(Encouraging Innovation... page 2 of 3)

Architects of Innovation Environment
Senior leaders are the architects of organizational structure, sustainable management processes, and the behavioral culture which create the environment for innovation.

Implementing basic design principles (reporting structure, physical space, flexible work hours,
dress codes, incentive compensation) can create the climate required to incubate Golden Eggs.
Some architectural responses are:

The Skunk Works. Innovation starts with discovery: an unpredictable endeavor in which original ideas are sought or found. Often it is helpful to protect innovators from bureaucratic distractions. One geographically-defined retailer, for example, sparked wider thinking by moving R&D from headquarters and repositioning it on the “other” coast. Intelligent leadership can be as simple as acknowledging that R&D labs are different, shielding them from an operational efficiency mentality and leaving them alone.

The Innovation Pipeline. Often the greater leadership challenge is managing the innovation process from end to end, including the critical interface between innovators and the rest of the company, as newly generated ideas are infused into the business. The business challenge is how (and when) to calculate potential market value on an original idea that is yet unproven. The criteria for a US patent captures this tension well, as it requires both an element of originality and a measure of value.

The front end of the innovation pipeline is marked by creativity, non-linear experimentation, and unencumbered idea generation. Advancing ideas through stages of evaluation and further development requires increased resources. As ideas move closer to commercialization, decision screens appropriately become more financial, analytic, and linear. The challenge is calibrating the criteria at each stage. Too rigid a screen too early applied shuts down discovery; too loose a screen too late applied wastes precious investment dollars. The judgment, risk tolerance, and decision making process applied by senior leadership reverberate widely, sending messages about the organization's appetite for innovation.

Climate Control. Much of climate control goes unseen, as it is built into the structure itself and operates quietly behind the scenes. Companies build any number of underlying management systems and processes (budgeting processes, talent management, decision-making) that are not designed with innovation in mind. It is incumbent upon senior leaders to recognize and shape these larger climactic forces; otherwise, the champions of innovation are forced to row against the tide. This is where leaders must also be innovators themselves: innovative ideas coming out of R&D can require new business models and new structures to be successful.

The Senior Team
Teams at the pinnacle of organizations can be the inflection point for innovation, and their actions are critical. Those team efforts include:

Portfolio Management Team. One of the greatest obstacles to innovation is that large companies, unlike small entrepreneurs, tend to avoid higher risk ventures where breakthrough innovation thrives. To avoid this pitfall, senior executives should act as Portfolio Managers. They allocate company resources in accordance with investment principles, risk parameters, and objectives that match their desire for innovation. They apportion some assets to a diversified portfolio of smaller, riskier, and more entrepreneurial ventures. And they monitor execution. Microsoft, as an example, has an extremely successful acquisition strategy assimilating innovative smaller software development firms. The allocation principles that apply to the portfolio would apply to the team itself; they should focus a portion of their time and effort on innovation.

Innovators of the Business Paradigm. Every company has an underlying business model that determines the way it competes in the market and provides economic value to customers. Many of the most significant examples of economic value creation occur at that meta-level, through the innovation of – not a product or service – but the underlying business model itself.

Despite myths of individual genius, innovation is most often the result of a series of incremental insights contributed by different people, sometimes working together by design and sometimes crossing paths by chance. Breakthrough discovery comes on the back of others’ work, at times with the slightest of twists. The team climate for originality is enriched through cross fertilization of diverse ideas, disciplines, and perspectives.

Innovation favors a team, and innovation in the business model requires this team. The senior team brings years of experience and broad knowledge of markets and operational areas to the table. But motivational patterns that drive executives to own and control ideas personally can thwart innovative thinking. When it comes to the business model itself, senior executives are the innovators, and the collaborative dynamics of the senior team are what spark creativity in this R&D lab.

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