Tenet #3: Innovation requires commitment from all levels of the organization, starting at the top.
Lots of companies give lip service to innovation. Their CEOs write inspiring columns in company newsletters. They sponsor company-wide “innovation contests” intended to send a message that innovation is important. The word “innovation” shows up prominently on their web sites and in their annual reports. Like a duck hunter blasting indiscriminately into the sky in the hope that at least one shot will find a bird, these companies employ a shotgun approach on the theory they might eventually bag a brilliant idea.
These are not the marks of an innovative company. Of course the CEO needs to communicate that innovation is important. Innovation contests might even play a minor role. But if you don’t have a larger plan, any innovative ideas that emerge will be all over the map. While it might be nice to implement a new system for selecting the menu items in the company cafeteria, that kind of innovation isn’t going to drive growth. Innovation needs to be channeled so that what emerges has a good chance of really making a difference.
The business press is enamored with the “soft” aspects of innovation. You’ll read about how engineers in an innovative company are motivated to work long into the evening because the company provides free meals and drinks. You’ll be told that the company has ping-pong tables and a well-equipped gym. You’ll hear that informality rules and engineers have a sense of camaraderie.
These are all good things that can help encourage innovation. But they’re not the foundations of an innovative culture. They’re not even the right place to start. Not every innovative company does all these things, and many failed companies did do them. So what does it really take?
First let me say there is no single “right” answer for everyone. What works in Mountain View won’t necessarily work in Boston or Beijing. That’s not to imply the engineers in Mountain View or Boston or Beijing are any more or less innovative than their counterparts elsewhere around the world. It just means that as a manager, you need to tailor what you do to the specific needs of your company.
The business press also tends to portray small startup companies as being the most innovative—they’re agile, informal, and not afraid to take risks. Large multinationals are often portrayed as unimaginative and dull. While it’s true that some multinationals are overly bureaucratic, don’t forget that 9 out of 10 startups fail. No matter how creative you are you’re not really innovative if you aren’t commercially successful. Innovation can come from either large or small companies, and neither has cornered the market on it.
Before you talk about free dinners every evening or company sponsored yoga classes every Friday, you need to start with the basics. There are a few key things every leadership team should do to foster innovation. None of these are rocket science, but I’m amazed at how often management overlooks them in favor of trendier but less useful pursuits. Here are eight key things any company should do to promote innovation:
- Give everyone in the organization a clear picture of your target markets, your customers, your competition, and your business strategy to win. People work better if they know what they are trying to accomplish. This insight helps channel their innovation into areas that really make a difference. And don’t limit this communication just to the R&D department. Engineers and scientists aren’t the only innovative people in your organization. Everyone from the senior engineer to the junior administrative assistant should have a basic understanding of your business strategy. You don’t need to share all the details, but enough for them to understand such things as who your customers and competitors are and what new product introductions are most critical to your success. Don’t be too stressed about what would happen if one of them left to go work for a competitor. If you do a good job of creating a truly innovative environment you’ll have a motivated workforce that won’t want to leave.
- Remove obstacles that prevent people from doing their true jobs. You wouldn’t pay an engineer’s salary to a clerk, but it’s amazing how often companies cut back on clerical support and then expect the engineers to fill the gaps. When engineers have to handle their own shipping and receiving, place their own purchase orders, empty their own waste baskets, and spend an hour trying to find the optimum time on everyone’s calendars for a meeting, you’re essentially paying an engineer’s salary to a clerk. In isolation, each of these seems like a small impact on an engineer’s time. Together they stifle creativity and kill productivity. Moreover, your people won’t be inspired if the message they’re getting is you think so little of them you’d rather have them doing busywork than creative work. We’ll look at this more fully in my next two blog entries.
- Make innovation everyone’s responsibility, not the separate function of a few individuals. Some companies have innovation departments separate from the rest of the corporation, insulated from the requirement to follow company policies. The downside of this approach is that everyone else gets the message that they aren’t the innovators. This doesn’t mean you can’t have a “skunkworks” or other group responsible for new business creation. Just be careful not to call it an “innovation department”—innovation is much more than inventing new products. And let everyone play by the same rules. If it’s OK for the skunkworks to ignore company policies, then innovation projects in other departments should have the same right. And if these groups are more successful by circumventing company policy, it’s time to revisit the value of the policy. Encourage everyone to spend 5-10% of their time working on their own ideas. If every minute of their time is consumed in routine business, they won’t have time to innovate. Their ideas don’t necessarily need to tie directly to a possible business venture as long as they are developing useful skills. Back when I was an engineer, I occasionally took advantage of company resources to design electronic products for my own use—a darkroom timer, a telescope guidance system, a photoelectric photometer. None of these turned into HP products, but they all helped hone my circuit design skills. The fact that HP not only tolerated but actually encouraged me to do this work by providing the necessary tools and components was a motivator that paid the company back many times over. And you never know when you might reap rewards. My knowledge of photoelectric photometry was a direct factor in the eventual success of a multimillion-dollar line of HP optical test equipment.
- Encourage innovation proposals and make sure you actually fund some of them. Innovation projects are not the same as the 5-10% of time allocated for people to work on their own ideas. Innovation projects should be formal assignments that have a tangible benefit for your business—a new product, a process improvement, or a new marketing program, for example. It’s best if the project proposal percolates up from the people who want to do the work rather than as a top-down directive. You should have a system for selecting and funding these projects, and a method for measuring progress. Try to staff them with full-time people who aren’t distracted with other jobs. If that’s not possible, make sure you carve out enough of their time so they can be successful. Don’t just add the assignment on top of their existing jobs. Your actions need to follow your words. Nothing will kill innovation faster than asking for innovative ideas and then never giving people the time or money to test them out. This is especially problematic in public companies that put quarter-by-quarter results above all else. At the first sign of a weak quarter, management kills the budget for anything that doesn’t contribute to this quarter’s results. A good management team has the discipline to maintain at least some level of funding for longer-term innovation projects throughout an entire business cycle. I’ve always used the philosophy that an average of 10% of the R&D budget should be committed to blue-sky innovations. In tough times, I might have to cut it to 5%, and in good times I might let it go as high as 15%. But if I could possibly prevent it, I never let it go to zero.
- Push for quick results and don’t expect perfection. The outcome of an innovation project doesn’t need to be a fully functional product or process. The primary objective is proof of concept. Encourage people to get first results quickly without worrying about all the details. Once the concept is shown to work, you can fund a more extensive project. It’s even OK for the initial concept to be put on the market as long as it has value to at least a small subset of customers. That way you can get quick feedback from real customers. Nissan’s new LEAF all-electric automobile, with a 100-mile range and 8-hour recharge time, is hardly a replacement for the family car. But it serves a limited market and gives Nissan real-world feedback from customers who end up paying to cover Nissan’s R&D expenses. But don’t do this unless you’re prepared to follow up with an improved product. Otherwise you’ll end up disappointing customers and giving your competition a head start on learning what customers really want. Who remembers that the Honda Insight was America’s first hybrid vehicle, beating the Prius to market by 7 months?
- Accept failure as an integral part of the process. Not every innovative idea will pan out. Use failure as a learning experience, not a justification for punishment. If it becomes obvious that those people who take risks are punished for failure, everyone will stop taking risks. There’s a delicate balance to play here, however. A project that failed because of management incompetence isn’t the same as one that failed because a market didn’t pan out or a technology proved more difficult to develop than expected. It’s a leader’s responsibility to watch over innovation projects and take steps to correct management deficiencies before they poison the entire project.
- Provide regular opportunities for training. Everyone needs the opportunity to improve their skills. This keeps them current with technology, allows them to grow their contributions, and builds their enthusiasm and energy. Throughout my management career I have tried to make sure everyone on my team has the opportunity for one explicit training activity each year. This could range from sending an engineer to a technical conference to sending an administrative assistant through a time management course. Even sending R&D engineers out on customer visits can be valuable training. And I expect these to be more than just passive activities. The engineer shouldn’t just attend the conference, she should consider submitting a technical paper for presentation. If that isn’t possible, I at least ask her to present to the group the highlights of what she learned. This helps disseminate the knowledge and shows others the importance of sharing this insight with teammates. One thing I stress is that each individual must take ownership for his own training program. I don’t want people to wait for me to tell them what to do. They need to assess their own interests and propose a plan. Of course I still need to approve the request, and when I do I generally look for two things: does the proposal help improve a skill that is valuable to the company, and can we afford it? In tight years when I can’t approve the more expensive requests I work with the individuals to find less expensive alternatives. Within those limits, each employee should own the details of his own training plan. Not everyone wants to take advantage of training opportunities, and I don’t force them. But I make sure everyone understands how important it is to keep their skills relevant to current needs.
- Set up a rewards system that encourages innovation. Startup companies are really good at this. Much of their employees’ pay is in the form of stock options. If the company does well, they can get rich. If it fails, they are broke and out of a job. It’s a powerful motivator that encourages everyone to work together. Large companies don’t typically do this as well. If they grant stock options or the now popular restricted stock units at all, it is usually only to their top performers—the few people they imagine they really want to retain. Moreover, in a large company there is so little correlation between stock price and the contributions of any single individual that the motivation factor is almost nonexistent. Managers in large companies must look for creative ways to tie employee rewards to their contributions. Here’s an example from my own past. Some years ago my business was faced with a dilemma. Because of unexpectedly strong sales, one of our more popular products had gone obsolete for lack of several key components. The manufacturing process for those components had been dismantled a couple of years earlier and there was no way to resurrect it. We had a replacement product in the works, but it wasn’t scheduled to be introduced for another 18 months. At that rate we would miss out on something like $50 million of revenue and $10 million pre-tax profits. So we pulled the product development team together, explained the situation to them, and gave them a challenge. If they could figure out a way to introduce the new product 9 months earlier, the company would get $25 million more revenue and $5 million more profit than if they kept to the current schedule. If they could accelerate the schedule by this much, we would split the incremental profit equally between the company and the development team—they would get an extra $2.5 million split between the 20 developers. That was roughly a $125,000 bonus each. But if they missed the mark by even one day, they would lose the entire bonus. They accepted the challenge, looked for countless ways to shave time off the schedule, worked nights and weekends, and in the end, met the challenge. The product didn’t have all the features originally envisioned and had tradeoffs in other areas, but it accomplished its objective and kept customers satisfied. And both the company and the development team shared directly in the results.
Next: The research and development department must be an innovation engine.
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