How Can You Institutionalize Innovation?


Most people I speak with see the need for innovation.    If you are still on the fence regarding this issue, let me suggest the following.

Today’s competitive environment is unlike that of perhaps any other time.  The information age changed almost all of it.  Many traditional factors that enabled companies to be competitively successful no longer exist — like consumer ignorance, possession of proprietary technology, and monopolistic control over markets.  In the information age, knowledge itself is becoming a commodity thus placing a premium on innovation.

Consider how (as reported in FORTUNE) Apple entered the smartphone market in a total of only 18 months from the time of their initial idea. This was an astonishingly short development time for a technology product, made possible because all of the component elements of cell phones were already developed by others and accessible to Apple.  Avoiding “reinventing the wheel” can save time and money.  Yet, the iPhone is a distinctive product, made so by the invention of a unique operator interface.  Today innovation is more about connecting dots and leveraging what exists (whether inside our outside of your enterprise) in new and creative ways.

Often times, innovation is not about a massive dramatic brainstorm, but more about connecting dots.   It has always been this way.  Consider the formation of McDonald’s by Ray Kroc.   He was a traveling salesman selling multi-spindle milkshake mixers.  As it turned out he was curious about why one client (the McDonald’s brothers) were purchasing so many of his products.   He went to see what was arguably the first fast food restaurant concept that the brothers had created.   Kroc’s innovation, was not, in fact, the McDonald’s world-famous hamburger, but rather it was his ability to recognize that fast food just may be on the vanguard of not only a new way of eating, but a new way of operating business that could be popular and scalable.

So moral of these two stories: We need to move fast, and in a more entrepreneurial way.  The problem is, that most of our organizations are not designed to enable these things.

If you walk through an auto assembly plant (which I have done many times) you will be struck by the complexity of the machinery and how it must demand an incredible amount of logistics, planning control, rules, structure and systems to be in place to enable things to run smoothly.  We love (and need) structure, process and controls.   However these work against us in the context of innovation.

Think about it. When we do capital budgeting, we think in terms of investing in projects that have a 90% chance of success – and meeting predicted outcomes.   Innovation doesn’t work that way.  It’s more like working in the venture capital space – where you invest in 10 projects, nine of which produce ZERO return, and one is wildly successful.   How many traditional organizations would feel remotely comfortable with those odds?  But let’s face it. Whenever you try something new and different, it may not work. That is the nature of invention.  So, in your organization, how many of your department heads are inclined to try new things if they know they are going to be penalized if they fail?   Who among your department heads would commit resources for new things given the culture you have in your company?

In your business, if an employee had an idea to make something better, that would take 2 people one week to test and $5,000 in supplies, what is the amount of bureaucracy he or she would have to wade through to get the approval to try?   While we need some control, if the effort required to bring new ideas to the forefront is too hard, people quickly stop trying.   The result is that we end up anchored in the status quo.

So we need to re-think:

Who and how we hire.  We all know that some people are born mavericks, while others are very comfortable in a structured environment following rules.  Most organizational design and culture drive toward conformity today.   We need to think about hiring more entrepreneurs, more right-brain people, and more outsiders in our organizations.   It is natural for HR officials to think about their statistics of employees by race or gender, why not by background or their comfort with risk?   (The next problem of course is if you hire a more emotionally and intellectually diverse workforce, you will lose them if the culture prevents them from working up to their own potential. For example, if you hire a creative maverick, but shackle him with constraints, bureaucracy, and rules, he will become so frustrated that he will leave.    If we hire divergent thinkers, we need to put them into a cultural environment that allows them to perform well.)

The incentive systems that reinforce behaviors.  Incentives in this case, are more than just pay and bonus, but include how we recognize performance, how we decide on promotions, and how we react to reasonable failures.   The one size fits all mentality that drives some HR officials is a mindset that was right in the 20th century but is losing relevance in this one.   We are all different, and are motivated by different things.   In my business, we gave away trips to Hawaii or Hilton Head, sabbatical time for people to work on pet projects, extra time off, condominium rights and even Hummer H2’s.  The driving factor should be what would make the most impact on each individual.   Money works for some people – to a point – but it is overall a poor long-term motivator.   Also have a good conversation internally about how you respond to people who bring ideas with only a 25% chance of success, or those who tried something and failed.

The right balance between structure and freedom.   We all acknowledge that we can’t have complete chaos in our organizations, we do need some structure.  But if you aren’t seeing nearly enough innovations bubbling up in your organization, you need to consider how you can encourage it.  Google is perhaps one extreme example of trusting employees with their 20% time which allows their employees to take one day each week to do ANYTHING they believe would best benefit the company.     If you think about it, there is some structure, in that the company decided it would spend 20% of its technical payroll budget on R&D through this “20% time” creation.   Sure, many of the ideas that emanate from this time don’t go anywhere.   But some do . . .  how about some of these Google Products?   Here are some more. When you hire talented, motivated, and passionate people to begin with, why not trust them to invent?   Google is not alone, by the way – software company Intuit offers its employees 10% of their time for innovative idea creation (see the Intuit Linked-in page section called Innovate for Impact.)

Ways to bias our people to generate innovative ideas.   We as leaders need to project that we are interested in, and encouraging of experimentation and new ways of thinking.   INC Magazine reports on one innovative company, marketing strategy and consulting firm – Brighthouse Inc., where CEO Joey Reiman hosts an annual event called March Fo(u)rth.  On that date every year, each employee is encouraged to do something they have never done before – say skydive or deliver a speech before a large audience.  If you want a culture where it is desirable that your people dream, reach out, and experiment YOU need to make it known, (and you need to do it yourself).

Related Sources

8 Ways to Foster Innovation in Your Company, from Inc. Magazine

What Matters Now: How to Win in a World of Relentless Change, Ferocious Competition, and Unstoppable Innovation, by Gary Hamel.

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