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The Daily Sabbatical/Rotman | Oct 14, 2013 | 10347 views

Innovation Requires More Than Systems and Tools

Broad based engagement in innovation has to be carefully nurtured and actively monitored
Innovation Requires More Than Systems and Tools
Cyril Bouquet is professor of Strategy at IMD in Switzerland

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nnovation 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.

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Comments (2)
Sam Narayanan Oct 16, 2013
Excellent Article.. Loved every piece of it. Actually, this piece motivates to write to our innovation team to write couple of ideas from you; i feel we still have a top down approach meaning, there is a controlling factor to the ideas from the employees. I liked the rewards and intranet idea generation and why it could be a double edged sword, if an organization thinks all people need is just right infrastructure....
Dr.a.jagadeesh Oct 15, 2013
Excellent article on Innovations. Today innovations determine the success or failure of any business/industry. Many industries rely on innovations to march ahead and to have competitive edge.
Dr.A.Jagadeesh Nellore(AP),India
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