Monday, December 10, 2012

Are You Sure You Want to Innovate?

If you read the business magazine articles, search the Twitter hash tags, check in to your LinkedIn discussion groups, and follow the viral blog postings, you will find countless numbers of items covering the topic of innovation.
Harvard Business Review’s lead article in their May 2012 “Innovation for the 21st Century” series states “Management knows it and so does Wall Street. The year to year viability of a company depends on its ability to innovate”.
Yet, when people think about a finance organization, I am willing to wager that the term “innovation” rarely comes immediately to mind. But wouldn’t an innovation competence be required there as well for the sake of the company’s “viability”? Surely all must play a part? And if it is so vital, can any business support function truly be able to describe itself as “world-class” without it?
As one who is skeptical of things that trigger the “lemming tendency” in human nature, I hesitate to answer our innovation questions without looking at the topic a little more closely.
What Do We Mean By Innovation?
In order to accomplish this task, we must first consider what exactly we mean by the term “innovation”.
The Merriam-Websterdictionary defines innovation as “the introduction of something new”. Wikipedia differentiates innovation from both invention and improvement as follows:
“Innovation differs from invention in that innovation refers to the use of a better and, as a result, novel idea or method, whereas invention refers more directly to the creation of the idea or method itself. Innovation differs from improvement in that innovation refers to the notion of doing something different (Lat. innovare: "to change") rather than doing the same thing better.”
These new and different things come about in varying degrees. In the same HBR article noted in the last section, the authors cite different levels of innovation as being “core”, “adjacent” or “transformational” to the company’s current products and assets.
Creative Realities, an “Innovation Management Collaborative”, distinguishes three levels of innovation as well, labeling them “incremental“, “breakthrough”, and “transformational”. Meanwhile, the CEOforum, a “peer group briefing and network services organization”, define the three levels as “incremental”, “substantial”, and “radical”.
There are many more ways to depict these stages. The Innovation Excellence website, billing themselves as “the online home of the global innovation community”, has identified 14 ways to discuss the three levels (shown in Figure A).
Figure A
At this point it seems that we can safely conclude that innovation is something that in varying degrees is new and different.
The Context of Innovation
This sounds simple enough.
So why is it that innovation is often portrayed as something lacking within organizations? Why can we not just get our team together tomorrow morning and say “it would be good to do some things differently around here, let’s figure out what those are and then do it”?
The central issue is that our group does not exist in a vacuum. We are part of an organization. And what we do impacts others. And others impact us.
The purpose of an organization is to achieve collectively something that an individual cannot do on their own, or is inefficient for them to do so. That “something” might be building a car, cooking and serving meals to a large number of people, or implementing world peace. However, it is also important to consider that an organization can only do this if it preserves its own existence. If we allow it to unravel tomorrow and come unglued then no cars get built, no lunch gets served, and world peace is not maintained.
To these ends, an organization creates rules, structures, processes, and cultures for the dual purpose of coordinating its activities to make or do things today and ensuring it can continue to do so tomorrow.
While our team meeting may result in lots of ideas for new practices, procedures, and impacts, these must be implemented within the organizational context. If our innovation disrupts others “down the line”, or requires inputs never-before-delivered from our “suppliers”, our innovation is essentially dead in the water and cannot proceed.
Innovations act like a disruptive chain of dominoes inside an organization.
Because of this, organizations are inhibiting environments for innovation. It’s in their nature.
Ted Levitt, former long-time Harvard Business Review editor, states: ”Organizations, by their very nature are designed to promote order and routine. They are inhospitable environments for innovation. Tim Brown, CEO of IDEO, one of the leading design firms in the world, agrees, stating “Most of the extinctions that happen in the innovation ecosystem happen inside the organization…The antibodies that organizations naturally have to fight new ideas win out.
Vijay Govindarajan, author of The Other Side of Innovation: Solving the Execution Challenge, in a Strategy and Business interview tells us that:
“Every organization has a core business, which we call its performance engine. Its main job is efficiency: By making every task repeatable and predictable, the core business obtains scale and makes a lot of money. Innovation is just the opposite. It is nonroutine and unpredictable. Therefore, there is an inherent and fundamental inconsistency between what companies do to pursue scale and what they need to do to execute on innovation. It is not that people are doing the wrong things and killing innovation. In fact, people are doing exactly what they should be doing to keep the performance engine running – and that is killing innovation.“
All this is nothing new, of course. Reinforcing Govindrajan’s  inconsistency point, Peters and Waterman in their 1982 book In Search of Excellence note that "the most discouraging fact of big corporate life is the loss of what got them big in the first place: innovation"
Yet, given this reality, if we want to push forward with an innovation agenda, we are choosing to: a) disrupt the organization’s valued “order and routine” and b) fight the “antibodies” driving us to extinction, in order to achieve it.
Creating the Innovation Foundation
What does the organization require in order to achieve innovation?
Michael Winston’s Hard BallInnovation Blog notes that an organizations needs to “Give them [idea generators] freedom to pursue new ideas or improve on old ones”. Peters and Waterman note that excellent companies “were creating almost radical decentralization and autonomy”. Gary Hamel, in McKinsey’s Innovative management: A conversationwith Gary Hamel and Lowell Bryan tells us: “Decision-making will be more peer based; the tools of creativity will be widely distributed in organizations”
Different Thought Processes
Innovation requires a different way of thinking about the organization and its activities. According to IDEO’s Brown:
“The biggest barrier is needing to know the answer before you get started. This often manifests itself as a desire to have proof that your idea is worthwhile before you actually start the project. You can understand this, of course, because it’s an attempt to mitigate risk. But wanting to know whether you’ve to the right idea – or the assumption that you’ve got to have a business case – before beginning to explore something kills a lot of innovation.”
 The innovation process is a series of divergent and then convergent activities – a very simple concept, but one that a lot of leaders used to managing efficient processes in their businesses struggle with. By ‘divergence’, I mean a willingness to explore things that seem far away from where you think your business is today. The discomfort that a lot of business leaders have with innovation is with divergence. They think that it’s divergent forever and that they’ll never be able to focus on something that makes business sense. If you understand that convergence follows divergence, and that it’s really hard to converge without first diverging, maybe that’s a bit comforting.”
In Business Model Generation, a book with 470 “strategy practitioner co-creators”, the authors state that:
“The challenge, though, is that business model innovation remains messy and unpredictable, despite attempts to implement a process. It requires the ability to deal with ambiguity and uncertainty until a good solution emerges. This takes time. Participants must be willing to invest significant time and energy exploring many possibilities without jumping too quickly to adopt one solution. The reward for time invested will likely be a powerful new business model that assures future growth.”
“We call this approach design attitude, which differs sharply from the decision attitude that dominates traditional business management…The decision attitude assumes that it is easy to come up with alternatives but difficult to choose between them. The design attitude, in contrast, assumes that it is difficult to design an outstanding alternative, but once you have, the decision about which alternative to select becomes trivial.”
“This distinction is particularly applicable to business model innovation. You can do as much analysis as you want yet still fail to develop a satisfactory new business model. The world is so full of ambiguity and uncertainty that the design attitude of exploring and prototyping multiple possibilities is most likely to lead to a powerful new business model. Such exploration involves messy, opportunistic bouncing back and forth between market research, analysis, business model prototyping, and idea generation. Design attitude is far less linear and uncertain than decision attitude, which focuses on analysis, decision, and optimization. Yet  a purposeful quest for new and competitive growth models demands the design approach.”
Different Organizational Customs
Innovation requires the organizational setting to be conducive. Peters and Waterman say:
“They make presentations, and then the screaming and shouting begins. The questions are unabashed; the flow is free; everyone is involved. Nobody hesitates to cut off the chairman, the president, the board member.”
“And how that contrasts with the behavior of most companies we encounter. Senior people, who have sometimes worked together for twenty years or more, won’t attend gatherings unless there are formal agendas. They can’t seem to do anything other than watch presentations and then politely comment on the contents. “
“…open, confrontation-oriented management style in which people go after issues bluntly, straightforwardly. The main reason people need not hide is that they talk all the time.”
Antti Paananen , in “Improving the Front End Practices ofInnovation Processdescribes the following from research:
“…the five most important factors shaping the environment of innovation:
·                     People emotionally committed to the project
·                     Environment that allows risk taking
·                     Environment of trust and openness
·                     Time for free thinking
·                     Funding for new ideas”
Different types of people
In order for innovation to succeed, a firm needs different types of individuals to compose its collaborative innovation teams. From Paananen:
An organization full of creative people does not necessarily make the organization creative. Organizational creativity requires a creative culture and tools for creative collaboration. Collaboration is an essential element of organizational creativity and innovation. A cross-functional team of creative people with different backgrounds and expertise can potentially be much more creative than any individual member…
This diverse group of individuals needs to managed and supported even though they may fly in face of “the norm”. Peters and Waterman, noting the role of innovation champion: the “champion’s working style is at odds with the way most businesses are managed.” “Obnoxious, egotistical, embarrassing, disruptive” are some of the adjectives Peter’s then uses.
Tom Kelly, Creative Director at IDEO, in his book “The Art of Innovation, devotes some pages to discussing the following “Eight Crazy Characters for Hot Groups”:
The Visionary – asks, what’s next?
The Troubleshooter – cuts to the chase, not always PC.
The Iconoclast – challenges status quo (even at IDEO).
The Pulse Taker – the heart, insightful in human factors.
The Craftsman – “magic elves”, always making.
The Technologist – resident geek, full of raw resources.
The Entrepreneur – innovative without a niche, master of process.
The Cross-Dresser – self-educated and motivated, works beyond formal training.
Treading the Dangerous Path
Having reviewed the organizational context and some of the elements required to get innovation to flourish, we are faced with the realization that this juxtaposition creates an environment that might be harmful to your career for a number of reasons.
First, given that coordination is a critical factor to organizational success, teamwork is a valued trait within organizations. Since our innovation push will require “disruption” and “fighting”, other’s perception of our “team player” abilities is likely to be lower than their perception of our “conforming comrades”. If “others” includes our boss, our bosses’ boss, and people who influence either of those, it is entirely possible that promotions, bonuses, and even employability may be impacted by this portrait.
Second, for innovation to take root we need to be comfortable with different thought processes, such as “divergent thinking” and “exploring many possibilities without jumping too quickly”.  It is quite common, however, for organizations to be led by those who are “results driven” and “efficient”. How is our status then harmed when others in the organization, looking to further their own cause, begin whispering into the ears of those leaders things like “I’m not sure what they’re doing over there, really. What does planetary rotation have to do with budget closing processes, anyway?”
Third, for innovation to occur we have found that it requires “time for free thinking” and “funding”. If the firm, midway through the year, is in a situation where it has begun looking for ways to ensure it hits this year’s numbers, FTE reductions and budget cutbacks can become regarded as “low hanging fruit” towards that cause. To fight this, in order to preserve the innovation capacity, creates the impression that you are “not aligned” with the organization’s objectives.
Fourth, there is a lot more work involved in managing an innovative organization. Who, after all, craves leading folks who are “obnoxious”, “disruptive”, or bluntly “tell it like it is”?
Finally, any innovation processes will generate its share of failures. There are those in the organization who will benefit by calling attention to these when they occur, along with a compelling 20/20 hindsight observation as to why these initiatives should never have been undertaken in the first place. Suddenly professional competence is called into question.
What Can We Do?
There are some actions we can take to mitigate the risks identified above, such as:
Start at Incremental – innovation efforts aimed at the current product/service, asset and process mix is less threatening and can be done without the entire list of fundamental requirements.
Generate some quick wins – select some initiatives with a high degree of probable success. This can create a “halo” which will help “inoculate” you against some of the risks driven by perception.
Keep Way Undercover – Lockheed’s famed “Skunk Works” succeeded in part because they were “out of sight, out of mind” from the rest of the organization. Outside of their group, nobody knew enough of what was going on to say anything or understand how to use it to their advantage.
Be A Well-Known Champion of the “Apple Pie” parts – Transparency, Growth, and Collaboration are not only trendy words but few can disagree or find fault with their premise. “Own” these words within your company and constantly talk about how your activities contribute to these ideals.
Make Sure Your Team is Solid – select your team well and maintain the team emphasis. Groups that are “rock-solid” are more difficult to attack or undermine.
Key Takeaways
Innovation is required if a firm is to remain relevant, even though it is fundamentally at odds with much of the organization’s activity. Those seeking to blaze new trails need to be careful they do not risk more than they are able to manage and should adopt what preventative practices that they can.
·         How innovation friendly is your organization?
·         What are the positive and negative factors that influenced your answer?
Add to the discussion with your thoughts, comments, questions and feedback! Please share Treasury Café with others. Thank you!


  1. Great piece David. I agree innovation does not have to be the next Amazon or Apple. Similar to what you wrote, a company can be innovating in their own way, as long as, they are moving forward. Coming from the accounting industry, there are a handful of us who get innovation in a rigid, un-disruptive arena. Its what keeps me coming in, day after day!!

    1. Chris,

      I think you're right, the Apples are the outliers and exceptions to the rule for the most part rather than the norm. But perhaps they are the most fun to think about due to the drama.

      I got a little confused by your last sentence - are you coming in day after day a) because there is innovation occuring, or b) because it is delivered in a rigid and undisruptive way?

      Thank you for both reading and taking the time to comment. It is very much appreciated.

      Dave W.

  2. David,

    Good stuff. In my experience, many companies believe they are innovating. They actually think they have constructed a culture similar to your description. However, there is a stark gap between the corporate office and the front lines. Only candid feedback and receptive leadership can change the course.

    I'm afraid that the short term financial pressures create barriers to the average executives. To your point, they simply don't have the stomach for it. For most, it comes down to prioritizing their career path over the business. Those are tough decisions.



    1. jv,

      You hit the nail on the head. There is a name for the phenomenon (though I do not recall exactly what it is) of ceo's and cfo's being blinded to the reality of the organization due to their being somewhat 'insulated'. Nobody wants to be the bearer of bad news, so they never get any!

      Thanks for taking the time to read and share your experience with this topic, I appreciate it.



  3. David, you are spot on. I work in a military environment in command and control. Innovation is essential and we do understand that a network solution is required for the asymmetric warfare we are facing now and into the future. This issue is that our hierarchy restricts our innovation. Changing our systems to be more flexible and user friendly is limited by who and why certain people get information and whose budget is being funded. I totally agree with Gary Hamel's comment in your piece "Decision-making will be more peer based; the tools of creativity will be widely distributed in organizations" However I am having a very difficult time trying to convince leadership to try a new approach to implement an interactive user interface that allows this kind of integration. I will leave you with a comment made by the four-star general who recently was our Vice Chairman of the Joint Chief's here in America. I took these words for action: General Cartwright said; "The world that we want to live in has greater knowledge, power and adaptation at the edge, not at the core, and we're building all of our systems to put it at the core."

    PS: I support the Salvation Army in the US. The SA gave my brother hope when he was alive, coincidentally today (Dec 19th) would have been my brother's 66 birthday. Seeing the red bucket means a lot to me and I look for it wherever I go during the holidays.

    Thank you and Merry Christmas,

    1. Ron,

      That quote from General Cartwright is a great synopsis - the action is at the edge, yet the core is where organization's tend to focus.

      Given the tendency of organizations to preserve their existence, I suspect it is always an uphill battle to some degree to innovate within them. This may lead to discouragement and frustration on the part of those attempting innovation within them, and your comment has left me wondering how folks might be able to provide encouragement, support and advice to each other since each will share a certain amount of things in common. Kind of like an Innovators Anonymous!

      Thank you for your Salvation Army story as well. As I've gotten involved in the organization, I have been amazed about the number of people they touch through their efforts. I'm glad your brother found them to be a positive and inspirational force for him when he was alive.

      Thank you for taking the time to read and comment - I'll think about your brother the next time I toss some coins into a Red Kettle!


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