How leaders can make big organizations more innovative

Most old and large institutions are built around driving efficiency and focus around existing core competencies. Taking risks and trying new approaches is not viewed as essential to delivering highly efficient and predictable products or services. In such institutions leadership and culture rewards efficiency, risk-avoidance, and predictability, all things contrary to what’s needed for innovation.

When such institutions aspire to inculcate more innovation, where do they begin? What’s the secret for igniting innovation?

I believe there is no secret recipe for igniting innovation in old and large institutions. However, there are some intrinsic ingredients that play a crucial role regardless of any external or internal factors.

The first ingredient is leadership. As David Horth puts it, “Business leaders often assume the goal of innovation is to generate ideas, when in fact almost all organizations are not short of ideas.” He continues that, “Knowing what to do with ideas is the bigger challenge to effective innovation. Ideas don’t get aired, elevated, or sold well throughout the organization. They are not championed or pursued. They lose traction, don’t receive resources, or fail to make it to the right people or place in the organization. Typically, after an idea falls on deaf ears once or twice, the ideator gets the (usually unintended) message that no one is interested.”

Innovation by definition is messy, less predictable, risky, takes resources and time away from core business, and therefore invariably challenges the norms and traditions of the institution.

So if you want to change what you do you must start at the top. As Scott Anthony puts it, “leaders have to figure out how to manage two distinct operating systems: one that minimizes mistakes and maximizes productivity in today’s business versus one that encourages experimentation and maximizes learning in tomorrow’s business. It isn’t either/or. It is both/and.”

Karl Ronn goes as far as to say that, “Companies that think they have an innovation problem don’t have an innovation problem. They have a leadership problem.”

However, it’s also insufficient to focus only on the top leadership. As David Horth mentions, “This is a leadership challenge at all levels of the organization—and it’s a critical issue especially in the middle of organizations with department, functional, or divisional managers.”

The second ingredient is creating the right culture. Innovation will challenge the existing norms, policies, traditions, and deep rooted vested interests. It will likely also create tensions among various groups and stakeholders, and sometimes challenge the ‘old guards’ of the institution. It will create conflict between the realities of delivering and prioritizing the ‘here and now’ against the ‘there and tomorrow’.

Leaders can create the impetus and start the fire, but creating the ‘right culture’ that is conducive for innovation is like fuel that’s needed to keep the fire burning and sustain the momentum. The ‘wrong culture’ sucks the oxygen out of that fire, and makes it harder to keep it going.

To create the right culture, leaders have to take the first step in communicating, but more importantly demonstrating, the right values such as collaboration, informed risk-taking, and openness to new ideas. To do so, leaders must also create the right incentives for these values. Nothing is more harmful than leaders saying one thing and doing something different.

Leaders must recognize and celebrate staff who have taken the initiative to share new ideas, test new ideas, even when some ideas haven’t succeeded. Managers who support innovation must be rewarded for their behaviors, even when things fail. I therefore can’t emphasize enough the role of culture in sustaining innovation.

The third ingredient is acceptance of risks and addressing the fear of failure. Nobody likes to fail. Innovation by definition is something which has an uncertain outcome. You simply can’t innovate without failing. It’s important to create an environment where it’s ok to take informed risks and fail.

Managing risks, rather than avoiding risks, is a key part of enabling innovation. Developing processes that allow rapid learning and testing of ideas is crucial. If failure is inevitable then all attempts should be made to fail small and fast. Firms can also spread the risk, by using a portfolio of innovations approach, which has been successfully used by venture capital firms. This allows a way to balance risk and rewards, and avoid the ‘all eggs in one basket’ situation. As Steve Culp writes, “Marrying risk management and innovation can boost innovation efforts by creating confidence that innovation bets are well-placed and that innovation risks are well-managed.”

It’s equally important to also address the implications of risk on your personnel. One of the biggest killers of innovation is when your staff feel that any failure while innovating will adversely impact their career. Performance management systems often reward success and concrete results. That should be changed to also recognize the efforts expended towards pursuing new ideas and valuing lessons learned while doing so.