Making The Leap Encouraging Innovation

Making the leap:
encouraging
innovation

08 | 2008 The 2008 Hay Group international client meeting saw some
of the world’s foremost business theorists discuss the nature of
innovation and how best to develop it within organizations >>

Contents

Making the leap: encouraging innovation 2

Part l: innovation is not... 4

Part ll: what does innovation look like? 6

Part lll: making innovation happen 8

Conclusion 12

2 Making the leap: encouraging innovation

Making the leap: encouraging innovation

The role that innovation plays in an organization’s fortunes
is widely recognized, providing the fuel for growth and value,
greater market share and adding to a better bottom line.
And as market conditions become tougher, it can only
become more important.

The evidence and case studies suggest Answers to questions such as: ‘what is
What Hay Group’s that organizations that continue to work innovation?’ and ‘what does it look like and
global innovation survey on innovation during downturns not only how do you seed it in your organization?’
demonstrates is that 80 enjoy better bottom line performance, are often less easy to come by. It was to
they also improve their chances of getting address problems such as these that Hay Group
per cent of executives find
first-mover advantage when the invited some of the world’s foremost
innovation ‘difficult.’ business climate improves. business thinkers to Rome.
But that – as delegates at this year’s annual
Hay Group international client meeting
(ICM) in Rome were well aware – is easy
enough to establish. What Hay Group’s
global innovation survey demonstrates
is that 80 per cent of executives find
innovation ‘difficult.’

One shot to get it right...
With oil running short and the chemistry Rifkin, advisor to heads of state around the
of the planet altered for the worst, mankind’s world on economic and related issues, kicked
challenge in the coming decades – according off the two-day program. He set the bar high,
to Jeremy Rifkin, president of the Foundation calling for innovation in a different order of
on Economic Trends – will be to harness magnitude and an adjustment to industrial,
energy effectively from rubbish, the sun, social and economic creative ingenuity that
wind and tides. Once that is achieved – was fundamental and thoroughgoing.
a challenge in itself – the technology both to
store surplus energy which he identified as
likely to be hydrogen and then distribute it,
will also be required.

©2008 Hay Group. All rights reserved

Over the course of two days, delegates were n Innovation in terms of products
treated to a range of theories on successful and services is not the sole destination.
innovation from which emerged a number Change in the form of new processes,
of common conclusions. approaches and ways of going to market
is as important in steering organizations
n Often organizations get stuck in their to success.
thinking on innovation, following
conventional wisdom which has not While investment in R&D and reward
always proven to be effective. programs will go some way to embedding
n Mirroring how your customers experience innovation within organizations, other
life and helping them to ‘get jobs done’ in components such as visionary leadership
a simple, low cost but highly effective way create an environment where employees
are more effective when seeking to create feel they can take risks. Additionally,
new products and services. practices such as identifying ‘hot spots’
n The process of innovation is not a linear are as effective in delivering growth and
one. Creating value through new ideas organizational improvement.
and products is a more pragmatic process,
involving the reconciliation of dilemmas
and problem solving.

What was needed, he argued, was an Ultimately Rifkin’s vision was of
industrial revolution that combined the organizations, countries and regions of
communications revolution, already the world cooperating. “We are going to
experienced, with new energy. have to leap ahead of centuries of rivalry
and distinguish between geopolitics and
It would not be long, Rifkin argued, biosphere politics. We cannot afford those
before the price of energy, climate change rivalries; we need to share and not fight over
and logistics will condition every business remaining resources... we have one shot
discussion. He invoked a vision of a world to get it right” he cautioned, “but not
25 years hence where millions of buildings, much latitude.”
shopping malls and technology parks all
collect and share their energy.


Part I: innovation is not...

Consensus around innovation and how to generate it is often rare.
But this year’s ICM speakers were clear about the misapprehensions
surrounding the concept. All too often there is an over reliance on
textbook approaches in the attempt to win market share through
innovation. Harvard professor Clayton Christensen – the world’s
foremost authority on the subject – set about challenging the
received wisdom taught in many business schools on how to
make innovation ‘predictably successful.’

...predictable
Among the myths Christensen identified was Christensen cited the milkshake market as
the belief that through understanding your an example. A large fast food chain wanted
customer alone – listening and responding to gain a better understanding of what drove
to their unmet needs – you will reliably and sales of its popular range of milkshakes.
inevitably deliver innovation. Detailed customer surveys which asked how
the drinks could be improved and what
More important was lateral thinking and features and qualities would make the
taking a perspective that mirrored how product more attractive to them had not
customers experience life – clarity about resulted in any increase in sales.
the job that the product or service has
been ‘hired’ to do. Instead the researcher decided to observe
customer behavior and sales patterns
What was the problem that the customers throughout the day. This revealed that most
were facing? What were the experiences in milkshakes were bought in a single purchase,
purchase and use, which, if provided would early in the morning. He decided to ask
add up to nailing the job perfectly? Crucially, customers what job were they trying to do
what are the product or service features when they came here to ‘hire’ that milkshake.
needed to provide those experiences?

“ It was clear that their competitors in the milkshake
market were not other major fast food outlets,

”
but bananas, donuts and bagels.


It became apparent that respondents all Creativity like so many things is not
had a long drive to work and they needed linear, he argued. It is stimulated by
something to ward off boredom during that establishing diverse, inventive teams made
time. “Viscose and thick, these milkshakes up of different cultures and types of people
took some time to consume and stayed and skills. Innovation was then generated
in the stomach for longer; they also fit through the reconciliation of the conflicts
conveniently into a cup holder.” It was that would inevitably arise between both the
clear, Christensen explained, that their individual and the team, and the different
competitors in the milkshake market ‘types’ of team members.
were not other major fast food outlets,
but bananas, donuts and bagels. In resolving those dilemmas, Trompenaars
recommended the use of ‘critical oxygen.’
Innovation within this context involved Team members discuss their colleagues’
making the product even thicker; maybe ideas, first by identifying two positive
adding small chunks of fruit for added comments and then by raising criticism
interest and unpredictability. Moreover, through asking “how can I help you resolve
making them available through pre-paid the issue of...” This might initially seem
swipe cards at gas stations, enabling people contrived, Trompenaars acknowledged,
to grab one at the same time as they got yet within his own organization it had
their gas would also boost sales. rapidly become second nature.
“When companies segment their markets by There is no one approach that will ensure
job rather than by customer or product type, creativity, whether it’s centralization or
it quickly becomes apparent that the market decentralization, or global versus local,
is much larger, that their share of it is smaller he argued. Rather it is a combination of all,
than originally thought and that their real a fluid arrangement that takes from both
competitors aren’t in their product category. in order to find the solution.
They also understand the constraints that
keep more customers from ‘hiring’ their “Yes we need global standards and yes we
product for the jobs,” Christensen argued. also respect cultures. The most sustainable
model is the ‘transnational firm’ – which
consistently looks at local processes to see
...linear what can be leveraged.” These firms did not
Just as following business school formulae have headquarters, argued Trompenaars;
could not guarantee successful innovation, they had centers of excellence based
ICM delegates were told, neither would around the group.
thinking in terms of absolutes. Creating
a sustainable culture of innovation Indeed, Trompenaars argued, creative
involves ‘thinking outside the box’ and organizations were loaded with dilemmas.
crucially, resolving dilemmas, argued Fons Sustainable innovation involved pragmatism
Trompenaars, expert on cultural diversity. and it meant migrating from culture to
culture depending on the stage of an
He challenged the assumption that creativity organization’s life cycle and strategy.
only emanates from those who are considered
to be ‘more intuitive, perceptive, thinking, Yet, while creating a sustainable culture of
extrovert, lateral and right brain.’ In reality, innovation was neither ‘reliably predictable’
he argued people were an amalgam nor a linear process, delegates were assured
of many qualities. that there were ways to recognize it.


Part II: what does innovation look like?

For Clayton Christensen, growth opportunities occur with
what he terms ‘disruptive innovation.’ New market entrants offer
products that are affordable, simple and which often, initially
appear to be inferior to what is offered by the market leaders.
Crucially, however, the new products perform a much needed,
specific job at a low cost.

Disruption
Japanese car producer Toyota entered a upmarket to focus on higher value business
Innovative approaches and market dominated at the top by household and more lucrative margins. This progress
processes are as valuable names such as Ford. It started by offering is also often helped by harnessing new
as innovation itself in their small, cheap cars. Once Toyota had gained technologies and by making them
market share in that specific segment, affordable and accessible.
potential to deliver
it steadily moved upmarket offering
organizational change increasingly larger vehicles until it was This happened as early as the 1950s
and improvement. competing head-to-head with the original when Sony disrupted the TV market by
market leaders in the high margin, high-value introducing embryonic but basic transistor
end of the market. technology only previously used for the
manufacture of items such as hearing aids.
Often, argues Christensen, the progress of Sony reconfigured it in the form of pocket
the market ‘disruptors’ is assisted by the radios and then miniature TVs, and in so
incumbent brands, who, rather than stand doing, it replaced the large and unwieldy
their ground and defend their business at the vacuum tube technology and the established
low cost end of the market will ‘retreat’ manufacturers who relied upon it.


Think like a start-up
Crucially, Christensen argued, disruptive That innovation is not just the ‘destination’
innovation demands agility in the form of was a point acknowledged by many of this
new ways of going to market, which is why it year’s speakers and workshops. New approaches
is more likely to come from new companies. and processes are as valuable if they are
“When an opportunity for disruptive growth to deliver organizational change
comes, market leaders fail to recognize and and improvement.
capture it – they try and cram it into their
existing business model.” By way of an example, Jack Welch of
General Electric was cited for the best
If your sales force is good at selling your practice approach that he had taken.
existing products and brands, he explained, Rather than trying to create innovation for
you will be reluctant to dismantle it or build its own sake, clarity was necessary around
a new one to sell the new, disruptive product. why it was required. New products were
It might also miss the essence of the disruption needed but so was innovation around
or even feel threatened by it if it cannibalizes processes for delivering both local and
your existing products. It will either not sell global products.
it or fail to sell it successfully.
It was a point picked up by Professor
Some of the financial analysis – for example Renée Mauborgne whose collaboration
net present value (NPV) and discounted cash with Professor Chan Kim famously
flow (DCF) – which often informs strategy, produced Blue Ocean Strategy, an
can lead to bad decisions as the choice is international bestseller on innovation.
rarely between ‘stay the course’ or ‘invest,’ There were innovative approaches and
but rather ‘invest’ or ‘decline.’ It is this processes that in themselves would help
legacy and baggage that hampers success. delegates move their organizations from
Organizations stand more chance of the bloody and highly competitive red
innovating effectively if they thrive like ocean to new market space: the blue ocean.
a start-up when making decisions.

“ When an opportunity for disruptive growth
comes, market leaders fail to recognize and
capture it – they try and cram it into their

”
existing business model.


Part III: making innovation happen

Fostering change and creating the conditions for innovation
involved overcoming hurdles, argued Professor Renée Mauborgne.
As a case study, she discussed Bill Bratton, former head of the
New York City Police Department.

Bratton took the helm in 1994 at a time effectiveness of the resources at his disposal.
Ignoring the conventional when crime statistics were soaring, morale Identifying three distinct areas within New
wisdom that significant in the police force was cripplingly low and York City which accounted for 75 per cent
improvements required confidence in the organization had dwindled. of crime, he concentrated resources on
Within two years he had succeeded in patrols in those areas.
big changes, Bratton
slashing crime, improving motivation and
focused on the concept of customer satisfaction rates – all during He also identified key influencers within the
‘disproportionality’ – a budget freeze. organization – the 70 or so precinct heads
implementing innovative who between them controlled New York
Hot spots City’s 36,000 policemen. Bratton set about
but simple measures
Bratton focused on what Mauborgne instilling a sense of responsibility through
which would have transparent, inclusive and fair process. He set
termed ‘hot spots.’ Distinct from Lynda
maximum impact. Gratton’s concept of centers of diversity and up regular meetings for all of them, during
creative energy, Mauborgne’s concept refers which they each had to discuss and account
to ‘disproportionality’ – implementing for their numbers – ‘management in
innovative but small and simple measures a fishbowl.’
which have significant impact.
Indeed this case study served to reinforce
Bratton also affected a shift in attitude a point often repeated during the two-day
within the organization to one of ownership ICM. While they were acknowledged to be
of results. He tackled complacency among a ‘valuable influencing mechanism,’ reward
his senior reports – a cognitive hurdle – by programs were not of themselves
asking them to travel on the subway and see sufficient for seeding innovation and
what their ‘customers’ experienced every day. innovative behaviors. It was as much
about changing behaviors and winning the
By focusing on ‘hot spots’ – those activities argument. As Christensen termed it,
which have a low resource impact but high winning ‘commitment to a noble cause.’
performance impact, he maximized the


About Hay Group’s global innovation survey

Over a period of three months, companies we studied had reached the
Hay Group polled 67 companies from level of embedding innovation into parts
around the world and across all major of their organization.
sectors. We surveyed 540 executives and
conducted in-depth discussions with a Hay Group found that organizations can
segment of them. At the ICM in Rome, be defined either as innovation ‘autocracies’
we also surveyed 220 delegates as a point or as ‘democracies’ – a rarer occurrence
of comparison. Our objective was to with only six per cent of our respondents
understand why organizations often fail classified as such.
when they set out to innovate. In innovation autocracies, power resides
Hay Group found that embedding at the top. A select few decide what the
innovation does not always succeed, innovative ideas are and allocate resources
as most take the approach that has made to ideas. A minority are considered capable
them successful for the last 50 years. In fact, of innovating.
the structure and approach of industrial-era Innovation democracies run against the grain.
organizations, where specialization and Power is dispersed across the organization
departmentalization rule, is toxic and everyone is responsible and accountable
to innovation. for embedding innovation. People decide on
As a result, frontline managers are being which ideas they are going to support and
asked to innovate but have no idea where to resources are allocated according to that
start; fatigue sets in and initiatives fail to go support. In short, innovation democracy
anywhere. In fact, only 20 per cent of the is about the power of the many.

Innovation: how the 20
scores breakdown Strategy
10
16

21
Key: Climate 15
10
Innovation democracy
21

GIS average results Process 19
10

Target score
Rome ICM delegates
20
Ideas 18
10

0 5 10 15 20 25

Like innovation ‘autocracies,’ many organizations excel in ideas and process but fall short on strategy
and climate. Respondents were polled on their approach to strategy, climate, process and ideas. The
blue innovation democracy bars relate to the average score of the four companies that achieved 80
points or more in the global innovation survey (GIS).
It is agreed that the GIS, including the survey instrument, the data and output from the GIS, and the reports of the results of the survey, shall be the property
of Stratage Inc. Stratage hereby grants to Hay Group a non-exclusive, non-transferable, worldwide, perpetual, paid-up, royalty-free right and license to use the
data and output from the GIS for Hay Group’s own business purposes.


Leadership
Key to getting that commitment The role of leadership in creating an
according to Mauborgne, and to environment for innovation to flourish was
many of the speakers throughout the also highlighted by Professor of Business
two days in Rome, was leadership. For her Dave Ulrich, a published author on
it was about ‘tipping point leadership’ leadership and HR.
– instilling confidence by effecting change
quickly and with few resources. He argued that in order to affect change we
need to turn what we know into what we do.
At the center of Trompenaars’ concept of This requires creating a ‘culture of change,’
‘innovation as the product of differences’ or ‘change brand’ that is felt by customers
was ‘inclusion.’ Sound leadership was needed and employees alike. It also means engaging
to ensure a diversity of personalities and others, allocating resources and ensuring
types within teams and also to mediate and alignment between investment and change.
reconcile differences. “The process of Leadership, argued Ulrich, was an essential
innovation is to combine values that are component in driving this discipline.
not easily joined; inclusion is the process
of joining them and leaders do this,”
he argued.

“ We need to turn what we know into what
we do. This requires creating a ‘culture of change,’
or ‘change brand’ that is felt by customers

”
and employees alike.


Strong leadership was required to build Unilever’s Diego Bevilacqua gave a real life
cultures of innovation and encourage example of innovation in his organization,
innovative behavior. The HR function was where the focus was on business improve-
frequently identified as a ‘culture steward,’ ment through innovations in leadership,
essential to the embedding of innovation governance, culture and organizational
not just through organizational values and process. Making changes to these aspects of
behaviors but in looking at leadership the business stimulated significant growth
competencies. “We have got to make the for the group around the world and enabled
CEO responsible. How can HR help coach Unilever Foodsolutions to then innovate in
leaders, provide feedback, advise?” Ulrich brand, services and products.
asked delegates.
He outlined a leadership checklist for
organizations looking to grow and compete
through innovation: “Do we: exhibit strong
committed leadership? ‘walk the talk?’ have a
champion who dedicates 20 per cent of their
time to change? have leaders who pay attention
to change in terms of passion? have time as
well as focus? and do we have a sponsor who
permits that champion to put time into
the change?”


Conclusion
Creating and sustaining growth through innovation is seen as a priority by
most senior management, particularly during periods of economic downturn.
And yet successful innovation – opening up market space as well as improving
revenues and efficiencies through the creation of new products, services,
processes and ideas – often proves elusive.
The key to unlocking the latent creativity in your organization can lie in formal
approaches such as reward programs and investment in R&D but it is as likely
to involve a variety of other methods. Organizations are more likely to be
successful if they:

1 view innovation not just as an end in itself but as a dynamic
process involving new practices and approaches such as the
creation of new products and services
2 have strong leadership and a willingness to depart from
textbook theory on innovation
3 adopt fresh thinking to market needs as well as new approaches
to creating innovative organizational climates

For more information on how Hay Group can embed innovation
within your organization, contact William.Werhane@haygroup.com
or visit www.haygroup.com to find out more.


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