Corporate leaders have convinced themselves that their people aren't innovative. According to NTT DATA's Innovation Index, 88% of business and IT executives say that lack of employee skills holds back innovation efforts. Eighty-eight percent! That tells you something about the current state of corporate America—most leaders don't even think they have the right people employed. But lack of innovation is not the fault of your employees, and it’s a cop-out to blame your lack of innovation on your people when it’s structure (or lack thereof) that’s preventing innovative behavior. Creating and protecting a structure that supports innovation is the responsibility of the leader.
What’s behind the failure to innovate?
It comes back to Lewin's equation: behavior is a function of the person and their environment. For this discussion, that environment is the structure that leaders put in place, the model for the business. The challenge is that the meta-structures that surround most companies are not aligned with innovation. Strong leaders create structures that drive toward outcomes and insulate their teams from misaligned external pressures. Weak leaders are simply a pass-through, allowing their employees' environment to become corrupted with things that work directly against innovation. Over time those patterns become the default for the organization, and leaders convince themselves that they have the wrong people instead of the wrong structure.
The meta-structures of quarterly and annual reporting, government agency filings, and markets are designed to provide a level playing field for investors but often work against innovation. As corporate leaders have fiduciary duties to their shareholders, that pressure to keep Wall Street content can drive corporate behavior away from innovation and toward the relative safety of operational efficiency. The ever-present specter of the quarterly earnings report coupled with a lack of psychological safety further drives the organization away from innovation.
Herein lies the paradox. While the most successful companies are innovative, not all innovative ideas are successful. So, while the most successful companies on the planet are the most innovative, they must constantly re-invent and transform themselves to maintain the title.
Every successful company was at one point an innovative idea born in a start-up. That wildly successful model was then optimized to be as efficient as possible, and some of the profits were re-invested in Research and Development (R&D) to improve the product or create entirely new products. The successful franchise model has a crystallizing effect though. The structure of the organization solidifies around success. When the system starts to show signs of instability or weakness and the business begins to be disrupted, the immediate response is usually, “We have to fix our costs.” And while yes that’s true and you do need to fix your costs, you also need something to become your new growth engine, or better yet, something that builds your network in a symbiotic way.
Short-termism and the messy middle
Recognizing that the status quo is the incumbent, bets are placed on the next big things. The messy middle of the in-between state – when your old model has run its course and your new one hasn’t yet crossed the chasm – takes time and patience.
Innovation doesn’t happen on a quarterly cycle, and protecting the structure for the next successful model requires strong leadership. It’s long-term investments in R&D and a mechanism of transformation that replaces that rigid crystalline structure with a machine that can repeatedly re-invent itself. The trouble comes when that quarterly pressure becomes a pass-through from investors (traders) pushing for short-term gains and sacrificing long-term strategy. Larry Fink, CEO of Blackrock Investments, referred to this as “short-termism” and warned of its devastating effects on companies.
Leaders must make their case both internally and externally on long-term strategy. Resist the temptation of short-term gains, provide an insular layer, and a mechanism for people in the organization to transform as well. The long-term strategy requires steadfastness. Leaders must remain committed to the mission even during the uncertain and often terrifying state.
Look at the companies that have been able to do this repeatedly, and then at the moment where the crystallization happened and the company was no more (or became a husk of its former self). What’s even more interesting are the companies that look like they’re about to be made irrelevant and then come back. Examples include Microsoft making the pivot from desktop to cloud or Apple from desktop to portable player, to phone, to tablet, and beyond. Those stories all have a strong galvanizing leader with a strategy and the ability to create a structure, and culture of transforming through strategic innovation.
Four tips to encourage innovation in your people
There are plenty of creative people and plenty of creative innovative ideas begging to come out of the woodwork. However, they need a structure to thrive in and the culture and psychological safety to match.
Create not only an organizational structure but also policy and technology structures that enable innovation. Some of those will be different from the existing ones but allow for that divergence if the outcomes are still achieved. A fledgling idea won’t have nearly the same level of maturity as the current franchise so make sure to allow for alternative paths through policy and process.
Remove fear by de-risking failure. Create a mechanism for funding innovative ideas with smaller investments. Allow time for operationalization, and experimentation on the value. The path of innovation is rarely linear and needs to be refined over time periods longer than a quarter.
Amortize the cost of innovation through a platform strategy. This allows for innovative ideas to build on each other. Achieving reuse in an ecosystem can greatly reduce the investment cost for an individual idea. Low-cost or free tiers of services from cloud providers remove the historical barriers of capital investment in hardware.
Finally, create a means for your people to move into new areas of innovation as they gain momentum. Provide paths for re-skilling, and succession planning.
The innovators are there in your company today, they just need the appropriate structures to thrive and transform through innovation again and again. To learn more about giving structure to your innovation efforts, check out Innovation OS.
