Why Execs Struggle with Innovation, and the Culture Fix They’re Missing
By Vanessa Pineda
The stats on innovation leadership within corporations are sobering, especially at a time when trends like #futureofwork and #digitalinnovation will pose serious consequences to competitive advantage. Though 96% of companies say innovation is a top five strategic priority, there is a wide gap between the aspirations of executives to innovate and their ability to execute.1 Most senior executives (65%) are just “somewhat” to “not at all” confident about the decisions they make in areas of innovation.2
Moreover, 82% of executives and managers at U.S. companies do not distinguish their innovation approaches between incremental versus large-scale transformational change—meaning they use a single “one-size-fits-all” approach to achieve different goals. Many say they have “big” innovation ideas, but are missing an organizational “home” with the company. So their ideas often go nowhere.3
This is all troubling when innovation is a top-level agenda item. I spent years as a change management consultant at a global consulting firm prior to leading our professional services at Cultivate Labs, and I’ve been at the heart of large clients’ innovation processes to see enough of the breakdowns.
More recently, while in business school, I worked for a few months in the Global Digital Innovation group of a U.S.-based apparel retailer. I was an internal consultant, tasked with developing and presenting an omnichannel strategy to the executive team. As part of this project, I provided recommendations for innovation—focusing on our in-store experience, e-commerce/mobile, and product lines. These recommendations were based on competitive intelligence, sales analytics, and dozens of interviews I conducted with leaders and sales associates to determine our gaps and priorities.
While the research-intensive strategy gave me a decent view of where we were in terms of our tech-driven innovation, I couldn’t help think there was substantial input we were missing. I was the sole person compiling data, and then ‘ideating’ based on what our competitors had that we didn’t. Surely, the best and newest ideas for innovation weren’t going to come from me - the temporary MBA consultant. We missed opportunities to leverage the intelligence and wisdom of our global digital team’s cross-expertise and market insight to propose solutions to real customer needs they faced.
There was also no clear channel to understand the rest of the decision process for the innovation recommendations once they were proposed to the C-suite. For example: How would they be evaluated? Which would become actual projects? Which would be ice-boxed? When would ice-boxed ideas be taken out of the box?
A top-down process such as this is faulty. But, even companies who try bottom-up innovation—through idea fairs, focus groups, offsite meetings at ‘creative spaces,’ or increased time for brainstorming (which we know doesn't work)—still can’t sustain the kind of energy and action to instill this into their culture.
The Innovation Problem is Systemic
The fundamental problem with all of the innovation approaches I’ve mentioned is that none of these work to integrate innovation into core processes and behaviors across the entire system.
To have sustainable innovation, companies have to think beyond ‘innovation’ in product and service categories, to every-day business processes, distribution, value chains, business models, and even the functions of management.4 When you think about the entire system, that means you need constant and quick ideation, testing, and feedback, ingrained as part of corporate culture, not done on an ad-hoc basis (like once every few years to fit into a strategy).
While there are no best practices for establishing a culture of innovation, it is possible to make innovation an ever-present organizational competency when you have the right mechanism in place—such as ideation and experimentation involving internal crowdsourcing and crowdfunding.
3 Steps to Begin Fixing the Problem
The following steps are meant to scale—meaning, you can start implementing them within a department, team, or geography. Gradually, multiple parts of the organization can use this same approach as a means of de-centralizing ideation, so that it doesn't just come from the top and becomes a cultural capability.
1. More experiments at the front end of the funnel
One of the first things to consider in revamping the approach to innovation is to treat it as a funnel where ideas can progress through different stages, as such: ideation>>prioritization>>experimentation>>validation>>implementation.
Rather than betting on big ideas to start, a business thrives when you increase experimentation. Start at the top of the funnel by soliciting ideas from employees for lightweight business experiments around a problem area. The experiments should require just a small investment in resources to make failure palatable. Look to research, such as Michael Schrage’s The Innovator’s Hypothesis, which lays out a framework to guide employees in experimentation.
Setting parameters, such as a budget, number of weeks for completion, number of staff, etc., around initial experiments gives focus to ideation and promotes a “lean” mentality where trial and error is encouraged. Experiments should have clear go/no-go decision milestones for testing their viability and deciding whether to implement them on a larger scale through additional staffing and investment.
2. Give employees an outlet to crowdsource ideation and prioritization
Executives often face challenges with soliciting ideas and prioritizing those ideas in a transparent way. This is a chicken-and-egg situation, but think about what the employee needs to ideate (to feed the funnel). Employees have to be inspired to produce and propose new ideas, and part of this includes knowing what will happen to ideas when pitched up the chain. Employees must also feel a commitment from the company that it will provide the time, staffing, and budget to invest in ideas that are deemed valuable. And, they must know how ideas are “deemed valuable” to begin with.
At Cultivate Labs, we designed Cultivate Ignite, a Kickstarter-style internal crowdfunding application that allows employees to act like entrepreneurs by submitting and collaborating on ideas around specific campaign themes. Then, employees act as startup investors using company dollars to fund ideas they believe will offer the most value to the business. The company commits to providing the resourcing to staff up ideas that collect their budget goals.
Unlike a basic innovation platform, Ignite's crowdfunding approach provides "signals" to the company based on employees' perception of an idea's business value (as measured by the # of investors, % funded, how early people invested, # of "refunds" withdrawn, etc).
3. Use an iterative funding approach to drive growth through the funnel
You can think about internal innovation similar to how many startups seek iterative funding at different stage gates. In a more tactical sense, here's how it could look:
Ideation>> Run periodic (e.g., bi-annual or annual) "seed-stage" idea campaigns using Ignite.
- Prioritization>> Outputs of the Ignite crowdfunding will be fully-funded ideas that the company commits to pursue.
- Experimentation>> Projects get staffed and teams complete their experiments and test.
- Validation>> Teams make a go/no-go decision to continue to develop the idea, and pitch next steps.
- Implementation>> Similar to a VC-style investment process, projects move on to raise Series A, B, C funding and grow further down the pipeline, as their testing proves fruitful. You can continue to use crowdfunding via Ignite to engage employees in these additional funding rounds.
This is anything but a linear process - ideas will evolve or drop-off at certain points of the funnel. Meanwhile, new ideas should be generated frequently enough to keep a steady stream moving along various stages. The intent is for the innovation process to be transparent, to leverage the breadth of intelligence that already exists inside the organization, and most importantly, that it be engaging and sustainable to cultivate innovation as an organizational capability.
Interested in speaking to us about our crowdfunding solution? We'd love to talk.
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Sources:1. Deloitte Survey, June 15, 2016.
2. Barsh, Joanna, Capozzi, Marla, and Davidson, Jonathan, “Leadership and innovation,” McKinsey Quarterly, January 2008.
3. “Three Years Later, U.S. Companies Continue to Struggle With Innovation, Accenture Survey Reveals,” Accenture, March 21, 2016.
4. Barsh, Joanna, Capozzi, Marla, and Davidson, Jonathan, “Leadership and innovation,” McKinsey Quarterly, January 2008.