A leader’s failure to walk the talk is, arguably, especially conspicuous if that leader fails to make good on his or her talk about innovation. The promise to focus on innovation ends right there, with a promise. The inability or unwillingness to follow through on the promise creates what these authors call an Innovation Gap. In this article they suggest how leaders can close that gap and in turn engage employees.
A decade’s worth of executive surveys on innovation highlight that a significant gap exists between what leaders say they want and what their organization delivers. Over 80 percent of leaders surveyed1 believe innovation is important for their future success, but less than 30 percent are satisfied with their current level of innovation. This is what we call the “innovation gap.”
So why, despite all the talking and all the resources at their disposal, have the leaders of many of the largest organizations in the world not been able to close the innovation gap? The short answer is that almost everything that has made them successful in the past can get in the way of creating innovative organizations.
Leaders cannot close the innovation gap by applying the type of thinking that created the problem. They have been successful using analytical thinking, which is powerful for solving complicated issues. Today’s complex challenges require a different approach – innovative thinking. This article analyzes the root causes of the innovation gap and looks at some practical actions leaders can use to close it.
Defining innovation and innovative organizations
The problem with any discussion on innovation is that the word “innovation” is used in many different ways. The most useful and practical definition is “applied creativity that achieves business value.”2 Rather than thinking of innovation as a value or an end goal or the exclusive domain of R&D, it is most useful to think of it as the best process to solve complex problems or take advantage of complex opportunities. “Innovation” also should not be confused with creativity. Creativity is about having new ideas relevant or not, useful or not, able to be implemented or not, while the outcome of innovation achieves defined value for an organization.
How innovation happens is also often misunderstood. There is nothing serendipitous about it. Innovation only happens when individuals and small teams engage in innovative thinking. In organizations that innovate consistently and sustainably, the leaders, cultures and organizational practices systematically enable individuals and teams to achieve value by creating and implementing new and valuable ideas.
Why the Innovation Gap?
There are two key factors that create the innovation gap. The first is knowledge. Many established organizations are not innovative because their leaders do not know how to make innovation systematic. The second is that some of the management systems that made organizations successful in the industrial economy are now major obstacles as they try to become more innovative in the knowledge economy.
The Knowledge Factor
Most senior leaders in established organizations have never formally learned how to lead and manage an organization that innovates systematically. When you have been successful playing one game by one set of rules it is understandably difficult to play a new game with a different set of rules, especially if no one explained the new rules.
As we moved from the industrial economy to the knowledge economy over the past 25 years, the nature of critical issues changed from complicated to complex. Complicated issues can be solved with logic and by drawing on past experience. It’s simply a matter of simplifying, organizing and applying solutions that have worked in a similar situation. Complex issues, on the other hand, are more ambiguous, uncertain, and somewhat unique problems or opportunities. Leaders need to apply innovative thinking to gain insight into the complexities and to discover innovative solutions. While yesterday’s answers or best practices may be helpful, they can never accurately and sustainably solve a complex problem.
Implementing the process of innovation in established organizations is a perfect example of a complex problem. Leaders are tempted to apply directly to their organization some of the best practices from exceptionally innovative organizations such as Disney, Apple or Google without fully factoring in the difference in their history or context. Some try to apply common innovation goals and a common model across their entire organization, in areas as different as R&D, sales, accounting or operations. They ask managers and employees to have more ideas without helping them implement the ideas. They implement training programs without modifying organizational practices such as HR or Finance. They ignore behaviours and assumptions that are not compatible with a culture of innovation. And worst of all, they do not back their talk with changes in the way the executive leadership team behaves and solves problems.
To close the knowledge gap, leaders must understand the principles of innovative thinking and how to lead innovative individuals and teams. Managers must know how to lead innovative teams, and individuals must know how to apply innovative thinking. Most leaders believe that innovative thinking is a talent and that the secret to success is simply hiring creative people. The reality is that anyone can learn innovative thinking and how to lead or manage innovative teams.
The Management System Factor
The second factor behind the innovation gap in established organizations is the past success of existing management systems. It is difficult to change a winning system, especially if it is the only one where you have expertise.
In the industrial economy, organizations could be efficient if they had well thought-out strategies and strong execution. They followed the business theories of the industrial economy gurus, creating strong hierarchies, and maximizing productivity by standardizing and rationalizing every activity. Their ultimate goal of zero defects was achieved by eliminating uncertainties and risks. The model worked well as long as the environment remained relatively stable and predictable. However, in the current complex business environment, the use of a rigid industrial model can mean a slow decline that is ultimately lethal. An industrial model is still useful for complicated issues and repetitive tasks, but it needs to be complemented with a second model that can deal with today’s greater complexity.
Organizations today need to learn quickly and apply their learning across boundaries. Such agility implies a level of flexibility and adaptability that cannot be achieved in an industrial-model organization focused on eliminating variations and ambiguities. A few years ago, a new CEO of 3M, a new-product driven organization, applied a rigid analytical system to eliminate error and waste in the R&D process. Within a short time, the percentage of new products in revenues fell from 33 percent to less than 25 percent.3 R&D suffered because some of the elements that made it successful, such as making bets and accepting mistakes, were not compatible with a rigid analytical system. The R&D process is complex; it assumes that errors can be good as they often lead to new insights.
Newer organizations, created after the start of the knowledge economy, have a considerable advantage. They are not bound by legacy leadership, culture or organizational processes inherited from the industrial economy. But even such organizations, when they reach a certain size or stage in their development, tend to stifle innovation by introducing some of the attitudes and behaviours typical of the industrial economy. For example, highly effective Finance, HR or IT systems and processes that maximize standardization and efficiencies can have a very negative impact on the flexibility and agility of the rest of the organization.
To make the situation even more difficult, organizations in the current environment are faced with a combination of complicated, complex and mixed problems. Leaders need to recognize the nature of each problem and apply the right type of thinking process. Organizations must start thinking about both standardization and customization, productivity and innovation, hierarchy and delegation, doing and thinking.
How to Close the Innovation Gap
Leaders can close the innovation gap by working simultaneously on four essential organizational enablers. Otherwise, innovation will be stifled. The figure below depicts the four essential enablers4.
1. Leading Innovation
Leaders directly influence whether or not individuals and teams can innovate. This responsibility exists whether they are leading the entire organization, groups of direct reports, or cross-functional project teams working on innovation projects.
Executive leaders hold the key to the level and success of innovation in their organization. They control the strategic direction, influence the culture, and directly and indirectly control all organizational practices as well as the skills taught to managers and employees. Innovation rarely happens, and certainly cannot be sustained, without the active commitment and involvement of every member of the executive leadership team. In fact, in our experience, innovation success is only as strong as the executive leadership team’s weakest believer in innovation. Executive leaders have to make a long-term commitment and sustain it over many yearsa tall order when there is such pressure for short-term results.
To close the innovation gap, executive leaders must clarify what they want to achieve with innovation, and understand the specific issues that can prevent individuals and teams from innovating in their organization. Executive leaders also must demonstrate their strong commitment in their actions, not only in their talk. They need to make innovation a core priority for the organization and for key departments; assign credible senior people to lead the implementation; and fully resource their innovation initiatives for the long term. It is these kinds of actions that will send the clearest message that innovation is here to stay and not the latest passing fad.
Leaders throughout the organization do not have to be the most innovative individuals but they must learn innovative thinking and learn how to lead or manage innovative teams. Since 70 percent of organizations report that innovation is among their top three priorities5, innovative thinking and managing innovative teams should be high on their training agendas. In reality, according to a recent survey of HR professionals6, less than 20 percent of organizations conduct any innovation training. If leaders are committed to innovation, they must give leaders and managers at every level the skills to manage innovation teams and they must develop everyone’s innovative thinking skills.
2. Culture of Innovation
A study of 765 CEOs, senior executives, and public sector leaders from around the world found that “CEOs instinctively understand the need to play a prominent role in establishing a culture of innovation. But they are not always certain how to go about it.”7
Cultures define an organization’s “implicit” rules, what individuals and teams do and say when no one is watching. If the culture supports innovative behaviours, innovation can occur systematically. However, if some of the elements of the culture, such as decision-making or risk tolerance, are not supportive, innovation will never happen systematically.
Our research8 revealed seven major characteristics of a culture of innovation that leaders need to enable:
- Everyone understands the organizational direction.
- Innovation is a priority.
- Executive team models innovative thinking and innovative practices.
- Open and honest communication and trusting relationships.
- Effective cross-functional teams that encourage diverse viewpoints.
- Leaders who engage in risk-taking focused on delivering value.
- Balance innovative thinking with the discipline to implement solutions.
Leaders also need to analyze the current cultural assumptions to identify what to support and what to change. For example, an insurance company had a cultural assumption of “Yes We Can,” which was confusing customers and choking the organization. The cultural assumption enabled people to make decisions that could have an unintended negative impact on the rest of the organization. Executives found out the company was selling over fifty versions of a product when they believed it had less than fifteen. Each time someone had an idea others helped them turn it into another product (Yes we can!), which created confusion for customers and costly inefficiencies.
3. Organizational Practices for Innovation
In creating an organization that innovates systematically, it is important to pay particular attention to the organization’s practices, including its structures, processes, and policies. This is because these practices can inadvertently undermine its innovation efforts. It is not enough for the senior leaders to commit to innovation, focus on the required skills and the culture, and then wait for innovation to flourish. Most organizations were not designed to make change or innovation easy. On the contrary, their organizational practices often work against innovation efforts by maximizing repetition, standardization, and predictability and minimizing risk.
In most situations, organizational practices are the result of cumulative decisions taken by many leaders over many years. In the industrial economy, organizations developed practices to maximize the efficiency of work and its output. These practices led to an efficient standardization of work but also contributed to rigid processes to achieve consistency.
Organizations need to develop practices that make it easier to innovate. In most cases it simply requires an adjustment to specific processes or rules. The real issue is that every department or function is affected, and just one reluctant department can jeopardize innovation in the whole organization.
For example, the organizational practices in support functional areas, such as Human Resources (HR), Information Technology (IT), and Finance, can have a major impact on the overall ability of the organization to innovate.
• Human Resources: The HR department has a significant impact on the organization’s ability to innovate. This is because it works with the leaders, employees, and teams who are the main source of innovation. There are many ways HR can influence innovation through its practices in recruitment, talent management, employee engagement, and recognition and rewards. Here are some questions leaders should pay attention to:
- Is the capability to lead innovation part of the criteria for recruiting or promoting leaders?
- Are individuals recruited, developed, and promoted based on their ability to succeed in a team-based environment of innovation?
- Is innovation included in the performance metrics for employees and teams?
• Information Technology: The success of IT is often predicated on eliminating uncertainties and ambiguities in projects. However, innovation projects are usually complex and include uncertainties that cannot be eliminated. IT has two main roles in innovation. First, it needs to support the teams that are developing innovations. Its second role is more proactive. Technology has become an enabler of innovative ideas, but it is also often the starting point for innovative products or services. Here are some questions leaders should pay attention to:
- Is the IT department fully contributing to cross-functional innovation projects?
- Is the IT department supporting the implementation of test or pilot innovative ideas effectively?
- Is the IT department systematically bringing new technology ideas that can serve as the starting points for innovative ideas?
• Finance: The finance department has a considerable impact on innovation through the development and implementation of the budget. Budget development is a unique opportunity to apply innovative thinking. Unfortunately, too often it is a lost opportunity. The process is often an exercise in incremental change, adding a few percent to last year’s budget. The budget should include funding for innovation either as a line in the overall budget or as a percentage of every departmental budget to be allocated to new ideas and innovation. Here are some questions leaders should pay attention to:
- Does the budget development process encourage innovative thinking?
- Does the organization allocate specific funding for future innovation projects?
- Is the budget flexible enough to move funds from non-performing projects to innovation projects?
4. The Innovation Plan
Although many organizations are trying to close the innovation gap, very few are successful. One of the main reasons they do not achieve their goal is that they fail to develop a formal plan. If senior leaders want better information technology or more productive marketing, they ask for a plan. And because most organizations are good at creating and implementing plans, they usually achieve their goals. However, even if innovation is a priority, leaders are more likely to make a few speeches and ask their employees to have more ideas. They rarely develop a specific innovation plan that is budgeted, resourced, and implemented.
It is only by creating a customized plan and implementing it rigorously that a leader can create an organization where innovation happens systematically. The plan gives focus and structure to the innovation effort. It provides the long-term view required to be successful. In the absence of an integrated plan, an organization will find it is too easy to cut innovation resources when quarterly results demand cost reductions.
There are six guiding principles to follow when developing an innovation plan. These principles ensure that the plan is solid, sustainable, and will achieve the objectives:
- Focus on clear business objectives
- Engage the whole executive team
- Top-down but open to bottom-up input
- Include clear boundaries
- Resource and enforce the plan
- Include metrics to track progress.
Organizations must invest in their leaders to ensure they develop their own innovative thinking capabilities and have the capability to develop their employees’ and teams’ innovative-thinking skills. Organizations also need to design their culture and organizational practices to make innovation possible. As well, organizations require a well-developed, organization-wide innovation plan to ensure a focused approach to organizational innovation. An organization-wide innovation plan enables local teams to focus their innovative thinking activities and align their innovations with the organization’s overall requirements for innovation.
When innovation occurs in organizations, it becomes embedded. It also becomes an invisible competitive advantage, consistently creating new value for the organization. It is reflected in how individuals and teams think innovatively as they redefine complex issues, generate new ideas, discover solutions, and mitigate risks. The end result will be that organizations will close their innovation gaps, become able to achieve sustainable customer value and employee engagement, and remain vital into the future.
- Globe & Mail and the Schulich Executive Education Centre, survey conducted in 2007.
- David S. Weiss and Claude Legrand, Innovative Intelligence (John Wiley & Sons, 2011), p. 6.
- At 3M, A Struggle Between Efficiency And Creativity” Business Week, June 2007
- David S. Weiss and Claude Legrand, Innovative Intelligence (John Wiley & Sons, 2011), p. 170.
- “How companies approach innovation” a McKinsey Global Survey, 2007.
- Survey of 550 HR executives and managers by HRPA and Ideaction, 2007.
- Marc Chapman, Saul Berman & Amy Blitz, Rethinking Innovation: Insights from the World’s Leading CEOs (Fast Thinking Books, 2008), p.25.
- Based on the research by the Human Resources Professionals’ Association (HRPA) and Ideaction in Canada, 2008