Innovation is the new competitive equation

In a world experiencing massive technology transformation and rapid shifts in customer markets and expectations, innovation has become a management imperative no business can afford to ignore. Agile, disruptive business models and nimble competitors worldwide are overhauling markets and challenging less adaptive, customer-centric and cost-efficient incumbents. Embracing new solutions, integrating big data, mobility, social networking, collaboration, cloud delivery and other evolving technologies are redefining customer relationships, product design and success rates, supply chain networks, workforce productivity and more.

Examining Innovation Strategies and Roadblocks in Today’s Enterprise

The shift toward innovation as a leading success factor for business is increasingly accepted within boardrooms and C-Suites around the world. In today's innovation economy, institutions of all types and sizes are challenged to rethink and redesign the future. To do so, they must embrace innovation-driven business cultures, processes and platforms, break down barriers to change, and empower innovation leaders and thinkers across and beyond corporate boundaries.

As a leading global affinity network for executive change agents and a champion of business transformation, the Business Performance Innovation (BPI) Network believes strongly that innovation must climb to the top of agendas worldwide. To assist businesses and executives in this journey, the BPI Network is committed to identifying, exploring and sharing emerging trends and transformational ideas and practices that are reshaping world markets and competitive landscapes. Innovation: The New Competitive Equation represents the BPI Network's first annual state-of-innovation study. It looks at what our members and other leading executives around the world are saying and doing about innovation within their organizations and the roadblocks, accelerants, challenges and opportunities they see in the year ahead. We hope our findings and analysis will be helpful to agents of change around the world.

In undertaking this study, the BPI Network utilized both quantitative survey outcomes and qualitative interviews. We surveyed over 200 top executives across the globe to get a deeper understanding of the state of innovation in the enterprise today. To supplement those findings, we interviewed some of our top board members to paint a full picture of how enterprises can drive hard outcomes from their innovation processes.  

EXECUTIVE SUMMARY

INNOVATION IS A KEY DRIVER OF SUCCESS: BUT STILL EXPERIENCING ROADBLOCKS

As executives across industries respond to profound global competition and business realignment, commitment to innovation is at the forefront of the minds of top companies around the world. In the old model, one became successful by being efficient, and people were rewarded for achieving scale and efficiency within scale. But now the economy has shifted. Efficiency is not the key, innovation is. Future profits are going to come from your ability to consistently innovate. The problem is, policies and procedures are still stuck in that old model.

Fully 79% of survey respondents now rate their companies’ commitment to innovation as very high or growing. But while the intention is there, companies are still experiencing significant roadblocks. Outdated business models and technologies prohibit them from achieving the shift they need to stay competitive in this rapidly changing environment. Responses reveal a significant tension between this rampant aspiration for growth based on new ideas, and a risk-averse, turf-based corporate culture.

Respondents highlight several institutional barriers to successful innovation that persist within their industries. These barriers create a lag both in major technology shifts and in market shifts. Chief among the obstacles for innovation is a fear of failure among individuals across enterprises, with 42% of respondents – the largest percentage – citing “Self-preservation and concerns about failure” as the factor most likely to snuff out potential game changing initiatives. Another significant number view organizational silos and roadblocks as a critical limiting factor for inventive dexterity, with 37% of respondents highlighting the cross-functional and divisional barriers within the enterprise leading to a lack of effective innovation programs. Respondents also find that oftentimes innovation fails because there is no clear definition or strategy behind it; rather, innovation occurs in pockets that are not leveraged effectively to produce real outcomes across the enterprise. In the old model, one became successful by being efficient. But now the economy has shifted. Efficiency is not the key, innovation is. The problem is, policies and procedures are still stuck in that old model.

Executives recognize that clear top-down mandates are required to eliminate barriers to innovation, and allow for bottom-up, technology-enabled inspiration to thrive. And that leadership, they say, must begin from the very top. The survey found that CEOs remain the key catalysts for change, with the highest proportion of respondents (42%) saying that CEO-driven cultural change is fundamental to improving the innovation quotient within organizations. Echoing that theme, Nancy Quan, VP for Global R&D at Coca-Cola, says the buy-in of the C-suite is critical for innovation projects – and that this, in turn, relies on the careful integration of innovation projects into the overall business plan. She says: “Innovation must be closely tied to the business strategy and growth agenda; with clear engagement by the businesses that will ultimately launch these initiatives.

Innovation must also be delivered on time and with clear business value.” Stephan Altmann, Head of Innovation Excellence at BASF, says: "It is important that top management is active in promoting organizational culture by initiating general innovation programs or road maps that explicitly state the future contribution of investments in innovation projects to the overall business.” For Altmann, the CEO is a crucial enabler of a culture which encourages curiosity among all staff and gives them the freedom to fail: “Visionary leaders give their middle and lower management the ability and freedom to think in longer time frames and allow for certain levels of failure in the short term."

THE ROLE OF THE CIO AND INNOVATION TEAM

Top companies are looking to create organizations that will enable innovation to flow through the enterprise. To do this, there is a push to create roles and teams developed specifically to enable innovation and break down the barriers to successful innovation programs. As innovation leaders our role is to enable innovation, facilitate it, and accelerate it. Asked where innovation was most needed, respondents looked towards organizational culture as driving innovation. As such, 34% of respondents say new approaches were needed to reshape “organizational mindset and culture,” while 30% suggest companies need to “embrace change and new ideas.” When asked about where to apply innovation resources, 33% of respondents say those resources should be also be deployed to revitalizing the DNA and mindset of the business.

Mark Drasutis – Head of Innovation for News Corp – describes his job as “half technology leverage and half culture change.” That mindset change, he says, begins with a focused effort to define innovation, and to integrate it within business planning across the enterprise. Innovation grows within a new framework in which individual employees enjoy the freedom to fail – especially to “fail safe” – and matures with cross-functional collaboration between teams; between the company and external partners; and even between the business and its customers. Innovation must be closely tied to the business strategy and growth agenda; with clear engagement by the business that will ultimately launch these initiatives.

To achieve this mindset change, the first step is to come up with an innovation architecture that will determine how to define and recognize innovation, which is dependent upon the industry, skills, knowledge, and resources available. Survey respondents also highlight the need for innovation initiatives to accord with operational business plans. Fully 34% say innovation resources must go to Defining innovation strategies, projects, and deliverables. It is important that when innovation programs are identified, it is clear what role it plays and the value it can contribute (or not) to the existing business.

One of the most effective means of integrating an innovation architecture and culture across the business is through the dedicated innovation team. These small, dedicated teams, typically led by an Innovation Executive or Program Manager, act as a corporate Center of Excellence for Innovation, working with business unit leaders across the organization to uncover challenges, then tapping into employees to crowdsource innovative ideas. The effectiveness of these teams is highlighted in a recent IBM Global Business Services report, which found that “Outperforming organizations are 79% more likely to establish and maintain a special or designated innovation team.” The report goes on to state “these dedicated groups can fulfill two important roles: provide management and governance for the overall innovation program and support specific innovation activities.”

As was echoed in the qualitative interviews, innovation measurement has emerged as a critical focus area for innovation resources. In large part, this is because it provides CEOs and financial managers with a tool with which to transform a change-resistant corporate culture. When innovation leaders can properly measure innovation in a way that is meaningful to their specific organization, then innovation outcomes can be measured relative to other business pipelines.

Stikeleather and his team have determined very specific definitions of innovation at Dell. Because of these definitions, they have been able to measure the effects of their innovation processes. And these processes are indeed proving worthwhile. We've tracked that within a year, the people who have gone through the innovation training have about 300% increase in their pipeline, compared to the ones that haven't, and are closing deals that are 8% larger than the deals of their colleagues. Measuring innovation is also essential in making innovation actionable and accountable. Respondents attach great importance to creating evaluation models (37%), and in developing measures and metrics of innovation programs (36%). Altmann says: “As innovators, we need to quantify innovation outcomes, provide timelines for those outcomes, and demonstrate how those outcomes align with the overall business strategy. We must be explicit and demonstrate long-term returns. Otherwise, innovation will not be executed due to operational day-to-day business requirements.”

Far from the past notion of accidental or blue-sky breakthroughs, executives now say that innovation can not only be measured and tracked, but also developed within the same kind of formal channels that control operations. Indeed, fully 44% of respondents believe innovation would be best encouraged with a “formalized process for evaluating and rewarding innovation up and down the organization," and 40% of respondents believe that fast-tracked but structured programs of “intrapreneurship” for top talents must be implemented.

Respondents also indicate that successful innovation strategies are not about individual change agents or individual good ideas. Instead, collaboration on ideas has emerged as the true key, with 29% of respondents insisting that cross functional collaboration is critical in advancing innovation across the enterprise.

Andria Long, VP for Innovation at Johnsonville, says: "One team might be called an innovation group, but successful innovation implementation requires the buy-in and support from cross-functional teams-- be it R&D, operations, engineering, or others."

Stikeleather agrees that the key to successful innovation is about ensuring innovation becomes embedded into the cultural DNA. And once that happens, there may no longer be a need for an innovation group to drive all innovation. “Our end game is to disband the innovation group, once we've established the foundations of a culture of innovation, because we believe that the only thing that happens if you keep the innovation group around is they turn into a bureaucracy.” His advice– “don't teach innovation, but innovative thinking.”

KEEPING PACE WITH TECHNOLOGY AND NEWLY EMPOWERED CUSTOMERS

Inventive approaches are critical for revenue growth in almost every area, from product development to cost reduction and the penetration of new markets. But, strikingly, the BPI survey revealed that the most urgent target for new thinking in 2015 was in finding new ways of engaging with customers. A whopping 40% cite “New ways of engaging with customers” as the primary target for all new thinking in their companies. And in a closely linked finding, another major group of respondents (32%) cite “keeping pace with digital technologies” as the most needed focus for new innovation. At the same time, only 6% of respondents included “realizing cost reductions” as an urgent focus for innovation – a major target for companies just five years ago– and only 7% said new innovation was most needed to improve existing products.

Digital technologies are driving ways of engaging with customers, and smart companies will take advantage. Drasutis says innovators need to train themselves to forget the stated purpose for new technologies, and to focus instead on how customers use those technologies. “Flickr is a great example – it was designed as a computer game, but it became one of the biggest sharing websites of them all because consumers found they could share photos in the game,” he says.

“And who would have thought that people would be watching TV and tweeting at the same time? So you look to leverage technologies which have the potential to be relevant to consumers in their new world.” Rather than wait for consumers to “tell” companies what they want, or demand that elusive “perfect information,” executives are seeking better ways to interpret relevant behavior among customers and anticipate their future service needs.

Asked what best advance innovation across the enterprise would this year, fully 30% off respondents cite “better use of customer feedback systems.”

New ideation platforms have emerged as an indispensable tool for identifying both what customers want and predicting what they will come to rely on. Many companies are still experimenting with new platforms such as crowdsourcing, and the BPI survey found that 50% of executives had experienced “mixed results.” But a strong percentage found crowdsourced information to be a unique and effective channel for targeting innovation projects. Barnett notes: “Effectively utilizing the innovative potential of the crowd is the next innovation imperative companies face." This points to the fact that while companies see the value of crowdsourcing, they are still challenged in execution and getting to results. There is much more to success that any platform or tool. It is imperative that companies work with vendors that also provide a proven methodology for engaging the crowd and managing ideas through to implemented projects.

DEVELOPING CHANGE AGENTS

Businesses badly need more innovative thinkers and change agents to drive new thinking, products and competitive performance in 2015. Executives have a clear picture of what they are looking for in a change agent. Respondents overwhelmingly say they want emboldened staff who are curious and engaged with the world beyond their desks; who collaborate cross functionally; and who challenge traditional thinking. The dedicated innovation team is the ideal change agent and catalyst for affecting a culture of innovation across the business. Yet survey respondents say those risk takers and innovators are too often not recognized, rewarded, cultivated or encouraged at either the corporate or university level.

47% of survey respondents declared their ideal change agent to be a person who “challenges the status quo and traditional thinking.” But strongly linked to these qualities is a parallel requirement that these innovators channel their ideas within a framework of viability within existing business plans. Roughly one in three respondents qualified this free-thinking imperative with these additional qualities: that individuals “Understand where change can deliver business value,” and have the “Ability to marry innovation with strategy, process and solutions.”

The value of emboldened staff across all levels is well illustrated at News Corp.

As a new leader, Drasutis has found an environment so agile for change that it is already “where the customers are” after just two years of a five-year innovation strategy. He says this happened partly because staff was already primed to be curious, and questioning the status quo was generating bottom-up ideation. The key to empowering existing staff as change agents, he says, is a policy of open innovation and a “show, don’t tell” approach. For journalists, the mindset has rapidly shifted from producing newspapers to “telling great stories,” using multiple media and platforms.

However, respondents say that that corporate culture is lagging the C-suite aspiration for a collaborative army of change agents. Results suggest that this is fundamentally a human resources problem. HR needs to be pushed to hire, promote and incentivize change agents. Many survey respondents (28%) point to finding and empowering change agents in the enterprise as a top priority towards focusing innovation resources. Brandon Barnett notes that among employees, there is no shortage of ideas; what is needed is a formalized structure to harness and develop them: “I firmly believe employees, like all people, are by their very nature innovative and inventive. We are problem solvers. So inventive thinking is already in the DNA of employees. I believe the (bigger) question is how to create an organization that allows innovation to thrive through people.”

For many top executives, this process begins with encouraging employees to be curious and interested in the dynamic new world around them: to think about their own interaction with social media; with innovative retail offerings; with the shared economy and apply those to the needs of their customers. Nancy Quan says: “It is important that associates are well networked and have curiosity and interest in many things. It’s important that they spend time on understanding what is happening externally in the world around them, are risk takers, are passionate and tenacious on what they are working on and are able to connect things that are not obvious.”

CONVERGENCE & BREAKTHROUGH INNOVATION

For top executives, innovation needs to happen at the intersection of technology and markets. And executives are finding that investments in portfolios of the less glamorous forms of innovation – the incremental and breakthrough varieties – are the most effective for growth and competitiveness. Stephan Altmann says: “In today's environment there are few apparent blue oceans out there. Innovation is often formed by shifts rather than disruptions.” Survey respondents agree, and note that multiple, small initiatives not only help foster cultural change across the enterprise, but also create a “fail safe” trial-and-error learning, and the occasional “holy grail” windfall of a disruptive offering to the market.

In other words, companies can't always look for 'disruptive innovation' homeruns. Those expensive and complicated innovation projects contribute to the view that innovation is not doing a good job of driving hard outcomes, especially because most times disruptive innovation fails- and fails big. Indeed, these projects may contribute to the perception of innovation as a non-value driver. Fully 32% of respondents note that “Limited recognition of innovation as a competitive advantage and value builder” remains a key inhibitor to an innovative corporate environment.

Breakthrough innovation means you can either use existing technologies and new business models or take existing business models and new technologies, all to continue creating your existing value proposition and sometimes a new value proposition. And then the Holy Grail that everybody looks for is a disruptive innovation, which is where you apply new technologies and new business models and new processes to create a whole new value proposition. However, it is unlikely to really create disruptive innovations if that's the only focus. A portfolio of incremental and sustaining innovations and your breakthrough innovations provide the coverage to allow you to try a whole bunch of things that might be disruptive innovations in the future.

Respondents also warn that effective innovation also requires dexterous systems that will quickly identify and “kill off” initiatives that fail to show value or viability. And they need to do so while simultaneously preventing the idea’s originators and developers from being discouraged, and conducting rapid, constructive post mortems to improve the success rate of future innovations. Andria Long says: Innovators must be able to kill initiatives, be agile, and shift when necessary.

To do so, the fundamental requirement is to give employees the freedom to fail. A company and its leadership team need to understand that, because fear of failure impedes progress. With the plethora of information out there, it is easy to iterate something to death to decrease risk, but that iterative process can dilute down what was once a great idea. Leaders also need the permission to kill something if it's not working. Everybody wants disruptive innovation, but disruptive innovation is a black swan, and has more to do with luck than anything else. If you want to be a successful innovator, you must maintain a portfolio of innovation. That's because most innovation is the product of failure.

ARE UNIVERSITIES FAILING US?

Given the challenges of outmoded corporate cultures – and the imperative for innovation to be integrated throughout all aspects of the enterprise – there is a greater need than ever before for “new blood” innovators. Executives say they urgently need an infusion of young change agents for whom innovative thinking is automatic, and the speed and dynamism of the real-word marketplace is familiar.

Yet executives say business schools are lagging far behind successful companies in cultivating innovative mindsets. BPI’s respondents gave a startlingly critical verdict in this area, with a massive 79% of executives believing that business schools are doing either a moderate, improving or poor job in equipping students for the new innovation-driven marketplace.

One could argue that these findings suggest that the fear of failure inhibiting innovation within companies is, in part, coming from an educational system where failure is not tolerated. While there does appear to be improvement in this area, with 17% of respondents highlighting an “improving” capacity of university programs, respondents see that there needs to be a fundamental shift in perspective of these schools towards highlighting the significance of harnessing innovators and innovative techniques.

Respondents note that above all, educational institutions need to immerse students in real-world innovative thinking. An overwhelming majority of 64% of executives say that the primary solution for tertiary institutions is not to teach innovation as a stand-alone subject, but rather to Integrate innovation processes and problem-solving into existing classes and studies. What we’ve done is create a training program that doesn’t teach innovation, but innovative thinking. A quarter of survey respondents also recommend compulsory on-the-job experience for post-graduate admissions at business schools.