Chemical Engineering June 2022 - 41

Most companies tend to opt for
the CEO or other high-level leadership
personnel to set strategic
prerogatives. The problem with this
approach is that most organizations
don't have a CEO that has the
bandwidth or research and development
(R&D) experience to drive
non-incremental innovation. This
is why the creation of the chief innovation
officer (CINO) title (or an
analogous role) is the next logical
step. Dedicated solely to pushing
non-incremental innovation forward,
CINOs can serve as not just
a qualified head of a company's innovation
apparatus, but also as the
key link between innovation and
other corporate functions so that
everything is moving forward in a
cohesive manner.
The next requirement for building
a robust innovation portfolio is finding
a way to make innovation strategy
both a top-down and bottomup
operation. Being top-down has
obvious benefits, because senior
leaders are in the best position to
assimilate all relevant information
into a comprehensive view of where
disruptive threats and opportunities
are most likely to emerge. But
being bottom-up is equally important,
as collecting new information
is a never-ending quest, and
the most vital innovation insights
often
originate
on
the
front lines. Moreover, the
strategy needs to be iterative
as well, given that
the impact on innovation
strategy can be sizable as
new information streams
in. Imagine, for example,
that a company has
placed an innovation bet
on cold fusion becoming
a mainstream energy
source. If the technological
paths to implementation
dry
up,
perhaps
because
research on
an enabling component
doesn't pan out, then the
innovation strategy must
pivot.
Nonetheless,
allowing
for pivots does not mean
the innovation strategy
should be flimsy - indeed,
far from it. The goal
is to set long-term prioriFIGURE
2. When considering innovation opportunities, the investment evaluation metrics may require more strategic
considerations than those that rely on precise calculations
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41
ties and then stick with them over
the mid- to long-term. That means
it is critical to correctly size the
design and scoping of innovation
priorities. At an exploratory stage,
companies must avoid " too big to
fail " initiatives, but they should also
make sure that the guardrails for a
given objective are broad enough to
allow for a range of possible endstate
outcomes. If managed well, it
is unlikely that any piece of the innovation
portfolio would suddenly
shift from all-in to full-stop. The best
practice is to incubate speculative
bets somewhere in between those
extremes, by tweaking and pruning
resource allocation, depending
on the evolving likelihood that
a certain technology, societal trend
or asset class will find a path to
real-world impact.
A metrics-driven approach
Businesses today are smarter than
they have ever been. Yet for as
much as we talk about innovation,
many companies do not have the
proper measurement tools in place
to evaluate whether innovation projects
are moving in the right direction,
need to be tweaked or should
be abandoned altogether.
When setting measurements, it
is important that innovation's key
performance indicators (KPIs) don't
blindly follow the same methodologies
used elsewhere in the business.
For example, although net present
value (NPV) is a fabulous tool for assessing
expected value from capital
investments, it is not built to predict
the return from long-term innovation
projects. And the same shortcomings
apply to nearly every other traditional
metric in corporate finance
because they all assume a fixed and
knowable world that can be calculated
through direct observation,
while, when it comes to innovation,
the exact opposite is true.
Measuring innovation properly
requires embracing its inherent
uncertainty. In making investment
decisions, instead of expecting precise
calculations for return on investment
(ROI), leaders must grow
accustomed to thinking in terms of
strategic options (Figure 2).
On a project-by-project basis,
it is helpful to measure intermediate
success based not only on
the strategic beneficial gains to
be realized, but also on directional
progress relative to time and effort.
Innovation's job is to incubate exploratory
bets until they have been
de-risked and can be evaluated
more like conventional capital investments.
If the end game for a
given innovation bet remains impossible
to define, then innovation

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Chemical Engineering June 2022

Table of Contents for the Digital Edition of Chemical Engineering June 2022