Entovation International - Resources: Innovation

Innovation: What Every CEO Should Know
by Debra M. Amidon

From finance to IT, from R&D to sales, your organization is rich with ideas and expertise. How do you harness that capacity for innovation and use it for business success?

As CEO, no doubt you are bombarded with ideas and requests from your leadership team aimed at ensuring your company's prosperity. Unless you have an extraordinary group of managers, each of them most likely promotes solutions from his or her particular field of expertise:

Your CFO says you should downsize, manage productivity, cut costs, and maximize ROI.
Your CIO advises that investing in the technology infrastructure is fundamental to your competitive future.
Your vice president of human resources sees your people as the company's most valuable asset, one that should be treated as an investment, not an expense.
Your vice president of marketing tells you to focus on the planning process, not the plans per se, and that your competition includes companies you haven't considered in your recent analysis.
Your chief quality officer notes that you have an opportunity to win the Baldridge Award if you and the full leadership team make a commitment to quality initiatives.
Your R&D officer says that without research investments commensurate with industry norms, your company will not have the products and services to compete in the future.
Your chief engineer says that you must adopt cross-functional, simultaneous development processes.
Your vice president of PR recommends that you align your progressive messages in a systematic campaign across multiple media.
Your sales executives say that your products are not reaching the marketplace in a timely manner at competitive prices.
Your service managers describe the challenge of being at the bottom of the food chain when they are in fact closest to the needs of the customers and should be used accordingly.
Your suppliers are actively offering advice, because their success depends on yours.
Your customers want to remain loyal, but they are having difficulty lobbying on your behalf inside their own companies.

Meanwhile, your competition seems to be bringing ideas to market at a faster speed and with greater quality than you are.

Each of your management team's statements could very well be correct, and they all represent both the current thinking in each discipline and the realities of a hypercompetitive marketplace. But where is the commonality in their observations? What is the fundamental core that brings each to the boardroom with their "complementary competencies"? How might you harness their expertise to ensure the success of the firm?

The answer: innovation strategy.

It doesn't matter whether you run a startup or a large enterprise, because the challenge is the same: Innovate or close up shop. Peter Drucker claims that you need only one competence for the future: innovation, plus the capability to measure its performance.

However, few organizations have an explicit innovation process, never mind a designated senior executive responsible for overseeing that process. The fact remains that the CEO is the person ultimately responsible for ensuring sustained, profitable growth throughout the entire idea-to-market cycle.

If you ask your employees how they rate their capacity to create new ideas, their response -- which we can call the Creativity Quotient -- is likely to be quite high. If you ask them to rate their ability to know what to do with those ideas, invariably 50 percent of the hands go down -- indicating a comparatively lower Quality Quotient. If you ask them to rate their faith that their ideas will end up as marketable products and services, few employees -- including members of the leadership team -- rate themselves high. This indicates a low Innovation Quotient -- precisely the capability necessary to compete in the future.

Restructuring, downsizing, and re-engineering initiatives often further reduce a company's capacity to innovate. Many companies are too lean. They squeeze risk out of the system through excruciating cost-reduction programs. Progressive managers leave the company. Experimentation is considered a luxury. Long-term programs are a lower priority than activities that produce short-tern profits to satisfy Wall Street.

Most CEOs recognize the need to balance the strategic and operational focuses in the organization. They juggle investments for the long and short terms. But the real challenge is to manage an organization's innovation capability in an environment that seems to dampen creativity and risk taking.

Are you leading an innovative company? You can measure your organization's level of innovation by answering these questions:

Have you chartered one person with the overall responsibility to manage the corporatewide innovation process?
Do you use measures of performance -- both tangible and intangible -- to assess the quality of your innovation practices?
Do your training programs offer provisions to incubate and spin out new products and businesses?

Does your local, regional, or international presence operate as a distributed network of expertise that learns from as well as distributes to customers?
Have you established a formal intelligence-gathering strategy to monitor the positioning of current and potential competitors?
Does your rate of production of new products and services exceed the norms of your industry and create new markets in which you can excel?
Have you designated a strategic alliance manager to create and manage a network of partnerships and joint ventures to leverage your firm?
Does your marketing image portray an organization with the capacity to create products and move them into the marketplace?
Have you invested leadership resources to articulate a compelling vision internally and share your expertise externally through publications and participation in major forums?
Is your computer and communications capability treated as a learning tool for internal conferencing and external business leverage on the Web?

If you can answer "Yes" to seven or more questions, chances are you have a good handle on the innovation process and know how to optimize the flow of ideas that will contribute to the vitality of the company. If you answer "No" to more than half of these basic innovation questions, you might want to look at your processes for taking ideas to market and leveraging your intellectual capital.

To create an effective innovation strategy, the innovation process must be made explicit, and all constituencies must understand how they contribute to the process. The values of the company should include statements and actions that support creativity and innovation. Incentives should make valuable contributions visible and motivate employees at every level to participate in the process.

It doesn't matter where you begin -- with quality, re-engineering, benchmarking, systems thinking, learning networks, restructuring, and so on. What's necessary is that there be one compelling force that binds the organization together, creates a common language and a shared purpose. Leadership must come from the top down, bottom up, and middle out. In other words, everyone has ownership of innovation.

For many organizations, the binding force has been one of change management. No one would argue that the only constant today is the accelerating rate of change. Many CEOs have been successful in mobilizing their organizations to accept and even embrace change as a way of doing business. The way they phrase the challenge is inspiring, and people are encouraged -- and even rewarded -- for doing things differently.

More often than not, however, change is met with covert tactics that slow progress. In some cases the competition for resources is visible, as is the reduction of risk taking. In most instances the damage is more subtle. The communications systems break down. People are not inclined to share their ideas and expertise with others if they feel their jobs are in jeopardy. In March 1996, a New York Times survey reported that 70 percent of workers say they compete more with co-workers today than they did a few years ago. Only 20 percent cooperate more. This trend comes precisely when collaboration across multiple boundaries is fundamental to business success.

In addition, employees tell managers what they want to hear, not necessarily the solutions that could provide breakthrough results. Resources are scarce, so investments aren't made to bring new ideas to the table. A "not-invented-here" attitude grows more prevalent at a time when the marketplace demands real-time incorporation of new ideas.

How do you set in motion the desirable set of processes and practices that will maintain sustainable growth in an uncertain future? The answer is not change management, but innovation management.

Imagine being told, "You must change!" Not surprisingly, most people react to these words with feelings of uncertainty, inadequacy, and resistance.

Now imagine being told, "You must innovate!" People generally react to these words with genuine energy. They begin to crystallize a vision for moving forward and defining how their competencies can be applied to the tasks at hand.

The difference between change and innovation may seem insignificant. However, if you are seeking the binding force to catapult your organization forward, which would you choose? It is the difference between being hit over the head with a hammer or having the wind at your back. It is the difference between being threatened or inspired.

If you accept that innovation might be the rubric for leading your organizations forward, considering following these steps:

Make innovation an explicit and widely communicated strategy.
Give someone on your management team the responsibility and authority to create a corporate wide innovation process.
Perform an honest assessment of your capacity to create ideas and move them into the marketplace.

Create a collaborative initiative that binds the whole enterprise, including all stakeholders such as partners, suppliers, customers, and even competitors.
Monitor your progress against goals consistent with your corporate culture, and practice the art of constructive (re)design.

Today, innovation comes from every area of the organization:

Finance recognizes the need to measure intangibles.
IT understands the behavioral aspects of technology as well as computer and communications capabilities.
HR provides leadership around learning networks and the flow of knowledge through education and development initiatives.
Marketing has developed sophisticated mechanisms to track trends and forecast them in ways that might help you enter new markets and even transform your industry.
Your quality experts have carefully defined the processes involved in managing the business, from supplier to consumer.
R&D, traditionally expert in the invention stage of innovation, has developed new skills in business development.
Engineering has applied their technical rigor to the system of innovation through concurrent engineering.
PR has created an integrated communications strategy to continue your leadership position and capitalize on the variety of media available.
Sales has developed innovative ways to tap into customer knowledge and feed insights directly to R&D.
Services has become a core part of the business in terms of profitability and value-add.

This is the expertise available as you chart an innovation course forward. All that is left for the CEO to do is bring together those diverse perspectives and leverage their complementary expertise. Innovation strategy is the means by which you can create a cohesive solution in the midst of complexity.

Exec, October 1997