08 | 2008 The 2008 Hay Group international client meeting saw some of the world’s foremost business theorists discuss the nature of innovation and how best to develop it within organizations >>
Making the leap:encouraging
innovation
Contents
Making the leap: encouraging innovation
Part l: innovation is not...
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Part ll: what does innovation look like?
Part lll: making innovation happen
Conclusion
Making the leap: encouraging innovation
The role that innovation plays in an organization’s fortunes is widely recognized, providing the fuel for growth and value, greater market share and adding to a better bottom line. And as market conditions become tougher, it can only become more important.
The evidence and case studies suggest that organizations that continue to work on innovation during downturns not only enjoy better bottom line performance, they also improve their chances of getting first-mover advantage when the business climate improves.
But that – as delegates at this year’s annual Hay Group international client meeting (ICM) in Rome were well aware – is easy enough to establish. What Hay Group’s global innovation survey demonstrates is that 80 per cent of executives find innovation ‘difficult.’
Answers to questions such as: ‘what is innovation?’ and ‘what does it look like and how do you seed it in your organization?’ are often less easy to come by. It was to address problems such as these that Hay Group invited some of the world’s foremost business thinkers to Rome.
2 Making the leap: encouraging innovation
©2008 Hay Group. All rights reserved
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What Hay Group’s global innovation survey demonstrates is that 80 per cent of executives find innovation ‘difficult.’
With oil running short and the chemistry of the planet altered for the worst, mankind’s challenge in the coming decades – according to Jeremy Rifkin, president of the Foundation on Economic Trends – will be to harness energy effectively from rubbish, the sun, wind and tides. Once that is achieved – a challenge in itself – the technology both to store surplus energy which he identified as likely to be hydrogen and then distribute it, will also be required.
Rifkin, advisor to heads of state around the world on economic and related issues, kicked off the two-day program. He set the bar high, calling for innovation in a different order of magnitude and an adjustment to industrial, social and economic creative ingenuity that was fundamental and thoroughgoing.
One shot to get it right...
Over the course of two days, delegates were treated to a range of theories on successful innovation from which emerged a number of common conclusions.
n Often organizations get stuck in their thinking on innovation, following conventional wisdom which has not always proven to be effective.
n Mirroring how your customers experience life and helping them to ‘get jobs done’ in a simple, low cost but highly effective way are more effective when seeking to create new products and services.
n The process of innovation is not a linear one. Creating value through new ideas and products is a more pragmatic process, involving the reconciliation of dilemmas and problem solving.
n Innovation in terms of products and services is not the sole destination. Change in the form of new processes, approaches and ways of going to market is as important in steering organizations to success.
While investment in R&D and reward programs will go some way to embedding innovation within organizations, other components such as visionary leadership create an environment where employees feel they can take risks. Additionally, practices such as identifying ‘hot spots’ are as effective in delivering growth and organizational improvement.
What was needed, he argued, was an industrial revolution that combined the communications revolution, already experienced, with new energy.
It would not be long, Rifkin argued, before the price of energy, climate change and logistics will condition every business discussion. He invoked a vision of a world 25 years hence where millions of buildings, shopping malls and technology parks all collect and share their energy.
Ultimately Rifkin’s vision was of organizations, countries and regions of the world cooperating. “We are going to have to leap ahead of centuries of rivalry and distinguish between geopolitics and biosphere politics. We cannot afford those rivalries; we need to share and not fight over remaining resources... we have one shot to get it right” he cautioned, “but not much latitude.”
Making the leap: encouraging innovation
©2008 Hay Group. All rights reserved
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...predictableAmong the myths Christensen identified was the belief that through understanding your customer alone – listening and responding to their unmet needs – you will reliably and inevitably deliver innovation.
More important was lateral thinking and taking a perspective that mirrored how customers experience life – clarity about the job that the product or service has been ‘hired’ to do.
What was the problem that the customers were facing? What were the experiences in purchase and use, which, if provided would add up to nailing the job perfectly? Crucially, what are the product or service features needed to provide those experiences?
Christensen cited the milkshake market as an example. A large fast food chain wanted to gain a better understanding of what drove sales of its popular range of milkshakes. Detailed customer surveys which asked how the drinks could be improved and what features and qualities would make the product more attractive to them had not resulted in any increase in sales.
Instead the researcher decided to observe customer behavior and sales patterns throughout the day. This revealed that most milkshakes were bought in a single purchase, early in the morning. He decided to ask customers what job were they trying to do when they came here to ‘hire’ that milkshake.
Part I: innovation is not...
Consensus around innovation and how to generate it is often rare. But this year’s ICM speakers were clear about the misapprehensions surrounding the concept. All too often there is an over reliance on textbook approaches in the attempt to win market share through innovation. Harvard professor Clayton Christensen – the world’s foremost authority on the subject – set about challenging the received wisdom taught in many business schools on how to make innovation ‘predictably successful.’
It was clear that their competitors in the milkshake market were not other major fast food outlets, but bananas, donuts and bagels.”“
It became apparent that respondents all had a long drive to work and they needed something to ward off boredom during that time. “Viscose and thick, these milkshakes took some time to consume and stayed in the stomach for longer; they also fit conveniently into a cup holder.” It was clear, Christensen explained, that their competitors in the milkshake market were not other major fast food outlets, but bananas, donuts and bagels.
Innovation within this context involved making the product even thicker; maybe adding small chunks of fruit for added interest and unpredictability. Moreover, making them available through pre-paid swipe cards at gas stations, enabling people to grab one at the same time as they got their gas would also boost sales.
“When companies segment their markets by job rather than by customer or product type, it quickly becomes apparent that the market is much larger, that their share of it is smaller than originally thought and that their real competitors aren’t in their product category. They also understand the constraints that keep more customers from ‘hiring’ their product for the jobs,” Christensen argued.
...linearJust as following business school formulae could not guarantee successful innovation, ICM delegates were told, neither would thinking in terms of absolutes. Creating a sustainable culture of innovation involves ‘thinking outside the box’ and crucially, resolving dilemmas, argued Fons Trompenaars, expert on cultural diversity.
He challenged the assumption that creativity only emanates from those who are considered to be ‘more intuitive, perceptive, thinking, extrovert, lateral and right brain.’ In reality, he argued people were an amalgam of many qualities.
Creativity like so many things is not linear, he argued. It is stimulated by establishing diverse, inventive teams made up of different cultures and types of people and skills. Innovation was then generated through the reconciliation of the conflicts that would inevitably arise between both the individual and the team, and the different ‘types’ of team members.
In resolving those dilemmas, Trompenaars recommended the use of ‘critical oxygen.’ Team members discuss their colleagues’ ideas, first by identifying two positive comments and then by raising criticism through asking “how can I help you resolve the issue of...” This might initially seem contrived, Trompenaars acknowledged, yet within his own organization it had rapidly become second nature.
There is no one approach that will ensure creativity, whether it’s centralization or decentralization, or global versus local, he argued. Rather it is a combination of all, a fluid arrangement that takes from both in order to find the solution.
“Yes we need global standards and yes we also respect cultures. The most sustainable model is the ‘transnational firm’ – which consistently looks at local processes to see what can be leveraged.” These firms did not have headquarters, argued Trompenaars; they had centers of excellence based around the group.
Indeed, Trompenaars argued, creative organizations were loaded with dilemmas. Sustainable innovation involved pragmatism and it meant migrating from culture to culture depending on the stage of an organization’s life cycle and strategy.
Yet, while creating a sustainable culture of innovation was neither ‘reliably predictable’ nor a linear process, delegates were assured that there were ways to recognize it.
©2008 Hay Group. All rights reserved
DisruptionJapanese car producer Toyota entered a market dominated at the top by household names such as Ford. It started by offering small, cheap cars. Once Toyota had gained market share in that specific segment, it steadily moved upmarket offering increasingly larger vehicles until it was competing head-to-head with the original market leaders in the high margin, high-value end of the market.
Often, argues Christensen, the progress of the market ‘disruptors’ is assisted by the incumbent brands, who, rather than stand their ground and defend their business at the low cost end of the market will ‘retreat’
upmarket to focus on higher value business and more lucrative margins. This progress is also often helped by harnessing new technologies and by making them affordable and accessible.
This happened as early as the 1950s when Sony disrupted the TV market by introducing embryonic but basic transistor technology only previously used for the manufacture of items such as hearing aids. Sony reconfigured it in the form of pocket radios and then miniature TVs, and in so doing, it replaced the large and unwieldy vacuum tube technology and the established manufacturers who relied upon it.
Part II: what does innovation look like?
For Clayton Christensen, growth opportunities occur with what he terms ‘disruptive innovation.’ New market entrants offer products that are affordable, simple and which often, initially appear to be inferior to what is offered by the market leaders. Crucially, however, the new products perform a much needed, specific job at a low cost.
Innovative approaches and processes are as valuable as innovation itself in their potential to deliver organizational change and improvement.
Making the leap: encouraging innovation6
Think like a start-upCrucially, Christensen argued, disruptive innovation demands agility in the form of new ways of going to market, which is why it is more likely to come from new companies. “When an opportunity for disruptive growth comes, market leaders fail to recognize and capture it – they try and cram it into their existing business model.”
If your sales force is good at selling your existing products and brands, he explained, you will be reluctant to dismantle it or build a new one to sell the new, disruptive product. It might also miss the essence of the disruption or even feel threatened by it if it cannibalizes your existing products. It will either not sell it or fail to sell it successfully.
Some of the financial analysis – for example net present value (NPV) and discounted cash flow (DCF) – which often informs strategy, can lead to bad decisions as the choice is rarely between ‘stay the course’ or ‘invest,’ but rather ‘invest’ or ‘decline.’ It is this legacy and baggage that hampers success. Organizations stand more chance of innovating effectively if they thrive like a start-up when making decisions.
That innovation is not just the ‘destination’ was a point acknowledged by many of this year’s speakers and workshops. New approaches and processes are as valuable if they are to deliver organizational change and improvement.
By way of an example, Jack Welch of General Electric was cited for the best practice approach that he had taken. Rather than trying to create innovation for its own sake, clarity was necessary around why it was required. New products were needed but so was innovation around processes for delivering both local and global products.
It was a point picked up by Professor Renée Mauborgne whose collaboration with Professor Chan Kim famously produced Blue Ocean Strategy, an international bestseller on innovation. There were innovative approaches and processes that in themselves would help delegates move their organizations from the bloody and highly competitive red ocean to new market space: the blue ocean.
When an opportunity for disruptive growth comes, market leaders fail to recognize and capture it – they try and cram it into their existing business model.”
“
Making the leap: encouraging innovation
©2008 Hay Group. All rights reserved
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Part III: making innovation happen
Fostering change and creating the conditions for innovation involved overcoming hurdles, argued Professor Renée Mauborgne. As a case study, she discussed Bill Bratton, former head of the New York City Police Department.
Ignoring the conventional wisdom that significant improvements required big changes, Bratton focused on the concept of ‘disproportionality’ – implementing innovative but simple measures which would have maximum impact.
Bratton took the helm in 1994 at a time when crime statistics were soaring, morale in the police force was cripplingly low and confidence in the organization had dwindled. Within two years he had succeeded in slashing crime, improving motivation and customer satisfaction rates – all during a budget freeze.
Hot spotsBratton focused on what Mauborgne termed ‘hot spots.’ Distinct from Lynda Gratton’s concept of centers of diversity and creative energy, Mauborgne’s concept refers to ‘disproportionality’ – implementing innovative but small and simple measures which have significant impact.
Bratton also affected a shift in attitude within the organization to one of ownership of results. He tackled complacency among his senior reports – a cognitive hurdle – by asking them to travel on the subway and see what their ‘customers’ experienced every day.
By focusing on ‘hot spots’ – those activities which have a low resource impact but high performance impact, he maximized the
effectiveness of the resources at his disposal. Identifying three distinct areas within New York City which accounted for 75 per cent of crime, he concentrated resources on patrols in those areas.
He also identified key influencers within the organization – the 70 or so precinct heads who between them controlled New York City’s 36,000 policemen. Bratton set about instilling a sense of responsibility through transparent, inclusive and fair process. He set up regular meetings for all of them, during which they each had to discuss and account for their numbers – ‘management in a fishbowl.’
Indeed this case study served to reinforce a point often repeated during the two-day ICM. While they were acknowledged to be a ‘valuable influencing mechanism,’ reward programs were not of themselves sufficient for seeding innovation and innovative behaviors. It was as much about changing behaviors and winning the argument. As Christensen termed it, winning ‘commitment to a noble cause.’
Over a period of three months, Hay Group polled 67 companies from around the world and across all major sectors. We surveyed 540 executives and conducted in-depth discussions with a segment of them. At the ICM in Rome, we also surveyed 220 delegates as a point of comparison. Our objective was to understand why organizations often fail when they set out to innovate.
Hay Group found that embedding innovation does not always succeed, as most take the approach that has made them successful for the last 50 years. In fact, the structure and approach of industrial-era organizations, where specialization and departmentalization rule, is toxic to innovation.
As a result, frontline managers are being asked to innovate but have no idea where to start; fatigue sets in and initiatives fail to go anywhere. In fact, only 20 per cent of the
companies we studied had reached the level of embedding innovation into parts of their organization.
Hay Group found that organizations can be defined either as innovation ‘autocracies’ or as ‘democracies’ – a rarer occurrence with only six per cent of our respondents classified as such.
In innovation autocracies, power resides at the top. A select few decide what the innovative ideas are and allocate resources to ideas. A minority are considered capable of innovating.
Innovation democracies run against the grain. Power is dispersed across the organization and everyone is responsible and accountable for embedding innovation. People decide on which ideas they are going to support and resources are allocated according to that support. In short, innovation democracy is about the power of the many.
About Hay Group’s global innovation survey
Innovation: how the scores breakdown
Key:
Innovation democracy
GIS average results
Rome ICM delegates
Strategy
Climate
Process
Ideas
10 15 2050 25
Targ
et s
core
2115
10
2016
10
2119
10
2018
10
Like innovation ‘autocracies,’ many organizations excel in ideas and process but fall short on strategy and climate. Respondents were polled on their approach to strategy, climate, process and ideas. The blue innovation democracy bars relate to the average score of the four companies that achieved 80 points or more in the global innovation survey (GIS).
It is agreed that the GIS, including the survey instrument, the data and output from the GIS, and the reports of the results of the survey, shall be the property of Stratage Inc. Stratage hereby grants to Hay Group a non-exclusive, non-transferable, worldwide, perpetual, paid-up, royalty-free right and license to use the data and output from the GIS for Hay Group’s own business purposes.
Making the leap: encouraging innovation
©2008 Hay Group. All rights reserved
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LeadershipKey to getting that commitment according to Mauborgne, and to many of the speakers throughout the two days in Rome, was leadership. For her it was about ‘tipping point leadership’ – instilling confidence by effecting change quickly and with few resources.
At the center of Trompenaars’ concept of ‘innovation as the product of differences’ was ‘inclusion.’ Sound leadership was needed to ensure a diversity of personalities and types within teams and also to mediate and reconcile differences. “The process of innovation is to combine values that are not easily joined; inclusion is the process of joining them and leaders do this,” he argued.
The role of leadership in creating an environment for innovation to flourish was also highlighted by Professor of Business Dave Ulrich, a published author on leadership and HR.
He argued that in order to affect change we need to turn what we know into what we do. This requires creating a ‘culture of change,’ or ‘change brand’ that is felt by customers and employees alike. It also means engaging others, allocating resources and ensuring alignment between investment and change. Leadership, argued Ulrich, was an essential component in driving this discipline.
We need to turn what we know into what we do. This requires creating a ‘culture of change,’ or ‘change brand’ that is felt by customers and employees alike.”
“
Strong leadership was required to build cultures of innovation and encourage innovative behavior. The HR function was frequently identified as a ‘culture steward,’ essential to the embedding of innovation not just through organizational values and behaviors but in looking at leadership competencies. “We have got to make the CEO responsible. How can HR help coach leaders, provide feedback, advise?” Ulrich asked delegates.
He outlined a leadership checklist for organizations looking to grow and compete through innovation: “Do we: exhibit strong committed leadership? ‘walk the talk?’ have a champion who dedicates 20 per cent of their time to change? have leaders who pay attention to change in terms of passion? have time as well as focus? and do we have a sponsor who permits that champion to put time into the change?”
Unilever’s Diego Bevilacqua gave a real life example of innovation in his organization, where the focus was on business improve-ment through innovations in leadership, governance, culture and organizational process. Making changes to these aspects of the business stimulated significant growth for the group around the world and enabled Unilever Foodsolutions to then innovate in brand, services and products.
For more information on how Hay Group can embed innovation within your organization, contact [email protected] or visit www.haygroup.com to find out more.
Conclusion
1 view innovation not just as an end in itself but as a dynamic process involving new practices and approaches such as the creation of new products and services
2 have strong leadership and a willingness to depart from textbook theory on innovation
3 adopt fresh thinking to market needs as well as new approaches to creating innovative organizational climates
Making the leap: encouraging innovation
©2008 Hay Group. All rights reserved
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Creating and sustaining growth through innovation is seen as a priority by most senior management, particularly during periods of economic downturn.
And yet successful innovation – opening up market space as well as improving revenues and efficiencies through the creation of new products, services, processes and ideas – often proves elusive.
The key to unlocking the latent creativity in your organization can lie in formal approaches such as reward programs and investment in R&D but it is as likely to involve a variety of other methods. Organizations are more likely to be successful if they:
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GB08/049 | version 2 | 08 Septem
ber 08 | Global brand team
