Last year, according to The Wall Street Journal, the word ‘innovation’ appeared more than 33,000 times in annual reports of North America’s publicly traded companies. It’s a great word that rolls nicely off the tongue; we all want to be innovative – we have a feeling we need to be innovative in order to succeed.
But what does it really mean?
Brooke Dobni has been exploring the concept of innovation as it applies to organizations for more than two decades. He is a Professor of Management at University of Saskatchewan’s Edwards School of Business, currently holds the PotashCorp Chair for Saskatchewan Enterprise, and he is the founder and Principal of InnovationOne (www.innovationone.org), a consulting firm that works with organizations to advance their innovation platforms. Dobni’s expertise in this area comes from extensive research focused on innovation enhancers, and defining the relationship between strategy, innovation and performance in organizations. More than 20 of his articles have been published in peer-reviewed journals. In addition to this, he has over 20 years of consulting experience, providing counsel in the areas of strategic management and innovation orientation profiling.
Dobni says there is growing interest from Saskatchewan companies and the Saskatchewan government in learning how to improve innovation. I recently spoke to him about the concept of innovation and how it affects business.
So what is innovation? Innovation is all about creating new value, both internal and external to the organization, value which is recognized by the marketplace or helps the organization to be more effective and efficient. We consider innovation to be enterprise-level; that is to say, from including the development of new products and services, to awareness of the competitive environment and customer/stakeholder interactions, to structure and processes in an organization.
So, from an organizational perspective, it’s a culture… the way employees think and act about innovation and doing things differently. Culture is measurable – there’s been lots of work done in terms of metrics to measure general culture in organizations. And we know that employees can think and act differently depending on the context they are put in. You can condition employees to think and act differently.
Is it a matter of training? It’s a combination of things. Through our research we’ve identified 12 drivers; one of those is education, training and learning– specifically defining innovation for companies, and having employees understand what innovation is, what it means to their organization, and how they can contribute to it at their levels.
So you could take someone who is naturally creative and put them in a situation where they flounder? Exactly. We’ve found out that creativity of employees is not the problem. Our surveys of over 2,000 organizations across North America show that employees are naturally creative but that creativity is being squashed as a result of processes, rules, and bureaucracy. Creativity scores are generally pretty high. There are consultants that will come into your organization to help your employees come up with better ideas, but that is often not the problem. The problem is in the governance and execution of new ideas. We have also discovered that there is often a perception gap (as to how innovative the organization actually is) between senior management and those charged with doing the work. For innovation to work, this gap needs to be narrowed.
What are some attributes of an innovative company? Most companies at the top of their industry know exactly why they are there.
One of the first things they will point to is their innovation culture. A company at the top of their industry– leading in performance, value creation, and customer satisfaction – would be motivating and empowering employees to do things fundamentally different with a goal to creating new value for the market or stakeholders. The employees understand the vision, they understand innovation and what it can do for their organization, and most importantly, they know how they can personally contribute to innovation; their behaviours and actions relate to the vision.
It’s all about the culture–and culture is established and reinforced by the leadership– through what they say, how they act, and how they support it– through management control and performance management systems. There are a lot of organizations with very good administration; very few that have good leadership. A lot of it also has to do with size, bureaucracy, and rules.
Is there a difference in innovation levels between small and large organizations? Our research shows that smaller organizations are more nimble. It’s easier to make small organizations more innovative more quickly than large organizations, simply through the differences in breadth and depth of communications. As well, the leadership is more visible, it’s easier to communicate mission and vision, and lead by example.
Having said that, size is not an excuse to not be innovative; we have worked with organizations as small as six employees to others with more than 10,000 employees to help them advance their innovation goals.
You miss out on opportunities by not being innovative? Not only opportunities, but also the ability to run a more effective and efficient organization. The strategic value of innovation lies in such things as new products or services, or better ways to interact with customers (most people think about Google or Apple). But that amounts to about 50 to 60% of the strategic value depending on the industry.
Innovation also deals with processes within an organization; the organizational structure, doing things better and more efficiently, and getting rid of processes that no longer create value to name a few. A lot of organizations don’t take the time for introspection, yet the strategic value can be as high as 40%. I tell executives that they could be leaving up to 50% of potential new value on the table by not being innovative.
How does risk affect innovation? For most organizations, the value proposition is based on profitability plus potential for growth, minus risk. So we ask: How can we use innovation to actually minimize risk in a company, to view risk as a positive factor? How do you manage that risk within certain parameters?
Of course, not all organizations have a profit focus. Innovation is important for them as well. As an example, the American Cancer Society pursued innovation with a goal of allocating research dollars more effectively. Essentially, they wanted to do more with the funding they have. They did this by developing a process to identify the most strategic projects, and then provide more funding to them. Essentially, they have reduced their risk exposure by doing this. A lot of organizations are actually quite risk averse.
Those organizations at a higher innovation orientation take more risks and allow employees to try more things. They’ve learned that employees grow wiser through failure, so employees are given the time, space and resources to experiment and fail, and as well, succeed. These organizations do not treat failure punitively.
So how do you measure innovation? We’re not the only ones that measure innovation in the economy, but we’ve taken a unique approach: we actually measure the ability of companies to be innovative, because we believe that organizations in a market economy are in the best position to create new value.
In our research over the years, we determined that there are 12 drivers of innovation orientation in companies. So we’ve taken a subset of the culture and looked at innovation in particular. There are 69 questions that measure those drivers. Those questions were scientifically developed over many years. InnovationOne will help a company determine their current innovation state and review the gaps (what are you good at, what isn’t working) in respect to the 12 drivers, develop new (or amend existing) programs or initiatives, prioritize, focus on where they get the ‘best bang for the buck’ and then create an implementation plan for execution.
When we measure innovation, we are essentially measuring the organization’s engagement and innovation culture, so we survey every employee if possible. We do an ‘innovation culture assessment’ and develop a report based on the assessment. There are four major areas, or quadrants amongst these drivers, that we look at: One is leadership for innovation; the second is resources for innovation (skills, learning, and creativity falls under resources). Third is knowledge management, or what we call market orientation: understanding the marketplace, the clients, customers, competitors, stakeholders, state of the industry, the entire value chain– and be able to make quality decisions based on information. The last quadrant is execution of innovation – which includes empowerment, venture management, and alignment. Most organizations score lower in leadership and execution.
Based on the aggregate assessment from all employees, the company is given a percentage score across all 12 drivers based on the information. An average score generally falls in the mid-60s; a good score in the mid-70s and an exceptional score would be into the 80s.
How do you improve innovation levels? It’s important to know that innovation can be systematically managed. Most organizations experience random innovations. It happens in every organization at some point in time: Someone comes up with an idea; it is given some due diligence and then implemented. It’s more by chance, not by design. The issue is how many of those ideas don’t get through, because you don’t have a systematic approach to managing innovation.
We have had good success moving organizations that score less than 70% (a random approach) to a solid 75-76%, where innovation happens on a systematic, planned basis. This is when employees see the connection between their actions and outcomes and they start to change the way they do things.
We give them a prescription: “Here’s what you need to do based on what we’ve found out through these 12 drivers to advance your innovation orientation.” On average, 15-20 recommendations come out of the assessment and then we provide a multi-year roadmap for organizations to start to move their innovation orientation forward. Some things are easily done, some take more work, and organizations who truly want to adopt innovation as a core value or initiative, will often see results within the first year. Some of our clients have seen their innovation health scores increase by up to 12% over two years. It doesn’t happen overnight, as we are talking about facilitating a change in the way employees think and act, but when it does happen, it’s contagious for the organization.
And it depends on the organization. Some people just want a PD [professional development] session–spending half a day to a day with their management and talk about innovation, and setting goals. Others want a dinner talk. Even more want the innovation culture assessment and related counsel that follows. The best impact comes when they understand what their level of innovation is across the 12 drivers and four quadrants. They can tell from the score what areas need work. Things will start to align and start working: Here’s where you are, here’s how you compare and how you can move up. If organizations want to progress, they have to adopt innovation, and they often have to do things fundamentally differently.
What role does the government have in innovation? The government role is to provide an infrastructure to support innovation. This includes things like policy development, help in training and development, and clearing the road for commercialization of new opportunities – perhaps even with a focus on particular verticals (i.e. mining, agriculture, manufacturing) that they feel will advance the economic value of the jurisdiction. It is less about direct investment in a particular organization. For example, what the Ontario government is currently considering in terms of investing with Fiat to reopen automobile manufacturing plants in Ontario is not an investment in innovation. Jobs perhaps, but unless these organizations invest heavily in innovation, the jobs will be short-lived as the organization simply will not be competitive.
I believe that the Saskatchewan government has it right. Our current discussions with them are focused on how to create an environment where organizations can help themselves become more innovative. Coincidentally, this is very similar to the approach taken by the Obama administration in the U.S. where they have set up a series of innovation clusters across the U.S. (56 in all) that are accessible by organizations in the States.
How does innovation affect the economy? If you can raise the innovation orientations of organizations across the board, you’re going to have a much stronger economy. There’s a strong correlation between level of innovation and financial performance in a company. Financial performance is what really matters at the end of the day. Create more value, value creates revenue, revenues create profit, and all the while the organization is considering ways to become more effective internally. I am not aware of an organization who wouldn’t want that.
So Saskatchewan could really benefit from this process? Absolutely. In Canada, we’re getting a bit complacent. When you’re successful for a long period time–as we have seen in Saskatchewan–you begin to let down your guard. Success can breed failure. We really need to think now about how we do things, and change how we do it in order to become even stronger and more prepared. We are seeing signs that the economy is slowing, and the time to be proactive is now. It is the responsible thing to do.
The biggest threat to our economy is our level of productivity. In China and India for example, economies are on fire: These people are where we were two generations ago. They want to buy cars, mobile phones and computers, travel; that’s driving their economies. Productivity is high because they want things. They have to work harder to attain the standard of living they previously only dreamt about. They now have those opportunities.
In a mature economy like in Saskatchewan, which is subject to swings in the commodity cycle, the only way to grow beyond organic growth rates of 2-3% is to create new value in the economy. And how do you create new value? Through innovation.
InnovationOne recently conducted a survey (commissioned by Innovation Saskatchewan) to determine Saskatchewan’s innovation health. The report is available online: Innovation Health Inside the Province of Saskatchewan Related: Innovation Nation? Innovation Health Inside the Fortune 1000