Though companies invest into innovation they like results less and less. There seems to be a glass ceiling for driving innovation, which neither new tools and processes nor innovation consultants seem to crack. It is time to face the elephant in the room: company culture and its impact on innovation performance. Top management needs to learn deal with it. Then company culture will become a driver of innovation rather than getting in the way.
The recent survey by the global management consulting firm Accenture on why innovation efforts fall short of expectations in spite of increased investment provides some deep insights into the disappointment of companies about their innovation efforts.
Companies got it: Innovation is key to sustainable growth
Innovation and more of it is the proven way to survive and prosper in today’s fast moving business environment. 93% of surveyed executives said the long-term success of their organization’s strategy depends on their ability to innovate and 70% see innovation among their company’s top five priorities.
But where is the beef?
However, top executives are not seeing the pay-out from their investment in innovation they expect. They feel they have sluggish innovation processes not achieving consistent innovation performance. Though they are seeking to innovate they are increasingly less satisfied with the results, specifically on commercialization and launch of new initiatives (very satisfied down to 28% from 39% in 2009). The proportion of executives who sees the introduction of a new product category as a primary goal for innovation fell to just 27% down from 42% in the comparable 2009 study. Net: High flying expectations are often not met in a very visible and frustrating way.
Why? Renovation instead of Innovation!
46 % of the executives said their company has become more risk averse when considering new ideas.
Most organizations and their leaders “love progress but hate change” (Mark Twain). So they resort to compromises: innovate, but not too disruptly; invest, but not into too high risk options; change, but stay in known territory. In fact, 46% of the executives said their company has become more risk averse when considering new ideas. So only incremental innovation like line extensions, design optimizations, or creative cost savings will flourish. With this innovation strategy the company is surviving well in the current market but will be hit by the next disruptive innovation in a big way. There are plenty of examples: Kodak and the digital camera, Nokia and the smart phone … Company leaders believe they can have their innovation cake and eat it by innovating only incrementally in order to minimize risks as much as possible. Executive compensation systems tend to reinforce such a behavior through giving short term results a heavy weight. Net, executives tend to focus on ‘renovation’, not on (disruptive) innovation.
What to do about it?
Is doing your homework good enough? Of course, companies having done their homework on strategy, organization and resources fare much better. 35% of the companies that have a holistic innovation system in place are seeing innovation delivering a competitive advantage. None amongst the ones that do not have such a system installed. Speeding up commercialization by running innovation projects as end-to-end value chain projects and leveraging the capabilities of the outside world via open innovation will help, too. But the big elephant in the room is company culture.
It’s the culture, stupid!
Creating more innovation requires three pillars to be in place:
- Leadership committed to drive innovation for the long term and create and execute an innovation strategy,
- Organizational structures, resources and process tools enabling to deliver innovation,
- Company culture supporting innovation and the necessary changes related to it.
With more change comes more risk. But 46% of the executives said their company has become more risk averse when considering new ideas. So how can innovation flourish? When driving innovation, top management needs to adapt company culture to support innovation and encourage change and learning from failures.
And what about all the innovation experts who should help?
There are two kinds of innovation experts working in companies, external and internal. The external ones typically sell their clients a system or infrastructure, which indeed has the potential to facilitate innovation processes and to involve more people in innovation. So, more innovation should be conceived and get to the market. They often win top management approval quite easily, in particular when they have big names on their business cards, because who can refuse a new tool promising better innovation performance? This works in some cases but more often than not it does not meet expectations. The innovation supporting culture needs to be there, too. You can lead a horse to water but you can’t make it drink.
The internal ones are typically mid level managers with a brilliant track record of innovating. They are chartered by the top management to drive innovation but then left alone. Top management often delegates innovation to them but then fall short of supporting them in talk and action whilst staying personally and visibly in charge of innovation. So innovation managers are quickly shown their limits by the organization, often the hard way. The operation managers have to earn the cash today – so get out of their way. And of course, unless you deliver better results than the current operations here and now, only a few operational managers will listen to, left alone act on the innovation managers’ suggestions.
…they resort to the smallest common denominator: incremental innovation or ‘renovation’.
But the innovation managers have to deliver, too. So they resort to the smallest common denominator: incremental innovation or ‘renovation’. Then there is no need to work on the really hard part: creating an innovation supporting company culture. Alternatively they quit. And more innovation comes too late and too little. That’s what senior executives are complaining about – although they only get what they implicitly supported by their actions and tacitly endorsed by their talk.
Lessons to be learned
Working on company culture is difficult and complex. Most importantly, it requires strong leadership from the top with a constant purpose and a long term commitment. Here a couple of tips which will move the needle on culture towards more strongly supporting innovation:
- Create a learning culture which challenges the status quo. Seek input from the fringes of the organization. Open up to the outside world. Encourage change. Then drive implementation.
- Accept failure as part of learning. In fact, you only learn when the results of your action are not what you have predicted. Some people call this failure – I call it unexpected outcome. Thomas Edison was once asked what he had achieved during the last week. His answer: “I have not failed. I’ve just found 10,000 ways that won’t work.” This is not failure – this is learning how to build a light bulb. But fail early and cheaply – not in a full scale plant. A sign that innovation culture is improving: People share their failures – because they are insights.
- Any change carries risk. Accept it and reward managing risk – not avoiding risk.
- Make innovation everybody’s concern. Innovation is not just R&D’s job but everybody can and should contribute. But not necessarily all the time. Only a few carefully selected innovators with strong entrepreneurial skills should focus on innovation full time. Of course, R&D is and remains a key driver of innovation but it should not be the only one. There is more to creating business value by innovation than relying on technology based innovation alone.
They check all the time whether the top stays true to their declared commitment to innovation.
But always remember: the whole company, in particular the operation managers watch top management like a hawk. They check all the time whether the top stays true to their declared commitment to innovation. The last thing operational managers like to do is to risk delivering against committed short term operational goals for the sake of more innovation in the future – remember their bonus is at stake!
About the author
Joachim von Heimburg is one of the most experienced innovation practitioners in Europe and the Middle East. He designs and implements innovation strategies, processes and structures and makes them operational creating value for the business. This he supports by creating a culture fostering an innovative spirit and entrepreneurial activities.
From 2006 to 2009 he led the culture change of Procter & Gamble from traditional R&D to Open Innovation in EMEA. From 2010 to 2012 he was General Manager Innovation and Corporate Program at SABIC, one of the leading global chemical companies. At present, he works as Innovation Architect and Executive Advisor on state-of-the art innovation capabilities and structures helping companies and other organizations to innovate how they innovate.
He has extensive multi-cultural working experience in 7 countries (Belgium, Canada, Germany, Saudi Arabia, Switzerland, Turkey and the USA). He holds a Ph.D. in theoretical physics of the University of Marburg, Germany and studied economics at the University of Frankfurt, Germany. More on his website www.jvhinnovation.de