What Makes Innovative Companies Different? They Understand the Innovation Equation
Innovate or die — everyone says it, but few organizations really know how to make innovation happen.
We’ve heard the cautionary tales. Blockbuster missed the opportunity to innovate around streaming video rentals and lost their once-cornered market to Netflix. Kodak, the former leader in the film industry, filed for bankruptcy in 2012 because they struggled to adapt to the world of digital photography — a technology that they invented.
And more recently, in the midst of the coronavirus pandemic, swaths of industries from restaurants to retail were crippled by social distancing rules that rendered existing business models temporarily obsolete. Hanging on required companies to reinvent their offerings. Those who were already struggling, especially if because of a failure to adapt to changing customer preferences, are finding it was just too late to begin organizational innovation.
Read our white paper Turning Crisis Into Opportunity: Preparing Your Organization for a Transformed World to learn the importance of taking bold actions to push toward reinvention.
Experts note the following organizational innovation trends:
- Organizational innovation is one of the top 10 trends affecting business and leadership.
- Executives cite creativity as the #1 leadership skill needed for dealing with an increasingly complex future.
- Creativity and innovation are essential requirements for organizational success.
- Willingness to rapidly prototype early versions of innovations is one of the top 10 leadership skills needed for future success.
Despite the consensus around the importance of organizational innovation, it continues to be an area in which leaders and organizations struggle. Given that leaders and organizations seem to care a great deal about being innovative, what’s holding them back? Why aren’t companies as innovative as they want to be?
How Companies Can Foster Organizational Innovation
In order to better understand how innovation works in organizations, we asked 485 people from organizations around the globe to share their experiences with innovation in the workplace. Their responses offered insights into how organizations encourage innovation — as well as common roadblocks they face when trying to implement innovation.
Our survey revealed the following 5 key differences separating organizations that are effective at innovation from those that are not.
Leaders encourage innovation.
Nearly a third of people surveyed from ineffective organizations selected “leaders don’t encourage innovation” as one of their 3 main roadblocks, compared to only 9% from effective organizations. By definition, innovation is strange and different, and without the risk tolerance to experiment, prototype, and pilot new concepts, leaders’ actions speak louder than any hollow words of encouragement.
Organizational Innovation Leadership Tip: Rather than using innovation as a buzzword, demonstrate behaviors that actively encourage innovation. (As a leader, be sure you know how to encourage innovation, not unintentionally sabotage it, and understand how to foster an innovative mindset at your organization.)
The culture fosters innovation.
More than half (56%) of respondents from ineffective organizations selected “culture that does not support innovation” as an innovation roadblock. In contrast, only 11% of respondents from effective organizations thought that organizational culture was a roadblock to innovation in their organizations.
Organizational Innovation Leadership Tip: Think of organizational culture as “the ways that things really get done” (versus official processes). Culture change takes years, yet by looking at what’s working in the culture that can be leveraged — as well as what overtly blocks innovation — organizations can begin to create a culture that sustains innovation. (Find out how to create a culture of innovation.)
There’s a formal innovation strategy.
When asked whether their organizations had a formal approach to innovation, 66% of respondents from effective organizations said yes, compared with 20% of respondents from ineffective organizations. Many of these ineffective organizations are relying only on informal efforts.
Organizational Innovation Leadership Tip: Develop a formal strategy for innovation — unique to your organization — and outline the best ways to communicate that strategy to your employees. (Learn the 3 practices that will help drive innovation in your organization.)
There’s money in the budget.
Innovative organizations have funds dedicated to innovation. Of the people surveyed, 90% of respondents from effective organizations said their organization has an innovation budget, while only 58% of respondents from ineffective organizations said the same.
Simply put, organizational innovation requires resources. Many organizations that are effective at innovation put in place innovation venture capital funds to build and run experiments that determine viability of concepts.
Organizational Innovation Leadership Tip: Remember that creating and implementing something new and valuable is not cheap, and should be viewed as a critical, long-term investment.
Leaders set the direction for innovation.
Innovative organizations have a clear direction for innovation. While only 17% of respondents from effective organizations selected this issue, 39% of respondents from ineffective organizations selected “no clear direction” as a major roadblock.
We’ve found that your role in innovation depends on where you sit in the organization, and that the responsibilities for innovation vary by leader level. Whether you’re an executive who leads the entire organization through innovation, a functional leader who is responsible for directing and promoting that innovation, or a manager who advocates for innovation, remember that innovation is a means to an end, not the end itself, and requires constant facilitation.
Organizational Innovation Leadership Tip: Start with a clear statement of purpose for innovation, with objective measures of success. This helps to align efforts within the organization and ensure that work toward that goal is focused on the desired outcome.
The Innovation Equation for Organizational Innovation
Some leaders believe that all they have to do is hire creative people and innovation will just happen. And organizations do need leaders with the ability – and willingness – to think beyond short-term needs and to resist the temptation to cut back on the resources that feed innovation.
Other leaders believe that innovation is all about organizational processes – that all employees will prove to be equally innovative under the right circumstances and with the right organizational (and compensation) structures encouraging them.
But the most creative person in the world is unlikely to innovate effectively in a company that does not support innovation, and even the most innovation-supportive companies in the world will not reach their innovation potential without creative people in place to do the work.
The bottom line is that organizational innovation is a simple innovation equation. And the innovation equation isn’t about either having creative people or creating a workplace that fosters innovation – because for organizational innovation, both must be present. The innovation equation is People + Context = Innovation.
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