Touted as the ultimate ingredient for growth across allsectors of the enterprise, ?innovation? has become one of the hottesttechnology buzzwords. We are in the early stages of what promises to be themost innovative decade to date. But business leaders? opinions often divergeabout where innovation comes from and what drives it.
Contemporary innovation involves people both inside andoutside the organization, and encompasses the continuous need to improve andreinvent products, processes, services and brands. According to PwC?s 14thAnnual Global CEO Survey, 78 percent of CEOs polled believe innovation willgenerate ?significant? new revenue and cost-reduction opportunities over thenext three years.
Innovators create the structures and practices to gatherviable ideas brewing throughout the organization and take them toimplementation. But management must be aware of the following misconceptionsthat can arise:
1. Innovation can be delegated. Not so. The drive toinnovate begins at the top. The CEO sets the tone that determines whether aculture of innovation can thrive. If the CEO doesn?t reward innovation, protectthe process and change internal relationships to foster innovation, the effortwill fail.
Operational excellence is necessary to run the business oftoday, but the CEO must also create the business of tomorrow. Businesses must seek innovations that willlead to competitive advantage in the right markets.
2. Senior and midlevel managers are the natural allies ofinnovation. Managers may not be the enemies of innovation, but they?re not thenatural champions, either. Their focus on operational efficiency encouragesthem to reject new ideas that detract from these improvements. Companies tendto promote executives who successfully operate the largest parts of the
organization, but innovation often occurs at the periphery.
3. Innovative talent works for the money. Innovative peopleare motivated by the rewards that come with a successful launch. Pay packagesalone won?t determine the outcome of an innovation effort, so measures toimprove retention of innovative employees should also include nonmonetaryrewards, such as recognition and a degree of autonomy. PwC?s CEO survey showsthe top CEO response to addressing perceived talent shortages is to add morenonfinancial rewards, such as praise and recognition.
4. Innovation results from lucky accidents. Innovativepeople and companies follow a disciplined creative process, increasing thechance that some of their ideas will score. What they do differently is work instructures and apply practices designed to deliver innovations successfully andquickly. This increases the odds of success.
5. The more open the innovation process, the lessdisciplined. Many organizations are adopting more open approaches to innovationand reaching out to
customers, suppliers and partners in new ways. Accord-
ing to PwC research, nearly 40 percent of CEOs from across all regions expecttheir company?s innovations to be co-developed, with leaders tapping into a moreopen approach. An example is the automotive supply chain, where automakers relyon suppliers to continuously improve components ranging from seat belts tobrakes.
6. Businesses know how much innovation they need. Businessleaders should ask: How much growth do we need from innovation? This involvesconsidering how much growth will be driven by existing products and services,and how much will be required from new offerings, business models, processes,distribution and marketing strategies.
Leaders must also calculate how much inorganic growth thecompany needs, since most companies focused on developed markets expectlow-single-digit organic growth without innovation. Innovation is the enginethat must fill the gap.
7. Innovation can?t be measured. Innovation can and shouldbe measured. Leaders should identify some ROII (return on innovationinvestment) measures to establish support. Innovation should face the samerigor applied in other areas, even though high levels of uncertainty and riskexist in the early phases.
Manage innovation as you would other capital investments:Allocate resources; set milestones. More robust, broad measurement allows afirm to see how it?s doing to better manage and discipline the innovationprocess. It identifies gaps in performance that it can close by applyingpractices to drive improvement.
In the end, the best talent will migrate to enterprises thatoffer inspiring goals, along with the processes, culture, incentives andinvestments that provide innovation-driven growth opportunities. Firms thatattract talent into a superior innovation culture can expect to flourish.
John J. Sviokla, business leader strategy andinnovation in PwC?s U.S. Advisory Services, works with a variety of clients on strategy andmarketing. He has consulted for firms around the world.
