I’ve taught the tutorial How to innovate on time a few times now, and the big takeaway for most is the need to carve out time for failure. That’s right, failure.
Plenty of notable innovation quotes talk about the need to fail, for example:
If you want to succeed, double your failure rate. – Thomas J. Watson
Failure is the gateway to innovation – Ashley Ball
Whoever makes the most mistakes wins – Ralph Keyes
But few know how to convert that into action. How do you guide failure towards innovation?
The answer is 3 things:

Divide time into quarters instead and reserve part of the schedule for experimentation, prototyping and interesting mistake making.
Even if you don’t budget 25% of the project time, you can still offer a week, a day, a half-day, for individuals to experiment and try things out without requiring anyone’s approval. Even small windows of time are better than none (Also see hack day, for putting experimentation at the corporate level). Once the design phase starts the risk taking declines, but all decisions now benefit from the interesting failures during experimentation.
Slides from How to Innovate on Time tutorial (4MB PPT).
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Right on. I believe one of the biggest impediments to innovation is the fear of failure. See http://www.collaborativeye.com/collaboration_journal/2007/6/25/failure-and-a-cultural-of-non-collaboration.html
for my discussion on this.