Making The Leap Encouraging Innovation


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Making The Leap Encouraging Innovation

  1. 1. Making the leap: encouraging innovation08 | 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 >>
  2. 2. ContentsMaking the leap: encouraging innovation 2Part l: innovation is not... 4Part ll: what does innovation look like? 6Part lll: making innovation happen 8Conclusion 12
  3. 3. 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 isWhat Hay Group’s that organizations that continue to work innovation?’ and ‘what does it look like andglobal 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 Groupper cent of executives find first-mover advantage when the invited some of the world’s foremostinnovation ‘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
  4. 4. Over the course of two days, delegates were n Innovation in terms of productstreated 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 organizationsn 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 embeddingn 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 ofindustrial revolution that combined the organizations, countries and regions ofcommunications revolution, already the world cooperating. “We are going toexperienced, with new energy. have to leap ahead of centuries of rivalry and distinguish between geopolitics andIt would not be long, Rifkin argued, biosphere politics. We cannot afford thosebefore the price of energy, climate change rivalries; we need to share and not fight overand logistics will condition every business remaining resources... we have one shotdiscussion. He invoked a vision of a world to get it right” he cautioned, “but not25 years hence where millions of buildings, much latitude.”shopping malls and technology parks allcollect and share their energy.
  5. 5. 4 Making the leap: encouraging innovation 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.©2008 Hay Group. All rights reserved
  6. 6. It became apparent that respondents all Creativity like so many things is nothad a long drive to work and they needed linear, he argued. It is stimulated bysomething to ward off boredom during that establishing diverse, inventive teams madetime. “Viscose and thick, these milkshakes up of different cultures and types of peopletook some time to consume and stayed and skills. Innovation was then generatedin the stomach for longer; they also fit through the reconciliation of the conflictsconveniently into a cup holder.” It was that would inevitably arise between both theclear, Christensen explained, that their individual and the team, and the differentcompetitors 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 positiveadding small chunks of fruit for added comments and then by raising criticisminterest and unpredictability. Moreover, through asking “how can I help you resolvemaking them available through pre-paid the issue of...” This might initially seemswipe 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 hadtheir gas would also boost sales. rapidly become second nature.“When companies segment their markets by There is no one approach that will ensurejob rather than by customer or product type, creativity, whether it’s centralization orit 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 bothcompetitors aren’t in their product category. in order to find the solution.They also understand the constraints thatkeep more customers from ‘hiring’ their “Yes we need global standards and yes weproduct 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 notJust as following business school formulae have headquarters, argued Trompenaars;could not guarantee successful innovation, they had centers of excellence basedICM delegates were told, neither would around the group.thinking in terms of absolutes. Creatinga sustainable culture of innovation Indeed, Trompenaars argued, creativeinvolves ‘thinking outside the box’ and organizations were loaded with dilemmas.crucially, resolving dilemmas, argued Fons Sustainable innovation involved pragmatismTrompenaars, expert on cultural diversity. and it meant migrating from culture to culture depending on the stage of anHe challenged the assumption that creativity organization’s life cycle and strategy.only emanates from those who are consideredto be ‘more intuitive, perceptive, thinking, Yet, while creating a sustainable culture ofextrovert, lateral and right brain.’ In reality, innovation was neither ‘reliably predictable’he argued people were an amalgam nor a linear process, delegates were assuredof many qualities. that there were ways to recognize it.
  7. 7. 6 Making the leap: encouraging innovation 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 businessInnovative approaches and market dominated at the top by household and more lucrative margins. This progressprocesses are as valuable names such as Ford. It started by offering is also often helped by harnessing newas 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 offeringorganizational change increasingly larger vehicles until it was This happened as early as the 1950sand 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.©2008 Hay Group. All rights reserved
  8. 8. Think like a start-upCrucially, Christensen argued, disruptive That innovation is not just the ‘destination’innovation demands agility in the form of was a point acknowledged by many of thisnew ways of going to market, which is why it year’s speakers and workshops. New approachesis more likely to come from new companies. and processes are as valuable if they are“When an opportunity for disruptive growth to deliver organizational changecomes, market leaders fail to recognize and and improvement.capture it – they try and cram it into theirexisting business model.” By way of an example, Jack Welch of General Electric was cited for the bestIf 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 foryou will be reluctant to dismantle it or build its own sake, clarity was necessary arounda new one to sell the new, disruptive product. why it was required. New products wereIt might also miss the essence of the disruption needed but so was innovation aroundor even feel threatened by it if it cannibalizes processes for delivering both local andyour existing products. It will either not sell global or fail to sell it successfully. It was a point picked up by ProfessorSome of the financial analysis – for example Renée Mauborgne whose collaborationnet present value (NPV) and discounted cash with Professor Chan Kim famouslyflow (DCF) – which often informs strategy, produced Blue Ocean Strategy, ancan lead to bad decisions as the choice is international bestseller on innovation.rarely between ‘stay the course’ or ‘invest,’ There were innovative approaches andbut rather ‘invest’ or ‘decline.’ It is this processes that in themselves would helplegacy and baggage that hampers success. delegates move their organizations fromOrganizations stand more chance of the bloody and highly competitive redinnovating 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.
  9. 9. 8 Making the leap: encouraging innovation 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 Newwisdom that significant in the police force was cripplingly low and York City which accounted for 75 per centimprovements 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 andfocused 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 headsimplementing innovative who between them controlled New York Hot spots City’s 36,000 policemen. Bratton set aboutbut simple measures Bratton focused on what Mauborgne instilling a sense of responsibility throughwhich would have transparent, inclusive and fair process. He set termed ‘hot spots.’ Distinct from Lyndamaximum 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©2008 Hay Group. All rights reserved
  10. 10. 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 20scores 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.
  11. 11. 10 Making the leap: encouraging innovation 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.©2008 Hay Group. All rights reserved
  12. 12. Strong leadership was required to build Unilever’s Diego Bevilacqua gave a real lifecultures 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 organizationalnot just through organizational values and process. Making changes to these aspects ofbehaviors but in looking at leadership the business stimulated significant growthcompetencies. “We have got to make the for the group around the world and enabledCEO responsible. How can HR help coach Unilever Foodsolutions to then innovate inleaders, provide feedback, advise?” Ulrich brand, services and products.asked delegates.He outlined a leadership checklist fororganizations looking to grow and competethrough innovation: “Do we: exhibit strongcommitted leadership? ‘walk the talk?’ have achampion who dedicates 20 per cent of theirtime to change? have leaders who pay attentionto change in terms of passion? have time aswell as focus? and do we have a sponsor whopermits that champion to put time intothe change?”
  13. 13. 12 Making the leap: encouraging innovation 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 or visit to find out more.©2008 Hay Group. All rights reserved
  14. 14. Africa Helsinki Dallas GB08/049 | version 2 | 08 September 08 | Global brand teamCape Town Istanbul EdmontonJohannesburg Kiev HalifaxPretoria Lille Kansas City Lisbon Los AngelesAsia London Mexico City Madrid MontrealBangkok Manchester New York MetroBeijing Milan OttawaHong Kong Moscow PhiladelphiaJakarta Oslo ReginaKuala Lumpur Paris San FranciscoMumbai Prague San José (CR)New Delhi Rome TorontoSeoul Stockholm VancouverShanghai Strasbourg Washington DC MetroShenzhen ViennaSingapore Vilnius PacificTokyo Warsaw Auckland Windsor BrisbaneEurope Zeist CanberraAthens Zurich MelbourneBarcelona PerthBerlin Middle East SydneyBilbao Dubai WellingtonBirmingham Tel AvivBratislava South AmericaBristol North America BogotaBrusselsBucharest Atlanta Buenos AiresBudapest Boston CaracasDublin Calgary LimaFrankfurt Charlotte SantiagoGlasgow Chicago Sao PauloHay Group is a global management consulting firm that works withleaders to transform strategy into reality. We develop talent, organizepeople to be more effective and motivate them to perform at theirbest. Our focus is on making change happen and helping people andorganizations realize their potential.We have over 2600 employees working in 86 offices in 47 countries.Our clients are from the private, public and not-for-profit sectors,across every major industry. For more information please contact yourlocal office through