What do Amazon.com, Apple, GE, Google, Disney and Tata have in common? They all have remarkable long-term performance track records — and they all regard innovation as central to their success.
Many organizations are still in the early stages of building enhanced innovation capabilities. And while there are many questions, the thinking that got a company where it is today is not the same that will get it to where it needs to go tomorrow.
To help CLOs strategically build innovation capabilities, they should address the challenge on three levels: building individual skills in creativity and innovation; helping teams innovate new products, processes or business models; and enabling senior leaders to build systemic capabilities for the whole company.
Level 1 is all about individual creativity and innovation. At one time, the generally accepted thinking was that people were either innovative or not. But creativity and innovation are skills and behaviors that can be learned.
“We brought 100 of our leaders together from around the world for a three-day innovation workshop,” said Chris Humphrey, former vice president of innovation at Sperian Protection, now part of Honeywell International Inc. “The session included a wide range of innovation activities and exercises, which generated a lot of new ideas in addition to building some core skills in innovation and creativity.”
Developing a course on individual creativity and innovation begins by recognizing that, at its core, innovation is a problem-solving process. This initial diagnostic is generally followed by divergent and convergent thinking.
Divergent thinking is about generating a large number of ideas, ideally using a diverse team with different backgrounds and experiences. Once a range of ideas has been generated, convergent thinking will synthesize them into a rich, smaller set for evaluation.
Another effective technique is visual thinking, such as using drawing as a part of the creative process. With this technique, large groups of participants divide into smaller subgroups. Armed with flip charts or large pieces of paper stuck to walls, the goal is for each subgroup to draw the problem and different ideas for the solution. The physical act of drawing changes the mindset. People are often nervous about their drawing abilities at first, but in the end they often see how it works to spark creativity, and they can see how to address some of the problem-solving realities they face back in the office.
“It was an incredibly powerful experience and, at the end of the workshop, our CEO stood up and said that it was a major milestone for the company that would play a critical role going forward,” Humphrey said.
Building on individual skills in creativity and innovation, the next level is to build the capabilities of teams responsible for creating new products, processes or business models. Innovation teams develop solutions to product or business needs. To be successful, the team has to build capabilities in the rapid, low-cost, low-risk iterative process that has become a standard for effective innovation.
First, determine whether to build skills for incremental, radical or disruptive innovation. For example, incremental innovation could be an additional feature on a television set. Radical innovation would be the same function, but in a next-generation iteration — for example, high-definition TV.
Disruptive innovation actually replaces the existing business model. For example, using an iPad or some other device to watch streaming content via Netflix — which began as a DVD service — would count as disruptive innovation. In this case, a completely new device is accessing content from a completely different source.
Consider how Amazon.com reinvented book retailing by creating a new business model built around e-commerce and then did it again for the publishing industry with its self-publishing arm. Since then, the company has created many new products, like the Kindle, and new businesses like Amazon Web Services. Each of these innovations has value, and each has nuances in the kinds of skills the team needs to develop.
The innovation process begins with concept development, typically done through a combination of external market research and internal idea generation. The next phase is to build a prototype, which allows users and customers to begin interacting with the product or business model. This may be followed by a pilot, launching the new product on a small scale and testing it under real-life market conditions. Finally, after successful completion of one or more pilots, one decides whether to proceed with a full launch of product, process or business.
This series of iterative cycles will vary by company, but are all essentially based on a learning process. The process starts small and low risk, gradually escalating investment and commitment based on market feedback and continual refinement of the product, process or business model.
Level 3 is all about building systemic organizational capabilities. EDmin Inc., a software company based in San Diego, has been applying the principles of business model innovation to develop the next generation of its flagship program and to build systemic capabilities in innovation, steps CEO Peter Sibley said are central to the company’s growth strategy.
“We formed a high-powered, cross-functional, business model design team, charged with reimagining our ecosystem and innovating a new platform re-engineered from the ground up,” he said. “We used this strategic initiative as the catalyst to introduce these innovation skills and practices throughout our company. We’re making incredible progress, with a new energy and excitement in the company as we look forward to launching our new platform in Q4 of this year.”
To make systemic improvements, an organization must recognize the difference between memory, reality and destiny, and how they play out.
It’s important to preserve some elements of the institutional memory — for example, the core principles on which the company was founded. The parts the organization can forget include operating processes or products it produces, clients served in the past and any aspect of the business model that isn’t evolving. Companies can confuse their business model with their foundational organizational culture and values. While the culture and values should be long-lived, there should be multiple business models evolving over time.
The Only Constant Is Change
When Procter & Gamble Co.’s A.G. Lafley first came in as CEO in 2000, it was after growth had slowed dramatically. Lafley felt this stagnation in sales was because of a lack of innovation. New products created in the previous five years accounted for only 15 percent of sales. For P&G to grow again, Lafley challenged leaders to increase that percentage from 15 to 50 percent within 10 years.
It was a radically disruptive idea, but they achieved it. P&G doubled sales as a result. It was a classic case of building systemic innovation by creating the right culture, improving the organization structure and catalyzing hundreds of Level 2 innovations throughout the organization.
Lafley also championed the process of open innovation. Originally created by Henry Chesbrough, a professor at the University of California at Berkeley, the idea asserts that no matter how innovative a company is, it still has only a small percentage of the global intellectual capital available for any problem. Open innovation leverages all of the knowledge available. P&G created “Connect and Develop,” an open process through which anyone in the world could submit ideas to the company. Thousands of new ideas were submitted over the years, and some became major products.
Today, leaders everywhere are living in an information economy that’s quite different from the industrial economy of the past. The rules of the game and environment have changed. The most successful CLOs will approach innovation as a continual learning experience that builds innovation capabilities at the individual, team and organization levels if organizations are going to survive and thrive in the changing times ahead.
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