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Releasing Your Organization’s Innovation Energy

The problem isn’t one of individual creativity. Most organizations have plenty of creative individuals. The problem is the system in which the people exist, which constrains collective creativity in systematic and subtle ways.

“Why can’t my people be more creative?” is a common lament of the growth-seeking Chief Executive Officer.Questions like this reflect the widely held belief that people inside large organizations just aren’t capable of following the innovative behaviors that appear intuitive to great entrepreneurs. Developing that capability – through new hires and extensive training programs – seems so daunting that many companies believe the best they can do is to tap into the “open innovation” movement and do a better job of harnessing talent that exists outside their organization.

This creates a conundrum for most organizations, because it is growing increasingly clear that today’s leaders are looking for more creative managers. A recent study by IBM found that CEOs believe that creativity is the “single most important leadership competency for enterprises seeking a path through” today’s complexity.

I have a different perspective. I believe individuals inside organizations are wildly creative. Back in 2003 we started running hands-on training sessions with mid-level executives in the core concepts of disruptive innovation. By my count I’ve done more than 100 workshops with a wide range of companies. I’ve seen some pretty amazing things. I’ve seen people in seemingly staid industrial companies create elaborate skits to pitch ideas to their colleagues. I’ve seen awesomely inventive ideas that have substantial potential. I’ve seen people build on the workshop results and create beautiful business plans. And then…

Nine times out of 10, the output of even the best workshop stalls. As one of my colleagues quips, “The half- life of a good educational experience is about a month.”

You see, the problem isn’t one of individual creativity. Any reasonably sized organization has plenty of creative individuals. The problem is the system in which the people exist, which constrains collective creativity in systematic and subtle ways.

A generation ago we had little choice but to accept this problem. We just didn’t know enough about innovation to be able to create the right environment to support it. Sure, an iconic leader like Apple’s Steve Jobs could occasionally bash his way to success, but innovation at scale – that was out of reach.

Over the last two decades innovation scholars have conducted path-breaking research. There have been early adopters, companies that brought this research to the field. This fieldwork helped to crystallize principles, patterns, and practices that hold the promise of making innovation attainable to any person or any organization.

Experience suggests that unleashing an organization’s inherent innovation potential involves five interlocking components.

1. Create an innovation strategy

Some believe that innovation and chaos are friends. They are not. Innovation needs to be approached in a strategic way. Companies need to thoughtfully assess the state of their current business, pinpoint hidden risk factors, identify the highest-potential sources of growth, and sketch out a target innovation portfolio of new growth efforts.

An ideal portfolio has a range of different strategies. For example, in 2008 Procter & Gamble announced publicly that 20 percent of its growth efforts would focus on marketing and promotion–related efforts, 60 percent would involve bringing better products to existing markets, and 20 percent would entail creating new markets. A good portfolio also has “business model balance.” If all of your growth efforts target the same customer, use the same channel, or even follow the same revenue model, there’s more systemic risk in your portfolio than you realize.

2. Allocate resources to achieve the strategy

In 2009, we were advising a $2 billion division of a large conglomerate. The division had grown substantially during most of the 2000s, but its growth was beginning to level off. Leadership had no doubt about the division’s strategy. One leader put it this way, “To meet our targets we have to aggressively develop new products and target new markets.”

However, when we did a bottom-up analysis of the portfolio, we found fully 75 percent of initiatives targeted current customers or current products – efforts that ran completely counter to the stated strategy. Even worse, the more-expansive growth options were stalled ideas on paper that no one was pursuing.The company’s strategic approach was sound, but it needed to make sure its resource allocation matched its strategy, or it had no hope of success.

3. Create a safe place for innovation

One definition of insanity is following the same behavior and expecting different results. Companies need to make sure they create a safe place to stop corporate antibodies from silently strangling new ideas.Media giant Hearst set up such a structure in 2009. It created a corporate innovation program for people to work on ideas that would otherwise fall through the cracks. A small team of experts led by a seasoned entrepreneur (hired from outside) helps individuals shape rough concepts into business plans that can receive seed funding from the CEO. Keeping the process outside the normal routines of operating divisions maximizes the chances that Hearst will develop powerful new growth concepts.

4. Change incentives

A critical component of a hospitable innovation environment is appropriate incentives. The question isn’t “How much do we reward?” Rather, it is “What do we reward?” Most companies focus their incentives on results. “Hitting your numbers” is a tried and true way to earn that coveted year-end bonus or promotion. As such, companies celebrate innovators who produce successful outcomes and castigate innovation efforts that get shut down early, or fail to achieve commercial results. However, innovation shares much in common with games of chance, in that sometimes you do the right things yet don’t win, and sometimes you do the wrong things and win. Instead of focusing on the outcomes, companies need to focus on the process or behaviors.

5. Activate senior leadership

Three companies I have seen transformed by innovation are Procter & Gamble, Turner Broadcasting System (a division of Time Warner), and Dow Corning. These three organizations are very, very different, but they have one broad factor in common. In each case, the transformation was actively powered by the Chief Executive Officer.When I first come into a company, I have a simple way to determine how committed it is to innovation. I look at the CEO’s calendar. If the CEO is spending only an hour a quarter on innovation, I know the company is not truly committed to innovation.

Innovation is not a natural act for most companies. As such, senior leaders have to play very active roles to build cultures that support innovation.

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Innovation is increasingly moving from art to science. But even so it isn’t easy: One Fortune 100 company we worked with came to the conclusion that it could take 10 years before it was “unconsciously competent” at innovation. But it knew the rewards – a stream of powerful new growth businesses that would repeatedly knock current and potential competitors on their heels – would be worth it.

CEOs who follow the five points described here have a chance to harness the great potential that lies within their organization. CEOs who don’t will see their fortunes falter as their top talent grows frustrated and leaves, creating even more room for hungry competitors and entrepreneurs.

Scott Anthony is the managing director of Innosight Ventures and author of “The Silver Lining: An Innovation Playbook for Uncertain Times.”

About Scott D. Anthony