Factors That Determine An Organisation's Innovation Fostering Capabilities

When assessing an organisations capability to foster innovation internally, there are several factors to take into consideration, which can be split into six aspects, across two groupings.

These two groups are: the easily-quantified structural-focused group (comprised of resources, processes, and measurement of success) and the less quantifiable people-focused group (values, behaviour, and climate). It is important to note that it is rare that any of the aspects will manifest in isolation. Instead, a degree of overlap exists between these six ingredients which lead to a successful innovation fostering culture.

(A) Resources: Resources in this context can be defined as the capital required to foster innovation effectively inside an organisation. The three most important resources to consider are tools, budget, and people. Tools refers to the technology available to stakeholders which aid in the various steps of innovation processes. This includes, but is not limited to, research tools and collaboration tools. Budget refers to the monetary resources made available to projects taking place in the innovation fostering activity sphere. People are by far the most important resource when discussing innovation. It is extremely important to maximize buy-in from employees in all activities relating to innovation fostering. A popular strategy to facilitate this is the implementation of ‘innovation champions’, individuals who take extraordinary interest in the adaption, implementation, and success of innovative projects. The ‘entrepreneur in residence’ (generally someone who has extensive experience with delivering innovative solutions, in the face of limited resource accessibility, for example through a startup or grassroots movement), can be a valuable hire for any organisation looking to strengthen innovation fostering efforts through the implementation of ‘innovation champions’.

Over the past decade, starting in 2010, Procter & Gamble, the multinational consumer goods company, has doubled division (Tide – their largest fabric and household care division) revenue from $12billion to almost 24$billion, thanks to their commitment to fostering innovation, commencing at a time when market growth was slowing. A strong component of P&G’s innovation strategy was the allocation of substantial resources towards laying the foundations for a strong innovation fostering system. The company spends almost 2$billion dollars annually on R&D (Research & Development), along with another 400$million on foundational customer research (focused on uncovering opportunities for innovation).Financial resource allocation is only a part of the puzzle when analyzing P&G’s success with its innovation fostering activities. In 2004, John Leikhim and David Goulait, who had been at the company for 30 years, were appointed as innovation champions, tasked with designing a new growth factory based on Clayton Christensen’s ‘disruptive innovation theory’. One of the major focuses of Leikhim and Goulait’s activities was on shaking up established and embedded ways of thinking across the organisation, encouraging people to focus on creative problem solving and opportunity identification. Aside from workshops, seminars, process restructuring and the creation of business-guides, innovation stakeholders were provided tools which allowed for the tracking of an innovation project progression throughout its lifecycle. From 2000 – 2013, P&G increased the amount of innovations which met profit and revenue targets from 15% to over 50%.

Reference: https://hbr.org/2011/06/how-pg-tripled-its-innovation-success-rate

(B) Processes: Processes are the routes which innovations follow as they are developed from the initial conception to the final deliverable, as well as the structures which dictate the types of innovation fostering activities which will take place in an organisation In backend innovation, stage-gate or path style processes (generally aimed at specific innovation development teams) are currently regarded as the most efficient way of repeating innovative success across your organisation. However, in frontend innovation, more open democratized methods of generating and evaluating ideas are gaining traction. Sometimes referred to as sandboxes, these open non-linear processes provide the opportunity for large amounts of users to collaborate on concepts and projects.

Portugal Telecom (PT), a company with a history of delivering innovative products and services (they offered the world’s first pre-paid mobile phone service in 1995), launched the ‘PT Open Programme’ in 2009, an initiative which aimed to focus all innovation fostering activities in the company through structured processes. The leadership’s goal was to tap into the collective knowledge of the company and harness that value by focusing efforts through a series of processes and tools. Firstly, PT broke their innovation fostering activities into three sections: i) exploratory innovations (long term projects with the highest associated risk, they would 5. often be focused on introducing structural reform in different areas of the company), ii) planned innovations (medium term projects, often focused on new services and business development), and iii) incremental innovations (smaller low-risk innovations focused on gradual improvements to existing solutions). The company also licensed technologies allowing employees to submit and vote on each other’s ideas, creating what they called its ‘idea marketplace’. As of 2013, Portugal Telecom has reported annual financial benefits, from its idea market alone, of approximately €30million. Aside from strictly financial benefits, a report in 2012, found that 84% of employees felt aligned with PT’s strategy, primarily due to the engagement with innovation schemes across the company.

Reference: http://ecoopportunity.net/2013/06/a-gamification-and-innovation-success-story-portugal-telecom/

(C) Measurement Of Success: Measuring success when dealing with innovations can be a difficult undertaking. Traditional KPIs can fall short of highlighting the value generated from new innovations, often due to the long term perspective stakeholders are advised to take when dealing with innovations. However, it is still necessary to demonstrate both a return on investment as well as tracking and improving of best practices for specific projects and innovation campaigns as a whole. For backend innovation (including development and execution), a prudent strategy can be to break down the innovation process into two primary stages, which commence following the exit from the frontend process: i) short term deliverables and ii) near-term development. The advantages of adopting such a strategy are threefold:

i. Motivation towards the projects is maintained due to an ongoing flow of near term successes

ii. When changes to the overall innovation strategy or processes are made, the overall cost and disruptive impact on on-going projects is minimized

iii. A shorter learning cycle is actualized, allowing improvements to processes and measurement techniques to be made on a more iterative, continuous basis.

Due to huge advances in communication methods due to the advent of the internet (and along with it email and instant messaging applications), in the early 90s, Royal Mail became aware of the need for real innovation. Traditional postal communication methods (specifically letters) were under threat of being substituted and displaced in the coming years, and so from 1994 onwards, Royal Mail began experimenting with various methods of introducing innovation fostering in their organisation, including an ‘innovation and futures’ team whose job it was to challenge the status quo in the company, as well as an Innovation Lab, based out of Rugby, England. These initiatives laid the foundations for future innovation strategies and provided the organisation with valuable learning experiences. During the first 18 months of operations, the Innovation Lab brought in over 8,000 visitors (4 times the target) and generated over 1.25 million ideas. However, there were some issues. Although Royal Mail has allocated a 3 million pound innovation fund to help with the development of ideas, leadership recognized a misalignment between the current metrics system (ideas generated and innovation lab visits) and business objectives. Following the launch of a new innovation lab as well as an innovation audit (an internal examination of the company’s innovation culture), Royal Mail shifted their measurement focus from the amount of ideas generated to value focused metrics - specifically the amount of success stories and new products/services delivered from innovation practices. Although the company’s [and indeed the global understanding of] innovation metrics has evolved in the years since then, the company has continued with their ‘innovation audits’ on a yearly basis, which coupled with modern innovation metrics systems has allowed Royal Mail to develop an ‘Innovation Index’, providing senior decision makers with a holistic view of the company’s innovation efforts, and the value that is being generated.

Reference: Innovation Performance Management – Striking the Right Balance (by David Birchall)

(D) Values: The importance of an organisation’s values when assessing their innovation fostering capabilities can be not be overstated. Of the three aspects of the people-focused group (values, behaviors, and climate), the behaviors and climate can be viewed as direct results of the organization’s values. While measurement of success is necessary to figure out what innovations and processes are working, without the right values creating buy-in and engagement with innovation practices from stakeholders is likely to be an uphill battle. Instilling a spirit of intrapreneurship, promoting creativity, and encouraging continuous learning should be priority one for any organisation looking to fostering innovation internally.

Due to huge advances in communication methods due to the advent of the internet (and along with it email and instant messaging applications), in the early 90s, Royal Mail became aware of the need for real innovation. Traditional postal communication methods (specifically letters) were under threat of being substituted and displaced in the coming years, and so from 1994 onwards, Royal Mail began experimenting with various methods of introducing innovation fostering in their organisation, including an ‘innovation and futures’ team whose job it was to challenge the status quo in the company, as well as an Innovation Lab, based out of Rugby, England. These initiatives laid the foundations for future innovation strategies and provided the organisation with valuable learning experiences. During the first 18 months of operations, the Innovation Lab brought in over 8,000 visitors (4 times the target) and generated over 1.25 million ideas. However, there were some issues. Although Royal Mail has allocated a 3 million pound innovation fund to help with the development of ideas, leadership recognized a misalignment between the current metrics system (ideas generated and innovation lab visits) and business objectives. Following the launch of a new innovation lab as well as an innovation audit (an internal examination of the company’s innovation culture), Royal Mail shifted their measurement focus from the amount of ideas generated to value focused metrics - specifically the amount of success stories and new products/services delivered from innovation practices. Although the company’s [and indeed the global understanding of] innovation metrics has evolved in the years since then, the company has continued with their ‘innovation audits’ on a yearly basis, which coupled with modern innovation metrics systems has allowed Royal Mail to develop an ‘Innovation Index’, providing senior decision makers with a holistic view of the company’s innovation efforts, and the value that is being generated.

Reference: http://www.wired.co.uk/article/building-success

(E) Behaviours: Behaviours, in this context, are the way people act when involved in any activities relating to innovation, and are a direct result of an organisation’s innovation values. To cultivate a successful innovation culture, ideal behaviours include, but are not limited to the following:

i. The cutting of red tape by leaders to help potential innovations avoid falling victim to slow moving internal processes which were not developed with innovation in mind

ii. Leaders allowing new products and processes to replace older ones at a faster rate

iii.Listening to customers by all relevant stakeholders (introducing tools and platforms which allow even traditionally non customer-facing employees to engage with and listen customers and listen to customers is a useful strategy e.g. Intercom)

iv. Frequent leadership sessions which provide employees with a holistic view of the organisation’s vision for the future

In January 2011, Caterpillar Inc. (the world’s leading manufacturer of construction and mining equipment) were working on a diesel-electric hybrid excavator, a product that the company’s leadership had been pushing for some time. The project was nearing the point of no-return with production scaling set to begin within a period of a few months. However, when Ken Gray, who at the time was the company’s Global Product Manager for large hydraulic excavators (now Caterpillar’s Corporate Director of Innovation), began presenting the machine to potential customers (including a pivotal meeting with a group of hybrid excavator users in Akashi, Japan), he found that there was significant resistance and skepticism regarding the machine Caterpillar planned to bring to the market. Issues with machine included significant upfront costs (and therefore long payback periods) and perceived reliability/performance shortfalls due to the focus on sustainability. Ken knew that at this point in the development cycle, the company leadership’s most likely course of action would be to push ahead with the launch of the machine, perhaps with some minor tweaks. However, he didn’t believe this was the best course of action, instead quietly authorizing the formation of a ‘shadow team’, who would work in secret on an old prototype machine (codenamed Medusa due to its appearance during development – various different components were strapped to the outside of the machine) in a workhouse by the Illinois river. While he couldn’t source a budget for the project, due to its nature, the team were afforded several freedoms, including the ability to work outside of standard processes and without the red tape which is inherent in an organisation of Caterpillar’s size. Ken’s decision to champion this alternative machine’s development and provide a team with his trust and the freedom to operate rapidly and iteratively without corporate oversight, led to massive success for the organization. The medusa consumed 25% less fuel and was 50%-75% more efficient than traditional diesel excavators, with no impact on performance. As development on the prototype continued and the machine began to be shown to various senior decision makers in the company, excitement for the project grew, without leadership eventually deciding to bring this solution to market instead of the previous machine. The hydraulic hybrid excavator, the result of this passionate teams innovative efforts, now amounts to nearly 1/3 of large excavators’ sales and outperforms competitors by over 50%.

Reference: http://www.inc.com/nathan-furr/be-the-chief-experimenter-not-the-chief-decision

(F) Climate: The climate can be seen as the sum total of a company’s innovation practices, values and behaviors across the culture spectrum, manifested in an environmental context. A strong innovation climate (born from the other 5 building blocks of an innovative culture) resonates across an organisation, further encouraging innovative values and behaviors. The more this climate resonates with employees and other stakeholders, the more likely it is that things like independent thinking, cross-departmental collaboration, and iterative experimentation will actualize throughout the organisation.

Google is regarded as many as one of the most innovative companies in the world. Originally just an internet search engine, the multination tech company (whose parent company Alphabet is now the most valuable companies in the world), had ventured outside its comfort zone time and time again. Real-time collaboration tools, mobile operating systems and even self-driving cars are just some of the fantastic products and projects which Google has delivered in recent years. This is no accident. Since the conception of the company, leadership has put tremendous efforts towards fostering an innovative culture. Today the values and behaviors of the original founding team have permutated across the ~55,000 employees working for the tech giant. This has manifested into an industry leading innovation climate, as evident by such initiatives such as Google Cafes, direct emails to any of the company’s leaders, and of course the Google 20% Projects (which allowed engineers to spend 20% of their time each week to work on any project they had interest in). This climate not only led to some of Google’s most notable product and service innovations, but also stemmed internal procedural innovations such as those listed above, which in turn added further value to the innovation climate. An example of this is the development of Google Moderator (an internal innovation management tool) which was born of the Google 20% Project initiative.

Reference: http://www.forbes.com/sites/laurahe/2013/03/29/googles-secrets-of-innovation/

Until next time,

Toby!