Corporate Innovation Online

There are 6 absolutely essential elements which need to be in place for a corporation to begin to think that it has a culture which supports innovation; 1. leadership at the top and from the Board, 2. spending on research and development, 3. rewards and incentives, 4. tracking the ‘innovation dynamic’, 5. tolerance to being different, and 6. people management. Each of these is further outlined below.

1. Leadership at the top and from the board.
Management needs to state explicitly that they support innovation (which implies encouraging change and accepting risk) and in their actions reinforce the spoken word. It is important to ‘walk the talk’. Board support is an integral element in this cultural driver since management has to be, and be seen to be, in sink with the boards views and visa-versa.

With the current emphasis on corporate governance where corporations are encouraged to have ‘independent’ members of the board and a chairperson who is not the CEO, this coincidence of thinking is perhaps not so easily accomplished as in prior years where internal boards were more the norm and where the chief executive role and chairperson role were often held by the same individual.

2. Spending on research and development.
Without investment in R&D, and obviously the requisite generation of product margins to support an appropriate level of spending, there is only a ghost of a chance that a company will be successful over the longer term.

High-tech companies like Microsoft, Hewlett-Packard, and Oracle, spend an average of 11%* of sales revenue on R&D. Other innovative companies, more in the industrial sector such as John Deere and 3M, spend close to 5% and sustain that level of funding through good times and bad. It is the life blood of the company. But it isn’t just about the level of investment it is also about the focus, efficiency, and expectations associated with the spending. Differentiated and focused investment is the key.

Part of the investment in R&D should focus on developmental projects which one would expect to come to the market within 5 years, while another part should be allocated to longer-range science-based initiatives that support the corporation’s product line and ideas for future growth. Particularly for the longer term, the corporation needs to have a deep knowledge of the science behind its product initiatives. This can be done through the use of dedicated organizations or sometimes with careful management of the portfolio of R&D projects, thus applying different success criteria for short-term and long-term initiatives.

3. Rewards and incentives.
There is little debate about the role played by rewards and recognition for those who are innovators. While the style of rewards may vary by country and corporation, it is recognized that some form of very specific recognition is required to reward a job well done.

While the term innovation has often been confined to activities which take place only on the technical side of a business, it is important to open up the definition to all functions in the corporation. Differentiating rewards for technical innovations from non-technical initiatives is a good idea since the criteria applied can be dramatically different. Having at least two types of rewards also make it clear that innovation is not confined to only technical and product-related initiatives.

Full and open transparency regarding awards; the communication of the availability of the rewards, the criteria to be satisfied, and the identification of the award recipients are all essential.

4. Tracking the ‘innovation dynamic’.
Within the corporation there needs to be a sense that things are working out for the better. Some form of measurement(s) need to be put in place to track progress.

In product-related companies this measure has traditionally been the number of new products introduced versus products on offer, from, say, 5 years before. In service-related companies the measurement can be the number of new services offered and a measure of their success in the market place. The number of successful acquisitions can also be measure of progress. Measurements vary by industry.

No matter what the measurement(s) might be, a regular communication of progress is almost as important as actual progress. Keeping people informed can in itself lead to positive momentum.

5. Tolerance to being different.
Tolerance by management and the organization as a whole, whether for failure, risk, for mavericks, or for deviations from the corporate norm is important. Tolerance establishes a culture where personnel have a sense that they can be forthcoming, and can be more adventurous and take initiatives which ultimately, combined with ideas and appropriate management, move the corporation ahead.

Tolerance for risk in the planning process means that not all decisions need to be based on highly researched and totally predictable outcomes. There is some room and acceptance for ‘gut feel’. Such tolerance can be seen to be overcoming the possible impact of ‘disruptive technologies’; a phenomenon well described in Clayton Christensen’s book, The Innovator’s Dilemma.

6. People management.

Encouraging people to share ideas, supported by systems which facilitate collaboration, is an essential element of corporate culture. Open communications, minimal hierarchy so as to encourage communications, are good approaches to people management. Moving people around the corporation has been and remains to this day one of the best ways for providing next-generation management with the requisite experience for future responsibilities.

Open communications result from; encouraging informal meetings with the use of project rooms, arranging ’show and tell’ neetubgs, hosting forums for both staff and customers, and a host of other approaches which can be used as a way of breaking down the silo mentality often associated with larger corporations.

What do you think? Let us know.

For additional ideas on management practices that work, go to:

www.corporateinnovationonline.com.

*FT Research, March 17, 2008, High-tech companies focus their R&D spend. Sample includes; Microsoft, IBM, Intel, Cisco, Motorola, Hewlett-Packard, Oracle, Texas Instruments, Google and Sun.

Based on survey results to date, participants in the ‘Check-Up’ have identified 8 out of the 25 Factors surveyed as being most important to a corporate culture which supports innovativeness.

Factor #2: Extent to which management explicitly looks for innovation. This Factor rates very highly and there is an indication that management is not sufficiently emphasizing the need for innovation; i.e. the gap between ‘ideal’ and ‘reality’ is large is above the norm. This is somewhat surprising since it is difficult to understand how any company would not make it clear to all personnel that innovation is important and should be a part of the culture. Perhaps the results indicate that there is complacency about innovation; that such a concept is taken for granted in many companies and is therefore not made explicit to all personnel. On the other hand, management can be challenged to do better. This should be a relatively easy Factor to fix providing there is sincerity and believability in how the message is relayed by management.

Factor #3: Tolerance of mavericks. The score for this Factor was very high, indicating its importance and at the same time, the differences between ‘Reality’ and ‘Ideal’ suggests that management is, in general, responding well in this subject; i.e. there is a tolerance for mavericks, at least in those companies which have responded so far.

Factor #4: Degree to which planning emphasizes rationing resources versus identifying opportunities. At any given time, and somewhat dependent on business cycles and the achievement of profit goals, companies experience a need to either ration capital or invest to grow. Few businesses have the luxury of always being able to take year-after-year advantage of opportunities. But it behooves the leadership not to fall into the trap of continually making use of the planning system to cut costs or reduce capital spending; i.e. to make it a cost-cutting exercise. Continuous use of this cost cutting mantra will inevitably stunt innovativeness.

Factor #6: Emphasis on management of people and their interactions. Management needs to place heavy emphasis on how people are organized and how they communicate. Setting up new divisions, restructuring, moving people around, and exposing one division or group to others, putting an intranet in place, are all worthwhile steps which can be taken.

Factor #10: Degree of formal communication in the organization. Having lots of informal communication within the corporation is viewed as much better than having limited communication. This Factor scored as highly important and, as well, the large difference between ‘Reality’ and ‘Ideal’ suggests that much more could be done.

Factor #11: Use of independent work groups. This is a definite characteristic of innovative companies and, based on the respondents input, commonly used. The score indicates that while important, as a characteristic of innovative companies, there is every indication that management generally embraces this idea and makes good use of independent work groups for special projects or initiatives. The difference between ‘Ideal’ and ‘Reality’ was not large.

Factor #14: Availability of reward mechanisms for innovation. The availability of reward mechanisms for innovators is rated, not surprisingly, as very important. Having a special category of rewards for innovators can however lead to perceived inequities in the overall corporate reward system. Some companies try to get around this by making awards but not publicizing the event; probably not a good idea as sooner of later the information as to who received special payments, rewards, or privileges, surfaces. A transparent open system of rewards is the best route and should be recognized for what it is; an award for special performance; an essential ingredient in moving corporations forward.

Factor #19: Availability of resources (budget, time, etc.), for new ventures. This is an important incentive to motivating innovative thinking in any organization. Where there is a general feeling that some monies, time, etc., can be made available for initiatives, there is likely to be a greater sense of being able to move forward and a sense of being open to innovation in whatever form this may take. The rather large difference between ‘Ideal’ and ‘Reality’ suggests that this is a problem, at least for those who have responded to date.

Summary

Interestingly, most of the Factors noted above are able to be influenced significantly by the actions of management and in most cases do not require major capital investment. Management’s attention and commitment are, however, required.

To arrive at conclusions regarding the most important Factors, we examined all responses and noted the level recorded for the ‘ideal’ company, from 0 to 5 or 0 to -5, depending on the Factor, as set out in the ‘Check-Up’. The higher the number, the more the respondent indicated that there was a need for this Factor to be present to support corporate innovation.

We also examined the difference between the ‘Ideal’ situation and ‘Reality’, to come to a judgment as to the current performance of the company for each Factor. The larger the difference, the more likely it is that the company is not performing at the ‘Ideal’ level – for each Factor. Individual company results will, of course, vary from what is stated above.

For more ideas on how to improve on your company’s performance, by Factor, please refer to Thought Starters on this web site.

*Based on results to date. The results could change as further use is made of the data base. Interpretation could therefore be modified as more results are posted.

A review of the latest results from the Check-Up, which show an average Total Score of 59 and a median of 59, suggest that those corporations with a higher total score should carefully examine their results. Ascertain which of the Factors are the major contributors to the high score and which of their own assessments, when compared to the Mean Ideal of all responses, is most out of line with the norm. By so doing, there is an indication that the company’s innovative culture could be improved by addressing the Factors which are most out of line.

By completing the Check Up, the results from your own submission as well as the average for all others, by Factor, is made available.

Find out why Whirlpool Corporation has just been placed on the list ‘On the Top’ as one of the world’s most innovative companies.

Welcome to corporateinnovationonline.com, the web site dedicated to achieving a better understanding and improvement to corporate innovation.

This web site is intended to be used as a research and idea facility for those wishing to understand more about corporate cultures which support, or detract from, innovativeness. The notion is that by being able to profile ones’ corporate culture through the use of a survey called Check-Up, and thus having a better idea of the areas where the corporate culture may fall short, take steps which focus on improving the culture leading to improved innovativeness.

The web site also provides both general and anectodal information from the world’s most innovative companies which can be used to stimulate ideas for improving innovativeness.

You can also let us know your opinion on any management practices, policies, procedures, which you believe contribute to or detract from corporate innovativeness. Companies listed under the heading ‘On the Top’ are those that have explictyly identified management practices which, in one way or another, contribute to their innovativeness.