Innovation Requires More Than Systems and Tools

Innovation ain’t what it used to be. Once the responsibility of a single department with a clear mission -- new product development -- today, it is everywhere and involves not just products and services, but processes, technologies, business models, pricing plans and performance management practices – the entire value chain.  As a result, innovation is now the responsibility of the entire organization.

As the VP of innovation for a leading food group recently told us: “A key learning was that most of our innovation efforts (above 80 per cent) had been focused on products, but less than 10 per cent of the benefits were coming from this area. The challenge was no longer to continually launch new products, but to build a culture of innovation that brought ideas that worked to life.”

Building such a capability is no easy feat. The anticipated benefits can fail to materialize – and worse still, can distract a company from its operational focus. To boost innovation, firms have set up all manner of ideation programs, venturing units and online forums. But our discussions with innovation leaders reveal that achieving widespread participation in innovation remains an elusive goal. A telling example: Web-based tools for capturing and developing ideas have not lived up to expectations, with clearly dissatisfied respondents (22 per cent) outnumbering clearly satisfied respondents (21 per cent), according to a recent McKinsey survey.

To make more sense of these mixed outcomes, we spent three years studying the efforts of 13 global companies to create more broad-based innovation. The companies represented pharmaceuticals, banking, fast-moving consumer goods (FMCG), energy and communication technology.  Our research yielded a number of key insights, which we will present here as five lessons.

Lesson 1: Beware the Rewards Trap
The central preoccupation for many companies seeking to expand their innovation capability is often, ‘What kind of reward system should we put in place?’ Our research indicates that this is really a side issue: rewards did not emerge as a strong driver of innovation, because innovation is intrinsically enjoyable. Based on our interviews, what employees care most about is having a chance to make an impact and being recognized for it.

Take the experience of UBS. With considerable upheaval at senior levels of the bank, the innovation movement was very much a grass-roots effort – built around the UBS Idea Exchange, an online tool. The executive in charge of that effort told us: “We learned that financial rewards would not have made any difference; people reported that recognition of their ideas was a reward in itself. They wanted to be engaged and to participate. We therefore involved people in presenting their ideas directly to senior management.”

The consensus among the companies we studied was that rewards played, at best, a secondary role and at worst, could prove counterproductive – acting as a disincentive to those whose ideas did not end up paying off.  Research by psychologists Edward Deci and Richard Ryan actually suggests that individuals view the offer of reward for an enjoyable task as an attempt to control their behaviour, which undermines their intrinsic task interest and creative performance.

Takeaway #1: People want to make a difference and get engaged. Because their appetite to innovate is intrinsic, clued-in companies will pay more attention to the social and personal drivers of discretionary effort than the material drivers.

Lesson 2: Forget about flashes of insight
While the ‘Eureka moment’ maintains a powerful grip on our view of innovation, it perpetuates a skewed view of the innovation process by suggesting that the core challenge is to generate ideas. This helps to explain why so many companies are drawn to big brainstorming events with quirky names like ‘deep dives’, ‘ideation workshops’ and ‘innovation jams’. We sat in on and facilitated several such events. Clearly, they have value -- helping to build awareness and enthusiasm and yielding unexpected ideas. But in many cases they don’t contribute much to the creation of a firm-wide innovation capability.

Where organizations are concerned, the cliché that innovation requires “Five per cent inspiration and 95 per cent perspiration” is far closer to truth. New ideas are clearly important, but they are just the first step in a long sequence of activities that culminates in successful commercialization. A survey we conducted with 123 companies revealed that the idea-generation stage is not where most companies struggle. The real problems actually occur in the latter stages, where people have to work out how to deliver on the idea and turn it into reality.  This finding is confirmed by a McKinsey survey where 50 per cent of respondents indicated that their companies have enough good ideas but don’t get enough of them through to commercialization.

Paradoxically, ‘innovation events’ can even prove damaging if the company doesn’t have a system for acknowledging, assessing and developing the bright ideas that emerge from them. So before embarking on such an exercise, leaders need to be clear that a shortage of ideas is the root problem – and, if that is the case, they should not underestimate the amount of work needed once the workshop is completed.  Even successful innovation programs like Procter & Gamble’s Connect+Develop and Shell’s Gamechanger initiative took years (ten and five, respectively) to pilot and bring to fruition.

Takeaway #2: Innovation suffers more from a lack of systematic follow-through than it does from idea-supply problems. Clued-in companies are better at diagnosing the weak links in their innovation value chain and targeting those areas.

Lesson 3: Online forums are not panaceas
The companies we studied all grasped the potential of Web 2.0 tools for involving large numbers of people in the innovation process. Most had developed online systems for recording, developing, and evaluating ideas, and some had been very effective in attracting contributions and stimulating their company’s innovation efforts. IBM, for example, used space on its corporate Intranet to launch a 72-hour Innovation Jam that attracted 57,000 visitors and 30,000 posts addressing new business opportunities. For its part, Royal Bank of Scotland developed a virtual innovation center in Second Life, which allowed the bank to prototype new banking environments and get rapid feedback from its employees around the world.

Other online innovation forums have struggled to take off. A manager at Roche Diagnostics observed: “Our hope that our internal technology-oriented people would gravitate to using this type of tool was completely unfounded. We really had to push people (via an electronic marketing campaign) to involve them in suggesting solutions to the problems we identified.”  A misleading assumption is that companies need only to provide the infrastructure to point people in the right direction and then get out of the way. In truth, broad based engagement in innovation has to be carefully nurtured and actively monitored.

Managers at both Mars and UBS found their innovation efforts stalling after promising starts. One conceded: “We underestimated the amount of communications needed.  We were good up front, but we learned that continual communication is vital. We had to counter some skepticism in order to create the belief that something would actually happen.”

The key to leveraging online forums is to understand the type of interaction that occurs in them. To date, they appear to be more suited to generating a wide variety of views or answering a specific question. If, on the other hand, the aim is to come up with novel ideas and to get people to build on each others’ ideas, a face-to-face workshop is probably more appropriate.

Takeaway #3: Online forums don’t answer all innovation problems. They can capture and filter large numbers of existing ideas, but they are weaker tools for fashioning new ideas collectively.

Lesson 4: Use ‘Open Innovation’ Selectively
Many companies are looking outside of their boundaries, to their suppliers and even customers, for ideas. For example, Danish toymaker LEGO has been leveraging customer ideas as a source of innovation for years – and some new products are even labeled “created by LEGO fans”.

The head of innovation at the BBC described another esoteric example: “There are individual hackers who basically like to ‘break’ our applications. They are good at this, and they enjoy telling us about it, effectively showing us new directions. We try to ‘embrace the enemy’ as it were, and some of the best hackers have won contracts to help us develop our applications so that others can’t hack into them.” This example neatly captures the ambiguous challenge of open innovation: on the one hand, it potentially offers access to a larger pool of ideas; on the other, it also creates practical challenges in terms of mistrust and IP ownership issues.  

Roche Diagnostics, had opened up six technology challenges to the external technology community through Innocentive, a well-known technology marketplace. According to the manager in charge of the initiative: “We received one novel solution, which made the entire experiment worthwhile.”  That said, at the time of writing, the company has still not resolved the details of the licensing agreement with the person who solved their technological problem, and the transaction and licensing costs are far from trivial.

Another factor to consider is the operational cost associated with building an open innovation capability. It must be noted that the successes of companies like LEGO or Procter & Gamble are the results of sustained investment in their external networks, and the returns were slow to materialize. Tapping into an external community makes sense when trying to solve a narrow technological problem. But external respondents would have a lot more difficulty tackling embedded problems that are company- or situation-specific.

Takeaway #4: Open innovation can sometimes help companies do more with less budget. But it raises tricky intellectual property issues and needs to be used selectively, for problems that do not require an understanding of context.

Lesson 5: Top-Down Innovation Still Matters
The dominant message in much writing on innovation is that bottom-up innovation is best. The reasoning is that top executives are too removed from reality to understand customers’ needs or to come up with ideas that truly resonate with them – and serial innovators like 3M and Google are held up as exemplars of this approach. It is a compelling message, but one which found little support in our investigations.

The bottom-up initiatives we came across – like UBS’ Idea Exchange and Glaxosmithkline’s Spark program – did not really live up to the high hopes placed in them.  When we raised this issue at a roundtable event, it emerged that the most successful approaches actually combined bottom-up with top-down. The point that emerged was that successful innovation depends on the interplay between direction and empowerment, even in a company like Best Buy, which prides itself on bottom-up innovation. The U.S. retailer has benefited greatly from encouraging store-level experimentation. But what is often overlooked is the key role of top management in providing a strong customer service focus for innovation, hence minimizing the risks of irrelevant innovation.

Besides framing the innovation challenge, top management also plays a vital role at the other end of the process, in deciding what needs to be discontinued. Companies can’t ‘do it all’: to pursue new ideas, something probably has to give – not necessarily for lack of potential, but more for reasons of focus and resources. As the chief executive of Siemens Communications put it: “Just as important as providing seed money is to kill things -- to say, ‘Great idea; didn’t work; next idea.’ From our experience, that discipline has been harder to instill than giving the seed money.”

It is only by saying no that companies can concentrate on the ideas that are really important. Of course, this also raises the tricky issue of maintaining the energy of those whose ideas are turned down. How their contributions are acknowledged, the transparency of the decision making process and how the news is communicated are crucial factors in keeping the ideas coming.

Takeaway #5: Broad-based innovation is all about leveraging the creativity of employees closest to the problems and opportunities. But unless it is met with equal focus from above, it will rarely lead to lasting value.

In closing
Online tools have opened up ways to tap into the ideas of a wide range of potential innovators – employees, customers, suppliers and partners. But the experience of several leading-edge companies shows that no single approach works systematically for broad-based innovation. Innovation can be top-down or bottom up, face-to-face or online, internally-focused or externally-focused. When asked which matters most, companies told us, “all of the above.”
Of course, each approach has its strengths and limitations. In the end, innovation is about finding the right mix of approaches – which means that you must be very clear about the innovation challenge you are facing.

Cyril Bouquet is professor of Strategy at IMD in Switzerland and the author of Building Global Mindsets (Palgrave MacMillan, 2005). Jean-Louis Barsoux is a senior research fellow at IMD and the co-author of Managing Across Cultures (Prentice-Hall, 2002) and The Set-Up To Fail Syndrome: How Good Managers Cause Great People to Fail (Harvard Business Press, 2002).  Julian Birkinshaw is a professor of Strategic and International Management at London Business School and the author of 11 books, most recently Reinventing Management: Smarter Choices for Getting Work Done (Jossey-Bass, 2010).  The preceeding is adapted from an article that appeared in the European Business Review (europeanbusinessreview.com)

[This article has been reprinted, with permission, from Rotman Management, the magazine of the University of Toronto's Rotman School of Management]