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The 5 Requirements of a Truly Innovative Company

 

Requirements of a Truly Innovative Company

 

Is there any business topic that has been more popular for longer than innovation? The problem is that it’s difficult to conceive of a commercial challenge where meaningful progress has been more difficult to achieve. Your company may have a new business incubator, an idea wiki, a disciplined process for mining customer insights, an awards program for successful innovators, and perhaps even a Silicon Valley outpost—all great ideas—but it is still struggling to meet its growth goals and rarely delights its customers. It’s not just your business. According to a McKinsey report, 94 percent of managers are unsatisfied with their company’s innovation performance.

 

Consider how far many companies have come in reengineering their supply chains, improving product quality, and implementing lean six sigma. These efforts have paid off handsomely. However, when it comes to innovation, the gap between ambition and achievement appears to be as wide as ever. What is the issue? Most organizations’ innovation powertrains are missing three crucial components.

 

Consider an automobile engine that isn’t equipped with a transmission, timing belt, water pump, or starter. The engine may be well-built elsewhere, but without one of these components, it is effectively useless. It’s the same with invention. If your staff don’t have access to the seed money they need to prototype and test their ideas, all of their brainstorming will be for naught. Similarly, no matter how slick your company’s online idea market is, if your employees haven’t been educated to think like innovators, it won’t yield many high-value ideas.

 

A jumble of misaligned or poorly integrated approaches will not deliver consistent, profitable breakthroughs, nor will a single innovation tool or method. Building a systemic competence needs a systematic approach, whether it’s Amazon’s logistical skill or the near-flawless service you receive as a Four Seasons hotel guest. It’s the same with invention. Skills, tools, metrics, processes, platforms, incentives, roles, and values must all be integrated into a supercharged, all-wheel-drive, race-winning innovation machine.

 

So what are the parts of the innovation engine that most often get left out? Here’s a list of the top five:

 

1. Employees who’ve been taught to think like innovators

 

So few organizations have made systematic investments in boosting their employees’ innovative skills. Despite evidence to the contrary, many top managers still believe that a few genetically fortunate souls are intrinsically creative, while the remainder can’t come up with anything more fascinating than cafeteria menu proposals.

 

Senior executives are inundated with ideas every day, the majority of which are either terribly underdeveloped. After a while, it’s tempting to believe that all those crazy ideas are coming from unexperienced people, rather than from people who haven’t been taught in or given opportunities to practice innovative thinking, and who operate in a system that hasn’t been created to nurture it.

 

There has been a lot written on where creativity comes from and what makes someone innovative. Inquiry, according to our research and experience, is at the center of it. Innovators have a proclivity for looking into things that others often overlook. Individuals must be trained to do four things if they are to be taught to innovate:

 

  1. Challenge invisible orthodoxies. Mental models tend to converge over time in any sector. Executives read the same industry publications, attend the same conferences, and consult with the same consultants. They all start to think alike after a while. Contrarians, on the other hand, are innovators. They learn to separate “immutable laws” from “ingrained ideas” in their desire to upend industry regulations, and they take advantage of incumbents’ pathological veneration for precedent.
  2. Harness under appreciated trends. Innovators don’t waste time speculating about what might happen; instead, they focus on the small things that are currently happening and are speeding up. You don’t need a crystal ball to be an inventor; all you need is a wide-angle lens. You must be on the lookout for trends that your competitors haven’t spotted yet, and then figure out how to use them to disrupt existing business models.
  3. Leverage embedded competencies and assets. When a corporation defines itself by what it does rather than what it knows or owns—when its “concept of self” is based on products and services rather than core capabilities and strategic assets—innovation suffers. Innovators perceive their company and the world around them as a collection of talents and assets that can be combined in infinite ways to create new goods and businesses. They are recombination masters.
  4. Address “unarticulated” needs. Customers have their own beliefs, therefore asking them what they want rarely results in a fundamentally fresh discovery. Instead, you must observe them closely and over time, then think about what you’ve learned. Where are we causing unnecessary annoyances? Where are we squandering the time of our customers? Where are we overcomplicating things? Where do we treat clients as numbers rather than people? You must be a relentlessly inquiring anthropology and a keen-eyed ethnographer to be an inventor.

 

Anyone can significantly improve their invention skills with a little training and some opportunities for real-world practice. Whirlpool Corporation’s recent outstanding innovation performance is largely due to the company’s training of more than 15,000 workers to be business innovators. Any innovation program that does not begin by assisting people in seeing the world through “new eyes” would almost certainly fall short of expectations.

 

2. A sharp, shared definition of innovation

A broadly accepted concept of innovation is required to manage innovation in a methodical manner. It is impossible to know how much “genuine” innovation is taking place and whether it is paying off without this. Similarly, you can’t hold leaders accountable for innovation if no one can agree on what constitutes innovation.
Is Heinz ketchup in a new squeeze container innov­ation? Is it a breakthrough if Comcast introduces a new “triple play” pricing scheme? Is it a game changer if Whirlpool introduces a washing machine that delivers just the appropriate quantity of detergent? While most people can tell the difference between a true breakthrough (like the original iPhone) and a minor product improvement (like a new shade of Post-It® notes), it’s more difficult to reach consensus on the gray areas in between.
Hammering out a company’s definition of innovation can take many months. As a starting point, look back a decade or two and identify the types of concepts that have resulted in significant margin and revenue increases.
A product or service must be original and engaging to the consumer, generate a competitive advantage, be on a migration path that can yield future innovations, and provide consumers with more value than anything else on the market to be considered innovative at Whirlpool. This definition may appear to be too broad. The understanding that has emerged over time as these criteria have been utilized to assess which ideas are actually innovative and which aren’t is what makes it valuable. The definition has tightened with use, and conflicts of opinion have shrunk. It’s also crucial to revisit the criteria on a regular basis: did the highly “innovative” products actually generate above-average returns?
Setting goals for innovation, allocating resources to innovative initiatives, planning a cadence of new product launches, targeting advertising on high-value discoveries, and measuring innovation performance are all easier with a solid, agreed-upon definition of innovation.

3. Comprehensive innovation metrics

 

Companies track just about everything that has an impact on their bottom line, but strangely, they rarely track innovation. It is true that measuring it is tough. When a product has no precedents, historical benchmarks are of limited use, and it’s difficult to estimate the future worth of an invention that is merely a notion.

 

However, there are methods for assessing innovation performance. A complete dashboard should include:

 

Inputs: the amount of money and time spent on innovation by employees, as well as the number of ideas generated within each month or received from customers, suppliers, and other external sources.

 

Throughputs: after initial screening, the amount and quality of ideas that enter the pipeline, the time it takes for those ideas to progress from concept to prototype to reality, and the notional value of the innovation pipeline

 

Outputs: the number of innovations that enter the market in a given time frame, the percentage of revenue generated by new products and services, and the margin gains related to innovation.

 

Leadership: the amount of CEO time spent mentoring innovation projects, and 360-degree survey data that indicate how pro-innovation executives behave.

 

Competence: the amount of people trained as business innovators, the percentage of employees designated as innovation “black belts,” and changes in the quality of ideas created across the organization

 

Climate: the amount to which the firm’s management systems encourage or discourage innovation, as well as the progress made in removing innovation roadblocks

 

Efficiency: changes in the ratio of innovation outputs to inputs across time

 

Balance: diverse types of innovation (product, service, pricing, distribution, operations, and so on); different risk categories (incremental advances vs speculative enterprises); and varied time frames

 

You can define specific, unit-by-unit innovation targets and fine-tune the innovation engine once you’ve established the measurements and a baseline. Jeff Fettig, Chairman and CEO of Whirlpool, recently established a goal for the firm to increase the value of its innovation pipeline in the next two years. Executives acknowledged that they would have to shift some of the company’s innovation resources from late-stage product enhancements to early-stage new breakthroughs in order to accomplish this. Whirlpool would not have been able to set such explicit innovation goals, proactively manage its innovation budget, or measure the impact of such activities without a set of comprehensive measurements.

 

4. Accountable and capable innovation leaders

 

How many of your company’s leaders, from project managers to executive vice presidents, are formally responsible for innovation? What percentage of employees have remuneration targets connected to innovation? Innovation will be neglected if it is less than 100 percent. Too often, innovation is thought to be the domain of specialized groups such as R&D or corporate business development, rather than the responsibility of every leader at every level.

 

It’s obvious that holding leaders accountable for innovation makes no sense unless they’ve been trained and coached to support creativity within their own teams. This signifies for a leader:

 

  • Knowing how to use innovation tools.
  • Providing opportunity for blue-sky thinking on a regular basis.
  • When assessing new possibilities, avoid making snap decisions.
  • Having a taste for unorthodox ideas.
  • Celebrating “smart failures” and recognizing inventors.
  • Mentoring innovation teams personally.
  • Making time and money available for innovation.
  • Recruiting and promoting people who are creative.
  • Attempting to remove bureaucratic barriers to innovation.
  • Understanding and using rapid prototyping and low-cost experimentation principles.

 

Most leadership development programs, in our experience, pay insufficient attention to these innovation-enabling attitudes and behaviors. Companies must work hard to develop a cadre of executives who are equally competent at promoting innovation as they are at operating the business through selection, training, and feedback.

 

5. Innovation-friendly management processes

 

A automobile is more than just its motor. When you pair a 500 horsepower engine with a set of practically bald tires, the majority of that power is lost. The same may be said for invention. If a company’s overall management model hasn’t been optimized for innovation, little of the engine’s power will reach the bottom line, no matter how admirable its innovation practices are.

 

Any investment in innovation skills will be squandered if, for example, a company’s budgeting procedure is intrinsically conservative and makes it difficult for front-line personnel to acquire money for small-scale experiments. Few new-to-the-world items will make it to market if its product development process places too much emphasis on reducing risk from new launches. It will wind up with managers who are more bean counters than trailblazers if its evaluation and remuneration structure does not encourage innovation performance. When an innovation project is sacrificed on the altar of quarterly results because it lacks a financial reporting system that analyzes innovation investment and staffing, no alarm bells will ring.

 

Any procedure that has a substantial impact on investment, incentives, or mindsets should be redesigned for innovation. Whirlpool has done just that during the last decade. For example, the company’s HR leaders incorporated an innovation-focused assessment exercise into the MBA hiring process. Candidates that are accepted to the company’s headquarters are put through a multi-day project that tests their ability to think creatively. An invention exercise is also included in on-campus interviews. Whirlpool’s investment strategy has also been tweaked to encourage innovation. Each year, the corporation allocates a portion of its capital budget—typically approximately 20%—to projects that are regarded truly innovative by the board.

 

Almost every organization has overhauled its operational model to improve efficiency and speed over the last two decades. Global supply chains have been improved, business operations have been outsourced, and significant investments in new IT tools have been made. However, few firms have gone through the trouble of retooling their management practices for innovation to this extent.

 

Taking a systemic view

 

It is a difficult undertaking to retool an organization for innovation. When Whirlpool’s then-chairman, Dave Whitwam, pledged to create an innovation culture in 1999, he told his workers that the journey would take at least five years and that innovation would be his top focus throughout that time. He made it obvious that this would not be another trendy show. Furthermore, he well understood the challenge’s scale. “Ultimately,” Whitwam told his colleagues, “every job and every process will change.” Few CEOs think that way about making innovation a systemic competence.

 

When it comes to evaluation of its innovation initiatives, it’s usually to find a hodgepodge of tools and processes that are not just unfinished, but also poorly integrated. Each component makes sense on its own—the crowdsourced concept competition, the internal venture fund, customer sentiment research, and the stage-gate product development process—but the whole is less than the sum of its parts. It’s as if a dozen different executives went into an auto parts store and came out with anything they thought would help them build a car. While all of the necessary components are required to make an engine, it is the integration of those components that transforms a parts bin into a smooth-running machine. That’s why the innovation skills a firm instills in its employees must align with its own concept of innovation, as well as the innovation metrics it chooses, all of which must be weaved into the performance management system. Similarly, all supplementary innovation processes must be compatible with the main components.

 

A CEO, no matter how dedicated, cannot single-handedly restructure an organization for innovation. The entire senior management team must be on board. A strong C-suite executive who is responsible for the design and construction of the company’s innovation engine is also required for the re-engineering activities. This person is known as the “innovation architect,” and his or her role is similar to that of the lead engineer on a car program in that it is his or her responsibility to ensure that all the elements fit together in a coherent system. This means ensuring that innovation is properly measured, that employees at all levels have been trained as business innovators and have access to the right insights and tools, that customers and suppliers are plugged into the company’s innovation platform, that innovation projects are adequately funded and monitored, that hiring and promotion criteria help to strengthen the company’s innovation “gene pool,” and that innovation values are appropriately valued.

 

Several firms have named a “Chief Innovation Officer” to supervise important new growth projects in recent years. The responsibilities of the innovation architect, in our opinion, are broader, embracing not just business development but also competency development. The ultimate goal is to create a company where innovation is “baked in” rather than “bolted on,” where it is instinctual for all employees and inherent in the organization.

 

If your company is serious about creating an innovation engine, it must improve everyone’s innovation skills, agree on what constitutes innovation, develop comprehensive metrics, hold leaders accountable for innovation, and retool its management processes to foster innovation everywhere, all of the time. These can’t be stand-alone initiatives; they need to function together.

 

Do all of this, and you’ll have a company that can win, and win again, in the creative economy of the twenty-first century.

 

Source: Harvard Business Review

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