Three years ago Derek Bishop, Jo Geraghty and I published our book, Building a Culture of Innovation. [1] The book was inspired by, and written for, all of those leaders who understood that in order to thrive in today’s global marketplace they needed to set innovation as a capability at the heart of their culture but were uncertain how to go about it.
In the book we talked about the importance of understanding the organisation as a whole and its level of innovation maturity as the first step on the journey to building innovation capability as a component of organisational culture. We looked at designing the future and shaping the journey, and at the importance of communication in engaging people in the transformation required. And we looked at new approaches to leadership and its criticality to success both in shaping and delivering the vision as well as in leading through change.
But, three years on, is innovation still more talked about than actioned; seen as a ‘thing’ rather than an organisational capability or component of culture? Have senior leaders shifted not only their approach but also their perspective on the value of innovation? Or to put it another way, is success now acknowledged to be the ‘outcome’ of an innovation-focussed strategy, purpose-driven leadership and a truly creative and collaborative culture working in harmony?
So, I thought I’d share some of the key innovation statistics and reports from 2018 as well as attempting to answer some of those key questions.
Leadership
Let’s start with leadership and the executive team; in other words, the people who are responsible for defining the future vision as well as devising and implementing the strategy which will lead to high-value outcomes. Given all of the publicity surrounding innovation over the last three years, not least from international bodies such as the World Trade Organisation and national regulatory bodies, have business executives not only embraced the concept of innovation as the driver of outcomes but also taken strides to infuse innovation methodologies across their organisations?
Well, as with many of the questions highlighted throughout this paper, we seem to be looking at a good news/bad news scenario. Starting with the good news that seemingly 84.9% of executives now recognise that innovation is very important. [2] On the other hand, 57% of companies don’t have a formal innovation process [2] and just 41% would see their organisation as being an innovation pioneer. [3]
So does that mean we are still in the realms of talking about innovation rather than taking concrete actions; seeing it as something nice to have rather than an imperative for the future prosperity of the organisation? Whilst the above statistics would indicate that that was the case, delving through the reports I think there’s a pattern emerging which would suggest that 2018 may be the year in which innovation and innovation leadership started to mature.
For a start there has been a 67% spike in the number of organisations which have increased their funding for change initiatives since 2017 and there has been an 18% uplift in companies which believe they have the culture in place which will enable them to embrace change. [4] There was also one interesting comment from an IBM study [5] to the effect that “innovation is no longer the province of the hungry upstart.” This was echoed in another report which commented that since 2014 there has been a shift from small business and entrepreneurs driving innovation to larger businesses [6], suggesting that larger organisations are now fighting back against the viewpoint that innovation is solely the preserve of start-up and fast growth businesses. To put it another way, CEOs may have been saying for years that innovation could help significantly drive results, now seemingly, they are starting to take action.
We have also seen a growing recognition that hype around new technology doesn’t always drive impact. [6] In other words leaders are starting to recognise that technology can only take you so far and that true differentiation comes from delivering something more. Having said that one report, which admittedly focused on small businesses, revealed that just 12% of businesses had introduced innovation in order to improve leadership/management capabilities. [7] That suggests that innovation may still be viewed as linked to product rather than whole organisation capability, thereby limiting the chance of optimal outcomes.
Statistics aside, on the ground I am seeing a real shift in the way in which organisational leaders not only view innovation but also seek to embed innovation within their organisations. Andrea Sutton, Vice President of Design Technology at AT&T commented in November 2018 that
“As a Fortune 100 company, innovation is key to our success.”
Elsewhere Southwest Airlines has developed an innovation academy with a view to leveraging human-centred design practices in order to inspire innovation and agile thinking and devolve innovation through best practices. My only comment here is that I’m also seeing huge amounts of inertia around the false mecca that is Silicon Valley and the overfocus on single-point solutions like sheep-dipping people through Lean training or launching an accelerator.
The real shift in an organisation’s ability to shape the future starts with its leaders, however, there is recognition now that in these exponential times new leadership challenges have emerged. The main one being that the traditional approach to leadership development is outdated and isn’t sufficient to create the kind of value required for shaping the future. What is undoubtedly required is future-focused, leadership to be the norm not the exception and that means leaders need to be driven by purpose, creativity, curiosity and empathy more than ever before. We need to help leaders become pioneers, 10x thinkers and future shapers.
Strategy – Risk/Disruption
We have seen above how leaders may be starting to shift their outlook from talking to action but is there a danger that innovation may go the way of other initiatives and be seen as something which was of its moment rather than as a true driver of future outcome. Here again the statistics are revealing a mixed message.
Let’s start with a stark warning about the pace of change. 90% of executives believe the pace and pressure of change has grown over the last three years. [4] And they would be right. Once upon a time companies could expect to spend three decades or more at the top of the leaderboard. Now, at the current churn rate, half of S&P 500 companies will be replaced in the next ten years. [8]
The glib answer to this statistic would be to comment that this accelerated churn rate is a natural consequence of the ever increasing pace of change. I would argue that, change notwithstanding, the underlying reason is that churn happens when businesses don’t look forward and therefore fail to start shaping the future soon enough. I’ll be revisiting this theme and sharing my thoughts in a forthcoming article “Unicorns don’t kill dinosaurs, meteors do.”
Are executives worried? Well whilst one report saw 41% of executives acknowledging that their company is extremely/very at risk from disruption [2], another report revealed that 44% saw no reason to transform in response to disruption. [5] In the meantime top threats were listed as overregulation, terrorism and geopolitical uncertainty [9] rather than disruptor organisations.
Strategy – Product Development
Perhaps that’s why the pace of product development is little changed from when we wrote Building a Culture of Innovation. One report revealed that 57% of organisations still take more than nine months to respond to change, with just 18% are able to react within the current quarter [4]; a slowness of development which was echoed by another report commenting that 60% of companies acknowledge it takes a year or longer to create new products. [2]
Given the pace of change there is a very real danger therefore that by the time new products have been developed they are already obsolete. Is this down to the leadership team? Well rather damningly less than 5% of companies say their leaders are capable of making objective design decisions. [10] But perhaps of greater concern is the strategy and approach set down by leaders which hampers an organisation’s ability to rapidly develop products. For example, only 50% conduct user research before generating the first design/specification whilst 60% of companies use prototypes only for internal testing late in the design process. [10]
What that suggests to me is that organisations need to refine their approach further, adopting much deeper design principles in order to deliver products and services which resonate with customers current needs.
Strategy – Innovation approach
Continuing the good news/bad news scenario, organisations do seem to be broadening their approach to innovation with various reports highlighting a mix of solutions ranging from internal innovations through to organic growth and R&D to strategic alliances including M&A’s, joint ventures and outsourcing. Nevertheless, whilst there is no single correct innovation mix, the fact that 78% of organisations focus on incremental changes [2] would suggest both a lack of awareness of innovation itself, let alone it’s potential and an attitude to risk which prevents optimal outcomes. I would also suggest that there is still a huge leadership gap in understanding how to design and align innovation strategies with corporate growth strategies.
Given that, it is hardly surprising that high performing companies are two times more likely to be seen as risk seeking when it comes to innovation and five times more likely to build innovation capability and focus across every business function. [2] It is a lesson which all organisations ought to take on board, moving innovation away from being a ‘thing’ that you do to an outcome of an organisation-wide, strategic approach to doing things demonstrable different, high-value, customer-focused and future shaping.
Strategy – Shaping the future
One of the key challenges for leaders is embracing a mindset which transcends the idea of ‘managing innovation’ in order to play catch up and truly seeks to shape the future by delivering game-changing solutions, experiences and business models. The challenge is that it requires leaders to be 10x thinkers, pioneers. It requires them to shape the future not be constrained by managing today.
By 2020 roughly 20% of the workforce will be drawn from the Generation Z era. [11]
Why is that important? Simply because Generation Z, both as employees customers and consumers, are looking for organisations to do something more than simply sell things [12]. They are looking for meaning, social responsibility and purpose, for organisations to step up and create worldwide, systemic change to our lives and to the planet.
As Telefónica Alpha’s Head of Innovation, Maurice Conti, says;
“We have an opportunity to change the course of our future history but that requires visionaries, and technology working in harmony”.
That brings us on to one of the chief catalysts for change; your people.
Culture and people
The IBM report [5] commented that the top two characteristics for success are the willingness to experiment and the support of empowered employees. However, you only get supportive employees when you engage them in the strategy and provide them with the tools which they need, including access to continuing development programs. Indeed one report, which admittedly looked at digital innovation, revealed that 44% of executives saw the need to update skills on a continuous basis whilst 73% said that skills should be updated at least every six months. [13]
So why is it that 64% of global executives say that a lack of skill is restricting their ability to innovate? [6] What that says to me is that there is still far too much emphasis on hiring purely on the basis of existing skills and qualifications; rather than bringing on board people who have the right attitude and approach and then giving them access to cutting-edge development programmes.
Another statistic of concern was that 64% of individuals didn’t know how failure was treated in their organisations with 10% thinking it would result in redundancy. [4] Seeing failure as a learning experience is an intrinsic element of organisation wide innovation capability so it seems there is still some way to go until the fundamentals are embedded.
On a more positive note, 86% of organisations say they are at least somewhat effective at creating experiences that cater for the individual customer [5]; indicating that they have understood key elements of a true innovation-focused culture, namely solving a genuine problem and adding real value to the customer.
On the other hand, with 71% measuring innovation quantitatively using short term metrics and 85% using revenue as the key measure [2] it would appear that long-term outcomes are still being sacrificed to short-term profitability or quarterly targets!
Conclusion
The reports quoted in this paper to a large extent take account of global forces and inevitably there will be some arenas, either on a national, business or sector basis, which are further ahead in their innovation maturity than others. Nevertheless, overall the indications are that whilst some progress has been made, there remains a considerable amount of ‘theatre’ and significant developmental work before organisations are truly able to reap the outcomes which an innovation-led culture can deliver.
Innovation isn’t thing, nor is it a quick fix addendum to an existing culture. Building a culture of innovation does require organisation wide change of action, approach and attitude. But there is no excuse not to take that action. Indeed, failure to do so is a failure of corporate governance responsibilities.
So my challenge to you in 2019 is threefold:
- Strategy. The threat posed by the accelerating pace of change isn’t going to go away. So look to align a future-focused innovation strategy with your corporate growth strategy in order to solve the innovation-led challenges of today whilst building a picture of how to shape the future.
- Leadership. As we said in the final paragraph of Building a Culture of Innovation, “it is time – more than time – to commit to making innovation real.” Shift your leadership perspective from talk to action and start shaping your organisational strategy (refer to challenge 1) and culture by becoming a purpose, creativity, curiosity and empathy-driven pioneer, 10x thinker and future shaper.
- Culture. Your people are your future. Engage them in change, spread the innovation message across the organisation and give people the tools they need in order to deliver the outcomes defined by your new strategy and leadership approach.
