The Agony and the Ecstasy—Building Innovation Capability

By Peter Mulford, Executive Vice President, BTS

Does your organization have the managerial know-how to innovate? If so, do your managers know the behaviors they must change in order to cultivate a culture of innovation?

For most companies, in our experience, the answer is no. And the problem is neither a lack of resources nor of creativity itself, but of management capability—specifically, the capability to convert new ideas into value creation. The good news is that building innovation capability is not easy, but it can be done. Here’s how.

Step I: Innovation Defined

Innovation is the business discipline of solving problems in new ways that create economic value. Like all business disciplines, it requires skills that can be taught, practiced, and mastered. And it must be linked directly to a firm’s strategic agenda. As one executive told us, “Innovation isn’t converting money into ideas. It’s converting ideas into money.” To ensure this happens, the first step is for senior leaders to create and communicate the strategic context for innovation.

This means:

1. Identifying and developing a shared view of how innovation activities fit with other initiatives in the organization
2. Setting the boundaries for innovation (i.e., markets, technologies, business models, etc.)
3. Developing and supporting the skills and behaviors necessary for Nos. 1 and 2.

Step II: Making Innovation Happen

Once the context and boundaries for innovation are defined, there are three leadership skills to develop: discovery skills, execution skills, and innovation leadership skills. These skills are easy to understand but difficult to practice. This is because each requires thinking and acting that may be different from what made leaders successful to begin with.

Discovery Skills and Supporting Leadership Behaviors

Discovery skills refer to the skills needed to both develop insights about emotional, economic, or functional needs, and to create new options for meeting them. Discovery skills differ from traditional problem-solving techniques in two ways:

1. Discovery thinking is a human-centered approach that involves developing customer insights first, and then visualizing new products or services to meet them, rather than vice-versa.
2. Discovery thinking employs expansionist skills to create multiple options, rather than analytical skills to find one optimal solution.

While innovation traditionally is thought of as product or service innovation, discovery skills can be used to solve problems anywhere in a firm’s economic ecosystem. For example, one client at a Fortune 50 firm used discovery skills to develop a recognition program for its e-commerce team. Another developed a cross-silo P&L reporting model. An executive vice president of human resources at a worldwide consumer electronics company notes, “Innovation doesn’t always have to be human genome-breakthrough kind of stuff. Innovation is really about altering systems and processes to create opportunities for value creation every day.”

What role should leaders play in the discovery phase? The first step for most will be to suppress their natural inclinations. Most P&L leaders earned their positions by mastering an analytical or “reductionist” approach to decision-making. This is selection by exclusion, the process by which multiple options are pared down to a single decision. By contrast, discovery thinking is an expansionist approach to building up and improvising multiple options. The two don’t mix well. As Lewis Lehro from 3M noted, “Managers are people who like order. Innovation, on the other hand, is often a disorderly process. As a result, there is tension between managers and innovation.” Lehro, Lewis, “If Innovation is so great – why doesn’t everyone do it?” (Innovativity, July 19, 2011, http://innovativity.com.au/why-doesnt-everyone-innovate/, December 29, 2011.)

To manage this, leaders need to understand two key points:

1. When reviewing projects in the discovery stage, leaders must recognize they are not conducting a traditional project review.
2. Leaders are there to understand the key assumptions and to help identify what learning is needed to determine if these key assumptions are valid.

To do this well, managers must resist the inclination to critique or cull ideas too soon in the discovery process. This isn’t a matter of abandoning analytical rigor, but of deferring it until later in the process. Managers who don’t get this right create an environment in which innovation is quietly suppressed; or worse, one in which discouraged managers leave to see their ideas realized elsewhere. As one executive told us, “I’ve seen bright young people join us because we have innovation in our vision statement, but leave us when they can find no outlet for their ideas. They take their ideas to Silicon Valley. So our problem isn’t our technology—it’s our culture.”

Execution Skills and Supporting Leadership Behaviors

Once a new concept has been imagined and a plan has been set, execution can begin. Unfortunately, at this stage of an innovation project, traditional project management approaches—which advocate a linear approach to maximize efficiency—typically result in poor outcomes. Because innovation projects typically assume a high level of predictions, they must be managed differently. The solution is to execute projects in a way that manages uncertainty and generates institutional learning. Called discovery-driven innovation, this is the process by which managers execute innovation projects as experiments—making and testing assumptions from checkpoint to checkpoint, rather than executing from start to finish.

The key idea is this: An execution plan is divided into a sequence of “checkpoints” at which critical assumptions are tested cheaply and quickly. At each checkpoint, the team compares the outcome to its predictions. It then has three choices: Accelerate the project, redirect it, or kill it. (For those who like acronyms, you can use ARK.) The difference between this approach and others is that here the team reduces uncertainty as it moves forward, rather than waiting for the “post mortem” to determine success or failure at the end. If a project isn’t going well, the team can redirect resources before the cost becomes too great, reducing downside risk. And insights gained from each checkpoint can be captured and shared, creating a culture of institutional learning.

To do this, three execution skills must be developed:

1. The ability to manage uncertainty by running projects as disciplined experiments.
2. The ability to recognize and convert project feedback into new insights and institutional learning “on the fly.”
3. The ability to recognize and manage the forms of psychological entrapment that afflict innovation teams and managers.

For this process to work, leaders must become comfortable with holding managers accountable for how innovation projects are run—on budget with key insights captured—and not for the ROI they generate. This can be a difficult idea for ROI-oriented managers to swallow, but it is a critical one for creating an innovation culture.

Step III: Now What?

Because innovation requires the confidence to try new things with uncertain outcomes, we have found that building innovation capability is best done using customized innovation simulations. This is because:

1. Simulations allow learners to safely experience the unique situations that occur during innovation projects without risking money or resources.
2. Simulations allow instructors to dynamically recreate conditions that are unique to managing innovation projects.
3. Simulations are proven to facilitate improved performance in real-world settings.

In Short: Innovate to Win

Innovation can feel like “The Agony and The Ecstasy.” Many firms fail at innovation because they lack the right management capability in the areas of discovery skills, execution skills, and leadership behaviors. The good news is that while innovation is a difficult capability to develop, it can be done.

Peter Mulford is a global partner, executive vice president, and managing director of the New York office of BTS, a global business strategy execution consultancy. Mulford is responsible for leading teams in the development and delivery of customized capability development solutions for Fortune 500 clients and international clients such as Coca-Cola, Toyota, Sony Electronics, Texas Instruments, Sun Microsystems, Macys, AT&T, and Barclays Bank.