Asia’s innovation imperativeThe consumer-driven boom in the region demands business leaders who can turn creativity into value.

With Asia projected to lead worldwide consumer consumption by 2030, the race is on for the region’s customers. Those companies that come up with fresh ideas, new products, and outside-the-box marketing strategies will outpace the competition.

There’s one catch. Creative leaders—those who can drive such innova-tion—are rare on the ground in Asia, and competition for that talent is particularly fierce. Companies need to develop these leaders from within, and zero in on external hires with exact precision. To help companies thrive, human resources directors will need to know how to attract and differentiate innovation leaders.

In a business setting, innovation isn’t creativity for its own sake. It’s “creating unique value that generates growth or commercial success,” said Jane Stevenson, Vice Chairman, Board & CEO Services at Korn/Ferry International. “A culture that encourages innovation also creates oppor-tunities for people to build on the talents they bring to your organiza-tion.” Ms. Stevenson and Bilal Kaafarani, Group President and Chief Innovation Officer of Yildiz Holdings who was formerly an innovation executive with PepsiCo, Proctor & Gamble, Kraft Foods, and The Coca-Cola Company, are the authors of the top-selling book, Breaking Away: How Great Leaders Create Innovation that Drives Sustainable Growth and Why Others Fail (McGraw Hill, 2011).

Research for the book included spending time with more than 150 executives, Stevenson told attendees at Korn/Ferry’s Leadership Transfor-mation Conference on August 18 and 19 in Singapore. Among the points of broad agreement was that innovation must be driven from the top. “Innovation fuels the engine of growth,” she said, “but without the right leadership, you can’t get the fuel to the engine.” Second, innovation is a team sport. To take hold it has to be integrated into the fabric of the company.

January 2012

Companies in Asia are ramping up innovation capabilities to meet the needs of today’s consumers. Creative leaders are rare and competition for talent remains fierce. Human resource professionals play a critical role in building the right capability and culture of innovation. Companies that know how to attract and differentiate innovation leaders will thrive and lead the competition.

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Four categories of innovation

Kaafarani and Stevenson discovered, however, that each executive defined innovation differently. They never heard the same explanation twice in their first fifty interviews. “You start to understand why it’s so hard to create a culture of innovation,” Stevenson said. Ultimately, the authors hammered their own definition of what innovation means to a company. It has to create something new and different; it has to bring value; and it has to be commercially viable. After that, the authors identified four core types of innovation.

Transformational. These innovations are disruptive and change society. This kind of innovation brings the highest risk—and the highest reward. Very often, the people who drive this kind of innovation don’t even realize the core benefits. Additionally the time-to-marketplace is long. Look at the Internet: it took about forty years before it was commercially viable in the marketplace.

Category. Customers’ needs or insights drive these innovations. Often, category innovations come out of transformational innovation: eBay, for example, created a new online auction category that leveraged a trans-formational innovation – the Internet. Category innovation involves either a breakthrough in applications, or in markets served. This type of innovation is strongly guided by a valid business case. “A company that’s par excellence for category innovation, and that has successfully built on transformational innovations, is Apple. Most of Apple’s products previ-ously existed, but they took the transformational components and invented whole new product categories, like the iPod and iPhone,” said Stevenson. While still risky, category innovation is significantly lower-risk than transformational innovation, and is generally sustainable over time. Internet banking is another example of a category innovation, as was the debit card.

Marketplace. This could include new packaging or ingredients that give an existing product a fresh appeal. Some examples include Proctor & Gamble’s single-use sachets for shampoo and detergent in emerging economies, or Coca-Cola’s hot canned drinks in vending machines in Japan. Marketplace innovation is great for building increased market share or for keeping a more mature product ahead of the competition.

Operational. This fourth type of innovation is about doing things faster, cheaper, better. This type of internal innovation is focused on new ways to build or deliver products and achieve strong bottom line results.

Innovation fuels the engine of growth, but without the right leader-ship, you can’t get the fuel to the engine.”

Jane Stevenson Vice Chairman, Korn/Ferry Board & CEO Services and author of Breaking Away

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Innovation leaders vary by style

Transformational innovation is driven by discovery, and often the leader of this type of innovation organization is an inventor. Transformational leaders have the ability to be game-changers: they think outside the box, they are strong-minded and fiercely independent. Transformational innovation leaders are technically insightful creative people who like working alone. They keep their own hours, bristle at corporate structure and hate filling out expense reports. “This is not the guy that can easily exist in a typical corporate environment, because he’ll thumb his nose at restrictions,” said Kaafarani.

Category innovation leaders are team builders that focus on connectiv-ity. Kraft, for example, created cross functional teams to drive new ideas. Teams from marketing and research and development worked together to marry consumer insight with innovation. Philadelphia cream cheese got a new lease on life after one such team concluded that consumers wanted cream cheese on their bagel, but struggled with a product that was delivered in a hard block. The conclusion: whip the cream cheese with air. Sales of this new “spreadable” cream cheese soared.

Marketplace innovation is about making a product better or giving it fresh appeal—like fruit juice with added collagen or laundry detergent, with a new whitener. This kind of innovation delivers new features and benefits, but it doesn’t require investing significant money in new assets—and it often delivers results by the next quarter.

“Category and marketplace innovation happen when people from different areas come together,” said Kaafarani. Human Resources can support this model by moving high-potential talent between different units, or by creating cross-functional teams.

Operational innovation can come through the supply chain—like direct e-ticketing by airlines, or Dell’s direct-delivery model, which eliminates the need to support a widespread network of wholesale and retail dealers. An operational leader loves efficiency and effectiveness: this is the kind of person who wants to come to work every day, is in touch with employees, and focuses on metrics. They enjoy creating order out of chaos, and like to mark achievement by measurable goals. “This is also the kind of person who doesn’t like the R&D people to come to the plant,” quipped Stevenson, “because when they see them coming, they anticipate the disruption their suggested changes may create.”

“Human Resources can support marketplace innovation by moving high-potential talent across business units.”

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Companies need to factor all four types of innovation—and appropriate leaders—into their strategy. Looking at risk versus reward—and time to market—is key. “You need a lot of operational innovation, quite a bit of marketplace, some category, and a little transformational,” advises Stevenson.

Grooming the right kind of leader for each role is critical. Forcing a transformational leader into a cross-functional role, or expecting them to generate operational innovation, is sure to derail development. Demanding transformational innovation from an operational leader won’t work, either. “You want people to enjoy what they do,” says Stevenson.

Hiring people with the right kind of inventive spirit is an equally complicated task.

“It’s very, very hard to hire people to fit a certain (innovative) profile,” said Brad Gambill, Group Chief Strategy Officer for SingTel. Mr. Gambill is also the former strategy officer for LG, and the managing director of Innosight Ventures Pte Ltd. “The profile that’s worked for me is to get people with some combination of corporate and venture experience. They’ve been through it and understand that not everybody gets rich being an entrepreneur.”

Other ways to buy and build innovative leadership

Many companies, meanwhile, are stepping back from transformational innovation because of the long odds on reward and high risk. “Corpora-tions are sitting and watching: their pockets are big, and when a trans-formational innovation moves to the category level, they’ll go out and buy that company. It’s cheaper and easier to manage,” said Kaafarani. Another option is to set up an in-house incubator or start-up arm. “GE, for example, has several huge incubators, and all their new projects are developed there,” Kaafarani added. “As an HR leader, you have to think about how to promote and protect these things.”

“LG created an innovation unit with incentive-based compensation. But the core business staff didn’t understand why this protected unit had the potential to earn far more,” said Gambill. LG made it clear to all employees that the unit was high risk as well as high reward; if the new business failed, employees might not be able to move back into their old role. This served to attract risk-takers with an out-of-the-box mindset, and to deter employees who preferred a business-as-usual role.

Corporations are sitting and watching: their pockets are big, and when a transformational innovation moves to the category level, they’ll go out and buy that com-pany. It’s cheaper and easier to manage.”

Bilal Kaafarani Group President and Chief Innovation Officer of Yildiz Holdings

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As companies in Asia ramp up innovation capabilities to meet the needs of today’s consumers, human resource professionals play a critical role in building the right capability. “You need to look at your business strategy, and ask, ‘Do we have a balanced portfolio of innovation lead-ers?’ Then you look at how to unleash the HR in your organiza-tion by marrying projects with the right capabilities to create that balanced portfolio,” said Stevenson. “Innovation is about looking ahead, and helping people believe they can make a difference.”

Creating a culture of innovation

Below, we’ve outlined some things HR leaders can do to create a culture of innovation that makes a difference in the workplace and ultimately, the whole business.

1. Foster a customer-focused culture. Create an environment that makes it obvious that everyone ultimately reports not to the internal hierarchy, but to your company’s customers. Empower employees at all levels, even the CEO, to think about how they can fill customers’ as yet unmet needs.

2. Celebrate creativity and learning. Most commercial successes come after learning from approaches that didn’t initially work. Make sure you celebrate these true progress points on the path to success.

3. Take a portfolio approach to managing innovation. Make sure you have the right mix of each type of innovation from both an opportunity and a risk perspective.

4. Link your business strategy to the types of innovation that best exploit your capabilities. Then ensure you have connected the right type of leadership and culture to the opportunities you have identified.

5. Know what type of innovation leaders you have. Put them in situa-tions that maximize their odds for success. For example, if you put an operational innovation leader into a role that requires category innova-tion, the odds for success are very low.

6. Incubate innovation. Protect it—especially the transformational variety—from mainstream corporate culture, or the traditional success metrics will kill it before it takes off. Remember this analogy: A bird will fly when you drop it off the roof; the egg… needs some time first.

“Innovation is about looking ahead, and helping people believe they can make a difference.”

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7. Use marketplace innovation as a training ground. It is lower risk, and it allows leaders to build confidence before taking on category innovation challenges.

8. Use compensation and other reward systems to encourage creativity. Rewarding any talent that finds new ways to help the company to reach a common goal is a sure way to enhance innovation success. On the other hand, a fear-based culture will kill innovation every time.

9. Reward teamwork. Innovation is a team sport, and nothing spurs it on more than when new ideas are shared and utilized broadly.

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About The Korn/Ferry InstituteThe Korn/Ferry Institute generates forward-thinking research and viewpoints that illuminate how talent advances business strategy. Since its founding in 2008, the institute has published scores of articles, studies, and books that explore global best practices in organizational leadership and human capital development.

About Korn/Ferry InternationalKorn/Ferry International, with a presence throughout the Americas, AsiaPacific, Europe, the Middle East and Africa, is a premier global provider of talent management solutions. Korn/Ferry, based in Los Angeles, was the first major global executive search firm to operate in Asia Pacific when it opened its doors in Tokyo in 1973. Today it has eighteen offices in key business centers throughout the region. Korn/Ferry delivers an array of solutions that help clients to attract, engage, develop, and retain their talent.

Visit www.kornferry.com for more information on the Korn/Ferry International family of companies, and www.kornferryinstitute.com for thought leadership, intellectual property and research.

About the Leadership Transformation conferenceKorn/Ferry’s Leadership Transformation conferences and events present the Firm’s research and viewpoints on how talent advances business strategy. Korn/Ferry hosted the 2011 conference series in Singapore and Scottsdale, Arizona. The first 2012 conference will be in Madrid, Spain. Visit http://leadershiptransformationconference.com for more information.

© 2012 The Korn/Ferry Institute