Ensuring Return from Innovation through Effective Governance
Ensuring Return from Innovation through Effective Governance
In the precursor to this article, we discussed how the design of an appropriate ‘innovation ecosystem’, based on organisational structure, strategic priorities, and a governance model that is unique to each business, is key to keeping ideas flowing.
A strong, regular flow of ideas to solve strategic innovation challenges will often feature as a key success indicator within many organisations, but with the sudden impact of COVID-19 in 2020, its importance has never been higher - volatility, uncertainty, complexity and ambiguity (VUCA) seem to have grown almost exponentially as we emerge from one of the most challenging periods in modern history.
With increased VUCA however, comes opportunity – and never has there been more opportunity to look at business in a different way, challenge the old ways of doing things, and embrace this unique moment in time to emerge as a stronger organisation.
In an innovation context, the innovation ecosystem acts as the foundational architecture around which change can be enacted. In a previous article, we discussed the importance of innovation crowds within the ecosystem and introduced some crowd design principles that require attention to the underlying organisational structure, in order to create an innovation ecosystem that is likely to meet the expectations of the senior leaders.
A number of design approaches were introduced, from transient (temporary, single-use) and single-tier (all-employee) innovation, through to multi-tier (business-unit aligned) and cross-functional innovation. We touched upon at the pros and cons of each approach, suggesting that a blended model is likely to deliver a best-of-all-worlds solution.
In this article, we explore in some detail the ‘transient’ approach to innovation – what is it, and what are the key challenges associated with their use within an organisation?
When we use the term ‘transient innovation’, we are typically referring to ‘fleeting’ on-line gatherings of people that are brought together to solve a particular problem or find ideas to address a fairly well-defined challenge. Being fleeting in nature, the gatherings spring up as and when initiatives are being run, and then disperse when the outcomes have been achieved.
This transient approach is characteristic of most of the large crowd-sourcing platforms that many of us see and use on a semi-regular basis in our non-business lives – for example, start-ups seeking financial funding to get a new product or business off the ground, tech companies inviting customer ideas for new product features, or people looking for the backing of fellow citizens to gain support for a cause that is close to their heart.
This approach works especially well in an open, public sponsor-to-consumer/citizen (s2c) setting because such initiatives are normally stand-alone. As a consequence, 1) the chosen topic is normally at the discretion of the sponsor; 2) success metrics are usually identified and set by the sponsor; 3) targeting of the audience is very likely to be unique to the immediate challenge at hand, and; 4) no-one has any expectations of the sponsor to go off and launch another innovation challenge when the current one has reached (or not) it’s stated goal.
A Problem of Translation?
In the more tightly controlled (and often closed) organisational setting - which we’ll refer to here as sponsor-to-employee (s2e) - it might seem initially that the same s2c approach can more or less be replicated; i.e. standalone innovation initiatives can be brought forward and launched by anyone who has appropriate status or privilege in the business.
However, in practice this model doesn’t translate well to the organisational s2e setting. All medium to large organisations are complex, multi-faceted hierarchical entities, with many moving parts and people that need to interact cohesively to have any chance of success.
One of the most difficult hurdles that the organisation needs to overcome when promoting ownership of innovation initiatives across the business is the matter of innovation ‘governance’. It is imperative that all improvement and innovation initiatives that are launched provide meaningful benefit and value that is actually aligned to the organisation’s current strategic priorities.
In PWC’s Innovation Benchmark1 report, 54% of executives report that they struggle to align innovation strategy with business strategy. The report warns, “Too many companies are flying blind (or semi-blind), with a lot of money on the line”.
Put simply, if too many people spend time, energy and money working on initiatives that deliver little, or worse zero, strategically aligned value, the true lost opportunity cost of not focusing on the real priorities of the business can quickly become significant and sometimes terminal.
Trickle Down Priorities
A key reason that businesses struggle to align strategy and innovation stems from the manner in which the design of strategic priorities normally flow in an organisation, from top to bottom. We often hear the buzzwords ‘trickle-down’ and ‘trickle-up’ when referring to the economy, but the terms equally help explain the manner in which an organisation typically manages its own strategic priorities.
Often expressed as KPIs, these priorities are normally very broadly defined at the top-most executive board level and trickle down through the organisation to more specific measures for each business unit. The actual, achieved performance metrics for each KPI at each business unit then trickle back up, and are aggregated at each level through to the very top.
It therefore becomes critical in an organisational s2e setting that innovation programmes are tightly coupled to the metrics that have been designed for organisational success – crucially at all levels of the business. If one or more business unit just goes off and does its own thing, the innovation programme’s pack of cards can easily come tumbling down.
A Moving Strategic Feast
Adding to the challenge is that fact that these strategic priorities are not static. Whilst the overall mission, or goal, of the organisation might remain broadly the same over a 5 year timeframe, the strategy and tactics that help it meet its mission are actually a moving feast - at the very least they will be reviewed and reset at least once per year, and in many organisations who are taking a more agile approach to business goals achievement, more frequently than that.
Where does this leave the rising stars in the organisation who want to sponsor and run their own innovation challenges?
First, they need to ensure that both the topic (or ‘the mission’, in Innovation speak) of their initiative and the measures upon which submitted ideas will be evaluated, align closely and meaningfully with the current strategic priorities of that part of the business. This requires all prospective challenge sponsors to ensure that they are fully informed of the strategic priorities at any given time for the part of the business at which their proposed challenge will be targeted.
Furthermore, the sponsor would need to understand how to translate those priorities into topics and associated evaluation measures that are likely to deliver successful outcomes in an innovation setting. Whilst this might be (just about) achievable for the head of each business unit, it’s not a realistic scenario for the wider pool of managers and rising stars who are keen to bring improvement and innovation initiatives forward.
In practice, unless a well-structured innovation system is in place to support effective governance, the difficulty of ensuring a coherent application of current, accurate priorities and associated measures normally becomes so great that it, a) results in a lack of confidence from would be challenge sponsors themselves as to whether they are doing the right thing, and b) results in a lack of confidence amongst the senior leaders that the organisation has established adequate processes and controls to enable effective ‘democratisation’ of innovation initiatives.
Supporting Serial Entrepreneurs
Compounding the above difficulties, any organisation that is embarking on an Innovation programme will be expecting sustainable, repeatable involvement from across the business. A few one-off challenges over the first year or 2 are not going to cut the mustard.
According to Forbes2, 58% of senior managers report that they actively encourage their workforce to become ‘serial intrapreneurs’ – wishing them to take ownership of, and respond to, regular innovation and improvement initiatives that are launched across the business. If the initiatives stop, creativity, innovation and meaningful change will start to dry up.
Where regular improvement and innovation initiatives are expected to be brought forward and launched, a recurring problem that will be encountered by each sponsor will be the identification of the most appropriate audience.
“Which employees should I invite, and which employees should I exclude”? “Are there any confidentially issues that need to be considered if the audience is too wide”? “If I send this to everyone, am I just going to add to the already high levels of innovation ‘noise’?”. “Can I invite people from outside the organisation?” “What about on-site contractors?”
What will happen to company morale if too many people find out that they weren’t included in a challenge, when they feel they had valid contributions to make?
The lack of reliable ‘channels’ for innovation, in which initiative sponsors can be confident that audience selection issues have already been tackled by the organisation, is often a major obstacle that needs to be overcome.
Alleviating the Single Point of Stress
The inevitable consequence of the above set of challenges is that Innovation programmes often start out, and then remain, centrally managed – figures from KMPG’s Benchmarking Innovation Impact 20203 report show that less than 25% of organisations involve Business Unit staff in their transformational innovation efforts. Given that the workforce at the front-line of each business unit is more likely to know in detail where issues and opportunities lie, this surely is not a sensible approach.
The task of identifying and managing breakthrough change is left to a relatively small and heavily stretched Central Innovation team who are juggling lots of initiatives that have been brought forward by sponsors from across the business.
Where the central innovation team is already established and managing the organisation’s innovation efforts, some might argue “Does any of this really matter if we are innovating anyway?”. “Do we really need to grapple with the challenges of enabling democratised innovation capability across the business?”
The answer to this seems clear - according to a GE Ventures Global Innovation survey4, 64% of executives report that a lack of adequate talent and capability across the organisation is restricting their company’s ability to innovate effectively.
In response to this, we suggest that a different model is considered where autonomy of innovation initiatives across all business units is actively encouraged, and crucially supported with the appropriate governance and control mechanisms that enable all business units to create and manage their own initiatives with confidence.
With the increased prevalence of distributed working that many organisations will be grappling with, an innovation ecosystem that supporting the Central Innovation Team with strategically aligned, strongly governed innovation capability from across the organisation is likely to be a model that will lead to more effective, sustainable, innovation outcomes.
In the next article in this section we cover an organisational design approach to innovation systems thinking – an approach that supports autonomy of decision making and the development of incremental capability across an organisation - with a detailed examination of different models that can be employed and the issues and benefits associated with each.
1 PWC, “Innovation Benchmark Report”
2 Forbes, “Why companies want you to become an Intrapreneur”
3 KMPG, “Benchmarking Innovation Impact 2020”
4 GE Ventures, “2018 GE Global Innovation”