Innovation Leadership Study: Managing Innovation - An Insider Perspective

Innovation leadership studyManaging innovation: an insider perspective

About the authors Paddy Miller Paddy Miller is a professor of Managing People in Organizations at IESE Business School in Barcelona, Spain. His interests lie in the area of innovation, leadership and organizational change. Koen Klokgieters Koen Klokgieters is a vice president with Capgemini Consulting based in The Netherlands. He specializes in strategy and transformation and is the global leader of the firm’s innovation practice. Azra Brankovic Azra Brankovic is a research associate at IESE Business School’s New York Center. She focuses on innovation, organizational behavior and culture. Freek Duppen Freek Duppen is a managing consultant with Capgemini Consulting based in The Netherlands. He specializes in strategy and transformation with a focus on growth strategy, new business and operating models, and innovation.

Innovation leadership studyManaging innovation: an insider perspectiveMarch 2012Paddy MillerKoen KlokgietersAzra BrankovicFreek Duppen

Executive summaryThis innovation leadership study carried out jointly These and a wide range of other relevant findings for in-by IESE Business School and Capgemini Consulting is novation leaders and executives are elaborated on in thisCapgemini’s third report in the innovation leader versus report. The most important findings per area can be sum-laggard series. It aims to understand how those leading marized as follows.and managing innovation in their organizations thinkabout the innovation function and offers an insider per- With innovation an emerging functional areaspective into both the formal and informal mechanisms within organizations the innovation function isfor managing innovation. It covers five key areas that becoming increasingly important as a source foraffect a company’s innovation success: the innovation innovation leadership.function, innovation strategy and innovation governance(formal mechanisms), innovation leadership and innova- n Forty-three percent of respondents say they have ation culture (informal mechanisms). The study offers a formally accountable innovation executive, versusunique perspective by looking at the differences in behav- 57 percent without such a formalized role. This isior of innovation leaders versus laggards across these key significantly higher than the 33 percent who said soareas - allowing to uncover good practices in managing in last year’s innovation leader versus laggard study.innovation. Finally, the report offers an overview of the n Building and nurturing an innovation ecosystemmost important implications for innovation executives (32 percent of respondents) and formulating and com-that seek to improve their innovation success rate. municating the innovation strategy (31 percent) are considered the top roles of the innovation function.Our study revealed that the absence of a well-articulated n Companies consider the absence of a well-articulatedinnovation strategy is by far the most important constraint and/or communicated innovation strategy as thefor companies to reach their innovation targets, followed most important constraint for their organization’sby a lack of understanding of the external environment. ability to achieve its innovation targets (24 percent ofThere is a need for innovation strategy development in a respondents). It is followed by a lack of understandingmore bottom-up manner, focused on people as the key of the external environment as indicated by 13 percentsource of competitive advantage. One needs to capture all of survey respondents.those individual insights from managers and employeesto better incorporate an understanding of the external The majority of companies do not have an explicitenvironment in the strategy development process. The innovation strategy - those who have one mostlyfindings also suggest that there is a correlation between develop it top-down.having a formalized innovation governance and thereported innovation success rate, implying that there is n Only 42 percent of respondents have an explicit innova-much to gain by improving the formal mechanisms for tion strategy, leaving 58 percent without such a strategy.managing innovation. n Innovation strategy development is mainly a top-down exercise. Most respondents (30 percent) indicate theirFurthermore, large organizations create so much distance innovation strategy is developed by a combination ofbetween the executives and those that are tasked to inno- top management, business unit heads, and internalvate that a disconnect exists between them. Real innova- innovation experts. Only 11 percent of respondentstion leadership requires executives to reduce the level of explicitly involve employees in the strategy developmentdisconnect between themselves and employees when it process.comes to motivation for innovation. Also, our research n The majority of companies communicate theiron innovation culture shows that agility in behavior is innovation strategy widely in the organization. Seventy-considered a key cultural element of innovation. Behaviors eight percent of respondents say their innovationthat enable better responsiveness to the external environ- strategy is communicated widely inside the organizationment are required in our present-day society in order to providing employees with a direction on how to act inbe successful in innovation. Such a culture springs from the context of innovation.both formal and informal sources. The CEO is the mostimportant source of innovation culture but it has to takeroot informally as well.2

Section TitleSection Intro the governance levers for theAcross the board Companies recognize the need to create a strongformal management of innovation are largely innovation culture that enables organizationaloverlooked or underdeveloped. agility.n Only 30 percent of respondents agree they have an n Two-thirds of respondents (66 percent) say they have effective organizational structure for innovation. This been tasked with creating a culture of innovation. is mainly due to not having a formal organizational n Respondents indicate openness to others’ ideas, toBody Text for innovation (45 percent), not having a structure change, to exchange (84 percent), innovation considered well-defined governance structure (45 percent), or lack a core value of the company (74 percent), and sharing of clear roles and responsibilities for innovation (40 information, ideas and results (69 percent) as the most percent of respondents). important cultural elements for innovation.n Thirty-nine percent of respondents say they do not have n The CEO is considered the most important source of an an effective decision-making process for innovation. innovation culture (69 percent of respondents), followed This is largely due to not having a well defined process by peers (59 percent) and managers in general to prioritize and allocate time and funding to innovation (51 percent). projects (49 percent).n The KPI system is the least developed governance lever when it comes to innovation. A stunning 54 percent of survey participants indicate that they do not have a formal KPI system for promoting innovation. Only 21 percent of innovation leaders and managers agree they have an effective KPI system for innovation.n Less than a quarter (24 percent) of the respondents believes they have an effective organizational alignment of innovation efforts.Executives are mainly motivated by extrinsictransactional drives whereas employeesare driven by high intrinsic transformationalmotivations for innovation.n Accountability for realizing growth is considered the main motivation for senior executives to be involved in innovation (46 percent of survey respondents), compared to only 15 percent who believe intrinsic creative motivation plays a role here.n Respondents believe that employees are primarily motivated for innovation because of intrinsic drives. Innovation is considered to be exciting work (91 percent), employees have a desire to improve things (89 percent), and like being part of a team or task force for something new (87 percent). Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line Executive summary 3

Contents An insider perspective 05 1 Innovation function 07 1.1 Accountability 1.2 Role 1.3 Constraints 2 Innovation strategy 11 2.1 Strategy 2.2 Elements of strategy 2.3 Development and communication 3 Innovation governance 15 3.1 Organizational structure 3.2 Decision-making 3.3 KPI system 3.4 Organizational alignment 4 Innovation leadership 19 4.1 Executive motivation 4.2 Employee motivation 5 Innovation culture 23 5.1 Creating a culture of innovation 5.2 Elements of culture 5.3 Source Implications 29 Appendix 31

Section TitleAn insider perspectiveSection IntroWhat drives innovation leadership? For many years This report is organized as follows: As innovation isIESE Business School and Capgemini Consulting have becoming more ingrained as a corporate function webeen studying the topic of managing innovation within will start off with taking a closer look at the innovationorganizations. Both address the topic from their own function itself. Then we will proceed to look at formalangles and perspectives. This innovation leadership study mechanisms for managing innovation, namely strategyaims to understand how those leading and managing and governance. This is followed by our findingsinnovation in their organizations think about the regarding informal mechanisms for managing innovation,innovationBody Text function. It offers you an insider perspective which is leadership and culture. The study is concludedon the formal and informal mechanisms for managing with a top five of implications executives need to take intoinnovation. account with respect to managing innovation.The study is based on both qualitative and quantitativeresearch. We have conducted in-depth interviews with Exhibit 1: Innovation success rateinnovation leaders from various industries on how theylead and manage innovation. Subsequently an online % of respondents, n = 260survey targeting innovation executives has been carried Could you please estimate your organization’s innovation success rate?out to validate our research hypotheses and providefurther insights. The survey methodology allows us touncover good practices in managing innovation. The 38 37methodology differentiates between innovation leadersand laggards based on a self-assessment by surveyrespondents of their innovation success rate. The innovationsuccess rate is determined by the percentage of innovation 18efforts that have a positive material impact on the company’sbusiness results. 7We distinguish between four categories of innovationsuccess based on this rate, namely: Less than 25% 25-50% 50-75% Over 75%‘Less than 25%’, ‘25-50%’, ‘50-75%’ and ‘Over 75%’ ofinnovation efforts having a positive material impact on the LAGGARDS LEADERScompany’s business results. The ‘Less than 25%’ categoryrepresents the innovation laggard group and the ‘Over75%’ category the innovation leader group of analysis.Exhibit 1 shows how respondents are distributed overthese four categories. Thirty-eight percent of respondentsfit the innovation laggard profile, whereas 7 percentbelong to the innovation leaders group. In addition tothe overall findings on innovation leadership this reporthighlights the differences between innovation leaders andlaggards in managing innovation. Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line An insider perspective 5

1 InnovationSection Title functionWith innovation an emerg-Section Intro From our conversations with inno- 1.1 Accountabilitying functional area within vation leaders it has become clear that the innovation function within One of the best indicators of theorganizations, this study companies can take many different importance of a certain topic withinrecognizes the importance forms and that there is an ongoing companies is whether or not some-of the innovation function movement towards further formal- one at the top of the organizationas a source for innovation ization of the innovation function. As is accountable for it. We asked ourBody Text one interviewee commented: “We’re respondents if their organization hasleadership. We asked moving from working locally to start someone at the executive level that isinterviewees and survey working globally, from innovating formally accountable for innovationrespondents about the in a disorganized way, to innovating (see exhibit 2). Forty-three percentformal accountability for in a formalized organized way, with of respondents indicated they have clear standards.” With respect to the a formally accountable innovationinnovation within their position of the innovation function executive, versus 57 percent withoutorganizations; what they within the organizational structure, such a formalized role. This is sig-considered to be the inno- several forms are highlighted by nificantly higher than the 33 percentvation function’s main role; our interviewees. They range from who said so in last year’s innovation having an innovation board at the leader versus laggard study, an indi-and what most constrains top level of the organization, to a cator that companies are increasinglytheir organization’s ability full-fledged global innovation func- formalizing the innovation function,to achieve its innovation tion across all business units, to an hoping to achieve higher innovationtargets. independent central innovation office success rates. that acts as a center of excellence, to being embedded in another organiza- When looking at the leader versus tional function such as marketing or laggard perspective in exhibit 2 we R&D. Often the innovation function see a consistent pattern compared to has emerged from another corporate previous results. Fifty-nine percent function as the company’s leadership of innovation ‘leaders’ - based on acknowledges the importance of in- their innovation success rate - have novation for future growth. a formally accountable executive for innovation, versus only 28 percent of Most of the innovation leaders we our innovation ‘laggard’ group. This interviewed mention that their in- is in line with last year’s findings novation function reports directly to which showed a similar gap between a C-level executive. We will discuss leaders and laggards with respect to the accountability for innovation in accountability for innovation. There more detail in the next section. Also, seems to be a correlation between the role of the innovation executive having a formally accountable execu- - as well as the innovation func- tive for innovation and the reported tion at large - is elaborated upon in innovation success rate, suggesting this chapter. Finally, we will take a that formalizing the innovation closer look at the innovation function function leads to higher innovation in the light of the most important success rates. constraints for reaching innovation targets. 1.2 Role We were also interested in what our study participants considered to be the innovation function’s main role. Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line 1 Innovation function 7

Exhibit 2: Formal accountability for innovation % of respondents, n = 260 Does your organization have someone at the executive Innovation success rate level who is formally accountable for innovation? Less than 25% 25-50% 50-75% Over 75% +31% 72 57 59 55 51 49 43 45 41 28 Yes No Yes NoWe started off by asking our inter- survey respondents to indicate their ecosystem within and outside theirviewees about their personal role as top three from the list of choices in organizations, few explain how thean innovation executive. In line with exhibit 3. ‘Building and nurturing innovation function at large enablesour finding that companies are in- an innovation ecosystem’ and that. Often it boils down to a sort ofcreasingly formalizing the innovation ‘Formulating and communicating the open innovation center of excellencefunction, most innovation executives innovation strategy’, scoring respec- that supports ‘the business’ by bring-commented that their role was newly tively 32 and 31 percent, are clearly ing in ideas from the outside. Butcreated over the last few years. With considered the top roles of the inno- most of the time the extent to whichrespect to their personal role many vation function. ‘Optimizing the in- an innovation function succeeds ininterviewees mention that much of novation processes and governance’ building and nurturing an innova-their role is being a catalyst: “A lot of comes in third. These findings tion ecosystem seems to dependmy role is creating very, very strong concerning the role of the innova- on the capability of the individualsstrategic alliances and partnerships tion function are largely in line with within the innovation function toand bringing new thinking to the last year’s findings on innovation network and build relationships fortable. And then being able to trans- decisions to be made by the innova- the company as a whole. The secondlate that into engagements with our tion function. Next, ‘determining the most important role of the innova-businesses, to really help them make innovation strategy’ and ‘the allocation tion function, ‘formulating and com-the leap. I spend a lot of time with of funds and innovation portfolio municating the innovation strategy’,the venture capitalists, with start-up management’ were cited most often will be discussed extensively incompanies, and then really manag- as decisions made by the corporate chapter two on innovation strategy.ing our portfolio of projects that my innovation function. In the context of the innovationteam has.” function’s role, most innovation lead- Whereas many innovation leaders ers talked elaborately about how theyWith respect to the role of the inno- are able to explain how they person- have optimized the innovation pro-vation function in general we asked ally build and nurture an innovation cesses and governance. This seems8

Exhibit 3: Innovation function’s role % of respondents, n = 260 What do you consider to be the innovation function’s main role? Top 1 Top 2 Top 3 Formulating and communicating 31 11 the innovation strategy 15 Monitoring and analysis of the 11 external environment 7 9 Optimizing the innovation 14 16 18 processes and governance Building and nurturing an innovation ecosystem 32 19 13 ‘Selling’ of innovation within the organization 5 12 12 Motivating employees 6 to innovate 9 13 Running innovation workshops/events 2 4 7 Developing employees’ 5 14 17 innovation skillsto have been the innovation func- We are creating a common language ability to achieve its innovation targets.tion’s main role in the past - whereas about how these things get discussed The absence of a well-articulatednow the fundamentals are in place and then how they get governed.” and/or communicated innovationinnovation leaders are shifting the Another interviewee highlights strategy is by far the most importantattention of their innovation function the importance of implementing a constraint, with 24 percent of theincreasingly and further outward. funding mechanism for innovation: respondents indicating it as a top 1 “Critical was creating a funding constraint. It is followed by a lackOptimizing the innovation processes mechanism to get pilots or in some of understanding of the externaland governance is described by cases actually get the entire product environment (13 percent of respon-one Chief Innovation Officer (CIO) developed, to provide a venture fund dents naming it a top 1 constraint,as the responsibility “to embed that everyone could compete on even 15 percent naming it a top 2process, techniques and capacity ground to get funding from, and to constraint).to sustain rapid innovation”, with get funding off of budget cycles.”the company needing to have “a Thinking about our findings in therepeatable, ingrained capability In the next section we will dive into previous chapter on the role of theinternally and externally to rapidly what most constrains organizations innovation function, these innovationbring ideas forward and prototype in achieving their innovation targets constraints become even more inter-things, discard failing ones and and see how that relates to the innova- esting. ‘Building and nurturing andouble or triple down investment tion function’s role as identified here. innovation ecosystem’ andon good ideas.” Another interviewee ‘Formulating and communicating thedescribed establishing an innovation 1.3 Constraints innovation strategy’ were consideredprocess and governance as creat- to be the innovation function’s maining “a set of processes and common Exhibit 4 shows what survey respon- roles. In order to be able to build andlanguage for how we’re going to talk dents consider to be the biggest nurture an innovation ecosystem aabout innovation in the company. constraints for their organization’s thorough understanding of the exter- Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line 1 Innovation function 9

nal environment is a prerequisite. At Innovation Director mentions the function is in the spotlight toleast if you want this innovation eco- difficulty of anticipating trends, improve the organization’s abilitysystem to contribute to your com- particularly in technology. “It is to achieve its innovation targets bypany’s innovation success in terms challenging to set up directions, to formulating and communicating aof a positive material impact on the anticipate what clients will need, well-articulated innovation strategy.business results. In addition to under- what markets will need. One needs The next chapter will shed morestanding the external environment, to balance short-term and long-term light on the innovation strategy.one needs to be able to quickly react research.” Also the challenge ofto it. We will explain this in more generating customer insights isdetail in the chapter on innovation mentioned by one Innovationculture under improvisation. Director as a lack of understanding the external environment. “PeopleSeveral innovation leaders and think that if they talk to onemanagers we interviewed confirmed customer they know the market.that they have a limited understanding How to get true customer needs onof the external environment. One the table?”Vice President of Innovation says that“the whole global issue is a challenge. The relationship between the numberEven if people are inclined to be one constraint (‘The absence of aopen, different cultures can prevent well-articulated and/or communicatedthem from communicating and innovation strategy’) and one of theunderstanding each other. Also they main roles of the innovation functionmight not have the same priorities (‘Formulating and communicatingand/or not understand each other’s the innovation strategy’) is evenmarkets and trends.” Another more pronounced. The innovation Exhibit 4: Innovation constraints % of respondents, n = 260 What most constrains your organization’s ability to achieve its innovation targets? Top 1 Top 2 Top 3 The absence of a well-articulated innovation strategy 24 9 13 Lack of understanding of the external environment 13 15 11 No formal innovation governance structure 7 12 7 Lack of formal innovation processes 7 9 12 Inadequate innovation budget allocation 11 10 10 Lack of top management commitment to innovation 11 9 11 No innovation-friendly culture 11 12 9 Lack of clarity on what innovation behaviors actually are 9 12 11 Inadequate innovation skills 12 6 16 within the organization10

2 Innovation strategyManaging innovation As concluded in the previous chapter explicit innovation strategy, leavingrequires having both for- on the innovation function, the in- 58 percent without such a strategy. novation strategy plays a major role This is in line with the earlier findingmal and informal mecha- in achieving one’s innovation targets. that the absence of a well-articulatednisms in place. As a formal Moreover it is expected from the and/or communicated innovationmechanism for managing innovation function - and therewith strategy is by far the most importantinnovation the innovation ultimately from the accountable ex- constraint for achieving one’s inno- ecutive for innovation - to formulate vation targets. The absence of suchstrategy plays an important and communicate such a strategy. In a strategy is explained as followspart. We asked innovation our previous research on innovation by an Innovation Director we inter-executives if they have an leadership we found that many in- viewed: “It’s taken for granted andinnovation strategy; what novation leaders have difficulties in done ‘from the gut’. I think people describing what an innovation strat- would benefit from understandingelements it consists of; egy actually is, what it includes, and the strategy to be more efficient andand how it is developed how it is developed. This innovation more innovative.”and communicated within leadership study’s findings providethe organization. further insight and context for the Taking the leader versus laggard per- concept of innovation strategy. spective we note that 65 percent of innovation ‘leaders’ have an explicit 2.1 Strategy innovation strategy versus only 29 percent of the ‘laggards’. The correla- First and foremost - the majority of tion between having an innovation respondents do not have an explicit strategy and the reported innovation innovation strategy (exhibit 5). Only success rate suggests that indeed the 42 percent of respondents have an absence of an innovation strategy is a Exhibit 5: Innovation strategy % of respondents, n = 241 Does your organization have an explicit innovation Innovation success rate strategy? Less than 25% 25-50% 50-75% Over 75% +36% 71 58 65 55 53 47 45 42 35 29 Yes No Yes No Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line 2 Innovation strategy 11

big constraint for achieving one’s in- Talking about how the innovation business strategy. Along similar linesnovation targets. Companies need to strategy is aligned with corporate an innovation manager we interviewedstart acting to articulate an innova- strategy, interview respondents talks of deciding whether a newtion strategy. mention the following. One Chief technology is strategically a good fit Innovation Officer we spoke with for the company’s overall strategy2.2 Elements of strategy explains how the innovation office and mission. Even if it’s a good idea is informed by the corporate strat- that can be profitable, from a focusWe asked respondents what elements egy, while it in turn helps to inform standpoint it may not be somethingan innovation strategy includes. the corporate strategy’s focus areas. to pursue.Exhibit 6 shows the outcome. Clearly In other words, it is an interactivea broad variety of elements is included process. Another innovation leader Worth noting is the relatively strongin company’s innovation strategies, we spoke with says it is important to score of innovation culture as anranging from the alignment with think through all the different ele- element of the innovation strategy.corporate strategy to statements on ments and that ultimately everything Fifty-eight percent of the companiesthe role of partners in this strategy. is aligned and driven toward creating surveyed include statements on what‘Alignment with corporate strategy’ value. Some interviewees stress the is desired from a cultural perspec-is cited most often, namely by need for a separate innovation strate- tive in their innovation strategy. In80 percent of the respondents. The gy (in addition to corporate strategy) our conversations with innovationother two elements in the top three because of the difficulty of matching leaders agility was brought up: “Ininclude statements on ‘Technology,’ short- and long-term strategic objec- discussions on strategy, a frequentchosen by 64 percent, and ‘Markets,’ tives. One mentions the company point that has come up is the needmentioned by 62 percent. has a meeting of functional heads to for more agility in the department.” align the innovation strategy to the This remark bridges the need for Exhibit 6: Innovation strategy elements % of respondents,¹ n = 98 Does it include statements on any of the following? Innovation success rate Less than 25% 25-50% 50-75% Over 75% Alignment with corporate strategy 80 38 Technology 64 37 Targets +17% 57 Markets 62 55 Innovation culture 58 Innovation processes 55 46 Internal capabilities 47 18 Partners +9% Targets 44 61 Partners 40 55 ¹Multiple answers possible; Respondents who answered ‘Other’ are not shown.12

understanding the external environ- results. Innovation leaders may have 2.3 Development andment - a constraint according to our outpaced their peers by simply being communicationrespondents - and the ability to act better at integrating external par-upon changes in that environment. ties into their innovation process, Exhibit 7 shows how the innovationWe will discuss how innovation cul- leveraging the broader innovation strategy is developed and communi-ture enables agility in chapter 5 (5.2 potential as a result. The difference cated within respondents’ organiza-Elements of culture). between leaders and laggards as tions. Regarding innovation strategy illustrated by exhibit 6 seems to em- development most respondentsFinally, it is important to note that phasize that innovation ‘leaders’ (30 percent) indicate their innovationour innovation ‘leader’ group of think more strategically about in- strategy is developed by a combina-analysis more often includes state- volving partners than their lagging tion of top management, businessments about targets and partners counterparts. The gap between lead- unit heads, and internal innovationin their innovation strategy than ers and laggards with respect to the experts. Another 20 percent indicate‘laggards’. One of the main implica- use of targets in their innovation that their innovation strategy is de-tions from our previous research on strategies is even more pronounced. veloped by innovation experts - bothinnovation leaders and laggards was It suggests that innovation leaders internal and external experts - andthat the ability to work effectively are keener to frame their innovation then approved by top management.with external partners will deter- ambitions and plans in terms of Thirteen percent say their innovationmine who will be the new innovation strategic targets. strategy is developed by top man-leaders and laggards. Few companies agement only. If we look at the splithad yet mastered the skill of work- between top-down versus bottom-ing together effectively with external up development of the innovationpartners to improve their innovation strategy we can conclude that it is Exhibit 7: Innovation strategy development and communication % of respondents,¹ n = 98 % of respondents,¹ n = 98 How is your innovation strategy developed? How is your innovation strategy communicated in your organization? Developed by top management 13 Not communicated at all 2 Developed by top management 6 and BU heads Communicated to top Developed by top management, 18 30 management layers only BU heads, and internal innovation experts Developed by top management, BU heads, 11 internal and external innovation experts Communicated widely 7% 44 44 inside the organization Developed by employees, approved 2 by top management Developed by employees, validated by Communicated widely inside 9 the organization and used as a 15 15 BU heads, approved by top management daily guideline for innovation Developed by BU heads, approved 2 by top management Communicated widely inside 19 Developed by innovation experts 20 and outside the organization (internal and external), approved by top management ¹Respondents who answered ‘Other’ are not shown. Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line 2 Innovation strategy 13

mainly a top-down happening. Only Summing up, innovation strategy11 percent of respondents have their development is mainly a top-downinnovation strategy developed by exercise (only 11% explicitly involveemployees. employees) and the defined strategy is communicated widely within theOne innovation leader we spoke with company. Our in-depth interviewshighlighted the fact that often in- with innovation leaders identifiednovation and corporate strategy are some of the complexities related toclosely intertwined. “The CIO comes this kind of practice. One leaderup with the strategy, along with a stated that with regard to innovationperson who works on corporate strategy, working in a matrix orga-strategy in the company. The CIO nization is difficult. “The companysuggests the strategy to the innova- has to guarantee that everybodytion board and the CEO, and upon shares the strategy. Because of theapproval it is deployed throughout need to have a global view of thethe organization.” Other interviewees company, they realized they neededexplain how top-downmeets bottom- full involvement of people who takeup development and how the process decisions in the company.”evolves after the strategy has beendefined: “Innovation strategy is cre- In our experience traditional strategyated by a combination of top-down development no longer suffices in theand bottom-up. Corporate strategy pursuit of sustainable growth underis top-down, but some innovations high uncertainty. We believe thatare adapted to local markets and are business circumstances that are radi-bottom-up.” And “At an abstract level cally new or rapidly changing ask forthe innovation strategy is defined a new way of strategy developmentat the top but the way to the end is focused on people. There is a needpretty much not defined, the people to move strategy development to thehave the freedom to orga-nize them- outer peripheries of the company inselves to get the results they want.” order to capture all those individual insights from managers and employ-Looking at the results for how the in- ees relevant for defining the rightnovation strategy is communicated innovation strategy. In section 1.3within organizations we find that most Constraints we found that not hav-respondents (44 percent) communi- ing a well-articulated and/or com-cate the innovation strategy widely municated innovation strategy is theinside the organization, 19 percent biggest constraint for achieving one’scommunicate it widely inside and innovation targets. However, devel-outside the organization, and 15 oping an innovation strategy willpercent communicate it widely inside only get you half way. It is the waythe organization and use it as a daily in which you incorporate an under-guideline for innovation. Thus 78 standing of the external environmentpercent of respondents say their in- in your strategy development processnovation strategy is communicated that will really set you apart fromwidely inside the organization, pro- your competition when it comes toviding employees with a direction on innovation.how to act in the context of innovation.14

3 Innovation governanceOne of the main implica- Given the strategic importance (exhibit 8). Looking a bit deeper wetions from our previous companies allocate to innovation it find that 45 percent of respondents is remarkable that few companies do not have a formal organizationalinnovation leader versus have organized innovation in the structure for innovation, and anlaggard study was the mature fashion it deserves. In our equal percentage of respondents doneed to match the impor- last innovation leadership study we not have a well-defined governancetance of innovation with already concluded that many in- structure for managing innovation. novation bottlenecks can be solved Forty percent have no clear roles andthe degree of formal gov- by establishing a formal innovation responsibilities for innovation. Withernance allocated to it. governance structure that deals with such a limited organizational designThis year we asked survey issues such as internal alignment, for innovation it is almost a matter ofrespondents to agree or prioritization, funding, and the luck whether or not successful new balancing of long- and short-term ob- products and services will be devel-disagree with statements jectives. Many innovation executives oped and brought to market at theseregarding organizational see it as the role of the innovation companies.structure, decision-mak- function to optimize these processesing, their KPI system, and and governance. With respect to the organizational structure of innovation we see thatorganizational alignment. Although we have seen some positive companies organize innovation in signals that companies acknowledge various places across the organiza- this need and are acting accordingly tion. Depending on the type of inno- - such as the advent of a formally ac- vation (e.g. product/service, process, countable executive for innovation - business model) and its nature (e.g. still much needs to be done in the incremental, radical, short-term, area of innovation governance. We long-term), companies choose to asked respondents a wide array of organize it in different places. This questions regarding various aspects can be within sectors, business units that help to govern the innovation or centrally, within corporate func- process. The overall tendency is neg- tions such as R&D, marketing, or IT, ative. Survey respondents see plenty but also within the strategy depart- of room for improvement when it ment or in a separate innovation comes to effective governance of the office. Often it is a combination of innovation process. Across the board the aforementioned leading to an in- our innovation ‘leader’ group of crease in complexity and a decrease analysis agrees more with the state- in the effectiveness of the innovation ments on formal innovation govern- function. ance than the innovation ‘laggards’. This correlation between having a In our conversations with innovation formalized innovation governance leaders about their organizational and the reported innovation success structure for innovation, they men- rate suggests that there is much to tioned the following. An executive gain by improving the formal mech- said: “I hope that one thing has anisms for managing innovation. become clear, that in a big company like ours there are many layers of 3.1 Organizational structure organization also in the sectors and the business units. Crossing those Only 30 percent of respondents layers for an idea or something like agree they have an effective orga- that is sometimes very difficult. nizational structure for innovation This huge organization is just Footer Right; Document Title Akkurat BoldInnovation governance 3 6.5pt; maximum 1 line 15

and allocate time and funding to Exhibit 8: Organizational structure innovation projects (49 percent). Respondents are most happy with % of respondents,¹ n = 227 their process for stage gating and the How strongly do you agree or disagree with the following statements making of go/no-go decisions (45 regarding your organizational structure for innovation? percent agreeing versus 35 percent We have an effective organizational disagreeing with this statement). structure for innovation 9 36 21 23 7 Zooming in on the process to prioritize and allocate time and funding We have a formal organizational to innovation projects interviewees 15 30 15 25 12 structure for innovation highlight some recurring issues. We have a well deﬁned governance structure Concerning the allocation of time 12 33 19 24 11 to manage innovation in our organization they mention that ‘the business’ is We have clearly deﬁned roles and often completely occupied with their 9 31 24 25 9 responsibilities with regard to innovation daily operations. Therefore innovative topics often have to wait until Strongly disagree Disagree Neither disagree, nor agree Agree Strongly agree the daily business has given more ¹Respondents who answered ‘Not applicable’ are not shown. room to engage on these topics. And the more radical these topics are, the less likely they are to get the atten-impairing innovation to grow very for what they’re able to accomplish tion they need and perhaps deserve.fast.” Another executive explains but also giving them the freedom towhy they chose to set up a central do it their way. The officer linked Also funding of innovation projectsinnovation office: “The whole idea this to innovation leadership and remains a problem, especially whenof trying to find new areas where we culture - both informal mechanisms the benefits are not expected in thepotentially can develop new business for managing innovation - which will short run. “Of course it’s not easyfor our company, calls for a more be addressed extensively in the next when you are faced with the oldfocused approach. That’s the reason two chapters: “The key is for them thinking or let’s say business planwhy we installed, 5-6 years ago, the to believe you when you say that thinking, where they’re very opera-Innovation Center. Which actually you are truly giving accountability tive, focusing on the next year. Whenis a separate unit, and basically what and freedom. The point is that they it comes to looking for opportunitieswe try and do there is develop what have to feel empowered and trusted to save money, then these projectswe call emerging business areas.” to do this kind of thing and to feel are very often challenged. It’s easierAdditionally he mentions that having comfortable stepping out and that to stop projects or initiatives whichone centralized innovation center they are going be protected if they are not bringing output in the nexthelps to exchange expertise and a step out.” year but maybe in 5-10 years, it’sstandard way of working, as well as more difficult to justify this…” Or asto get much more synergy. 3.2 Decision-making another innovation leader summa- rizes it: “Our biggest problem is justYet another innovation officer com- When it comes to the decision-mak- getting the consistency of funding forments on the need to clearly define ing process for innovation (exhibit long-term projects.”roles and responsibilities with regard 9) we see a slightly more positiveto innovation. “So what we’re try- picture. However, still a large per- Some of the innovation leaders weing to do is build both people and centage of respondents (39 percent) interviewed advocate an approachstructural capability to let people say they do not have an effective where there is a differentiation with-be broader and see broader.” In that decision-making process for innova- in the prioritization process in ordercontext the company is trying to tion. This is largely due to not having to tackle some of its deficiencies.make the scientists more accountable a well defined process to prioritize “There are certain things that have to16

be sequestered, because if you holdthese up to the conventional tools for Exhibit 9: Decision-making processprioritization, you’d kill these proj-ects before they get started. These are % of respondents,¹ n = 227sort of in a protected environment. How strongly do you agree or disagree with the following statementsAnd what we do here is, we have regarding your decision-making process for innovation?what we call a new business boardof half a dozen of the top-top people, We have an effective decision-making process to manage innovation 8 31 26 25 8and they make calls on this, separatefrom their actual job.” We have a formal decision-making process 10 29 15 30 143.3 KPI system for managing innovation We have a well defined process to prioritize, and 8 33 20 26 11Exhibit 10 illustrates the sentiment allocate time and funding to, innovation projectswith respect to the KPI system for We have a clearly defined process for stage 9 26 18 30 15innovation. A stunning 54 percent gating, and making go/no-go decisionsof survey participants indicate that Strongly disagree Disagree Neither disagree, nor agree Agree Strongly agreethey do not have a formal KPI systemfor promoting innovation. Only ¹Respondents who answered ‘Not applicable’ are not shown.21 percent of innovation leaders andmanagers that answered this ques-tion agree they have an effective KPIsystem for innovation. Of all the gov-ernance levers, the KPI system is theleast developed one when it comes toinnovation.Innovation leaders and managersstruggle to define an effective KPIsystem to promote innovation. Oneinterviewee indicates the difficulty -and perceived limitations - of select- Exhibit 10: KPI systeming appropriate indicators for innova-tion: ”How do you track innovation? % of respondents,¹ n = 227There’s only a limited set of things How strongly do you agree or disagree with the following statementsyou can do. The number of partners regarding your KPI system for innovation?you have, the number of projects We have an effective KPI system to promoteyou have, the amount of spend you innovation 15 41 21 17 4have, the innovation sales you have,the number of patents you haveissued, in any given business this We have a formal KPI system for promoting 15 39 14 24 6is pretty much the type of thing.” innovationAnother interviewee addresses the We have well defined targets and scope for 11 34 17 29 7fact that across the board executives innovationhave difficulties with getting their We have a clearly defined performance 13 39 20 19 7head around the definition of targets measurement and rewarding of innovation successfor innovation. “We help the board Strongly disagree Disagree Neither disagree, nor agree Agree Strongly agreewith setting performance objectivesaround innovation, like the innova- ¹Respondents who answered ‘Not applicable’ are not shown.tion percentage of sales.” Footer Right; Document Title Akkurat BoldInnovation governance 3 6.5pt; maximum 1 line 17

that we want to have as a big bet. Exhibit 11: Organizational alignment Where we give our top scientists the opportunity to lead, not only as an % of respondents,¹ n = 227 individual project but leading this as How strongly do you agree or disagree with the following statements a field, and creating projects across regarding your organizational alignment of innovation? the company, across category.” He explains how this serves as a tool to We have an effective organizational alignment of innovation efforts 9 36 27 19 5 increase the breadth of focus within the organization of innovation, result- ing in people running around and We have a formal organizational alignment talking about these projects. It being 9 35 21 24 7 mechanism for our innovation efforts “a way to bring innovation as a topic We have a well deﬁned process for alignment of to a higher level in the company on a 8 32 19 30 7 our innovation efforts with corporate strategy more regular basis.” We have clearly deﬁned how to align innovation 8 37 22 25 4 efforts across the organization and utilize In sum, innovation governance - as a internal capabilities formal mechanism for managing in- Strongly disagree Disagree Neither disagree, nor agree Agree Strongly agree novation - offers a great opportunity ¹Respondents who answered ‘Not applicable’ are not shown. to innovation executives aspiring to improve their innovation success rate. It is still largely underdeveloped3.4 Organizational alignment their innovation efforts across the with respect to all four aspects of it organization. One leader explains we surveyed in this study: organi-Finally, we were interested in the that they have created a list of the zational structure, decision-makingextent to which companies have top 50 innovation projects across the process, KPI system, and organiza-succeeded in aligning the innovation organization which they continu- tional alignment. Innovation ‘leaders’efforts across their organizations (see ously support, boost, and monitor have already adopted innovationexhibit 11). Again, a rather negative in order to increase their chance of governance as a good practice forpicture emerges. Less than a quarter success. In addition they organize managing innovation - it is up to(24 percent) of the respondents alignment events as an interven- others to follow in their footsteps.believes they have an effective orga- tion tool to make sure that they staynizational alignment of innovation aligned with respect to their innova-efforts. The innovation executives tion ambitions. Another innovationwe surveyed are most positive about executive says they use their innova-the alignment of innovation efforts tion council - with representativeswith corporate strategy (37 percent from all business groups - as a formalagreeing versus 40 percent disagree- mechanism for the organizationaling with this statement). But the lack alignment of innovation efforts.of a formal organizational alignment Within this council they discussmechanism for innovation, and an portfolio choices as well as how tounclear view of how internal capa- improve innovativeness throughoutbilities can be utilized to align inno- the company.vation efforts, seems to negativelyinfluence the successful alignment Sometimes, all it takes is a bit ofof innovation efforts across the creativity and the right positioningorganization. in order to increase alignment of innovation within the organization.We got some insights into how in- As one interviewee comments: “Wenovation leaders attempt to align created a lexicon for a big project18

4 Innovation leadershipAs an important informal By their very nature organizations Exhibit 12 shows that the innovationmechanism for managing seek stability and predictability and leader group of analysis is dominated will tend not to spontaneously drive by small firms (less than €500m ininnovation, innovation innovation that destabilizes. This annual revenues). The correlationleadership has been re- means that real disruptive innova- between company size and reportedsearched extensively for tion has to be driven by the leader- innovation success rate suggests thatthis study. We asked our ship. This is true even where bottom- it is much easier to drive innovation up systems may be implemented in in small organizations. Large orga-respondents about who attempts to democratize innovation. nizations create so much distanceleads innovation in their Our survey further suggests that the between the executives and thoseorganizations; what they CEO must be seen to be driving the that are tasked to innovate that athink motivates senior strategy for innovation though others disconnect exists between them. The in the leadership team may take on issue of the status level of innovationexecutives to be involved that responsibility. One innovation is seen differently from a leader toin innovation leadership; officer we interviewed described the laggard perspective. If one considersand what motivates em- responsibility this way, “The strategy that most of the leaders are smallployees to be involved in we have is to influence people who firms it is clear that one has a better have to make things happen, who chance of creating a culture of inno-innovation. do not report directly to me. So as a vation in a smaller organizational leader you have to develop political unit. In order to achieve that, leader- skills, and influence skills, because ship in large organizations needs to you have to motivate people to move develop skills that tap into the belief towards this direction.” system of employees. Exhibit 12: Innovation success rate and company size % of respondents, n = 260 % of respondents, n = 201 Could you please estimate your organization’s What are your company’s annual revenues? innovation success rate? Less than €500m More than €500m 73 65 38 37 57 51 49 43 35 18 27 7 Less than 25% 25-50% 50-75% Over 75% Less than 25% 25-50% 50-75% Over 75% Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line 4 Innovation leadership 19

4.1 Executive motivation of driving their own motivation; however acting in a responsible and Starting from the simple premise accountable way - or as one inter- that it is the responsibility of execu- viewee termed it “doing the right tives to create and develop innova- thing” - is not exactly inspirational. tion ecosystems which they shape In addition, in the comparison of through determining KPIs, structure executive and employee motivations and incentives, the link between (see exhibits 13 and 14) executives low executive motivation and poorly have extrinsic transactional drives articulated KPIs is self-evident. Our whereas employees are driven by survey demonstrates that driving in- high transformation intrinsic drives novation is seen largely as a duty for such the excitement of innovation, many executives. Interviews suggest the team focus and the need to help that inspirational leadership motiva- the organization. Our survey results tion is fairly rare. From our in-depth seem to suggest that this softer ele- interviews with CIOs as well as from ment of motivational drive eludes survey respondents a picture emerges: executives, except in exceptional when asked who actually drives in- organizations. There is a suggestion novation the reality is that quite here that were executive motiva- often it is driven by all sorts of tions of a high intrinsic nature, KPIs, managers and often all at the same strategy and ecosystem could be better time thereby making responsibility articulated. One can only assume that and accountability more difficult. in the prevailing economic conditions Executives are left in a position the constant focusing on bottom line Exhibit 13: Executive motivation for innovation % of respondents,¹ n = 241 What do you think motivates senior executives to be Innovation success rate involved in innovation leadership? Less than 25% 25-50% 50-75% Over 75% 46 Accountability for realizing growth 40 46 +19% 51 65 15 Intrinsic creative motivation 11 15 19 18 17 Feel responsible for advancing 28 22 innovation in the organization 23 12 15 Innovation is considered 17 14 a high status area 7 6 ¹Respondents who answered ‘Other’ are not shown.20

results and cut-backs has led to a to achieve something.” In contrast we that were never really integrated” arefairly uninspiring leadership. Those did not find that executives perceive hard because absent are “those net-tasked with enabling innovation in these motivators to be of importance. works of relationships, you’ve kindthe organization invariably find them- Many executives who we interview of got everybody in their bunker,selves having to develop a culture will insist that low rates of success peering out, thinking, if I work withof innovation, which is discussed are due to a lack of a ‘culture of inno- another business unit, it’ll just meanin more detail in the next chapter. vation’ failing to see the link between resources will flow to them and not motivation, drive of employees, to me.” More than anything else this4.2 Employee motivation and perceived culture. Successful quote captures the contrast in many companies feature differently in large organizations of a pervadingThe disconnect between leadership our interviews where we found the culture where distance, self-interestand employees couldn’t be more leadership has a broader interpreta- and disconnect overwhelm any moti-clearly demonstrated than in the tion of employee motivation. As one vation for innovation.difference between executive and interviewee put it, “If you have anemployee motivation. Employees ethical, high-trust type of organiza-believe innovation to be exciting (91 tion, it generally also means thatpercent), aimed at improving things you have people who want to do(89 percent) and better delivered in the right thing and do it well. If youteams formed apart from the usual simply recognize them and acknowl-workplace (87 percent). In our inter- edge them for having done that,views we found that ‘self motivation’ that gets you 75 percent of the waywas perceived as important: “very there.” Low-trust organizations orimportant for innovation is a relent- highly-fragmented ones that are “anless self-motivation, relentless drive agglomeration of many acquisitions Exhibit 14: Employee motivation for innovation % of respondents,¹ n = 241 How strongly do you agree or disagree with the following statements with respect to what motivates employees Strongly agree / agree Disagree / strongly disagree Innovation is considered to be exciting work 91 4 Desire to improve things 89 5 Like being part of a team or 87 5 taskforce for something new An opportunity for self-realization 75 7 Like being pulled out of everyday 53 17 Interesting travel and conferences 26 35 ¹Respondents who answered ‘Neither disagree, nor agree’ or ‘Not applicable’ are not shown. Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line 4 Innovation leadership 21

5 Innovation cultureManaging innovation Speaking with interviewees, we got for a culture of innovation saidrequires having both for- a refined understanding of how inno, the company has quite a good novation culture is thought about in culture of innovation, it is hungry formal and informal mecha- organizations, and how it is chang- innovation and very agile in termsnisms in place. Like leading. While we heard some interesting of change. Another company wasership, culture is a ‘soft’ remarks on how national culture characterized as historically alwayselement of organizational can figure in innovation - such as a having an innovation culture and an country’s culturally putting a pre- innovation entity, with the fact thatchange. We asked survey mium on creative ideas and things it still makes a lot of money out ofrespondents whether that deliver ordinary experiences in innovation that probably took placethey themselves had been a more creative way - here we focus ten years ago functioning as a keytasked with building a cul- on corporate culture, which research motivator that works well. has shown to trump national cultureture of innovation; what a when it comes to radical innovation. Some contrasted previous experiencesculture of innovation con- at companies that had an innovationsisted of in their minds; Our discussion of innovation culture culture to their current company,and where an innovation ranged from start-ups characterized where there is not an evident innova- as not yet having an innovation cul- tion culture and people are not asculture comes from in their ture as compared against a company enthusiastic about coming up withorganization. like Google, whose culture was de- ideas and driving them, but where scribed as “spilling out of the doors, there’s a passion for other things, such you can see it everywhere with these as championing and advocating for Google bikes that everybody rides customer needs, that really motivates all over the place”, to established people. Another interviewee spoke technology companies that are trying of a lack of a traditional culture of to change their innovation culture to innovation in the company, where become more customer-focused. Like the people who gravitate there are technology, IT was seen as needing not necessarily the entrepreneurs, to get the right innovation culture, but who are motivated by the notion and not just technology gadgetry. of benefiting the world, which was characterized as a higher order than “Innovation culture is always an issue just a culture of innovation. This was when doing projects with customers”, characterized as strengthening the an interview respondent said, “because whole execution within the company culture is the basis for everything because even when doing regular one does in an organization, so it’s work, the people are constantly look- not only the innovation culture but ing for this bigger picture. Another also the organizational culture which interviewee spoke of trust and ethics, plays a role there.” The distinction saying that without those an orga- made by interviewees between or- nization won’t get much innovation. ganizational culture and innovation These were seen as enabling a free culture, as well as among different flow of information between the types of innovation cultures, was lower levels and middle and senior instructive in understanding how management and a situation where culture was thought about and expe- people are comfortable. rienced in relation to innovation. All of this served to clarify what Some interviewees, when asked if people saw as an innovation culture, they personally have to do something a traditional innovation culture, a Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line 5 Innovation culture 23

technology innovation culture, and something that’s pervasive, not just cultures that focus on values other done in a team - they have a center than innovation but whose champi- of excellence but their expectation is oning of those values aids innovation that everybody does it. by helping with execution, collaboration, and the psychology, or climate, On being charged with a mandate to of innovation. build a culture of innovation, an interviewee said it’s a recognition that 5.1 Creating a culture of innovation requires creating another innovation component of how to do business, adding that the future could likely We asked respondents whether they involve needing to think about the personally had been tasked with business in a very different way, creating a culture of innovation in creating partnerships with different their companies. Two-thirds of respon- kinds of companies than in the past, dents said they have been tasked with and seeing a much wider view of the creating a culture of innovation world than just one’s own industry. (exhibit 15). The result suggests that Another interviewee described a many people are being tasked with company’s trying to think less con- creating such a culture, which ventionally and building both people indicates that companies recognize and the structural capability to do so. the need to create such a culture and that they want many people involved Not all employees were tasked with in doing it. An interviewee spoke of a creating an innovation culture. An company trying to make innovation interviewee saw it as a matter of “not Exhibit 15: Innovation culture % of respondents, n = 236 Have you been tasked with creating a culture of Innovation success rate innovation in your organization? Less than 25% 25-50% 50-75% Over 75% 86 66 65 65 57 43 35 35 34 14 Yes No Yes No24

being at the right level of the organi- An interviewee said openness was Behaviors that enable better respon-zation to really affect that”, but trying more important than creativity for siveness to the external environ-to influence it in whatever way pos- innovation, explaining that “It’s not ment can be thought of in terms of asible as an individual contributor. that people don’t want to be creative, capacity to improvise. This respon-With so many being tasked with it’s that they’re not trying to be open. siveness takes three main forms:creating a culture of innovation - and They are willing to participate but one is relating to speed, thereforewith even those not formally tasked they don’t know how to; they are the ability to move quickly. As anseeking to influence it - it is impor- not used to sharing the knowledge interviewee told us, in the contexttant to understand what innovation they have with their peers in other of the need for IT to become muchculture consists of, which we address countries.” Suggested elements here more agile: “Today the businessin the next section. included: openness to people one would love to be even more agile and works with; having an open mind to be even more reacting to things.5.2 Elements of culture for partners; understanding differ- Sometimes they just simply do things ences as a strength; and understand- and then we (the IT department)To determine how respondents think ing different management styles and have to bring them back into all thatabout and act upon culture, we asked personalities. policy conformance.” The secondthem to indicate the primary ele- form of responsiveness has to doments they think constitute such a A selection gaging the importance of with external orientation, and theculture (see exhibit 16). The respons- informal values, ‘Going in directions ability to react better to what’s in thees included creative behaviors and you believe in’, scored 28 percent. environment and to ideas profferedvalues, and both formal and informal Suggested elements included the no- by customers. As an intervieweemanifestations of culture. As mention of belief, desire, and passion, in said, “External orientation is reallytioned earlier, within the informal driving an innovation culture. something crucial and so impor-mechanism of culture there is a for- tant, and how to improve it, how tomal/informal mix. The formal is the In the innovation function section make sure that people have the rightdesired as presented by the company (1.3 Constraints), ‘Lack of clarity on behavior in terms of getting the truewhile the informal is the desirable, what innovation behaviors actually customer needs on the table, is oneaccording to the employee. A mix of are’ scored solidly as a constraint of the biggest challenges marketingthe two scored strongly: ‘Innovation on innovation. The responses that faces.” A third way improvisation isconsidered a core value of the com- indicated behaviors in this section relevant is as an ability to work withpany’ scored 74 percent; while selec- were therefore helpful to identify said what’s given. An interviewee pointedtions such as ‘People throwing out behaviors. An interviewee spoke of to the competition the companyideas, discussing them, excited about helping people brainstorm and to faces from the Asia-Pacific area,them’ scored 53 percent; and ‘People shape new ideas, how to change the from completely different innova-are aware that they have to have new way people communicate, what be- tion that features even more complexideas and bring them up’ scored 33 haviors are critical, and then helping machines but which are cheap andpercent. In the vein of the informal, leaders to be able to lead that. The robust and completely differentlya suggested element by respondents behaviors of ‘Sharing information, built: “Sometimes the innovationwas a widespread attitude that every- ideas and results’ scored a high is they can do much the same withthing can be done in different ways, 69 percent, while those of ‘Listen- much less.”and the need to have bottom-up sup- ing to ideas, pushing them forward,port and encouragement. making sure they’re followed’ scored A number of survey respondents 59 percent as elements that consti- suggested that recognizing that‘Openness (to others’ ideas, to tute a culture of innovation. innovation consists of both suc-change, to exchange)’ was the most cess and failure was important.important element at 84 percent. ‘Acting quickly even outside plan Protecting the careers of people,Openness to innovation was seen to capture opportunities’ scored a enabling personal satisfaction andas necessary to be able to survive in strong 55 percent, indicating that advancement, and empowermenta continuous change environment. agility in behavior is desirable. were mentioned. These responses Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line 5 Innovation culture 25

Exhibit 16: Innovation culture elements % of respondents,¹ n = 236 Which elements do you think constitute a culture of innovation? Openness (to others’ ideas, to change, to exchange) 84 Innovation considered a core value of the money 74 Sharing information, ideas and results 69 Listening to ideas, pushing them forward, making sure they’re followed 59 Acting quickly even outside plan to capture opportunities 56 People throwing out ideas, discussing them, excited about them 54 Facilitating and guiding ideas 54 Code of trust 41 People are aware they have to have new ideas and bring them up 33 Going in directions you believe in 28 ¹Multiple answers possible; Respondents who answered ‘Other’ are not shown. indicate that psychological elements work with’ at 59 percent, and then that comprise the climate of innova- ‘Managers in general’ at 51 percent. tion are important to people, and that they mention them when asked The ‘Chief Innovation Officer and in- about culture. ‘Code of trust’ scored a novation office’ scored 32 percent. By relatively low 41 percent, however. A comparison, in an open-ended ques- learning culture, desire, and curios- tion on the leadership of innovation ity were also mentioned as elements itself, the CEO was mentioned the of an innovation culture. most (27 times), but the CIO scored well too (17). One manner in which ‘Facilitating and guiding ideas’ scored leadership is connected with culture 54 percent, with the ‘leader’ group is that when people say there is no selecting it more than the ‘laggard’ innovation culture they blame the group. We discuss this result in more CEO; therefore the CEO has to be in- detail in the next section. volved. Another takeaway is that it is not the CIO who should be running 5.3 Source the culture but managers, meaning the line function rather than the staff As to where they see innovation function. An interviewee suggested culture coming from in their organi- that senior management involvement zations, respondents’ replies echoed and leadership is needed to balance a split between formal and informal people’s tendency toward a short- sources (exhibit 17). The CEO was term focus, where the first thing they clearly the most important at 69 per- will lay down is the focus on projects cent, followed by ‘Peers, people you for three years’ time; in other words,26

Exhibit 17: Innovation culture source % of respondents,¹ n = 236 Where does an innovation culture come from? CEO 69 Peers, people you work with 59 Managers in general 51 Learning and development, training 36 Innovation managers 33 Chief Innovation Ofﬁcer and innovation ofﬁce 32 Executive sponsor 30 Internal social media collaboration 24 ¹Multiple answers possible; Respondents who answered ‘Other’ are not shown.to make sure that resources are allo- Internal social media collabora- top-down but have to take root infor-cated to long-term activities as well. tion, which scored 24 percent, was mally as well. This is consistent with mentioned in the interviews as a way the increase in - and the widespread‘Facilitating and guiding ideas’ for people to connect with each other nature of - the mandate to create ascored 54 percent as an element of more easily, and to connect their culture of innovation captured in theinnovation culture, with ‘leaders’ ideas more easily. Its low score may survey results.selecting it more than ‘laggards’. The mean that companies are only start-notion of the leader whose function ing to utilize it.in the culture is to enable the rank-and-file to innovate was supported. Several interviewees said that even“Innovation has to start from the when innovation was already inleader and has to be in performance the DNA of the company and of themanagement but it also has to be en- different business units, there was aabled, so that’s the cultural piece, the conscious effort from the top as well.culture has to enable the innovation”, At the same time, an intervieweean interviewee said. Leaders can en- said, developing the internal talentable innovation by storytelling and, is key, because without this talentmore hands-on, by guiding and facil- development the company woulditating employee ideas. The function not be able to deliver on its pro-of the leader in channeling creativity gram. These indications of multiplerather than necessarily bringing it sources of innovation and of innova-oneself was mentioned. “There is a tion culture as indicated by surveylot of creativity in the department. respondents suggest that companiesI help them sometimes cross the t’s, understand that innovation and in-dot the i’s,” an interviewee said. novation culture are not just driven Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line 5 Innovation culture 27

ImplicationsSection TitleSection IntroWhat drives innovation leadership? This study aimed to managers and employees relevant for defining the rightprovide you with an insider perspective on the formal and innovation strategy.informal mechanisms for managing innovation. In conclu-sion, we offer a top five of implications every executive In addition to defining the right strategy, agility - theresponsible for leading and managing innovation should ability to quickly react to changes in the external en-take away. vironment - will become ever more important. This is where the formal mechanisms for managing innovationBody Text1. The innovation function is in the spotlight to (strategy, governance) meet the informal ones (leader- improve the organization’s ability to achieve ship, culture) and have to work together as a well-oiled its innovation targets by formulating a well- machine to enable your people to be effective and deci- articulated innovation strategy and improving sive when it counts most. its understanding of the external environment. 3. Limited organizational design for innovation The absence of a well-articulated innovation strategy is is impairing growth at large organizations. by far the most important constraint for companies to reach their innovation targets. This is followed by a lack There is no one size fits all when it comes to organiza- of understanding of the external environment. The rela- tional design for innovation but the correlation between tionship between the top constraints and the perceived having a formalized innovation governance and the roles of the innovation function - building and nurtur- reported innovation success rate suggests that there ing an innovation ecosystem and formulating and com- is much to gain by improving the formal mechanisms municating the innovation strategy - is pronounced. for managing innovation. Although there are signs of an increased formalization of the innovation function, In order to be able to formulate a successful innova- such as the increase in the percentage of respondents tion strategy, and to build and nurture a value-adding that have a formally accountable innovation executive, ecosystem, a thorough understanding of the external the levers for the formal management of innovation are environment is a prerequisite. The difficulty of antici- largely overlooked or underdeveloped. pating and understanding future trends, particularly with respect to technology and markets, is challenging Especially large organizations are hindered by this the innovation function to set directions for the organi- absence of innovation governance as their size leads to zation at large. complexity of the innovation function as it is spread out over the organization. The establishment of a2. Traditional strategy development no longer centralized innovation office might help to focus and suffices in the pursuit of sustainable growth streamline the innovation efforts across the company, under high uncertainty - there is a need to move but it will not be sufficient to maximize the innovation strategy development to the outer peripheries potential of the full organization. This asks for a well- of the company. designed innovation governance that balances, aligns, and enables both short- and long-term innovation For those who have an innovation strategy we can objectives. conclude that the development of this strategy is mainly a top-down happening. Only a small percentage of 4. Real innovation leadership requires executives respondents develops its strategy from the bottom-up. to reduce the level of disconnect between them- In our experience there is a need for innovation strategy selves and employees. development in a more bottom-up manner, focused on people as the key source of competitive advantage. It is In many large organizations a pervading culture exists the way in which you incorporate an understanding of where distance, self-interest and disconnect overwhelm the external environment in your strategy development any motivation for innovation. In the comparison of process that will really set you apart from your compe- executive and employee motivations executives have tition when it comes to innovation. In order to do so, extrinsic transactional drives whereas employees are one needs to capture all those individual insights from driven by high transformation intrinsic drives such Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line Implications 29

as the excitement of innovation, the team focus and the need to help the organization. In contrast we did not find that executives perceive these motivators to be of importance. Successful innovation is possible where executives reduce the level of disconnect between themselves and employees. Our leader versus laggard perspective shows the relation between company size and reported innovation success rate, suggesting that it is easier to drive innovation in small organizations. Large organizations create so much distance between the executives and those that are tasked to innovate that a disconnect exists between them.5. .Innovation culture is a highly important mechanism to enable agility and be able to survive in a continuous change environment. Having a strong innovation culture is necessary to be able to survive in a continuous change environment. Our research on innovation culture shows that - among other things - openness to others’ ideas, to change, to exchange, and acting quickly even outside the plan to capture opportunities, are considered important elements of an innovation culture. This indicates that agility in behavior is desirable. Behaviors that enable better responsiveness to the external environment can be thought of in terms of a capacity to improvise. This improvisation takes three main forms: one is relating to speed (the ability to move quickly), the second has to do with external orientation (the ability to react better to changes in the environment), and a third way improvisation is relevant is as an ability to work with what’s given (the ability to do more with the same). Many people are being tasked with creating an innovation culture, indicating that companies recognize the need to create such a culture. Innovation culture springs from both formal and informal sources. The CEO is the most important source of innovation culture followed by peers and managers meaning that innovation and innovation culture are not just driven top- down but have to take root informally as well.30

AppendixSection TitleSection IntroMethodology AcknowledgementsThis innovation leadership study carried out jointly by We would like to thank the 260 innovation executivesIESE Business School and Capgemini Consulting is from around the world who participated in this innova-Capgemini’s third report in the innovation leader versus tion leadership study - you have played an important partlaggard series. It aims to understand how those leading in supporting this research. We would specifically likeand managing innovation in their organizations think to acknowledge the innovation leaders who generouslyabout the innovation function and offers an insider per- shared their time and insights with us during the in-spective into both the formal and informal mechanismsBody Text depth interviews.for managing innovation. In order to secure this insiderperspective we specifically targeted innovation leaders The authors would like to acknowledge the contributionsand managers for participation in this study. of Daan Giesen and Micha van Meeteren, both senior consultants with Capgemini Consulting, to this study.Twenty-five in-depth interviews with innovation leaders Finally, we would like to thank all Capgemini Consultinghave been conducted, most between July and September and IESE team members that have contributed to the2011, to explore their perspectives on the innovation research, analysis, and production of this study.function and mechanisms for managing innovation. Thein-depth interview results informed our survey questions, For further contactprovided a better understanding of the context of the sur- If you would like to discuss the findings and conclusionsvey findings, and added depth to the survey result inter- of this study please contact:pretation. Subsequently, an online survey in the field from12 September to 12 October 2011, generated responses Koen Klokgietersfrom 260 innovation executives around the world repre- Vice President Capgemini Consultingsenting the full range of industries, regions, functional Mob: +31 6 5112 3259specialties, and seniority. koen.klokgieters@capgemini.comThe methodology differentiates between innovation lead- Paddy Millerers and laggards based on a self-assessment by survey Professor - IESE Business Schoolrespondents of their innovation success rate. The innova- Mob: +34 93 253 4200tion success rate is determined by the percentage of inno- pmiller@iese.eduvation efforts that has a positive material impact on thecompany’s business results. We distinguish between fourcategories of innovation success based on this rate, namely:‘Less than 25%’, ‘25-50%’, ‘50-75%’ and ‘Over 75%’ of in-novation efforts having a positive material impact on thecompany’s business results. The ‘Less than 25%’ categoryrepresents the innovation laggard group and the ‘Over75%’ category the innovation leader group of analysis. Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line Appendix 31

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Innovation Leadership Study: Managing Innovation - An Insider Perspective

by Capgemini

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