OVO | March 2009 Newsletter

OVO Views

Conversations about Innovation

March/April 2009 - Vol 3, Issue 7

In This Issue
	Innovation is not a strategy Show me the money Strategic Intent Experimentation and Failure What can you do to influence the culture?

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Greetings!

Continuing in the recent "theme" concept, we'd like to turn this month to the topic of corporate culture and innovation. We believe that the most significant inhibitor to innovation within any organization is corporate culture. In this edition of the newsletter, we'll examine the cultural barriers to innovation and some attributes that can accelerate innovation. First on the list is alignment to corporate strategy, and the consistent communication of the importance of innovation to the success of those strategies. Next we'll examine how individuals are evaluated, compensated and rewarded for their innovation efforts and how the compensation and evaluation methods tamp down innovation efforts. Next, we'll turn our attention to strategic intent and investment. Firms that have clear strategic goals and strategic intent tend to be much more successful when innovating. We'll also argue that virtually every innovation team receives exactly the wrong amount of funding. Finally, we'll examine factors including creativity, experimentation and failure within your organization. We're pleased to announce that this newsletter has been recognized as a Constant Contact All-Star, one of the best newsletters within Constant Contact. We're gratified that our newsletter has won this award, and look forward to continuing to provide you with our thoughts and insights on innovation. We'd like to know your thoughts about the innovation space. What topics are of most importance to you? What information can we provide to help you accomplish your goals? Please feel free to contact us as we continue to bring you some of the best commentary on the innovation space.

Innovation is not a strategy

Strategic Vision One of the first issues we need to get on the table is that innovation is not a strategy. Growing organically, creating interesting and differentiated products or services, disrupting another industry or market - these are strategies. Innovation is an enabler to these strategies. Cost cutting, operational excellence, industry consolidation - these may also be valid strategies for your business, and innovation may be helpful as a tool to improve or accelerate these strategies. So when I hear a CEO or a firm speak about becoming more innovative, my first question is: to what outcome or in support of what strategy? Linking innovation to key initiatives Innovation is not a management panacea, and should not be applied like water from a firehose at a four alarm fire, what we like to call the "spray and pray" approach. Instead innovation should be considered a tool or capability that can improve stated objectives within the strategic framework of your organization. The challenge from the CEO should be: "Let's use innovative tools and techniques to accelerate our product development strategy to enter new markets". This statement is actionable and demonstrates where innovation provides value. Too often there's a significant disconnect between the emphasis on "innovation" and the appropriate outcome or application of the capability or tool. Breaking the cultural barrier In this instance, the cultural barrier is clear, concise, purposeful communication about the role that innovation should play in the organization. Too often most people in an organization hear about a focus on innovation from the CEO in a corporate setting, but that focus is never placed into context and the goals and deliverables are never documented. Innovation becomes the "flavor of the month". In an age when we are saturated in most organizations with communication, most teams will say the last thing they need is more communication. However, given the risk, uncertainty and change associated with innovation, and the poor linkages between the tools and methods and the desired outcomes, I think good, consistent communication is the key to changing the culture. In this case I don't think you can overcommunicate your innovation plans and goals. The Five W's Starting with the CEO and trickling down throughout the management structure, we need to tell the organization: WHY we are focusing on innovation and its expected outcomes WHAT innovation is going to mean for the business and WHAT it is meant to impact WHO is responsible for innovation and the role that each person should play WHERE innovation is likely to have the most impact WHEN we'll get started and WHEN we'll know how we are doing This is a purposeful, consistent, clear communication strategy that demonstrates management's commitment to innovation and its expectations, and aligns innovation to key corporate goals. What is the CEO's Role? We believe the CEO and senior executive team need to be active sponsors of innovation, and one of the most important aspects of that sponsorship is to clearly align the need for innovation to key strategic goals, and to constantly communicate the importance of innovation to the entire organization. In this manner the CEO can begin to change the corporate culture. See more research on the role of the CEO in innovation here. See our white paper about creating a culture of innovation

Show me the money

Jerry Maguire Probably the next biggest challenge to innovation from a cultural perspective may seem a bit obvious, but it is very important. Many organizations ask their employees to innovate, yet hold them accountable to a set of evaluation criteria, compensation schemes and reward metrics that have nothing to do with innovation. In fact, many of the people asked to participate are actually rewarded for doing things that curtail or stop innovation programs - eliminating risk and variance, researching the validity and market size of an idea before it is mature, stopping the development of a new or competing product. Let's take a closer look at the cultural barriers to innovation where compensation, evaluation and rewards are concerned. Evaluation You say you want a revolution? Or perhaps just some interesting new ideas? Well, how do you evaluate the people who are tasked with doing that work? In most cases, innovation teams are members of a part-time team, tasked with "innovation" yet also expected to get their "day job" accomplished. More importantly, they have extremely divided loyalties. While creating new ideas is interesting, they are evaluated on getting their primary job accomplished, and that evaluation will drive advancement and compensation. Who is going to place at risk their promotion and opportunity for moving up in the organization or their bonus or raise to work on ideas that are less than likely to be implemented, especially when their evaluation does not consider the time and effort placed in innovation? If you want committed innovators, you need to consider how the people who are tasked with innovation are evaluated. Too often we find that many innovation teams simply cannot operate effectively because of the competing interests and demands between their "day jobs" and what they are asked to do from an innovation perspective. This places a team with very divided loyalties working on tasks above and beyond their regular jobs in a conundrum - work diligently on risky ideas that may or may not get implemented or continue to move the day job forward, since that's what you are evaluated on. Compensation Compensation is an outgrowth then of the evaluation and the work we ask the innovation teams to do. If my compensation is tied to the performance of the company on a quarter to quarter basis, and my compensation is tied to how well I perform in my regular job, those tasks will get much more of my attention and focus than innovation. If, on the other hand, my compensation is tied to innovation goals, and the number of ideas we generate and implement, then I have compensation tied to innovation and I can overcome cultural barriers and hurdles. Rewards/Recognition Finally, how we reward and recognize people who are working on an innovation program says a lot about the emphasis we place on innovation. For example, innovation will require risk and should have failures. Do we as a management team punish the failure or learn from it and incorporate that learning for the next innovation? Do we reward the one great idea, or the consistent work that is underway all the time in a continuous innovation program? What do we recognize and reward? What is our innovation program and strategy and how do the rewards and recognition systems support innovation? Defining what to reward and recognize is important, but don't get too caught up in what the tangible rewards look like. What may come as good news to you is that many innovators are motivated by sheer recognition and the identification that they've created an interesting idea, or by the ability to continue working on an idea they've created or one they have some affinity towards. In other words, rewards and recognitions don't have to be expensive, they just need to reinforce what's important to the innovators. Disconnects So, what we have in many organizations is the call for more risk, more uncertainty, more potential for failure, and while we ask people to innovate we also ask them to keep their day jobs moving forward, since that's how they'll be evaluated and that's what drives their compensation. Given the already high work loads, the greater likelihood of failure in an innovation program, the lack of resources and management attention to innovation programs, is there any wonder that people will spend the vast majority of their time in their current jobs, paying lip service to innovation? See our management presentation on cultural barriers

Strategic Intent

What do we want to be? Another factor that plays into issues around corporate culture and the ability to innovate is what Hamel and Prahalad called Strategic Intent. That is, what is the differentiator or clear strategic goal of the business and how do all decisions and initiatives support that goal. For instance we could say that the Strategic Intent of Apple was to dramatically improve the user experience of popular electronics. Or that Google's Strategic Intent is to help people find information more effectively. Most successful innovators have very clear understanding throughout the organization about the strategic intent of the business, and make well informed decisions about their investments. Conversely, many firms that struggle with innovation don't have a clearly articulated or understood strategic intent, and since there are no clear goals or boundaries any idea looks valid to the team. Successful alignment Understanding who, or what, the firm wants to be sounds a bit "touchy feely" I'll grant you. But working from a baseline that communicates what the organization is, and wants to be for its customers and shareholders makes innovation much simpler. We can always be more successful innovating around core beliefs and competencies - too often innovation is used as an excuse to explore markets and opportunities that a firm doesn't have the access or knowledge to enter, when in fact having a better understanding of the strategic intent clearly enables innovation teams to make better choices and better decisions. Funding follows Function Another interesting phenomenon - funding is easier to acquire for innovation programs when the concepts align to strategic goals and to strategic purposes. If we can demonstrate that the innovation helps the organization fulfill a brand promise or provide a differentiated solution that's in line with corporate goals or strategic intent, it is much easier for the innovation to acquire much needed resources and funds. Another of the significant barriers to innovation is the fact that most firms land squarely in the middle on funding innovation - not enough to do much damage but too much to force the team to think creatively. The funding should either be cut to nothing to force the team to think outside the box to innovate successfully, while giving them the resources and timeframes they need, or all the funding necessary should be provided and the team held closely accountable. Most firms fail at this funding milestone as well, usually providing just enough money to staff a team without providing enough to develop and rationalize ideas. Either provide no funding and ask the team to be creative and align to organizations or product groups with specific needs and funding, or fund the team fully. Sounds Simple Many of these cultural barriers, like aligning evaluation to the tasks we ask people to do, or providing adequate funding, sound straightforward and simple, but they never are. Achieving clarity about strategic goals, aligning funding to new ideas to help achieve those goals and matching evaluation and compensation to the expected actions are not necessarily difficult, they simply take time to work through the system, while the "regular" work must be carried on. This is why good innovators are also sustaining innovators - they have overcome the initial inertia and understand the investments.

Experimentation and Failure

The Antithesis of Six Sigma Innovation requires a culture that tolerates, if not embraces creativity, experimentation and failure. Obviously, these attributes fly in the face of an operationally excellent company, where variance is eliminated and the results of a project are scripted and known in advance. To become an innovative company, or to sponsor innovation beyond one off programs, your firm must recognize the importance that creativity, experimentation and failure play in a mature innovation program. Creativity As we've noted previously, Einstein himself said that when we are faced with new problems, we cannot solve them with old methods but we need new methods. When we seek innovative products, services and business models, we need to think beyond our traditional ways of doing business, and need to use creative thinking to generate new opportunities and ideas. We have to take on different perspectives and question even the status quo of the business. If the business does not have a diverse population of creative thinkers willing to challenge how business is done today, your idea programs will simply reinforce how business is done, and change will be difficult if not impossible. Now you'll be tempted to argue that few people in your business are "creative" and you'll probably be correct. However, that simply reflects the hiring process and the profile of the people who best fulfill the mission of operational excellence. Even with that said, many people can be creative if given license to do so. Is the management team and the culture ready to tap into the creative capabilities of its employees? Experimentation Every good innovation is a product of successive learning experiences and experimentation. Few if any products or services we think of as innovations sprung complete from the whole cloth. Good innovators understand the need for experimentation, piloting and prototyping. Experts hold up Google as an excellent innovator, and in many ways they are, yet most of their innovations that we use today are still in "beta" or experimental mode. We as users have great comfort using what Google describes as an incomplete product. Google has lowered the threshold and made it acceptable for many people to work with experimental solutions. Gary Hamel, writing in the February Harvard Business Review, suggests we need to change our philosophies about strategy and implementation. He says "processes that seek to arrive at the one best strategy through top-down analytical models must give way to models based on the biological principals of variety (generate lots of options), selection (use low-cost experiments to rapidly test critical assumptions), and retention." We need more experimentation in our businesses. Rather than place all the investment behind one idea that may succeed or fail, we need to experiment constantly with a wider array of potential solutions. Failure Finally, we have to be able to fail when we are innovating in order to learn. In many ways we are taught, in school and in business, that failure is a terrible thing, when in fact failure is the only real instructor or learning experience. Again, many firms we hold up as innovators are comfortable with failure as long as the failure and the learning associated with it is incorporated into new products and services. While people hail the iPod and iPhone from Apple, they were merciless about the Newton, Apple's first PDA. It would have been simple for Apple to state to the market that they had failed at PDAs and were not re-entering that market. Instead Apple learned from its failures and based on the knowledge it gained created better solutions. This is not to stipulate that consistent failure is a good thing - but that failure swiftly punished will eliminate any appetite for risk and change.

What can you do to influence the culture?

King for a day We fully recognize that few of our clients have the ability to change all of the factors we've identified quickly and may not have enough influence to change some of these cultural barriers across the organization. What can you do differently in your little corner of the world? Introduce creative thinking in your every day environment When possible, hire people with different backgrounds or perspectives Rework your evaluation metrics to incorporate measures and metrics for innovation Incorporate the use of innovation tools and techniques on a regular basis As a leader in your area, innovate as frequently as possible Recognize and partner with other innovators Educate your management team about the importance of cultural change Create simple, low cost tools and methods to capture and analyze trends Increase the use of outsiders in idea generation Seek ideas from your customers and business partners Finally, get your HR or Talent Management team involved. Changing compensation models and evaluation metrics will have a direct impact on how the organization views innovation and the kind of participation you can expect. Changing a corporate culture is a daunting consideration, but it can be done, and must be done if your firm is to become more innovative. If you don't have the option of starting at the top, then create grassroots innovation initiatives and programs to change the culture from the bottom up.

If you'd like to discuss how OVO can work with you to improve your innovation strategies, ideation sessions, innovation processes or software, contact us today at our website or (919) 844-5644 x789.

If you have a topic you'd like to see us cover or a question you'd like to have us address, please let us know via the website above.

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Sincerely,

Jeffrey Phillips

OVO