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An illustration of a man and a woman in business suits, puzzled, looking toward a door labelled "Innovation." (Jori Bolton for The Globe and Mail)
An illustration of a man and a woman in business suits, puzzled, looking toward a door labelled "Innovation." (Jori Bolton for The Globe and Mail)

Agenda 2020

Innovation: If you can’t make yourself obsolete, someone else will Add to ...

The Agenda 2020 series asks experts to discuss what business leaders should be doing now to prepare their organizations to be healthy, efficient and growing by 2020. Read more at tgam.ca/agenda2020.

Corporate committees, brainstorming sessions, suggestion boxes: These rarely produce free-thinking innovation. All too often, they’re the places where good ideas go to die.

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But with competition and the pace of change only expected to turn feverish in the coming years across industries, organizations need to be able to encourage innovation to survive.

So how can hierarchical companies tap the brain trust of their employees? How can they measure innovation? And how can they truly improve, instead of just talk effervescently of “cultural change” and “looking to the future”?

Doug Williamson, chief executive of Toronto-based leadership consultancy the Beacon Group, and Daniel Muzyka, chief executive of the Conference Board of Canada, have some ideas.

Corporate culture can seem anathema to free-thinking innovation. What can be done to bridge the two divides?

Doug Williamson: Let me just jump in and give you a couple of philosophical points of view. I think at the root of the problem is a deficit of ambition. The larger the corporation, the safer they become. What I’ve witnessed, certainly between 2008, 2009, is this deficit of ambition.

The second point is about structuring innovation, which I think is not possible. It’s counter-intuitive to think you can structure innovation. It needs to be more free-form. Therefore, I think you come back to an issue around corporate culture. If there’s a culprit, it’s probably the corporate culture that results in the deficit of ambition.

And within the culture, I find great confusion about what it means to collaborate in a larger organization. And I think that far too many managers and leaders don’t really understand the collaborative process.

Daniel Muzyka: I’m going to build on some of those things. The challenges for a very large organization are, first of all, that they have a great deal of investment in a set of products and services. And in this day and age, there’s huge pressure for short-term earnings. What that short-term pressure does is that it tends to favour what exists now, rather than overturning what exists now with something more innovative. And that pressure needs to be offset by a longer-term view of innovation.

People tend to not want to make themselves obsolete, especially when they get to scale.

I think you can manage innovation. All of our research points to the fact that companies that do manage and measure innovation outperform those that don’t. You can put resources into place, and that’s where managing it comes in: deploying resources that will support innovative, new ideas; ensuring that you have a strong knowledge architecture – and that it is a formal, systemic thing, so that people access knowledge that is already developed; ensuring access to markets – that’s a structural element. Do your people have access to customers and markets?; and actively managing talent and selecting people and promoting them and ensuring that they have an orientation toward innovation and the development of new ideas.

If we’re so focused on short-term gains, how can companies get past this mindset?

Muzyka: You have to realize that if you’re not willing to make yourself obsolete, somebody else will. That’s a critical point. You have to realize that obsolescence is the name of the game. Businesses transform, business models transform, products and services meld and transform more quickly today than they’ve ever done. Realizing that even your medium-term success is dependent upon transforming who you are, what you have and what you offer in terms of value really does provide a sober second thought to extremely short-term thinking.

So, people often say, it’s either innovation or short-term metrics. No! It’s innovation and short-term metrics.

Williamson: The word I use is abandonment, an organization that’s willing to cut ties with what’s not working, to move ahead. So, obsolescence, yes, but I think psychologically it’s that willingness to abandon. And you begin to think corporations have to abandon their short-term mindset. It’s not an either/or, it’s both at the same time.

And, of course, the irony is that most corporations do take a long-term view on certain things. They take a long-term view on technology, on bricks and mortar, and on manufacturing facilities. But they are not as comfortable taking a long-term view when it comes to the unknown.

Is innovation, and especially cultural change, something that can be measured?

Muzyka: You can measure it. One of the things that distinguish companies that are more innovative is that they have stretch goals. In other words, they are saying, ‘If we keep on the current trajectory with the current product and services, this is where we’ll end up.’ If they really want people to move ahead, they have to create stretch goals. You have to be able, in a sense, to force people to break the frame.

What percentage of turnover or revenue is presented by products that have been introduced in the past number of years? And for different companies, in different industries, that’s going to vary. Companies that are very successful treat that number as sacrosanct for the sales projection for next year and the bottom line for next year.

You have to build a focus on opportunity. This is one of the things the most successful and most innovative companies do. One of the things more static organizations get trapped into is a focus on current budgets, next month’s budget, resources that they currently have. You’ve got to focus a larger percentage of the conversation, and you see this in the most innovative companies, on what opportunities they are pursuing. Where are the opportunities we know about? Where are the opportunities we don’t know about?

Williamson: I totally agree. The world has changed and the metrics have changed. Way too many companies are focused on market share versus the modern metric of, ‘Are we gaining a disproportionate share of opportunity?’ And then we’re back to this abandonment thing. I mean, goodness, we don’t buy a pound of hamburger or some milk without checking the expiry date. But when we get inside these ossified corporations, things are put in place, and they’re never ever moved on or they don’t have an expiry date.

I don’t think we’re talking enough about metrics. And I would drag the accounting profession into this. The accounting profession has been very busy for hundreds or thousands of years doing annual reports, and P & Ls and balance sheets. But you won’t find any accounting firm that provides an objective, third-party measure of innovation or a culture of innovation. I think that’s an unbelievable miss.

We’ve come through a period where everyone wants to be green. And so everyone’s producing corporate sustainability reports. I think we need a similar pressure on the corporate world around their innovation success. Had that been [done for] our friends at RIM or Nortel by any objective third-party accounting, I think we would have seen [warning signs of] them failing. So there are metrics, they are newer and different than what we’ve ever used before. I’d like to see the accounting profession live up to its responsibility, which is showing shareholders and the market a company’s real risk profile. A company that isn’t innovating has a higher risk.

Would that help the capital markets open up to more risk?

Williamson: Absolutely. And, by the way, I don’t think that innovation is stifled in Canada because of lack of access to capital. I think that’s an urban myth.

Muzyka: On that, Doug and I will probably have to agree to disagree. But backing up to something I repeat very often, there is no accounting system that measures lost opportunity. It doesn’t exist.

Interestingly, the traditional divide we have is between management’s responsibility and what is the controller’s or the accounting department’s responsibility. I believe we need to start merging this. But I will say that attempts by the accounting profession to get into risk management has started to force them to look into things like an opportunity pipeline, a sales pipeline.

Williamson: The difference is this whole new realm of predictive indicators. This is the focus. What are the predictive indicators of organizational health? And absolutely, the innovation pipeline would be one of them. But it’s a different type of metric. Most accounting measures are retrospective. We need to shift to these predictive indicators.

Responses have been edited and condensed

Follow on Twitter: @Guy_Dixon

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