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Page 4 of 4
Cultures of trust
Senior executives say that making top talent available for projects to meet innovation goals is their single biggest challenge in this area. Some 40 percent of them also believe that they do not have enough of the right kinds of talent for the innovation projects they pursue. A different view emerges from below, however. Employees are more likely to believe that their organizations have the right talent but that the corporate culture inhibits them from innovating (Exhibit 3). We, for our part, believe that defining and creating the right kind of culture, however elusive, greatly increases the prospects for successful and sustained innovation (see sidebar, "Many paths to success").
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Managers and employees broadly agree about the attitudes, values, and behavior that promote innovation. Topping the list, in our research, were openness to new ideas and a willingness to experiment and take risks. In an innovative culture, employees know that their ideas are valued and believe that it is safe to express and act on those ideas and to learn from failure. Leaders reinforce this state of mind by involving employees in decisions that matter to them. Respondents to our survey of 600 executives and managers indicated that trust and engagement were the mind-sets most closely correlated with a strong performance on innovation. In the same survey, 46 percent of the professionals surveyed said that they were far more likely to seek out a trusted colleague than an expert or manager to get new ideas and feedback on their own ideas.
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There is also widespread agreement about the cultural attributes that inhibit innovation: a bureaucratic, hierarchical, and fearful environment. Such cultures often starve innovation of resources and use incentives intended to promote short-term performance and an intolerance of failure. Only 28 percent of the senior executives in the survey said that they are more likely to focus on the risks of innovation than on the opportunities, but only 38 percent said that they actively learn from innovation failures and encourage the organization to do so as well. Even more alarmingly, only 23 percent of the employees believe that their organizations encourage them to learn from failure. To make a corporate culture friendlier to innovation, managers must acquire new skills to engage and lead the staff. Many fall under the heading of leadership skills, such as coaching (as opposed to ordering) subordinates and facilitating collaboration across silos.
Corporate-wide change programs not only are daunting and time consuming but also often have only a limited impact. Our experience helping companies to change and become more innovative suggests that they can make progress without such programs. We have described a number of leadership role-modeling and formal organizational mechanisms to promote innovation. When top management reinforces them with commitment and energy to build capabilities for specific tasks, the combination can yield impressive results. Top teams can help build a more innovative culture in several ways:
1. Embrace innovation as a top team. It's not enough for the CEO to make innovation a personal goal and to attend meetings on innovation regularly. Members of the top team must agree that promoting it is a core part of the company's strategy, reflect on the way their own behavior reinforces or inhibits it, and decide how they should role-model the change and engage middle management.
2. Turn selected managers into innovation leaders. Identify managers who already act, to some degree, as network brokers and improve their coaching and facilitation skills so that they can build the capabilities of other people involved in innovation efforts more effectively. The goal: making networks more productive.
3. Create opportunities for managed experimentation and quick success. Not surprisingly, this approach is typically the best way to start any change effort in large organizations. Quick success matters even more with innovation: people need to see results and to participate in the change. To get going quickly and learn along the way, select an innovation theme or topic area and then create small project teams. While you try out topics and ideas, test the most effective leadership and organizational approaches for your organization. The goal isn't to get it right the first time but to move quickly to give as many influential employees as possible a positive experience of innovation, even if a project doesn't generate profits immediately. A positive experience will make all the difference in building the organization's capabilities and confidence.
Innovation is a big idea with a big potential. But it is wise to approach it in small steps, implementing just one or a few of the ideas we propose and building from there. For many companies, the initial steps on this value-creating journey are the most critical of all.
Many paths to success: Excerpts from a McKinsey online discussion on innovation
To learn more about how innovation is managed at companies where it is a priority, we identified senior executives who, in our fall survey, had described their company that way and invited them to join an online discussion. One major topic was how leadership groups manage innovation. Discussion participants describe a wide variety of approaches to innovation ownership, the degree to which it is part of their leadership agenda, how to motivate innovators, and how innovation-related performance metrics are applied to leaders and to innovators.
One company has a structured approach to managing innovation that includes the whole leadership team: "We take very good care that the innovation topics are on our watch list and recur as important topics in our regular meetings...Our leadership team starts the day with the discussion of innovation. Some topics are discussed over months again and again to check if our first decision on it is still OK or if we need to make a change." An executive at another company says, "There is a split [on our leadership team] between abstract thinkers and pragmatic operators. The pragmatists understand the value of reaching for new/creative solutions, but want measurable improvements. In our company, that balance seems to be effective in guiding the conversation." And a third says there is "very little sustained discussion" among leaders at his organization, adding, "Innovation [is] generally handled by one or two leaders while the rest focus on operations."
There isn't even agreement on whether innovation should be discussed formally. One executive says, "Innovation can be seen as another thing on the corporate agenda or as streamlined into business as usual, as one of many avenues for agenda-setting initiatives. The latter approach tends to work better for us, by keeping innovation active and real as opposed to [being] a separate thing." Another says, "There are quarterly meetings internally to see how the businesses are performing versus their innovation targets and there are meetings every six months to dissect the innovation pipeline." In contrast, another participant says that, at his company, leaders generally have "lengthy, informal discussions" about innovation, while another says, "We do not plan specific times to spend on innovation as an executive team."
Several participants actually caution against too much discussion. One explains, "Ten percent of our time is well spent driving innovation and 10 percent of our time is lost in the debate about whether new ideas are innovations or product enhancements." Another says, "Our discussions are quite lively!...That said, we recognize the potential to dive into rat holes or digress into too much detail. We try to be careful to keep our discussion on track and meaningful...All talk and no action is not a recipe for success!"
Beyond the leadership team, discussion participants stress the importance of ensuring that innovation is clearly understood and employees are engaged, to varying degrees, throughout the organization. A senior executive explains, "We are trying to get the communication [about innovation's importance] to originate from the employees themselves. We can speak about it a lot but we want the conversation to continue after the meeting, without us around." Another participant sums up the risk companies face when the whole organization isn't engaged with innovation: "When colleagues complain or resist innovation the spark will be snuffed out."
But executives are dubious about how much they can really do. Many agree that getting everyone to innovate isn't realistic. One executive says that, at his company, "Mentoring people into becoming more open-minded is a long process. We sometimes find it's a necessary investment not so much to make them innovators but to get them to accept innovation and prevent them from becoming innovation anti-champions." Another observes, "Some [business unit leaders] realize the importance of being innovative and spend considerable time to generate new ideas. Others find it quite difficult and frustrating, especially those who have worked in the company for many years. One of our greatest challenges is to make the process constantly evolving."
In managing innovators, one of the biggest challenges for many companies is measuring the contributions of these people. Companies' practices vary particularly widely here. One executive says, "We do not have specific innovation targets. We do have continuous improvement targets [for business units] that clearly generate innovation. We are good and getting better at moving thoughts to plans to projects to production." Another says, "Innovation is part of our key factors for success. So you cannot be successful if you do not manage innovation right. Ultimately this translates in sales and EBIT1 or targets to develop new markets. But it is true that I can hardly remember any specific innovation target in our target portfolio." A third has an even stronger view: "I see innovation to be evaluated in long-term business success. Hard criteria-for example, time spent on innovation thinking-is not feasible in my eyes."
At another participant's company, the approach is quite different: "The leadership team has a target to achieve around innovation, the results are measured, and actions are taken to achieve the results on a quarterly basis." And at yet another company, innovation targets are used throughout the organization. This company's executive explains that, in the short term, her company uses an "internal point system, which might be weak and in some way subjective." But, she adds, "On a long-term view, we try to replace people who don't take part in our permanent innovation process and tell people to look for another company to work for."
This article was originally published in The McKinsey Quarterly. Copyright (c) 2008 McKinsey & Company. All rights reserved. Reprinted by permission.
Notes
1 Earnings before interest and taxes.
About the Authors
Joanna Barsh is a director in McKinsey's New York office, Marla Capozzi is an associate principal in the Boston office, and Jonathan Davidson is a director in the London office.
Notes
1 The McKinsey Quarterly conducted a survey of executives on leadership and innovation in September 2007, receiving responses from 722 executives at the senior vice president level and above and from 736 lower-level executives around the world. The respondents represented a broad range of industries. See "How companies approach innovation: A McKinsey Global Survey," mckinseyquarterly.com, October 2007.
2 See "An executive take on the top business trends: A McKinsey Global Survey," mckinseyquarterly.com, April 2006.
3 "How companies approach innovation: A McKinsey Global Survey," mckinseyquarterly.com, October 2007.
4 In August 2007, McKinsey surveyed 600 global business leaders—including senior executives, middle managers, and professionals in many industries—about innovative business cultures.
5 The 600 global business leaders in the survey were asked to rate how innovative their own organization was compared with other companies in the same industry.
6 "How companies approach innovation: A McKinsey Global Survey," mckinseyquarterly.com, October 2007.
7 Lee Fleming and Matt Marx, "Managing Creativity in Small Worlds," California Management Review, 2006, Volume 48, Number 4, pp. 6-27.
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