Creating a culture of innovation

In 1964, during the heyday of the space age and all its dazzling scientific advances, New York City hosted a World’s Fair that paid tribute to the innovative spirit of the times. Leading companies such as IBM and General Motors offered exhibitions that promised to show visitors a glimpse of the technological marvels the future held in store. The symbol of that World’s Fair was the famous unisphere, a dramatic 12-story high globe built to represent the theme of man's achievements on a shrinking globe in an expanding universe. That theme serves remarkably well to capture the state of innovation in today’s business environment, in which a shrinking globe and an expanding universe of product and services have combined to create an insatiable need for innovative achievements.

With its emergence as perhaps the single most critical aspect of business strategy in the 21st century, the risks and rewards surrounding innovation have never been higher. Innovation, of course, has always had the potential to create entire new markets, sometimes virtually overnight. More and more, however, it has also become a central dynamic in existing markets and mature industries, where the ability to introduce significant change has become a sought-after competitive advantage. Once upon a time, innovation was seen as a necessary force at the outset, but of less importance as the company came to dominate its market and to rely on traditional means of growth.

No more. Today, companies are relentlessly pursuing innovation.

The need for innovation
Men’s and women’s razors do not spring to mind as inherently sophisticated products. One might even think that they’re not particularly open to innovation. Yet over the past several years, the market leaders, Schick and Gillette, have one-upped each other with new brands, new products and new go-to-market strategies. Indeed, this seemingly staid category has become a fierce battleground in which innovation is the ultimate competitive advantage.

The battle between Schick and Gillette serves as a useful snapshot of the overall drive for innovation. Once upon a time, the concept of innovation might have been reserved for high-tech companies, pharmaceuticals and other traditionally R&D-heavy segments. But now, even a fairly routine product like razors can become the catalyst for intense innovation – an indication of how vital it has become to companies across all industries.

It is not an exaggeration to say that the mandate facing companies in today’s fast-paced business environment is ‘innovate or die’. The Quest for Innovation, a global study commissioned by the American Management Association and conducted by the Human Resource Institute, found that more than two-thirds of respondents considered innovation either ‘extremely important’ or ‘highly important’ in their organizations today. Furthermore, the majority of respondents said that innovation would be ‘extremely important’ or ‘highly important’ to their organization in 10 years. (The complete study can be found at www.amanet.org/research.)

What are the macro trends that have led us into this age of innovation? Technology, of course, has played a huge role. It has spawned a truly staggering amount of new products and services. Take, for instance, the Apple iPod. The product itself represents a major innovation, but just as remarkable has been the flood of quick-thinking entrepreneurs that have taken advantage of the iPod’s popularity by developing peripheral products – speakers, carrying cases, etc. Furthermore, it has revolutionized the distribution of recorded music and changed the economic model of the music industry.

The dizzying speed of the product design and marketing cycle has been another factor. Researchers Marvin Cetron and Owen Davies have estimated that where the full cycle – from idea to invention to introduction to imitation – once took 30 to 40 years, the time is now more like 30 to 40 weeks. Staying ahead of that curve requires perpetual innovation.

Last but not least, customer demands have led to innovation’s current prominence as a strategic necessity. The ‘one size fits all’ approach that typified business for decades is obsolete. Customers are increasingly demanding customized products and services that meet their specific needs.

Troublingly, however, the Quest for Innovation study found that most companies judge themselves as only moderately good at innovation. Interpreting that finding, we can surmise that there is a serious shortcoming of competencies related to innovation.

The culture of innovation
All of this begs the question: what are the cultural competencies required for innovation? The Quest for Innovation found that there are 14 critical factors in developing an innovative organization. Let’s take a closer look at the top five.

Of the 14 factors in developing an innovative culture, the study found that a customer-centric approach is the most important. Going beyond mere customer research, innovative companies invite and encourage their customers to become actively involved in product design, marketing and other aspects of their go-to-market strategy.

Teamwork and collaboration make up the second most important factor in driving innovation. Particularly effective is the use of teams that incorporate diverse viewpoints and have a cross-functional structure. The search for innovation also increasingly leads outside of the organization, with more and more companies collaborating with academia, government agencies and other companies, sometimes even competitors, to discover and bring to market new opportunities.

Taking third place is an appropriate allocation of resources, primarily time and money. While the study found that insufficient resources are the most common barrier to innovation, devoting too many resources also can have a negative effect. For example, employees with long spans of time in which to deliver results may lose motivation and the necessary sense of urgency.

Open communication is the fourth most integral element of an innovative culture. Communicating means sharing not only ideas but also the lessons learned from failures and successes. Information must flow freely across the entire organization – within departments, between departments, and up and down the corporate hierarchy – and companies should not take a ‘one size fits all’ approach to the means of communication. Some situations may call for face-to-face discussion, while others are best suited for technology-mediated channels.

Rounding out the top five is the ability to select the right ideas for development. The lack of a method to identify those ideas with the greatest potential holds many companies back from achieving innovation: nearly half of the firms surveyed in the study reported that they “don’t have a standard policy for evaluating ideas”. Companies searching for a process to pick winning ideas may want to follow the example of Whirlpool, which encourages innovation teams to pursue new ideas by creating a business case and applying US$25,000 in funding to quickly prove its worth. This low-budget, quick-turnaround method was designed to generate radical ideas with little risk.

Creating the right climate
The competencies that drive innovation don’t develop overnight, but rather are created by specific behaviors. In Leading Innovation, a new seminar offered by the American Management Association based on the resources of the innovation experts at FutureThink, participants learn that there are five core behaviors that make up an innovative climate:

• Leading by example. Senior management must play an active role in leading the pursuit of innovation. At Starbucks, for instance, founder and chairman Howard Schultz makes it a point to attend innovation meetings and suggest ideas.
• A willingness to experiment. This also includes a tolerance for smart risk-taking. With every opportunity, there is a chance of failure. It’s not enough to passively accept the possibility of failure, organizations must actively embrace it – or even mandate it, as does Bank of America, which requires that 30 percent of all innovative projects fail. Overcoming a risk-averse mindset requires welcoming all ideas, even the most impractical ones, with a nonjudgmental approach.
• Sharing. A reluctance to discuss ideas or works-in-progress is anathema to an innovative climate. Most people would prefer to keep working on the project until it’s perfect before revealing it, but successful innovators recognize the value of developing rapid prototypes and sharing those prototypes early and often.
• Encouraging new thinking. Fresh perspectives lead to fresh solutions, and innovative companies recognize that truth. Some companies use their intranet as a message board for sharing new ideas; others hold internal ‘trade shows’ that bring people together from different departments and locations and give them a chance to show off their interests and expertise.
• Energize. Jump-starting innovation means finding meaningful ways to hire, train and motivate the workforce. For instance, too many companies emphasize finding a candidate who fits into their culture to the detriment of hiring someone who can bring new insights to the table.

Conclusion
The popular image of innovation is that of an idea arriving like a bolt of lightning, unexpectedly and with galvanizing force. Yet despite all of its glamour and allure, the simple truth is that innovation requires a lot of tedious practice and work; dare I say it needs to be managed and consciously nurtured? We’ve all heard the old Thomas Edison quote about genius being one percent inspiration and 99 percent perspiration. The same ratio applies to innovation. Companies that have mastered the spirit of innovation are more likely to resemble quiet, sensible laboratories than madcap creative playpens. As unexciting as it sounds, innovation at its heart is as orderly and well-planned as any other business process.

This is not to deny that innovation has a mysterious quality; that one percent of inspiration represents some pretty potent magic. Despite its sometimes elusive nature, however, innovation can be cultivated and instilled just as readily as any other competency. As with any skill, training is the key.

Edward T Reilly is the 17th President and Chief Executive Officer of American Management Association (AMA), the world's leading not-for-profit membership-based management development organization. He has held the post since 2001. Each year, AMA directly interacts with over 100,000 managers and executives in the United States and around the world, through its renowned management education seminar programs.

Ed previously served as President and Chief Executive Officer of Big Flower Holdings, Inc. (now Vertis, Inc.), and prior to this he spent nearly 30 years McGraw-Hill a publishing and communications company.