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Monday, September 14, 2009

Why can't your firm innovate?

Innovation Challenges
by Jeffrey Phillips

Recently there's been a debate about why larger firms can't innovate. Perhaps they are too comfortable. Perhaps they are too afraid to cannibalize their markets. Perhaps they are afraid of risk and uncertainty. Perhaps, Perhaps.

Or maybe they operate under a management model that rewards compliance and punishes creativity. Now I think we are getting to the crux of the problem.

I've had the opportunity recently to hear Gary Hamel speak and see Dan Pink's new Ted Talk. Both are compelling, and somewhere between Hamel's discussion about management innovation and Pink's thoughts about compensation and incentives lies the real issue that challenges many larger, and especially entrenched, firms. We structure our organizations (Hamel) and reward structures (Pink) to reward consistency and compliance, when what we really need is experimentalism and creativity.

Think about it. Most of the management practices we follow are based on management models put in place by Taylor or others modelled after GM in the 30s and 40s. Many of the employees at that time were uneducated or undereducated and their value proposition was in labor. The goal of the organization was to send down management's goals and break them down into work units for simple tasks. The goal of the organization was top down, consistency and compliance to orders and tasks. As Pink points out, the compensation models that accompanied that structure made sense as long as the tasks were simple and clear and can be executed following a very specific process.

Now, most of the work we do is knowledge work. It is difficult to place specific outlines or processes around the work, and can be difficult even to define the end products. If I can outsource a steel factory and make semiconductors overseas, the premium on labor and compliance is gone. What differentiates a firm in this environment is not compliance and control, but creativity and engagement. I need an organizational structure that attracts people to work on products or services they believe in, and are engaged in, and I need different compensation models. Pink talks about Autonomy (choice), Mastery and Purpose (engagement), the words in parenthesis being my interpretation.

Knowledge WorkerSo, many firms, especially older firms are built on hierarchical models that are top down and organized for compliance, not creativity. As I blogged earlier, they are well designed to meet the operating needs and realities of the mid 20th century, just as labor and compliance were becoming less of an issue as a management consideration. We have entered a completely different environment, which calls on organizations to be nimble, able to adjust rapidly, call on the best insights of all employees and create a meaningful relationship and experience with customers. Virtually none of those attributes are prevalent in older organizational models.

Many firms can't innovate because their structures, processes and compensation models are rigidly organized for the work world of the 1950s and 1960s and haven't shifted the organizational structures, processes and compensation models to reflect what's necessary today. When a firm like P&G is heralded for taking ideas from its customers as if that is a novel concept or something no one else could foresee, or when WL Gore is held up constantly as a management icon because of its "Lord of the Flies" organizational and management approach, you can see that many theorists in academia and many executives in larger organizations can't quite grasp the changes that are necessary for many businesses to innovate successfully.

It's not the people, it's not the "culture", it's not the compensation, it's not the management hierarchy, it's not the fear of risk or uncertainty that holds back most larger firms. It's all of the above, and being willing to make a clean break with the past.

Jeffrey PhillipsJeffrey Phillips is a senior leader at OVO Innovation. OVO works with large distributed organizations to build innovation teams, processes and capabilities. Jeffrey is the author of "Make us more Innovative", and innovateonpurpose.blogspot.com.

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Blogger Terry L. Kennedy said...


A very powerful article that resonates in my field of Higher Education as well. The next time someone asks me why I think the U.S. educational system continues to fail its students, I'll refer them here.

Thanks for the post!


7:10 AM  
Blogger Arend said...


Thank you for your article. Hit the nail on the head. Only, I think you overstate the importance of organizational structures somewhat.

I co-own one of those knowledge firms, with 55 consultants. 10 partners, little structure and no real - official - hierarchy. Yet, we are not innovators.

We have created an atmosphere in which innovation is felt to be dangerous, outside the accepted 'lines'. And the real danger: the partners that maintain those lines are the ones that call themselves innovators on the outside...

Thankfully, its changing rapidly now, as the new generation comes in. So beware: innovation requires of leaders the ability to be humble, to accept that they don't know while the spotty twentysomething might.

I agree, innovation depends largely on people. And their ability to accept it. Otherwise, they can supplant a structure quite effectively.



12:03 PM  
Blogger Richard said...

Gary and Dan identify some of the constraints. The trouble is that the culture is self-sustaining and this makes alternative systems slow to implement.
Yet in many cases the answers are well know, just buried. They could be identified rapidly.
As an alternative to implementing systems slowly, take quick and simple action: "pull" the knowledge from employees against specific business needs.
Pose the big question, define what a good answer would look like and have a senior director put their name to the event. Ask people from across the organisation to provide ideas and, most importantly, to comment on and improve ideas that have been submitted.
This way ideas can flow immediately and the buried knowledge is unearthed and applied: the formal systems can catch up later, if they are still needed.
Such a process is well proven and corporate scale tools exist to support it: global firms such as Boeing, Pfizer, Bombardier etc. use it to supplement their more structured innovation and knowledge management tools.
I can provide further information if anyone wishes.
Richard Ritchie

7:30 AM  
Anonymous Jules Carney said...

Your statements hold true.

There is a basic fundamental truth that management in most organizations understands:

“No good deed goes unpunished!”

Combine this with another law of management mathematics - appetite for risk (R) diminishes, the closer one gets to retirement (the payoff = $), and you have a natural deterrent to innovation..

Typically, senior management is in their mid to late 50’s, they have climbed to the top based on what the corporation holds dear – hard work, total sacrifice-getting the job done. They conform, because they are expected to - alternate thinking is held suspect, and better come with a damn good business case. The modal personalities (dominant personalities) demand that thinking falls in line with theirs. Why? They command/demand respect; they after all, are the captains of this industry – the thought leaders. So, there has been a commitment to get where they are now and it creates great dissonance to move against what they hold as true, or “the way.”

No matter how much we may believe that management represents the driving zeitgeist of the organization (and collectively it does), managers are individuals and are worried about their own individual success and failures, as we all are. Innovation represents the unknown, difficult to measure financially, even more difficult to determine the metrics of success because the probabilities are stacked against them. With the incentive of surety removed, innovation is often too much of a risk.

1:58 PM  

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