Innovation remains a priority for CEOs because innovation improves business and financial outcomes. We learned from our extensive research over 20 years and the publishing of over 25 academic, peer-reviewed articles, and our consulting practice that highly innovative companies have seven traits. The most successful companies practice these traits tirelessly.
Our research at InnovationOne reveals that companies scoring in the top quartile of our InnovationOne Health Index© reported higher financial performance than bottom quartile performers by as much as 22%. We also learned that top innovators earned a 6.3% total shareholder return premium (stock price appreciation and dividends) over three years. Companies that have been on the top innovators’ list since 2004 for ten years or more delivered a 4% premium over ten years.
Below are the seven traits of highly innovative organizations:
1-Executives embrace innovation, create an innovative vision and strategies, and communicate them relentlessly. With many of the organizations we work with, this is the one action executives can take to improve innovation. While the executives themselves don’t have to be innovators, they need to signal to their workforce and external partners that they embrace innovation and have a compelling vision and strategy.
These executives make innovation an important aspect of their strategic planning processes. Innovation is a way of thinking. Strategic planning is a process. Our research found a polarity between high and low innovative organizations. The polarity manifests itself in a variety of strategic approaches that together change how organizations make decisions. Executives in highly innovative companies had incorporated innovation into their strategic planning processes. Their strategic planning was action-orientated, not process orientated. These organizations thought through their innovation agendas and developed actions plans for execution. High innovators relentlessly stick to their innovation plans but revise their goals and milestones to learn from their experimentation and external partners. On the other hand, low innovators often changed their leadership focus and sponsorship, negatively affecting their culture in terms of innovation. As well, their strategic planning process was static and bureaucratic.
2-Employee and external partner creativity is unleashed and learning is encouraged. There is usually no
shortage of creativity and suggestions from employees. To ignite employee creativity, executives must create transparent cultures of innovation and give employees permission to ask questions, make suggestions, and collaborate. For example, collaboration with external entities – vendors, customers, universities, startups, and financiers – is proving to be materially successful for highly innovative firms and presents a strategy shift to innovation. Many executives tend to hoard their most recent market data, customer feedback, and latest trends. This is the wrong instinct for innovation. Executives need to share what they know (short of proprietary information, of course) and invite employees and external partners to look for business opportunities as well as solve problems. When employees are intrinsically aligned with the company’s purpose, and when they believe that their suggestions will be taken seriously, and know they will be recognized for their achievements, a fountain of innovation will flow forth.
You can tell when creativity is unleashed because management encourages organizational learning and experimentation, which is a key determinate of innovation success. In the book, Experimentation Matters, Stefen Thomke writes of the value of experimentation. He observes that it may take 200 experiments to develop a billion-dollar-plus disruptive innovation. Along the way, management must create a culture of failing frequently and furiously, figuring out what you learned today, and determing the nature of tomorrow’s experiment. Our research in innovation reveals that the leaders of these innovation teams are renowned for being great sponsors and building trust with their employees and teams. They make sure their teams are aligned with the company’s strategies and know their role in the organization and their goals and milestones. These managers use measures to learn about the team’s successes and failures, and the obstacles to be overcome. Based on what they learn, they get additional experts, equipment, or money for the team. They don’t micro-manage the team. They know that not every innovative idea will pan out. But it is the empowered team, not the manager, who will come back and say this innovation is not ready now and cite the reason with data, often freeing up resources for a different solution.
We encourage you to read more about creating learning, or what we sometimes call “discovery cultures” and how to thrive through adversity
3-A clear process exists to move ideas forward. Many innovative ideas die on the vine because there is no clear process to advance the idea, experiment with it, gather analytics, prototype it, compare it with competing ideas, and decide which idea to move forward with. These processes need to be dynamic and highly interactive. They should also be transparent. This is an area where collaborative digital technology can be helpful, but without a culture that supports innovation, even technology can fail.
Overwhelmingly in our most recent organizational-wide surveys, employees told us they lack the empowerment and process to advance new ideas efficiently and quickly. High innovators have invested in methods and tools to move ideas forward, and the investment is paying off. There is also evidence that methods and tools establish environments for idea creation. The research found that high innovators create space and time for ideation and innovation. Our survey found that design thinking and stage-gate processes were the highest scoring methods to advancing innovation.
4-An innovation knowledge management system is in place. Highly innovative companies create knowledge management platforms to collect information and share and transform this knowledge into better decisions. Our research found more than a 20 percent difference between high and low innovators related to knowledge management systems that fostered collaboration. Highly innovative organizations utilize real-time collaboration infrastructure. Employees on innovation teams in highly innovative organizations have access to digital libraries of information, internal and external experts. The culture supports sharing and collaboration between experts with teams. As a result, they are quicker to identify value-creating strategies and more efficient at bringing them to market.
Many companies hesitate to involve external experts and thought leaders. But without the involvement of such external thought leaders, they cannot fully assess the needs of the future marketplace, customers, and potentially disruptive social trends. Transparent, open innovation cultures that reach out to external experts are vitally essential to guard against “not invented here” thinking and closed-mindedness.
Even when effective knowledge management systems are in place, if the company’s culture is too risk-averse, they will never commercialize the next significant innovation. Here is an observation from one of our survey participants about his organization’s culture that is too risk-averse and has too many restrictive criteria to take advantage of their innovations.
“As a company, we have measurement criteria to ensure that innovative ideas are monitored from inception through commercialization. It is restrictive to quick movement. This is coupled with a conservative approach to investment to make an atmosphere that at times seems overly restrictive and risk-averse.”
5-Investment in resources, skills, time, advanced technology, digitization, and space are dedicated to supporting innovation. Innovation needs investment, and the investment isn’t necessarily expensive. In some industries, the investment is simply time to allow employees to experiment. The investment often includes training employees on collaborative behaviors. The investment is expensive for organizations dependent on sophisticated technology and are heavily regulated by government agenices, such as the pharmaceutical, biotech, aerospace industries, and advanced research and development labs. The innovation in these companies requires investment in applied technology, clinical trials (in pharma and biotech), capital equipment, labs, training employees on new technologies, and filing volumes of detailed reports for regulatory evaluation and approval by dozens of government regulatory agencies across the globe. But innovation is an expense that must be made. The status quo is a failing business strategy.
Our most recent global surveys show that investment in advanced technologies inform existing strategies and spur new ideas. Not only were technologies such as data analytics and artificial intelligence more widely adopted by high innovators, according to our research, but these technologies are now being used beyond singular “project” level initiatives and becoming engrained in the operational foundations to drive innovation. As examples of how this works in practice, a low innovator will enact a data analytics project to gain insight into a product, service, or program.
In contrast, a high innovator will embed data analytics into continuous analysis and predictive decision-making of its innovation knowledge management infrastructure. As a result, strategic choices are informed by real-time insight from predictive models embedded in the operations. Strategy shifts to reduce, expand, or disrupt current products or services, or business models are now becoming automated. High innovators also successfully used advanced technologies such as artificial intelligence and supporting technologies such as crowdsourcing and innovation management software.
6-Innovation is measured. Our research has consistently shown that high innovators have a much better innovation measurement platform to assess the progress of a company’s innovation platform. They also tend to better understand how organizational departments such as manufacturing, supply chain, sales, and marketing support innovation. In many respects, this is the most basic strategy shift – getting back to simple measures that are visible, understood, and aligned to the innovation agenda. Every employee in these organizations knows exactly what the innovation strategy is, and more importantly, their role in achieving it. For example, supply chain in highly innovative organizations will get involved early to determine who in their value chain may have the technology or expertise to assist an internal innovation team or find strategic external resources for innovation. This is not last-minute work. Our research shows that high innovators are not afraid to invest in the long-term and measure accordingly by every department. Conversely, low innovators emphasize short-term financial measures but do not develop robust measurement systems across the organization to support innovation.
7-Performance management systems incent and encourage innovation. For many mature organizations and government agencies, performance management systems reinforce a safe and status quo culture to assure execution excellence. These cultures discourage risk-taking and collaboration. Enlightened executives know that they can keep the organization’s focus on meeting this quarter’s commitment to stakeholders while also creating a collaborative and learning culture for innovation. To achieve execution excellence — and innovation — a company’s performance management system needs to motivate meeting commitments while creating expectations for innovative behaviors and rewarding questioning, initiative, reasoned risk-taking.
Innovation is not easy. But it is worth the effort and provides better business outcomes and financial results for companies and government agencies. The status quo saves the effort but is a failing business strategy.