A five-step formula for fostering a culture of innovation

The Holy Grail these days is a "culture of innovation". Everybody wants one. Nobody quite knows what it is or how to arrange it for their firm.

Soren Kaplan, a consultant based in San Francisco and affiliated professor at University of Southern California's Marshall School of Business, agrees with the desire for a culture of innovation. Indeed, he believes it's crucial, arguing competitive advantage is transitory – it will inevitably be challenged. The only sustainable competitive advantage is a culture of innovation.

Dr. Kaplan calls such a culture, in the title of his new book, The Invisible Advantage. It's soft, difficult to discern stuff – norms, values and behaviour. But the soft stuff is the hardest for competitors to copy. It can be powerful. Better yet, he has a formula – or, at least, a path to follow – that can help get you on the right track to build a culture of innovation in your organization:

Be intentional with your innovation intent

Define what you want and then reshape assumptions around it. "You need to decide what the positive focus is that you want to make on customers and the world," Dr. Kaplan says in an interview, noting that it should be something that gets your staff excited when they come to work, which doesn't happen when enhanced shareholder value is your goal.

Determine the percentage of small, incremental change you expect to be pursuing in your innovation portfolio; the percentage of sustaining innovations, major advances in the core business for existing customers and markets; and the percentage of disruptive innovation, breakthroughs that change the game. All are important – Google aims for 70 per cent, 20 per cent, and 10 per cent respectively, but you can choose a formula that's right for you. And don't forget that innovation should happen throughout the firm; HR and the financial department should be looking for helpful changes, not just product developers.

Step in – then step back

You need to create a structure for unstructured innovation, as some companies attain by allowing employees a certain percentage of time to work on ideas of their own. Google and 3M have designated 10 per cent to 20 per cent of staff time as free for such purposes. Indeed, keep in mind that time is the fuel of innovation. "Without time, you won't get a lot of innovation," Dr. Kaplan says.

Even 20 minutes once a month in a management meeting can be valuable to raise new ideas or ask what problems are keeping customers up at night. If you only focus on today's operational practices, you won't innovate much.

Measure what's meaningful

After you decide what you want, measure how you're proceeding towards those goals. You can measure inputs, the efforts being put towards innovation, or the actual outputs, the tangible achievements. Examples include percentage of funding designated for game-changers versus small tweaks to existing products or services; percentage of revenue or profit coming from new products or services introduced in recent years; and royalty or licensing revenue from intellectual property.

"Leaders like this. They can see what's measured and its importance to the organization. They know they'll be measured on it as well," he says.

Give "worthless" rewards

By worthless, he means recognition, not money. Dr. Kaplan points to KQED, a public television and radio station in San Francisco that hands out attractive – and treasured – trophies to those who author both small and large innovations. Intuit has an Innovation Wall of Fame with photos and descriptions of people and teams it wants to salute.

Formalize a series of informal, non-monetary rewards. "The worthless rewards are the most valuable rewards," he says.

Get symbolic

Rewrite the unwritten rules in the firm so you are communicating the innovation you wish to encourage. This can revolve around who has the biggest offices and largest windows – the big bosses or the best innovators (often in Silicon Valley, Dr. Kaplan says, executives have small cubicles).

Watch your language, so you don't make fun of innovations or send anti-innovation messages like, "we don't have time to innovate" or "we tried that before and it failed" or "we can't do anything before we have more data." He stresses this is the toughest area for leaders; they often have a blind spot to the symbols they have created.

Following those steps can be critical to your company's success. "An innovation culture shouldn't be mysterious. There are specifics things you can do to shape it and it's your only sustainable competitive advantage for the future," he says.

Harvey Schachter is a Kingston, Ont.-based writer specializing in management issues. He writes Monday Morning Manager and management book reviews for the print edition of Report on Business and an online column, Power Points. E-mail Harvey Schachter