Innovation struggles to integrate fully within the organization

In the past few weeks I have outlined the existing gaps at the leadership level on innovation engagement and innovations continued lack of being integrated into an organizations strategy. Time and time again there are new reports, surveys and different comments made on this serious disconnect still going on that needs clear resolution.

It is always pleasing to sometimes be on the same track as the Big Consultants, for working on and moving beyond the trends they are spotting and highlighting, into some clear tangible solutions, to help resolve these. Recently McKinsey Quarterly conducted an on-line survey of just under 3,000 executives on issues surrounding innovation. The report is entitled “Making innovation structures work”- see the link below.

They confirm much that I have seen or gained through my research and point very specifically to the key difficulties organizations are presently having around innovation.

This report feeds directly into the solution work I’m undertaking

The results feed directly into the work I have been undertaking on the leadership gap and the suggested framework of the integrated executive innovation work mat that has been discussed in considerable details in the past few weeks. These have been on this blog site of mine, as well as ovo innovation’s  my collaborating partners, and also on  innovation excellence’s web site, where we had a whole week of featured articles, discussing the work mat component parts, or as we entitled it, the essential seven domains of innovation that make up this work mat.

So what stands out in the McKinsey report?

The innovation structure is evolving; organizations rely on exploring various organizational models to ‘house’ and execute innovation. They work with multiple structural models to drive innovation efforts and often have separate innovation functions, located in multiple locations. It seems there has been an insurgence of structures in the last three years that are currently being worked through.

 Presently there is no uniformed view on innovation organizational design

According to the report, the innovation’s function has shifted in the functions location, in its financing and ownership and increasingly reporting into a C-Level, or even directly into the CEO.

The designs involved include innovation centres, a dedicated new-business development function, emerging business opportunities and technologies groups (often separate) and having advanced technologies institutes as part of the mix.

It still seems where it ‘sits’ partly depends on the time the innovation function was set up. The older structures, set up more than ten years ago 46% of those surveyed report that innovation “sits” at corporate headquarters compared with 65% at the organizations with younger functions. Younger functions also focus more on profit but presently have fewer market successes as they have had less time.

What is the innovation they are working upon?

These are with functional focus on identifying new business opportunities, such as blue-sky innovation and developing potentially disruptive technologies and those report directly into the CEO at around 44% of the functions at present. That maybe the wrong side of the 50% mark I’d like but we seem to be making progress of linking innovation directly to the leadership of our organizations, or are we? Read on.

The factors of success

This is the area of most interest to me. Although it is prefaced by a matter of maturity (whatever that means) there is a ongoing debate on how separate or aligned with corporate strategy an organizations approach to innovation should be. To quote from the report “What is affirmed that strategy (particularly one that is focused, clearly articulated and integrated) is key to successful outcomes. At companies where innovation is fully integrated into strategy, executives are SIX times as likely as those without an integrated strategy to say their separate functions meet their financial objectives effectively, actually very effectively or extremely effectively”

Equally where there is a successful integration there is a sharing of the organizational elements across the portfolio. This includes sharing strategic priorities and focus, knowledge and insights, research insights and analysis, leadership teams and approach to governance with lastly a good talent flow and exchange.

The challenge for innovation is still around strategy though

Only one-third of the executives report innovation is fully integrated in corporate-level strategies,  and nearly half say integrating the separate function’s strategic objectives with those of their core businesses is one of their functions most significant challenges.

Those that achieve effective outcomes have clear leadership support

Fifty-six per cent of all the executives surveyed identify C-level and leadership support as a driver of success (second only to strategic focus). There is a more than interesting effective outcome split within the report (exhibit 4) that the level of interact frequency with the C-level team makes a real difference.

Surprisingly but fitting with my own observations and research, is the frequency of interactions between the separate innovation functions and C-level leadership. From this report those deemed as “very frequent” is only at 40%. Can you image the wealth creation, new growth potential that innovation provides yet C-level engagement is only at 40% for very or extremely frequent in discussions? So is innovation that important to the C-level really?  Something is wrong here, badly wrong.  “Somewhat frequently” comes in at 17% and “rarely or not at all” is 22%. This is the leadership gap we have suggested needs addressing, urgently. Clearly innovation “sounds good, a good sound bite” but is not top of mind for C-level as they would like us to believe, it seems.

Then McKinsey outlines the involvement with separate innovation functions at the C-level as actively involved in the innovation process, from idea generation to commercialization, is only 38%. Those involved in the evaluation and feedback on major innovation decisions, about strategic decisions and priorities of investment makes up another 35%, yet only 26% serve on an innovation council or committee and 14% report that their leadership is not involved with innovation functions at all.

So we are still badly lacking that deep C-level engagement, although the line into them is improving. The need is to get the C-level strategically engaged at least and convince them to provide the innovation framework for others we are proposing, so they do become fully involved and those responsible to work within innovation can conduct their work through the framework we are suggesting to strengthen the C-level engagement and cohesiveness of strategy with innovation activity.

Divergence and philosophical tension in innovation

So the McKinsey report is more than helpful (and timely) on providing a snapshot of practices, successes and challenges but they do suggest there is a divergence and reflection on the struggle and philosophical tensions surrounding innovation. For instance, equal shares of those surveyed, state their function exist to turn a profit, or have no financial targets at all. Equally there are large splits on measuring individual performance with only 30% having the same performance metrics as the rest of the organization, while 32% have innovation-specific metrics and some (23%) seem to straddle the middle of the two. The lack of leaning to one form of measurement or the other needs resolution or is it evenly split due to the nature of the innovation activity the function is working upon?

The one aspect within the report I find really shocks and disappoints me

The concern lies in the number of dedicated employees on innovation, 35% of executives (out of 2,927) have ten or fewer full-time equivalents working within their function and 30% saying at least 51 full-time equivalents dedicated and working on innovation.

That is staggering low in my opinion for the area that is reportedly consistently within the top three priorities of the CEO. No wonder we have the slow innovation cycles, the poor success rates and the lack-lustre performances from innovation if these are the dedicated numbers working on innovation.  This is appalling. I just wonder how many efficiency and effectiveness people are employed across some sizeable organizations yet innovation seems grossly undeserved by these results. Putting your future into too few hands, to work on breakthroughs, those new disruptive areas means you must be forced to end up with incremental innovation for maintaining performance, and we all are seeing that clearly emerging time and time again, from most organizations not balancing their innovation activity in a well- structured and thoughtful way.

Risk, poor incentive, under-resourcing innovation and fear still dominate. When will stakeholders start asking more direct innovation questions to the boards of organizations?

The last part of the report deals with the difficulties aligning innovation.

The significant challenges in meeting strategic objectives are hampered by a range of difficulties, the highest as a % of respondents was 53% on the competition coming with short-term priorities from other parts of the business, 42% for difficulties in integrating functions strategic objective with those of the core business, 29% in difficulties in defining the functions business case or value proposition to company leaders, with 19% seeing the challenge of being separated from the rest of the company.

The conclusions  drawn from the report.

The report concludes many of these issues are cross-cutting and perennial challenges not just for innovation but for the organizations as a whole.

It reaffirms the absolute need for strategy to precede structure when organizations decide to create new innovation functions and the enabling effect an engaged C-level support brings in driving innovation success. Also it suggests that a real care to tailor the function to existing organization objectives and culture are important.

The report recommends the following:

1)      Organizations should not rely on a single innovation function, it must integrate with the entire organization

2)      There must be first a well-established and clear strategic focus

3)      A clear garnering-in from top management

4)      That C-level support is a key factor for innovation success

5)      The measures should focus more on the performance and success on the functions role in the innovation value chain, not necessarily financial targets as these can be an unreliable measure or guarantee of success.

This report is timely

After the last few weeks in laying out the business case for having an integrated framework for innovation through our executive innovation work mat, this McKinsey report reinforces that we are on the right track.

I feel even more confident that this framework we offer to bridge the innovation leadership gap can make a solid, maybe significant, contribution to reducing some of the issues and challenges that have been raised within this McKinsey report.

The McKinsey report can be found through this link.

Re-ordering the organization’s genetic code for innovation.

As we enter 2012, what really disappoints me is that we still have not cracked the innovation DNA code sufficiently to embed this within the organizations genetic principles, structures or systems for completing an everyday innovating business. Why is that?

I see no reason why innovation cannot be a clear (integrated) management discipline, shared, taught and fully aligned with an organization’s strategic intent and execution. It needs to have a set of molecules that carry the ‘genetic’ innovation information in logical and a comprehensive arrangement, of its separate elements. These need to be strung together like all living cells by a set of clear rules. The code order defines the sequence, the “alphabet” of the organizations ability to innovate. Well that is how it should look if we want to allow innovation to enter the present DNA of an organization. Innovation cannot sit outside or be run in parallel but it needs to form part of the essential organizational code.

I am convinced innovation can be implicitly understood but I still feel there is an awful lot of conflicting advice being offered that must leave many confused. Let me add to the confusion!

We really do need to break down the existing code of organizations DNA to ‘implant’ innovation within the building blocks. I feel we have four intervention points to reorder the thinking.

1.Decision Makers & Our Rights

An organization rises or falls by its decisions. The people placed in the decision making roles determine what should be going on and what, who and why this (set of) decisions are right for the direction and health of the organization. This is where the vision, the mission, the strategic intent ‘kick-in’ and innovation needs to align to this to achieve the aspirations needed and hopeful growth. Innovation needs to be deeply embedded in this, it needs to be seen, understood on its part it must play. It needs the other part here, the transferring of the rights- the right to think, get involved and where and how they participate in creating something. People need to be invited in.

2. The Motivating Factors

Knowing the objectives, knowing the limits, boundaries and having clarity on the incentives to innovate are crucial. Knowing the underlying values, the beliefs and the encouragements for adding to the climate to innovate can motivate or destroy. Innovation needs not just objectives but a clear understanding of the degrees of freedom and encouragement being made available. This becomes the point of understanding a common language, knowing the policies and key principles to stimulate and further strengthen innovations role it plays. Motivation forms the decision- making body within the alphabet on our abilities to innovate.

3. Knowledge & Information

The intensity of knowledge, the flow of information ‘fuel’ the opportunities that need working upon. I’ve written previously on absorptive capacities ( ) about learning to absorb new innovation knowledge and describe this part of the DNA need in some detail there. Also I wrote earlier on the need to move towards a more distributed innovation model ( ) describing the flows for gaining more engagement and deeper involvement. It is the consistent, open flow of knowledge and information in stronger collaborative platform ways that will be the spearhead and stimulation points for innovation to be valued and seen for its worth. The coordination and collaborative nature of innovation really needs to be engrained in any DNA and everything that looks like a silo, you need to have some form of ‘bunker busting’ way to neutralise this really harmful effect on any innovation organism.

4. Structure & Scope

Innovation is often very uncomfortable to embrace. It chips away at well established processes and structures. The power of established processes are the bedrock of organizational memory and the skill to ‘unpick’ those that hold back innovation (for growth) from those that unite the often difficult task of managing across an organization is really challenging. There are ‘points of conscious choice’ in what to abandon, what to loosen up and what to adopt. Having people who are skilful at recognizing the implications becomes vital. They need depth of understanding across the business, they need to seek a ‘power’ balance and they can’t afford to upset (too much) the regular operating rhythm unless it is seen to be a better way forward. Often innovation is incompatible with ongoing operations but usually needs just targeted organizational change.

What is critical in my mind though is that innovation cannot be isolated from ongoing operations; there must be a continued engagement and ‘creative tension’ between the two. What is clear you do need a formal, intentional resource commitment to innovation and its ongoing integration, it is most unlikely to be organic.

We need to identify all the innovation impediments.

To make any transition, to embed any different DNA you do need a management makeover. Often today’s approaches to managing can conflict. Innovation can be strangled if you try to simply embed it into existing parameters. There are inbuilt inhibitors that are deep and systemic. Bringing to the surface the current political and ideological factors is no easy task. Spotting what is more innovation friendly becomes necessary and this is why having innovation visible from the top, integrated in all decisions draws out the impediments. The antibodies need to be recognized to successfully overcome them and then put in place a DNA sequence that works that has innovation as more of the core.

“Relentless Innovation” by Jeffrey Phillips certainly helps.

Jeffrey has written a timely book, released in December 2011.  His basic argument is that today’s typical business model impedes innovation as the emphasis is still on efficiency (at any cost), alongside the cost-cutting for supposedly short-term gain. He terms this as “business as usual” (BAU) and it actively rejects the innovation effort, so much called for by CEO’s and needed for regaining growth.  He also points his finger at a problem that has perhaps been ‘hidden in plain sight’ that the middle manager is plainly not equipped to manage innovation, alongside all of their other activities; something has to give or be put into a new balance.

He believes he can achieve a ‘dual capability’ of achieving efficiency and innovation into a consistent set of capabilities that can become a core everyday discipline.  I would recommend buying a copy and I feel you will appreciate and identify with many of the arguments laid out by him, for challenging the way we are still running our organizations.

Making a shift needs a new innovation DNA alphabet.  

Innovation is a shift from those known, consistent, honed sometimes comfortable processes to unknown, unexpected and unusual ones. This makes anyone uncomfortable but if you demand really path breaking innovation you need to recognize your organization needs some significant changes to ‘allow’ innovation to be integrated into your existing processes.

To initiate this shift and integrate innovation, it does needs a new rebalancing to take place. A new DNA sequence where innovation reorders the genetic code of the organization between what Jeffrey talks about of balancing the investments made in efficiency with the new needs of placing innovation within the sequencing required for any organization today, to deliver a healthier model for sustaining growth in the world 0f 2012 and beyond.

Understanding the makeup up of the innovation DNA codes and where the parts fits within, and alongside, many of your existing practices is essential. We need to finally crack this code in 2012. Just remember to ‘invite’ people in who understand the consequences and impact points and can ‘graft’ the right gene into the right order for the synthesizing process this needs (for you) to be successful.