Established companies have to innovate for the future while running their core business. This is a reality that is now accepted by the majority of corporate leaders. A report by McKinsey notes that 70% of senior leaders view innovation as one of the top three drivers of growth in their companies.
Innovation is no longer just a nice to have, it has become a matter of survival for established companies. This is because startups are now better funded and their incentives are in the right place. Whereas, for innovation in large corporates this is not necessarily the case.
Leaders may be keen for their teams to innovate, but they fall victim to the myths around innovation. Since they don’t really understand how innovation systems work, they start engaging in a lot of different activities. Companies have been trying everything from idea competitions, rapid prototyping, hackathons and more expensive programs such as innovation labs and corporate accelerators.
Despite all this activity, most corporate leaders are still not satisfied with the returns they are getting from their investments in innovation. Less than 30%of leaders indicate that they are confident with the decisions they are making around innovation. When innovation does succeed, it is often as one-off projects rather than as a sustainable and repeatable process.
Most companies start working on innovation without taking the time to assess their level of readiness to nurture innovation. To take innovation from being a series of one-off projects to a repeatable process, leaders need to put in place the right internal structures, processes and environment. Innovation Readiness is key to sustaining innovation long term. Companies need to put in place the following three pillars; leadership support, organizational design and innovation practice.
Without explicit and visible support from leadership, most innovation programs are dead on arrival. If your CEO does not spend a significant proportion of their time actively leading innovation, it will be extremely difficult to create and sustain innovation as a repeatable process. Leadership needs to go beyond just words that encourage innovation, to doing the following:
- Strategic Guidance: Leaders must provide innovation teams with a clear innovation strategy that makes explicit where to play. This strategic guidance should not be vague or known by only a few people within the organization. Leaders must provide clear guide rails for the majority of innovation projects to be aligned to.
- Resource Allocation: In a lot of companies, there are no official resources for innovation that are set aside and protected. Instead, intrapreneurs have to hustle and scrape for resources that can be pulled from them at any moment. Leaders need to make sure that they are allocating budget, time and resources that are protected from encroachment by the core business.
- Portfolio Management: Innovation cannot flourish if the leadership are exclusively focused on running and improving the core business. Instead, leaders need to be actively involved in making investments to explore future opportunities for growth. These investments in innovation need to take the form of many small bets that gradually increase for a smaller number of teams that show progress and success.
Beyond leadership, we also need to design our company structures to support innovation. When leaders speak about an innovation culture, they are often referring to practices such as ideation, experimentation and iterative product development. However, these behaviours do not just emerge out of the blue. Every organization has to build enablers and remove blockers for innovation practice to flourish. Ultimately, our company culture will be what we reward and celebrate within our organizations:
- Legitimacy And Power: Does innovation show up in your organizational chart? Is there an innovation career path within your company? Or is innovation career suicide? If innovation teams have to constantly fight for their right to exist, then innovation has little legitimacy or power within your company. While being a pirate might be fun, innovation is more sustainable when it is an explicit part of our institutional structures.
- Bridge To The Core: It is often difficult for innovation teams and the core business to collaborate. In fact, there can be a conflict for resources, which the core business inevitably wins. As such, we need clear policies that help innovation teams collaborate with the core business. This can be particularly helpful when it is time to take new innovations to scale.
- Rewards And Incentives: Most companies manage innovation using the same rewards and incentives systems as the core business. The annual targets and review process for bonuses makes it difficult to celebrate failure. Innovation needs to have a dedicated incentives system that is different from that of the core business.
The final pillar we need within our company to be ready for innovation is to create a practice with the right tools and processes. Innovation cannot be done using the same tools and practices that we use within the core business. Planning and executing is not the right process practices for innovation. Instead, innovators need to use an iterative process to design and test their ideas:
- Innovation Tools: Companies need to adopt the right tools for designing business models and testing assumptions. Adopting agile development, business model, lean startup and design thinking tools will help facilitate the innovation process. This is a toolbox that most practitioners now agree works well for innovation. These tools need company wide adoption, rather than adoption in small pockets of the company.
- Process Management: In order to release funding and resources, most companies require innovators to write long business plans with five year financial projections. This process for making decisions does not work well for innovation. As already noted, innovation teams need to adopt iterative methods for testing and reducing risk. In line with this best practice, our processes for managing innovation should be optimized to systematically track and measure how well teams are reducing the level of risk in their new ideas.
- Skills Development: It is a myth that entrepreneurship cannot be learned. It is possible to develop and train innovation skills within our teams. Beyond training, we also need to give people the experience of working on and running innovation projects. Such skills training should be provided across the whole organization, including people in departments such as HR, finance and compliance.
I believe that innovation is the primary driver of future growth for all contemporary companies. However, before launching a number of innovation projects, leaders need to ensure that their companies are ready to support innovation. If they do not get their companies innovation ready, they risk failure and frustrating their intrapreneurs. So before we start planting the flowers of great new ideas, we need to ensure that the corporate garden is fertile with the right nutrients to nurture innovation.