Many CEOs are striving to create growth driven innovation fueled by engaged employees. In fact, a recent McKinsey study shows that 80% of CEOs think that their current business model is at risk. The research also shows that only 6% of executives are satisfied with the innovation process in their organization.
That's why leaders are now looking to perfect the recipe of how to create a meaningful innovation process that creates value for customers and engages employees to create a thriving innovation culture.
In this article, we are going to highlight three experts leading the charge on innovation culture strategy: Soren Kaplan, an expert on the subject of internal culture and organizational structure, Steve Blank, a Silicon Valley entrepreneur and one of the early contributors to the Lean Startup methodology, and, Alex Osterwalder, a leader in the creation of sustainable business models. Now, let’s dig in.
How to Create a Successful Innovation Culture Strategy
Soren Kaplan: Organizational Structure
The creative spirit of a company thrives when it has the right set of people dedicated to inventing and implementing new ideas. But, who should own innovation within a corporation? Soren Kaplan says that it is necessary to divide responsibility between various stakeholders who are assessing the readiness for innovation, identifying the gaps in the present business model, and preparing the organization for bottom up innovation.
No industry stays unchanged, so it is necessary to explore and combine current knowledge with new opportunities. The best way to prosper over long periods of time is to use "leapfrogging." For that, each company needs pioneers that are able to jump across knowledge disciplines to come up with novel ideas. However, these thought leaders shouldn’t have unrestricted space and time. Kaplan recommends giving innovation time structure: a limited time frame for unlimited innovation activities that end with a tangible result. Another way to increase productive collaboration is hacking management. As Kaplan reported, more than a hundred of Nordic companies including Volvo, H&M, Novo Nordisk, and Maersk met in 2017 to define best practices to support innovation in their companies and came up with four recommendations:
- Choose your leader: Let every employee decide who they want to report to.
- Create radical transparency: Use an internal rating system that evaluates the level of engagement and purpose of specific departments and offices based on employee reviews
- Leader for a week: On a rotating basis, let employees swap roles with their leader to help increase understanding, in both directions, of job functions, roles, and challenges.
- Leadership term limits: To avoid creating silos and fiefdoms, define a specific period of time any leader can be in their particular role. After that time, they must rotate to another department or group, which also encourages the cross-fertilization of talent and ideas.
Kaplan also emphasizes the importance of measuring the right metrics in relation to innovation. You should make sure not to mix impact with activity. While it is useful to know how many ideas were generated and how many projects are in the pipeline, it is crucial to measure what percentage of revenue is delivered by innovation projects, what ratio of innovative short-term products versus long term game changers, and what is the financial impact. Kaplan delves deeper into these principles in his most popular book, The Invisible Advantage.
Steve Blank: Processes and Company Values
Innovation is a calculated process, it needs to happen by design not by exception. Steve Blank claims that corporate innovation requires culture which is hard to (re)build. The critical, first steps are:
- Assess the current values and beliefs as understood by the employees.
- Initiate a conversation with employees about the need for new values to promote a new way of thinking.
- Plan a concerted effort to create a new set of stories, heroes, and rituals around those values.
- Simultaneously, with the creation of new culture, align the company’s incentive programs (compensation plans, bonuses, promotions, etc.) to the new values.
Each company needs two groups of employees: innovators and entrepreneurs. Innovators come up with ideas and entrepreneurs know how to put them in place within the company structures. This requires adapting various departments, including a coordinated effort with HR and Finance. “It’s not just one big bang and let HR implement training. It boils down which part of the system needs to adapt and adopt. What do we need to change in HR? What do we need to change in Finance and when, how?” says Blank.
Innovation processes cannot exist without a formal setup; Blank calls it an evidence-based innovation pipeline that is used in a lean process. Instead of having a committee vet ideas, companies need a process that operates with speed and urgency, and stakeholders who curate and prioritize their own problems, ideas, and technology. This prioritization process has to start before any new idea reaches engineering. This way, the innovations that do reach engineering will already have substantial evidence — about validated customer needs, processes, legal security, and integration issues. Most importantly, minimal viable products and working prototypes will have been tested.
Alex Osterwalder: Manage the Present and Invent the Future
Possibly the biggest innovation hurdle for a corporation is the alignment of the present and future business models. The existing model is defended by the conservative part of leadership focused on gradual improvement while the disruptive part of the business is determined to invent new models and opportunities. How is it possible to merge these two directions in one functioning company?
According to Osterwalder, corporations have to follow three principles:
- Ambidextrous organizational structure
- Dual investment
- Portfolio management of mature and new businesses
“Managing the present is taking oxygen away from inventing the future”, says Osterwalder. That’s why innovative companies that recognize the need to re-invent their business need to change their structure and include a so-called innovation engine alongside the traditional business, hence create an ambidextrous structure. The new engine should be headed by a chief entrepreneur who takes care of the future while the current leadership takes care of the present.
The changing organizational structure requires a change in investment philosophy. Companies don’t need to stop investing in current projects - they must additionally look at future projects with expected profitability and should take into account innovation risk.
Companies need to change the view of R&D expenditures as they don’t represent the level of innovation. Instead, a part of the finances should be diverted to inventing new businesses and value propositions.
Running two separate but unified entities requires evolved portfolio management. Companies need a new and integrated approach to manage a dynamic portfolio of established and emerging businesses and protect established business models from disruption as long as possible while simultaneously cultivating the business models of tomorrow.
Build a Successful Innovation Culture Strategy
Even though it might appear that supernatural capabilities are required to build an innovation culture, the experts above show that it is an achievable process. A company must distinguish between present and future projects, establish precise processes and innovation metrics, prepare a specific organizational structure with related division of responsibilities, and most importantly, include the whole company and company values in the creation.
At RocketSpace, we see the culture of innovation as a basic condition for successful innovation projects in the short and long term. RocketSpace offers corporations with proven methodologies to not only bring tangible business value through external innovation, but also to inspire teams and change the innovation mindset of a company. RocketSpace provides speed and direction to the world’s top tech startups and corporate innovators. Check out our Corporate Innovation Services to see how you can inspire your company toward a more innovation-minded culture.