Earlier this month DevMynd(custom software development company) hosted the fourth event in our Executive Leadership Roundtable series. It was a great opportunity to spend time with some fellow leaders from the Chicago technology and business community. The topic this time was The Practice of Enterprise Innovation. I found it a truly insightful conversation and I thought I would share some of the key takeaways.
For a little background, the panel was comprised of a diverse set of executives from BMW, Climate Corp, Belden, and RG/A. The panelists came from a cross-functional set of roles and each tackled the topic from a unique perspective.
Types of Innovation
There are many types of innovation and various ways that an idea can be classified. One way to look at this landscape is through a classic two-by-two in which we compare the type of innovation against the market.
On one dimension we are looking at innovation in terms of the idea, does it incrementally improve upon an existing concept or does it truly disrupt the status quo? On the other dimension we examine the market that we are serving, playing new markets against old. Viable and innovative ideas can exist in any of the quadrants but knowing which will help determine the necessary steps for execution.
Let’s consider a logistics executive at a global shipping company that devises a way to shave $0.05 off of every point-to-point delivery with a small tweak in process. The idea is novel and receives support from the executive team as a limited pilot. Six months later, the pilot has proved that the idea can save the company $300M each year. This idea lives in the lower left of our chart. The packages are delivered to the same customers via the same drivers and the idea (regardless of implementation difficulty) builds on an existing system.
Another example, in the early 80’s a manufacturer of soaps and cosmetics identified that it’s surface chemical processes could be applied to the manufacturing of floppy disks. The new process was tested and found to increase quality by nearly 20% between decreased rejection rates and increased disk life. The company successfully entered the new market and quickly rose in market share.
When viewed from the angle of the idea itself, the surface process innovation lives in the top left: it’s a new market for the process but an incremental improvement over the current technology. But from the company’s perspective the idea lives in the top right: it’s a new market for them and it disrupted the entrenched manufacturers.
The exercise of determining what kind of innovation you have on your hands (and this is only one of many techniques) can help determine what governance model, organizational structure, resources, and partnerships are necessary to allow the idea to flourish. Incremental innovations targeting existing markets, for instance, can rely heavily on current resources and support structures. Those innovations that are disruptive and market-making will require entirely new structures, governance, resources, and possibly even new brands.
Organization and Corporate Governance
Ideas are not the capital of innovation, the real capital is the ability to activate the resources necessary to execute an idea. The commitment, organization, and governance of these resources then becomes a foundational step. There are a few key patterns that we see in the marketplace that can foster success.
Successful innovation initiatives within large organizations require a strong executive sponsor. This person is the champion for the effort both up and down the hierarchy. They should be empowered to maneuver resources, dedicate funds, and set priorities.
Perhaps more importantly though, the executive sponsor needs to defend the fledgling project. As one of our panelists put it, “they are the ‘yes’ to the organization’s ‘no’”. The larger company will always trend toward the status quo and teams working on dramatically new ideas will be seen as swimming against the current. The sponsor must vigorously protect the team and clear roadblocks as they come.
As much as the executive sponsor is responsible for the resourcing and defence of an initiative, she or he is also responsible for holding it accountable. As much as the initiative owes to the sponsor in terms of support, it is the sponsor that also must determine when an initiative has failed milestone tests and should be pivoted or reappropriated.
Incentivize Innovative Behavior
Incentive structures are often overlooked when considering building successful innovation teams. But incentives are a critical component. As with any incentive though they must be aligned to the desired behaviors, not merely outcomes.
Incentivizing innovation is important in many regards but these two are key:
- Longevity of Leadership – often executives and program managers embark on long term innovation initiatives only to move to new positions before they have concluded, leaving their successor to either carry on or shift direction. Incentivizing leaders to see things through to completion or put succession plans in place can help an organization reap the full benefit of investments.
- The Tour of Duty – retaining key employees is a difficult but essential task for a company to be competitive. Using a tour-of-duty concept in which core company employees can rotate through rewarding roles on innovation teams can be a way to both staff initiatives with quality people and retain them in the organization at large.
The Internal Startup
In the case of brand-building or complimentary services innovations one approach to organizational design is the internal startup. When carefully applied this strategy can provide the best of the lean and agile startup but also take advantage of the stability and resources of the enterprise.
When taking this approach it is best to treat the relationship between internal startup and enterprise as a partnership rather than a subsidiary – almost as if the startup is an external company. This carefully controlled distance is the key to success here. The partnership must be bidirectional such that both sides are offering benefits to the other.
An Environment of Innovation
In order for an enterprise to continually reinvent itself, it’s products, and it’s customers it must create an environment conducive to innovative activity. Creating this environment however is easier said than done. There are however some behaviors and attitudes that an organization can foster that improve the quality of the innovation climate.
Innovation is not merely the generation of new ideas, it’s about deriving economic value from those ideas, and value is created by customers. Companies that foster customer-centric behaviors at all levels of the organization tend to identify more areas of innovative opportunity. Becoming a customer-focused organization is a lengthy and complicated endeavor but it pays enormous dividends in the areas of innovation and customer lifetime value.
Promoting an “owner’s mentality” among employees creates the kind of responsibility and empowerment necessary for innovative ideas to rise to the top. Fostering an entrepreneurial attitude amongst one’s team should be the goal of any manager. Hiring well and applying rewards carefully to entrepreneurial activities will compel further behavior.
Ownership though implies the need for responsibility which requires a certain amount of authority. Letting individuals run with ideas and take the reigns helps improve the innovation climate within a company. But it’s also a great way to help new leaders mature with innovation as a core value – thus perpetuating the cycle forward.
Accepting the Reality of Risk
Unless an organization allows for a healthy amount of risk it will fail to take advantage of innovations and strategic moves. But, companies often shy away from major risks, especially when it is seen as disruptive to the current model. This paralyzing effect starts with individuals who may feel that organizational risk will flow directly to them and therein lies the issue.
Companies that want to be innovative need to create a culture of thoughtful risk-taking by removing the personal fear inherent in making risky decisions. Managers and even line-employees need to feel safe and confident that risks taken to improve customer value, quality, revenue, and profit will be seen by the organization as positive, even if they fail.
Innovation is a big topic, and inside the enterprise it becomes even more challenging. But companies must adapt to the changing landscape and capture innovative ideas to survive. The digital transformation that we see today in most large companies is just the beginning.