forum to assign resources based on likely returns.

I also run a parts and accessories review board. It’s a predictable business and scales with motorcycle sales, but the teams are now thinking about more interesting products than before. ANYTHING that can be on or around a motorcycle. A much bigger addressable market.

Apparel and licensing are managed separately, almost as a standalone business, not by me.

The finance and investing team is very focused on tracking the real dimensions of investment and returns on new offerings, working in parallel to my own team, this particularly applies to the strategic recapture of investment in new technologies or bikes, fully costed, and calculating actual long-term returns.

When innovation is a stand-alone program, it’s suboptimal. It’s far more effective when integrated within product functions. I made a conscious choice to rebrand myself from an innovation specialist to a growth specialist. Whilst people disagree on innovation, everyone agrees on the need to grow.

Faisal Zanjani, Head of Open Innovation, Experimentation, and New Business Models, The Coca-Cola Company

My organization reports into the innovation team in the Chief Technology Innovation Supply Chain Officer’s organization, which is a very large role.

We have an annual budgeting process, but when something important comes along that’s valuable or a new goal, we ask for more. We run very distinct challenges in a few different verticals – quality, safety, environmental, and our Sustainability Accelerator.

Sometimes we’ll have 35 experiments underway, sometimes we’ll have 10.

An experiment could be a proof of concept, a prototype, localizing a proven concept, or globalizing proof of concept.

We do a lot of dramatically new and different things, so we’ll have long persistence before a real handoff, to help shake out some of the risk. Often, these experiments won’t be on people’s radars or balance sheets yet, and work will be passed into larger-scale R&D groups.

Most of the time when we declare success, we’re ready for commercialization. We’ll handoff to the supply chain group, to procurement, to engineering.

Philippe Duban, Head of Transformation, AXA UK Retail

I report to the CEO, and consider myself a challenger as well as an orchestrator.

My job is to deliver the firm’s strategy. I am here to deliver outcomes which are defined across AXA. My budget gives me capacity, which primarily comes down to the ability to bring people in. Within my group, I allocate capacity and funding quarterly.

We do the POC (proof-of-concept), taking a standard approach, and test for two weeks or up to two months.

If it delivers what we hope, we don’t really hand off – we are meeting as a group with key stakeholders, so we have the product owner involved from the outset. There’s really no formal hand-off – their teams are working with our teams, more on the value and application.

There are things we don’t do because of no bandwidth – or interest – in those partners. We don’t staff anything that does not have the buy-in.

CIO at a Provider of Critical Infrastructure and Services for Data Centers

I report to the CTO. His remit includes the R&D function, while the innovation function is separate from R&D. I chose to set up this org, just a couple of years ago, to not have an innovation domain in and of itself, but instead to have little birdies in all of the businesses.

Each business has embedded champions and scouts, about 20 people who are expected to give up 30% of their time for forward thinking innovation (not the problems of today). The rest of their time they’re rubbing shoulders with clients and handoff receivers. Maybe 60% of those people were already in those domains.

The business case for new products or programs is built in part with a quad chart, the total ability to leverage a technology on one axis, and commercial readiness level on the other. While I have a small budget to get things moving, the BUs have to buy in – I have to make the case and they have to buy it.

VP, Innovation Development. Large Financial Services Firm

I report to the head of digital – the SVP of Digital.

We get a budget for a team annually, and don’t necessarily know which strategic initiatives will be funded by that budget. We have an executive advisory board – not governing for us, but providing a gut-check on the projects and directions we’re inclined to follow. It’s a very senior group and includes many of the handoff receivers.

Our group works a lot with data, doing the trend analysis and strategy for our 275 agile teams that are at work building out new and innovative products.

I serve as the technology leader for the product incubation group. We’re usually working about two years prior to market launch, identifying elements of the technology that need to be further developed. We build MVPs and test with a subset of the population.

We’re really careful to build a culture that avoids the spotlight and is service-oriented. We don’t want to take 12 weeks for a product that gets killed because the interest beyond our team isn’t there.

A lot of times we put things on a shelf. We’re good about monitoring the things we were either wrong about or the market wasn’t ready for. We monitor, and in many cases we’ll pick something back up and move it forward when the market is in the right place.

We’re matrixed – my technical team is a handful of people only, about a dozen FT focused on incubation, plus contract engineering. We’ve found that having full time engineers can be difficult because we so often have to change what we’re working on. Some engineers are frustrated by that, and a new project can simply demand different expertise. We do job-swaps as well. We work with Capgemini, Accenture, and a few others. So we have a small staff but lots of leverage.

Senior Executive in a Consumer Technology Company (50B+/year)

As Chief Technology Officer, I reported to the CEO and effectively played the role of Chief Innovation Officer, in partnership with a Chief Corporate Strategy and Incubation Officer. I ran the labs, and everything that moved into incubation came out of the labs, so we did a great deal of planning together.

The transitions between labs and incubation happened seamlessly, though the business units had a number of their own incubation units and shadow lab operations which they did not necessarily want to be centrally managed.

These phases were driven by core questions: What are intermediate tech milestones? Do people want what we’re building? Is there a pain point? Can I make money on this?

Ideators worked like project or product managers during incubation. They made requests concerning the kind of talent they need next. I always advocated a core team, an auxiliary team, and then corporate resources for each new project.

You need to keep the core team super tight and super nimble. Then, every once in a while, you need an SME. You have to be very fluid about the talent, otherwise it’s too visible too early. The plan was to keep the core investment and core team minimal, SMEs on as-needed, and then the next layer of corporate resources is always problematic. Lots of approvals and lots of process is needed.

Senior Executive in Large Financial Information and Media Company

The strategy leaders in our different business units play the role of innovation leaders – we plan new products, test them, marshal resources, and launch them. I’m now directly launching a new product, in software, in my area of the business.

I report to our Global Head of Sales and Service, which still feels a little surprising. I used to be officially in the strategy function. The logic of the shift is that you, the forward-looking leader, need to own the number. The key metric is revenue. Year-one revenue. Senior venture people go in or through sales. You cannot own a P&L unless you go through sales. Our CEO likes to fashion himself as being in the sales department.

For funding you beg, borrow or steal from existing programs, at first. You grab five other guys, and work on things after hours. You try to get a guy from sales, from engineering, from tech. That’s year zero. Six people. No budget.

Then, when you have something you believe in that’s been built to the point that you can prove you can build it, and demand is documented in some meaningful way, you go to the management committee – that’s the CEO and his direct reports. They like to hear new ideas annually. Above baseline they will fund zero-stage if they love it.

We’re trying to do a better job of testing, with more iteration, and more hard data, to show market interest alongside a more structured proof-of-concept. It’s very personal – we follow the money.

Senior Executive at SAP

We work in the IT organization and 90+% of our costs are staff related. We get a certain allocation of FTE, for us we were 20 and now we’re 40. That’s a good size for an innovation group. We get the FTE and we request development budget for learning, travel, and other functionalities. We run at 5% of the overall product staff. We are not attached to any revenue generating function.

If we had revenue, we’d be more of an internal consultancy, supporting customers – not engaged in de-risking – and that’s not what we want. We have enough trust in the organization that our GM says he wants this, as a central cost.

For me, in the end, the leadership team signs off on the roadmap of anything we do. It’s really important to me that I can always point to the senior leadership team to say they are in charge. Otherwise, whenever I engage with VPs of Engineering or others, I’ll have problems with their engagement.

We’ll always invest a day or a little more on any request – that’s where the false positives are. But as soon as it’s more than a 2 days or so, then I want to check back and check up, and I can greenlight if I know it’s already aligned with strong interest.

We don’t have an appetite for radical or step-change innovation. SAP does not need that. It’s more like let’s quickly assess what should be the first proof points and applications of LLMs, as an example.

There are always ideas that come top-down. The GM or Head of Corporate Strategy points to something. If he says he wants a thought leadership piece on X, he gets it. But they don’t abuse that. It’s part of it, but they understand that this is something that needs to be carefully used.

Bottoms up, we invite everyone to pitch ideas. I do have to say that most of the time if it’s a single or individual contributor, I have not seen that much success. The biggest successes are where there are teams that already understand the value, connected to bigger waves of opportunity. They’ve been dabbling for a few weeks or months before they come to us.
Personally, my biggest metric is how many people got promoted. How many people are ready to move up? Can we help the senior leadership team alleviate their pain? Can we pick up the things that are otherwise not getting done for others?

Former Head of Innovation at Salesforce

Usually I would report to the EVP of Solutions Engineering, who reported into the Head of Sales.

We were researching what was happening in the market with live customers, and believed that there are companies with habits for good innovation. So, we’d look at quantitative and qualitative assessments of who should be a partner that we offered a trial to. Then, we ran benchmarking to pick those companies (vs. others) to see if our investments in those companies reaped higher sales, or higher customer growth.

To monetize it broadly, we’d look at these leading firms and explore what the bigger number of follower companies would be doing when they got as smart as these leaders, and we’d bring these insights, habits, and targeting data to the account teams. They would use the insights as value-add in their own relationships, and we would feed the insights to the product teams, so the product would continually contain more prompts and functions for these best practices as they emerged.

For targeted growth accounts, we’d have an innovation executive, a designer, a software person for prototyping, the solutions engineer for the account, the account executive, and someone in professional services for later sales. Those people were engaged for three months. Funding came in from the product-engineering groups inside the sales groups, based on the assessment of market opportunity driven by the analytics of customers and the next layer of who we can help level up, as customers, to be bigger customers by using us more, and by growing.
We were answering the questions of how to help Salesforce grow faster and get to opportunities sooner, that you can only get when you are closer to the customer.

Senior Executive, Director of Software Labs, Large Financial Services Organization

I was deliberately asked to set up a tech labs/innovation labs organization, with the intent to shift culture and see around the corners. The goal was to work with emerging technology, solve business problems, and have a leg up in the competitive market.

We explore opportunities that rise above the regular organizations in our company – they’re not the day-to-day work. Generative AI is currently very important, it looks like a broad platform, and it’s not connected to one organization in our firm. It touches banking, auto loans, lending, and the core financial institution. So that lands with us.

We pick and choose which projects to work on. Most of the POCs make it into production. Our hit ratio is about 90%. Once a project goes into production, we ensure the use case we aim for is working well in production, and generally stay engaged for 2-3 months into production, when we identify who we transition the work to as a complete handoff.

We are funded through the CIO’s budget, but we do separately support the building of some marketing functionality that requires new and emerging technologies – that funding comes from the marketing organization.

Managing Director Strategic Partnership Delivery and Innovation for Conversational AI, LLMs, and Generative AI, Google

My group sits within the Generative AI engineering team. I report to the VP of our Conversational AI Technology.

We explore how we can take our domain knowledge and better understand the use cases. How can we triangulate that to customers?

The outside-in motion can be done by business development or sales planning. In this case, we’re so early in identifying patterns that we can speak with a broad brush, but more often than not, the work we execute on is not patternized yet.

The reason this team was created in engineering was that there are not clear patterns yet, so it requires engineering discipline to find the initial cases and repeatability. Once you can see the patterns, you can scale it out of engineering to business development, to sales, or to strategy.

I try to limit the number of similar customer engagements for the team so that we’re not doing the same things over and over again. I look at projects with the lens of asking what’s new, unique, or different.

We immediately bring in other teams when something becomes repeatable.

Senior Innovation Portfolio Management VP, Large Global Bank

We started off under the CIO, but now we report to our global COO. That person has global ops and IT. We’re very close to our executives in terms of strategy.

We’re called innovation ventures. We have the CVC arm, and a labs team of engineers and scientists to focus on strategic projects.

To date, we’ve built a carbon trading platform, amongst other things. We work on development of generative AI applications. We also have a go-to-market with a focus on incubating ideas within the bank – reimagining the mortgage process in blockchain, for example.

I’ve never seen more excitement around technology within the bank than now. I think you’re starting to see a trend of corporations building their own models.

Getting buy-in from all the different businesses is the recurring challenge. Any initiative in terms of innovation has to come from the businesses – they have the budget.

You May Also Enjoy