The average company lifespan continues to drop. In the mid 20th century the average company lifespan was more than 60 years and this stands at just 15 years today. This is expected to fall further to 10 years by the year 2025. Traditional large companies might feel a little like Superman walking through a disaster zone in Metropolis, cars and buildings lay wasted while Superman remains unscathed. This is probably how Borders felt. Kodak might also have felt unstoppable like Superman. If we keep this analogy going, then innovation would be their kryptonite.

To stay relevant and do so successfully, organisations need to ensure that they have the processes, values and systems in place to support innovation. For instance, there is no point investing in upskilling employees on topics such as Lean Startup and Design Thinking if the organisational culture does not support the application of these methods internally. To combat these issues, forward thinking organisations are starting to bring in independent parties to conduct innovation audits or assessments.

What is an Innovation Audit?

Let’s first have a look at the definition of an audit;

“an official inspection of an organisation's accounts, typically by an independent body”

There are two aspects of this definition that are important to highlight:

“Inspection” - Understanding the current status compared to best practice.

“Independent” - By getting a third party to complete the assessment it ensures that it is not influenced by biases and internal politics.

Taking this into consideration, an Innovation Audit can be defined as:

An independent assessment to best understand where an organisation sits today in contrast to innovation best practice and where it needs to be to achieve its objectives.

Every organisation is different and should be treated as such. An organisation's innovation objectives need to be clear and defined before an assessment can be effective. Consider questions around the type of innovation that your company is after and who your target customer group is.

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What is your organisation actually trying to achieve?

Along with understanding the objectives of your company, both the outside-in and inside-out perspectives need to be analysed.

From an outside in perspective, consider the industry landscape and what competitors are doing.

From an inside out perspective, consider aspects such as your internal processes, incentives and recruitment criteria.

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What should be covered in an Innovation Audit?

To put it simply, there are three key areas that should be analysed in an innovation audit: resources, processes and values. Alignment of these is critical if an organisation is to effectively explore disruptive innovation.

Resources

Understand what your company has (or has access to)

Some questions to consider:

• Do you have legacy infrastructure?
• Do employees receive relevant training?
• Do employees receive any budget for training?
• What tools do employees have access to?

Processes

Understand how your company does its work

Some questions to consider:

• Does your company use traditional business cases?
• Does your company apply traditional financial metrics?
• Are there silo’d departments across the organisation?
• How do you hire new employees?

Values

Understand what your company wants to do and how employees make prioritised decisions

Some questions to consider:

• Does your company apply top-down decision making?
• Does your company have a short term mindset (one that embraces certainty and security above all else)?
• Is it okay for employees to fail (small)?
• What are the key priorities of the company?

Why should innovation audits be mandatory?

Companies that previously felt unstoppable are being disrupted, evidenced by the significant drop in the average lifespan of companies. Innovation is not going to thrive within organisations that do not have alignment across processes, values and systems. There are countless organisations that have not been setup to explore and deliver disruptive innovation. The recommendations coming from an innovation audit will drive organisations to build an environment that truly supports innovation through tangible and measurable outcomes.

Both financial audits and innovation audits share the same underlying purpose - to protect shareholder value and corporate reputation. In the same way as financial audits, yearly innovation audits should be implemented across small, medium and large companies. The more progressive and innovative countries will soon be promoting yearly innovation audits as a highly recommended requirement for businesses. It is time for organisations to take an active path in preparing for the future rather than living in the past. This is the new age audit and it won’t be long until all organisations are required to join the party.

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