The innovation formula: understanding how to lead innovation in organizations
Written by Ali Fenwick & Marvin Kunz
In today’s rapidly changing world, it seems that not one company can escape the need to innovate. Globalization, changing consumer trends, and new enabling technologies are disrupting business as we know it. What was once won by the biggest, the strongest, and the most powerful, is now being won by the most agile, the most responsive, the most flexible, and the most innovative. According to Boston Consulting Group’s Technology Guru, Patrick Forth, the majority of Fortune 500 companies in this decade will be different than the companies we have seen in the past as the new outshines the old when it comes to innovation and adaptiveness. These are very challenging times for established businesses, but at the same time, very exciting ones as well as there have never been so many possibilities as there are now for organizations to seize if they are capable to capture them.
Innovation plays a key role in developing new business and it is currently on every business leader’s agenda. Be it a new product or process development, disruptive business model design, or digital transformation, incumbents are looking to innovate. Innovation means growth and business continuation in a world where enabling technologies such as artificial intelligence, blockchain, robotics, 3D printing, and virtual reality are changing the rules of the game and creating opportunities for exponential growth. Many organizations today, who don’t have a digital strategy, are facing an increasing threat of being disrupted or taken over by both traditional and non-traditional competitors. One of the best examples of this is Nokia, which in 2007, before the release of the first iPhone, had a market share in the mobile phone business of almost 50%, which plummeted to less than 5% by 2013. That year, Stephen Elop ended his press conference about the acquisition of Nokia by Microsoft with the words “We didn’t do anything wrong, but somehow we lost.”. Indeed, Nokia did not do something wrong but rather omitted to do something necessary, as they did not react fast enough to emerging market trends in the mobile phone market. But the question remains, why so many incumbents are slow to react to these developments in the market and fail to apply what we know works well in innovation. Aimed at improving how established businesses initiate, develop, and grow innovation internally, we set out to uncover some of the hidden truths holding major organizations back from achieving their true potential in a rapidly changing marketplace.
Busting Myths
In our investigation, we found that some basic assumptions holding executives back from fully implementing robust innovation plans and processes were due to misconceptions around innovation. Here, the three most common misconceptions we identified.
Myth #1 — Innovation is a top-down approach!
Leadership directives and organizational support are starting points to create a culture for innovation, but it can never be just a top-down approach. For innovation to work, it also needs to be a bottom-up approach, as innovation aims to improve existing processes and propositions to help tackle internal inefficiencies and customer pain points. Frontline employees are often the first people to notice customer issues or who can easily identify improved ways of working. An innovation directive is only effective when employees lower in the organization are engaged, involved in the decision-making process, and have the latitude to try new things. However, participation is not enough. Top management needs to ensure the right structures, systems, and resources are also in place to mobilize people and ideas throughout the organization to innovate. When Stephan Klaschka was appointed in 2012 as the new head of innovation and global strategy at Boehringer-Ingelheim, he quickly acknowledged that existing structures in place were preventing bottom-up participation and that finding new ways to engage various people in the innovation process was crucial to his efforts to realize the organization’s future goals.
Myth #2 — Innovation is invention!
Very often people think that invention and innovation are the same thing. Business managers use both terms interchangeably. Though these two terms are related they are not the same. Invention is about creating something completely new. A revolutionary idea such as Thomas Edison’s creation of the light bulb or the Wright brothers’ creation of the first plane can be considered an invention. Innovation, on the other hand, is the process by which inventions are used or improved. To help better understand the difference, let’s look at the discovery of artificial intelligence and its usage. The invention of artificial intelligence, or machine learning, changed the way large amounts of data can be processed in real-time and how this data can be used to make accurate predictions and intelligent decisions. The creation of artificial intelligence as a technology is the invention and the usage of artificial intelligence in autonomous devices, for example, is the innovation. Innovation provides for a new or improved way of using the invention and through this process creates value for the customer.
Myth #3 — Innovation is an art!
Another interesting misconception amongst many organizational leaders is that of the nature of innovation. Many organizational leaders see innovation as unorganized and with a lack of discipline and structure. Nothing is less true. Innovation is based on a robust process that helps turn creative ideas into innovative business models, products, and services. Though the science of innovation is still young, compared to other fields of study such as economics and psychology, it provides academics and business managers with evidence-based approaches on how to improve the innovation process and generate successful outcomes. Innovation is not the outcome of one aha moment, rather it is the consequence of a well-designed process supported by a conducive environment. According to Steve Johnson, author of ‘Where Good Ideas Come From’, it is extremely rare for individuals working by themselves to create the next big thing. He receives support for this notion by Facebook’s Mark Zuckerberg, who, in a Harvard Commencement speech, proclaimed that the idea of a single Eureka moment in innovation is a dangerous lie.
Creating a roadmap for successful innovation implementation
As we saw in the previous section, process and environment go hand-in-hand and without both, innovation and the people involved in it will never succeed. Our study shows that successful innovation implementation is the result of managing the complex relationship between people, their ideas, processes, and the organizational context. To help illustrate this interrelated relationship, we have developed a formula.
Innovation = (People x Process x Environment)
To help business managers lead innovation in their organizations, we provide some suggestions on how to make our formula work.
Leadership Vision & Support (People x Process x Environment)
Leadership vision and support are necessary for innovation to be on the strategic agenda. If innovation is not part of the vision of the organization or it doesn’t align with strategic directives, it will be hard to focus on the development of new ideas. Maintaining the status quo will remain the norm. Having a clear vision in place helps others to understand the direction the company has chosen and how each member can contribute towards that vision. Especially, in today’s fast-moving and uncertain environment, an organization’s vision provides for a sense of security and belonging and helps to mobilize people toward a common goal. When employees feel inspired by a new strategic direction, they are more likely to align with it and engage in work activities that help achieve that vision.
However, vision is not everything. Leadership support is probably the second most important aspect to motivate others to innovate. New ideas and enthusiasm will eventually stop growing and surely starve without being fed the right support. Organizational support does not only entail the distribution of organizational resources such as workspace and investment, but also requires the right structures and systems to be in place to allow innovation to develop. For example, innovation often requires interdepartmental and cross-functional collaboration. If an organization is heavily siloed, then innovative efforts could be stifled by a lack of cooperation or internal politics. Support, therefore, means providing the opportunity for (in)formal structures to develop to allow different people to work together in a non-threatening way. In terms of systems, creating incentive systems that reward innovative behaviors and outcomes is a crucial step in motivating employees to work on new ideas. Ordinarily, incentive systems in more established organizations reward primarily short-term achievements such as quarterly sales targets or customer satisfaction objectives, while the incentivization of innovation targets can be complex and longer-term. Google does a great job of incentivizing innovation in its organization. Google employees are expected to spend 20% of their time on innovation and are rewarded monetary and non-monetary rewards for developing fixes to existing problems or developing new solutions that excite customers.
Building Psychological Safety (People x Environment)
When organizational vision and support are in place, the focus should shift towards building a culture that fosters innovation. Ideally, a culture that balances the needs of the existing business while enabling and respecting the new. Harvard Business School Professor, Amy Edmondson, speaks of psychological safety as a key requirement to allow innovation to flourish in teams and organizations. Psychological safety refers to a trusting environment where people feel safe to be themselves, to speak their mind, suggest new ideas, take moderate risks, and openly admit mistakes without fear of punishment or consequences to one’s self-image or career. A comprehensive study conducted internally by Google called Project Aristotle aimed to investigate the tenants of effective teamwork and high-performance. Their three-year study concluded that the number 1 difference between high-performing teams versus average teams was psychological safety. A team or organization which puts down people for expressing their ideas or admitting their mistakes will definitely stifle innovative thinking or encourage talented individuals to be innovative somewhere else. Many good intentions to build innovation within the fabric of an established business are unintentionally destroyed due to the existing behavioral repertoire of management and other organizational members. Partly because of these well-established behavioral repertoires, creating psychological safety is not an easy thing to do. For organizations focusing on becoming more innovative, it is important to create safe havens where people can work on new business creation without the fear of apprehension. These could be innovation workshops, design days, or hackathons organized internally. Another example of a safe haven could be the creation of an innovation lab where people from different organizational departments can come together to work on new digital products or customer experiences. Creating the right climate and environment for innovation is like providing the oil for the innovation engine to run. Without it, there is no movement. And once you pour it in, it needs time to warm up.
Mastering the Innovation Mindset (People)
Working in innovation requires a special kind of person; one which is capable of creating new ideas and is not scared to test these ideas out. This can be especially challenging when ‘trying and testing new ideas’ means potentially disrupting existing practices in the organization. Besides being creative and mastering the flow of new product development, an innovator also needs to develop thick skin and be intrinsically motivated enough to deal with the potential human barriers he or she will face when aiming to bring change to the existing business. That is why successful innovators in established organizations share some common characteristics, namely a high level of determination, grit, resilience, high-risk appetite, not scared to make mistakes, and even a bit of stubbornness. It is not uncommon for innovators to experience backlash or political fights due to the personality they bring to the table and also the uncertainty that change brings to the organization. Deloitte summarizes in their 2015 intrapreneurship report that because of the lack of support for radical innovation within a company, many intrapreneurs are not getting the shot they deserve.
Still, success in innovation is never a solo effort. The savvy innovator understands that innovation is developed by teams and teams only. He or she knows at heart how important it is to work together with different people and how to leverage the different perspectives that these people bring to the table. An article by Rob Cross and his colleagues in the Wall Street Journal underlines the importance of pulling ideas from different sources and how innovations are created from networks. Collaboration and effective communication are therefore important skills underlying the innovator mindset. This doesn’t mean that you need to be a social butterfly to work with different people, but rather have the ability to empathize with others (social sensitivity), motivate where needed, and deal with conflict effectively. Our own research shows that collaboration and good team dynamics increase creative outcomes and help overcome individual weaknesses. An innovator’s collaborative mindset helps achieve high-performance by enabling and aligning others. In other words, “the sum of all parts is bigger than the whole”.
About the Authors
Ali Fenwick, Ph.D.
Ali Fenwick is a professor, keynote speaker, behavioral expert on tv, strategic advisor, and author. Ali specializes in human behavior, the future of work, and technology. Ali is also the Founder and CEO of LEAD TCM&L™, a global behavioral science advisory firm developing nudges and psychological interventions for Business, Education, Startups, Government, and NGOs. Ali is also a startup veteran, angel investor, and mentor to tech entrepreneurs.
Marvin Kunz
Marvin Kunz is a behavioral researcher at LEAD TCM&L and at the University of Wageningen. He specializes in the application of psychological interventions for business.
