Discover the step-by-step guide and the importance of the Innovation Funnel for your company’s future

Becoming “innovative” has been a common goal for many companies over the years. Regardless of whether the ultimate goal is gaining a competitive edge, quickly adapting to changes, or operational efficiency, successfully managing innovation ideas and projects is a minimum requirement. The innovation funnel is a valuable tool for aligning innovative projects with business strategies and is increasingly used by executives and managers.

There are different types of funnels, such as marketing, sales, and recruitment funnels, all aimed at guiding or channeling something. The innovation funnel provides a framework for managing innovative projects that should or should not move forward, thus reducing the risks of investing in those without prospects of success.

In this article, we will discuss the concept of the innovation funnel, its stages, how to use it in open innovation, the importance of its application in challenging scenarios, and present success stories.

What is the innovation funnel and its importance for your business?

The innovation funnel is essentially a tool that assists companies in selecting and managing new ideas, streamlining the corporate innovation process, and reducing risks. It provides a structure for prioritizing, selecting, eliminating, refining, and testing proposed solutions. It functions as a funnel, each stage acting as a filter for ideas, ensuring that only the most viable proposals aligned with objectives advance and are progressively developed.

What are the stages of the Innovation Funnel?

There are six stages in the innovation funnel process, each playing a role. Although many ideas are initially entered into the funnel for investigation, only a fraction of them advance to become fully developed development projects. The main purpose of the innovation funnel is to ensure that only the most promising ideas, with the highest execution capacity and market absorption, stand out and advance to the final stage of the funnel.

Idea generation

In this initial phase, a wide variety of ideas is generated, often through brainstorming sessions, crowdsourcing, research, and open innovation platforms. Ideas can cover products, services, processes, or business models.

Idea screening

Ideas are evaluated and filtered based on criteria such as alignment with strategic objectives, feasibility, market demand, and expected return on investment. Ideas that do not meet these criteria are eliminated, while the most promising ones advance.

Concept development

Selected ideas are refined and transformed into more detailed concepts or prototypes. This stage involves creating business cases, feasibility studies, and prototypes to better understand the practicality and potential impact of innovation.

Testing and validation

Tests and validations are conducted to ensure that the concepts are viable and capable of delivering the expected results. Experiments, pilot projects, or small-scale trials are conducted to assess the feasibility and effectiveness of innovation.

Implementation

After successful validation of the concepts, innovation is ready to be implemented. This involves scaling up innovation, allocating necessary resources, and integrating it into the organization’s operations. Implementation may require adjustments based on real-world conditions.

Market launch

The final phase of the funnel involves launching innovation into the market or to the target audience. Marketing strategies, communication plans, and distribution channels are developed to ensure a successful launch. Customer feedback and market responses are monitored for continuous refinement of innovation.

How to implement the Innovation Funnel?

Implementing the innovation funnel involves an approach to managing the idea generation, evaluation, and selection process.

The first step is to describe the goals and objectives of your innovation process. Understand what the company aims to achieve through innovation and how it aligns with the overall business strategy. Additionally, create criteria to determine which ideas are less or more relevant.

Next, implement a system to capture and catalog all generated ideas. For example, consider a company that requested process improvement suggestions from employees, resulting in over 400 proposals. In this context, adopting innovation management software or platforms is crucial. This ensures that no idea is overlooked and facilitates the identification of the most promising ones to advance in the funnel.

Lastly, the innovation funnel is a process that evolves over time, so establish a feedback loop, learn from successful and unsuccessful innovations, and update processes and criteria accordingly.

The importance of the Innovation Funnel in the future of business

Traditional methods involving creating a business plan and then executing it work well in projects where uncertainty is low. However, in the current scenario of intense competition and increasingly connected and demanding customers, market uncertainty is constant.

Thus, a new strategic approach to managing projects is needed to reduce time and cost while ensuring the implementation only of those projects that add value to the business and are user-centric. The innovation funnel is a comprehensive tool to address all these aspects.

It is evident that every company wants greater assertiveness in its processes, and the innovation funnel is the methodology that guides this goal, although it does not guarantee it alone. Creating a new business model, for example, is not an easy task; in the context of the innovation funnel, it is essential to generate volume, allowing various ideas to enter the process, while initial investments are allocated to each of them.

According to data from Correlation Venture, a company seeking to create a new business with a 50x return would need to invest in 250 early-stage initiatives. Despite requiring investment, the innovation funnel is notably more assertive than the traditional approach of conceiving an idea, developing a business plan, and applying it, with a considerable chance of failure.

The main challenges and barriers in Innovation Implementation and how to solve them

Managing the innovation funnel involves four major challenges.

First Challenge

Expanding the funnel’s entry involves encouraging employees to share their ideas, creating an environment conducive to collaboration and diverse perspectives. Additionally, adopting strategies to identify market and open innovation trends is important.

Second Challenge

Narrowing the funnel bottleneck by evaluating generated ideas and concentrating resources on the most promising opportunities. However, due to certain criteria, there is always the risk that some potentially revolutionary ideas will be set aside if they do not match the overall business strategy and are cut off prematurely.

Therefore, keep in mind that it is not only about allocating resources to projects with the highest expected return but also about creating an innovation portfolio that meets business objectives and enhances the company’s strategic capability.

Third Challenge

The third challenge is to ensure that selected projects achieve the planned objectives at the time of approval. That is, it is necessary to ensure the reliability of data and prototypes so that the implementation plan is as close as possible to reality.

Fourth Challenge

The fourth challenge is that managing an innovation funnel requires long-term projects and eliminating ideas at each stage, which is not something leaders of large organizations typically feel comfortable with.

In a typical technology project management, once executives approve a project, they expect it to be completed. Most leaders will use their power and influence to help the project team achieve the goals.

However, in the innovation funnel, it requires the approval of a large volume of project options that are discarded as stages progress. To do this efficiently, leaders must invest in promising projects while eliminating those that do not make sense before they waste too much money and valuable resources.

Innovation Funnel and its relationship with Open Innovation

Although recognized as an effective method for promoting diversity, open innovation remains a significant challenge for many companies, even in 2024, according to a study by Itonics. In fact, the challenge is less related to understanding the benefits of open innovation and more to its execution. Implementing open innovation increases complexity and, when not managed systematically, securely, and with clear objectives, can result in risks and resource waste.

Thus, the innovation funnel is a tool that can be used to select partners with minimum criteria and roles to meet the company’s needs.

Open innovation refers to the approach of seeking external partnerships to drive innovation, rather than restricting the process only within the company. It is linked to the existence of an innovation ecosystem, as it is through this ecosystem that partnerships are established. These partnerships may involve other companies, startups, universities, research institutes, or even the government.

By pooling resources and efforts through these partnerships, it is possible to expand the innovation capacity of those involved. It is no wonder that leading technology companies like Google, Microsoft, IBM, Amazon, Apple, Samsung, Intel, Cisco, and Oracle use open innovation as a strategy.

However, this diversity also makes the viability analysis of projects even more challenging. The innovation funnel for open innovation allows filtering ideas in three stages:

Top of the Funnel

This is the connection moment with the ecosystem where the innovation challenge is launched, and potential partners are sought.

Middle of the Funnel

Evaluation of alignment with the challenge, i.e., screening of interested companies and selection of the most suitable ones.

Bottom of the Funnel

Analysis of the pitches of selected companies, approval, project execution, and management of the partner relationship.

Successful examples of companies that implemented the Innovation Funnel

Through its “C-Lab Inside” program, Samsung opened an idea submission process for internal employees, allowing them to submit innovative project proposals. The selected ideas went through different funnel stages, from validation to implementation. This allowed Samsung to leverage the knowledge and creativity of its own employees to drive internal innovation.

P&G adopted the open innovation strategy, seeking ideas outside the company. Sources included research institutions and even competitors. These ideas were evaluated with specific criteria and available data to examine them, identifying unmet customer needs and matching them with potential innovations. This filtering process ensured that only the most promising and viable ideas moved forward.

The most promising ones were developed into prototypes and extensively tested. P&G successfully collaborated with an external partner to create a new version of its best-selling mask. Another important step was feedback through focus groups and market tests. The tested products were integrated into P&G’s portfolio, such as the Olay Regenerist line, which is now one of the brand’s best sellers.

Throughout the article, we presented the innovation funnel as a management tool. However, innovation is not built overnight. It is a process that takes time but can be accelerated by relying on a reference partner in quality, data, and customer focus. To find out how Objective helped its clients overcome innovation challenges, talk to one of our specialists