Innovating Greater Value Faster by Taking Time to Learn

To ensure their long-term competitiveness, most large organizations are augmenting their investments in digital innovation. For example, they are increasing the number of digital innovation efforts launched, agile teams, hackathons, and partnerships with start-ups.[foot]A digital innovation is a new (for the organization) or significantly improved offering or capability that relies on digital technologies. A digital innovation effort is an investment of resources over time intended to generate business value through innovation.[/foot] Yet these investments are merely inputs to realizing a company’s digital ambitions. By only focusing on such inputs, leaders can lose sight of the outcomes of the company’s digital innovation investments.

In fact, many innovation efforts generate outputs of little or no value. They end up producing “fondue sets”—innovations that intuitively seem worth developing, but once developed, are rarely used, difficult to improve, and end up generating little if any business value. Tracking inputs helps to kick-start innovation efforts, but it doesn’t ensure accumulated learning about how those efforts contribute to business outcomes. And without such insights, executives struggle to prioritize and adapt efforts, and consequently, to generate value from them.[foot]Read more on learning from hypotheses in J. R. Ross and N. O. Fonstad, “Learn from Hypotheses, Not Failures,” MIT Sloan CISR Research Briefing, Vol. XIX, No. 5, May 2019, https://cisr.mit.edu/publication/2019_0501_LearningFast_RossFonstad.[/foot]

I have studied twelve organizations that successfully changed their approach to innovation and no longer create fondue sets.[foot]I performed interviews with over thirty executives at twelve firms from 2017 to 2019, conducted as part of the research I led on Expanding Digital Innovation.[/foot] These organizations refocused their approach from increasing inputs to increasing the value realized from individual innovation efforts. They changed the desired outcomes of an innovation effort to generating insights into what makes an offering desirable, feasible, and profitable—and why—and developing a digital offering based on those insights. And they changed decision rights, making cross-functional teams responsible for realizing these outcomes.

Posten Norge AS, hereinafter referred to as Norway Post, is an example of a company that has shifted the focus of its digital innovation efforts from inputs to outcomes.[foot]For our full case study on Norway Post, see N. O. Fonstad, “Innovating with Greater Impact at Posten Norge,” MIT Sloan CISR Working Paper, No. 440, January 2020, https://cisr.mit.edu/publication/MIT_CISRwp440_InnovationPostenNorge_Fonstad.[/foot]

Norway Post: Investing in a Sequence of Insights

Established in 1647,[foot]Posten Norge AS, “Sustainability Report 2018,” https://www.postennorge.no/en/report-archive/sustainability-report-2018/SustainabilityReport2018.pdf.[/foot] Norway Post is a Nordic postal and logistics group that develops and delivers integrated solutions in postal services, communications, and logistics, with the Nordic region as its home market.[foot]“About Us,” Posten Norge AS, https://www.postennorge.no/en/about-us.[/foot] In 2019, Norway Post was structured into two segments, logistics and mail.

Traditionally, business innovation at Norway Post focused on operational improvements. Leaders allocated funds to business cases developed by individual business units. A business unit then handed IT the requirements for the innovation, and IT developed it accordingly, using waterfall methods. Based on specifications set up at the start of a project, the IT team committed to a budget, scope, and delivery date, and progress was measured with KPIs; the team was rewarded for meeting its commitments.

This approach produced valuable innovations. For example, using advanced digital technologies and algorithms such as neural networks, Norway Post developed a system that could read handwritten addresses faster and more accurately than any other system in the world. On the mail side of the business, Norway Post was considered to be one of the world’s most efficient and most automated mail companies. The company’s success reinforced its commitment to its approach to innovation.

However, this approach wasn’t working for the logistics side of the business. The delivery needs of logistics customers are unique and change frequently. Defining offerings that are desirable to end users, feasible, and make business sense requires testing and learning. Inspired by a successful effort within the company to develop a set of services in logistics, Norway Post adopted a new approach to digital innovation with a specific purpose: delivering valuable offerings faster. The new approach discourages pursuing innovations of little or no value, increases the likelihood of creating competitively advantageous innovations, and has helped Norway Post become more agile.

Redefining the Purpose

Drawing on design thinking, Norway Post anchored the new approach in a deliberate definition of a valuable innovation, where innovations are measured by the degree of overlap of three attributes:

1. Desirable: customers/end users want it
2. Feasible: Norway Post can provide it
3. Viable: it makes business sense Traditionally, a team could develop an offering that was simply feasible.

However, because desirability and viability are evolving as rapidly as uses of digital technologies, it is important to review all three attributes and ascertain whether they overlap. To realize its new purpose, the company also redefined the innovation process into three phases, each generating a distinct set of insights:

1. Boundaries of an opportunity: What do end users want? What is feasible for the organization? Is there an overlap of desirability and feasibility?
2. Offerings within an opportunity: If there is an opportunity, then what services are desirable, feasible, and profitable?
3. Limits of an offering: If there is an offering, then to what extent is it scalable? The definition and phases were combined in an innovation framework the company calls the Helix Model (see figure 1).

Restructuring the Innovation Approach

The Helix Model introduced two fundamental changes to how Norway Post approaches innovation. The first change shifted decision making from a top-down approach to one built on empowered cross-functional teams that are composed of experts in the three attributes. By giving a team decision rights over what offerings to develop and how, Norway Post expected to increase and accelerate the value generated by individual efforts.

In the second change, the company introduced a test-and-learn approach structured around a series of insights that build on each other, which a team needs to generate in order to develop digital offerings that are valuable to multiple stakeholders.

The Helix Model: Ensuring Test-and-Learn Leads to Valuable Outcomes

In the first phase of the Helix Model, Explore, the team leading an innovation effort articulates and tests assumptions regarding the boundaries of an opportunity for valuable innovations. The Explore phase is complete when the team has developed insights that either identify or refute the existence of an opportunity that is desirable, feasible, and seemingly viable. Defined opportunities receive funding for the next phase, Create.
 In the Create phase the team develops and tests several potential solutions within the opportunity, building MVPs (minimum viable products); testing how desirable, feasible, and viable each is; and adapting them based on learnings. The team persists until it settles on one or more solutions to implement and scale, or comes to believe that there are no viable solutions.

During the Implement stage, the team scales an MVP iteratively by incrementally adding functionality and new types of users.

Applying the Helix Model

In one case, the Helix model was applied to the development of an in-home delivery service. At Norway Post, in-home delivery refers to a service in which a delivery person enters the recipient’s home when that recipient is not there to receive the package.

The product owner of the in-home delivery effort, Kirsti Fløystøl, noted that the Explore and Create phases of the Helix model imposed a way of thinking and acting very different from past practice:

Upon entering the Explore phase, the team had assumed that the in-home delivery offering would incorporate and provide customers with a digital lock. However, after taking time to study and test the technical and market maturity of digital lock technologies, the team learned that they were insufficiently mature. So the team changed its offering to focus on homes that already had a digital lock installed.

In the Create phase, the team experimented with prototype offerings. They piloted a solution with employees to ensure the offering would function in a larger implementation and under tougher conditions. After confirming how to offer a feasible solution, the team designed and launched additional pilots to learn more about other aspects of the offering, such as the user experience, and what customers would be willing to pay for.

In the fall of 2019, based on the insights generated in the Create phase, the in-home delivery project received funding to begin the Implement phase, and the team soft-launched the service throughout Norway. They didn’t initially market the service, pending learnings from the next set of experiments.

The team credited the Helix Model for prompting them to keep hypothesizing about what features increased or decreased the profitability of an offering and testing these features to learn why. Such insights helped the team avoid wasting resources on developing and releasing fondue sets to the market—and then struggling to correct these missteps. It helped the team create greater value faster.

Early experiences from teams such as the one on the in-home delivery project propelled Norway Post to scale the Helix Model throughout the company:

Fund Hypotheses; Reward Outcomes

Most companies are starting to empower cross-functional teams and encourage them to take a test-and-learn approach. However, these companies’ outcomes remain questionable. Norway Post’s Helix Model offers lessons on how companies can drive benefits from their teams by changing their targets and decision rights—and ensuring that teams are funded and rewarded accordingly. If your organization does not invest incrementally in hypotheses and reward teams based on outcomes, it is time to rethink how your organization funds and rewards innovation efforts.

Digital innovation is essential to every company’s long-term success. Make sure you are not wasting your efforts. Embrace—and fund—the paradox that to innovate greater value faster, cross-functional teams need to take time to learn.

© 2020 MIT Sloan Center for Information Systems Research, Fonstad. MIT CISR Research Briefings are published monthly to update the center's patrons and sponsors on current research projects.