entrepreneurship

Why Corporate Innovation Fails & What You Can Do To Succeed

Want to innovate like Apple, Samsung, IBM, and Lego? Here's how to build a successful innovation culture.

Avatar Written by Zach Piester · 12 min read >
Corporate Innovation

In business, we talk a lot about Innovation: how to foster it, how to implement it, how to profit from it. It’s vital that we innovate, but we also know that an inherent part of innovation is failure. It brings to mind that famous quote from John Wooden the legendary UCLA basketball coach who won 10 NCAA national championships in just 12 seasons because of his ability to continually adapt — to new players, rivals, and new styles of play “Failure isn’t fatal, but failure to change might be.”

It’s a famous clarion call, and there are many striking examples of organizations that have done just that, Apple, Samsung, IBM, Lego are just some. Equally, there are spectacular examples of large, dominant, cash-rich organizations, stacked full of smart people that read the same things, went to the same conferences and paid for the same advice from the likes of McKinsey and Accenture that were disrupted into oblivion — whose innovation efforts failed.

This post aims to discuss the principle reasons why Corporate Innovation fails so that we can find, analyze and mitigate the root causes of failure. The principal causes that we will expand on are:

  • An incomplete, poorly defined and/or misaligned strategy
  • Failure to adapt your corporate culture to a culture supportive of growth and innovation e.g. Change
  • Inadequate leadership throughout the organisation
  • The wrong tools and processes
  • Failure to integrate or assimilate innovation activity into the core business

Many other elements of this can ultimately lead to a cascading trend towards failure. I liken this to why airplanes crash; typically it’s not a single failure but a compounding series of seemingly minor mistakes or lapses that ultimately lead to a catastrophic event.

What is Innovation Success?

The question of what success looks like is one of enormous complexity. There are as many examples of success as there are definitions of innovation. Herein lays one of the first problems: too many organizations start on an innovation journey without first defining, or in many cases only superficially defining the destination — what success would look like to them.

You could find papers that solely deal with the definition of innovation which isn’t my purpose, but we will define it in terms of creating new value. Innovation must create differentiated and sustained value creation to be successful.I

Innovation is firstly about Strategy

Gary Pisano, writing in an Harvard Business Review paper titled, “You Need an Innovation Strategy” points out that “the reasons [why so many innovation programs don’t deliver the outcomes that were expected] go much deeper than the commonly cited cause: a failure to execute. The problem with innovation improvement efforts is rooted in the lack of an innovation strategy.”[1]

Like the creation of any good strategy, the process of developing an innovation strategy should start with a clear understanding and articulation of specific objectives related to helping the company achieve sustainable competitive advantage.

It’s vital that you avoid the glib, generally McKinsey-esque centric objectives that appear in any organization’s strategy: “we will be a leader”, “must innovate to grow,” “innovate or die” “we innovate to create value,” or “We need to innovate to stay ahead of competitors.” These are outcomes, and many of them are outcomes that are problematic to measure. They are not strategies. They provide no sense of the types of innovation and change management that might matter (and those that won’t). A robust and well thought out innovation strategy should answer the following questions:

  • Why is the organization doing it / why it’s important?
  • How will innovation and transformation create value for potential customers?
  • How will the organization capture a share of the value its innovations generate?
  • What types of innovations will be pursued and what resources will each type receive?
  • How will innovation be funded?
  • How will innovation activity be incentivized, rewarded and compensated?
  • How will you measure, what will you measure and over what time frame?

Above all, the most common point of failure that we see with an organization’s innovation strategy is a failure to be honest about what is achievable. The CEO that proclaims that the organization will become an ‘innovation leader’ without a meaningful strategy is taking an enormous risk. Or is she? Many leaders choose a path of what I refer to as “Optics Driven Innovation.” Meaning the organizations presents a very public / PR heavy plan that frames the company as being committed to the journey of transformation and innovation. However, the real objectives are short term gains derived by positive press. Generally, these companies marketing budgets related to innovation exceed that of the actual work to be done.

Culture

Corporate culture is the most powerful and intangible barrier to innovation. Even the most brilliant idea in a closed culture “is a scream in a vacuum.” It simply won’t be heard.

If you’re reading this as an executive, a leader or manager who wants more innovation in your organization, there is no clearer thing to focus on. Without ‘dealing’ with culture, anything else you do can be a waste of time. You cannot sustain innovation without a supportive culture, and your business can’t thrive in the future without sustaining innovation.

Firstly, what do we mean by a culture?

Every organization has a culture — some have many cultures or subcultures within functional silos or regional offices. Jeffrey Phillips describes corporate culture as the “intersection of corporate memory, corporate history, business context, and operational effectiveness.” Corporate culture is what defines what a company is, why it does what it does, and in many ways sustains a presence and a facade to the outside world.[2] Corporate culture is what directs how people work and think, what creates tangible and intangible restrictions, establishes risk tolerances and sets attitudes and behaviours. There’s probably no more powerful intangible force in any business than corporate culture.

Culture is not ping pong tables, nap pods, and free lunch every day. These can contribute to happier employees, and happier employees are more likely to become invested in a company, but their mere existence doesn’t create a great corporate culture.

Culture is about intangibles. It’s built on things that are unique to that company. It’s everyone in a company — top to bottom, and it starts at the top — sharing the same vision and values.

What then is an “innovation” culture“?

“It’s a culture that sustains and supports innovation, that encourages reasonable risk and uncertainty in the goal of larger, more profitable products and services” continues Jeffrey Phillips.

“It is a culture that is based on experimentation and discovery, because many good ideas or insights exist outside the corporate boundaries. That suggests as well that innovative cultures have porous boundaries — people, ideas and concepts flow into, and out of, the organization constantly. Innovative cultures understand that generating and developing new ideas is an iterative discovery process, which isn’t perfect and certainly doesn’t always create the product or service that customers want. Innovative cultures also understand that when failure occurs, rather than sweep the failure under the rug, the firm attempts to extract learning and new insights so that the “failure” leads eventually to a new success”.[5]

“Innovative cultures understand intrinsic reward systems, encouraging innovators to work on their ideas and to stay involved and engaged. They don’t “pay people for ideas” but recognize involvement is its own reward. Innovative cultures sustain innovation as a way of operations, rather than thinking of innovation as an occasional, sporadic process. Innovation cultures welcome different points of view, different perspectives and seek to association disparate ideas and technologies into new products and services. It will be rare to hear someone in an innovative culture say “we’ve never done that before” as a way to shut down ideas — rather, it will be considered a challenge worth pursuing”.

How then do you build an Innovation Culture?

There are two key components that need to be aligned: people and incentive mechanisms.

People: If you have more colleagues — and in particular middle managers that are; comforted by the status quo rather than interested in disrupting it to make things better, or aren’t inquisitive about finding new ways of working or resist instead of take risks, then an innovative culture is likely to always be out of reach.

If that sounds like your organization, well, guess what, very few large, mature organizations can boast a culture that is free from any impediments to innovation. It’s essential therefore that you train those colleagues that are open to change or recruit people with the qualities that are required.

Incentives: It is essential that your people are incentivized to follow the right behaviours. Henry Doss, writing about Innovation Culture in Forbes points out that “A foundational element of innovation is always risk and failure — how they are perceived, how they are contextualized in systems, how they are viewed culturally”.[3]

Your organization has probably built systems, processes, reward, and recognition that drives behaviour which reduces and (in some cases penalizes) failure. If that is the case, it has to be addressed as part of the culture plan. Innovation demands a culture of experimentation and when we experiment we learn as much from failure as we do from success.

Some organizations offer monetized incentives. This works when it comes to changing behaviours. The simple thing of offering ideas is, to most people, seen as a dangerous thing to do. Building incentives absolutely ‘pull’ people over that self-built hurdle but paying people for ideas is, ultimately, an unsustainable way of changing culture.

Theodore Levitt writing in the Harvard Business Review points out that “Ideas are not enough. Ideas are useless unless used. The proof of their value is their implementation. Until then they are in limbo”. [4]

Innovation Leadership

It is no coincidence that the organizations often seen as being poster boys for innovation have or have had charismatic, innovative, risk-taking leaders: Steve Jobs of Apple, Jeff Bezos of Amazon, Howard Schultz of Starbucks, Anita Roddick of the Body Shop, Larry Page of Google and Sir Richard Branson of Virgin.

Scott Edinger writing for Forbes points out that “Excellence in leading innovation has far less to do with the leader having innovative ideas and everything to do with how that leader creates a culture where innovation and creativity thrives in every corner”. [5]

Our checklist for leading innovation would include;

  1. The ability to paint and inspire a vision of exploration (not necessarily a destination as one can’t know what is not known)
  2. A strong customer focus
  3. Giving your team the ability to fail, explore, iterate, learn…leading by getting out of the way.
  4. Communicating that with innovation, there is no right or wrong…it’s known and unknowns
  5. A determination to get the culture right

Curiosity about how their organization interacts in World is an essential characteristic of the innovative leader. Tim Brown, the founder of the IDEO the global design agency in an interview with Yale Insights puts it this way,

“the quickest way for removing curiosity in my opinion is to have organizations that are too inward-facing, that don’t spend enough time out in the world, particularly with their customers or the people they would like to have as customers or the parts of the world that they would like to have customers in. But a sense of curiosity, an openness, a sense of empathy for the world, for people whose problems they might be trying to solve-that’s essential”.[6]

Innovative leaders are required through every level of the organisation

Having an innovator at the helm of the organisation is essential, but if they are the only one in the organisation, it’s simply not enough.

The qualities that Tim Brown describes need to exist, and if they don’t exist, then need to be incentivized in leaders throughout the organization. Otherwise the message, as all too often happens, gets diluted or filtered to the point at which it’s a different a message.

‘Space’ to innovate should be seen in the conceptual sense — the space between where you are now and where you aspire to be, but also a physical space. Tim Brown describes it as “spaces where trust can happen, where risks can get taken. We tend in our operationally minded view of the world to try and mitigate and design out as much risk as we can, but if you want to innovate, you have to take risks. And to take risks you have to some level of trust within the organization, because if people get penalized for failure, particularly the kind of failure that’s most useful which is where you learn a lot, then they’re not going to do it, in which case you’re not going to get any innovation”.

Processes, Tools and Approach

Failing to adequately resource the innovation program will have a significant impact on its sustainability. The essence of Clayton Christensen’s famous Innovator’s Dilemma is that organizations prioritize investments to sustain their ‘today’s’ business over those that have the potential to create ‘tomorrow’s’ business. Resources, of course, mean people and capabilities, but also equipment and budget.

Integrating Innovation or moving it to an outpost

A very common approach is to move the innovation activity into a ‘lab’ or ‘outpost’ rather than (potentially) disrupting the business as usual. Although it’s a strategy that has been used numerous times it shouldn’t be used just to ‘sidestep’ some of the challenges that were described in the culture section of this post.

For as long as you keep innovation away from the ‘business as usual’ you will be embedding rather than challenging the status quo, frustrating rather than incentivizing creativity and experimentation and reducing your organization’s ability to adapt to and fight disruption.

The other common problem with hiving-off innovation into a lab is a capacity issue. All too often we see corporates open an innovation lab with great publicity, fill it with cool gadgets and inspiring tech and a small team or bright innovators. It sends a powerful message to the marketplace, investors and partners. And, hopefully, they get some innovation out of the lab. But here’s the problem: if the aim is to “futureproof” a whole organization, how can a small team in a lab realistically do that? Just when the organization needs self-replicating transformation, they create a finite resource. That’s not to say that the ‘innovation outpost’ doesn’t or can’t work, just to be cautious of the hype and what competitors in your space ‘seem’ to be doing and make sure it is the right thing for your organization.

Choosing the right problems to solve

Pushing for ideas without defining problems worth solving is one of the easiest mistakes to make. Asking for “any ideas” seems an irresistible opportunity. It’s borne of the false presumption that all ideas are good ideas. To be blunt, asking for any ideas can be a terrible idea. Rabbit holes here we come. Not all ideas are created equal nor should they be given equal weight.

We define innovation as something different that creates value. You only create value if you solve a problem that matters or identify an opportunity to create new net value. It’s too easy to remove constraints, to allow any and everything. In reality, “you have to kiss a lot of frogs to find a prince.”

It’s one of the great paradoxes of creativity: constraints can spur creativity. The more carefully we think about the problems and the ‘communities’ we want to engage to solve those problems, the better the outcomes every time.

Problems can range from entering new markets to addressing everyday concerns such as low employee engagement. Whatever they are, the more specific, the better.g

Applying lean Startup in the corporate setting

Lean startup has become ‘the’ way to plan and launch a business. It “provides a scientific approach to creating and managing startups in order to get a desired product to customers’ hands faster”.[7] It’s taught in all the top business schools around the World. Many corporates are adopting and teaching these skills to their executives and innovation teams. It’s a brilliant method, supported by good principles and research.

There are some caveats; firstly, lean works in startups because everyone buys into the principles and behaviors — it’s a culture as much as it is a tool. If you then ‘copy and paste’ the tool without the culture, you don’t get the same benefits — how can you.

The second problem with using lean Startup in large organizations comes when there’s an attempt to fit the tool into existing governance processes. Lean startup is about rapid experimentation; ‘shipping’ product quickly, getting feedback and making decisions to pivot, persevere or stop on a weekly if not daily basis. This is an anathema to many organizations, and if it goes unchallenged, lean startup is not the tool to use.

Failure to integrate or assimilate innovation activity into the core business

The last point of failure of many innovation programs, paradoxically, exists when innovation programs succeed.

This is particularly important when an organization takes the route of creating a lab or innovation outpost as discussed earlier or where the innovation activity lies in a different sector to the core business or deals with a different or even competing business model: how do you then assimilate innovation back into business as usual?

It isn’t that industries or organizations that are most at threat of or have already been disrupted are merely unable to or don’t have smart people that can come up with ideas, it’s their inability to develop and assimilate those ideas into their business that harms them. Ask yourself of all the innovation labs you know, how many have brought a product to market and are actively commercializing?

Perhaps the most famous example of digital disruption is Kodak [8] — they were eventually killed by digital, but that wasn’t because they failed to invest in digital — nothing could be further from the case, Kodak invested billions in digital photography. They failed in their inability to assimilate or shift their business at the same pace as their competitors. Their market leading position hindered them, and in not being able to transform themselves, they were disrupted to death by new entrants. [9]

We recently met a senior executive at an Incubator run by one of the leaders in the mobile telecoms businesses who told a similar story: some of their engineers came to them with what you would recognize now as WhatsApp but three years before WhatsApp launched. They had the idea, they had the prototype, the tech worked, but because it was so disruptive to their core business, they had no idea of what to do with it, and so nothing came of it.

It’s critical that operating executives have bought in early and have a vested interest in the “innovation strategy.” This requires significant long term bridge building (relationships) from the innovation team to the operating executives. Although this seems obvious and straightforward, many fail to appreciate the gravity of this step and either fail to engage or do so too late. The operating executives have vested interests in current product portfolios and are mandated to meet demanding financial objectives. Unless you can demonstrate a clear path to how your “innovation” will add immediate to near term value (making their numbers), then your innovation assimilation generally won’t happen or will occur at such a pace that the growth opportunity gets wasted as competitors beat you to it. I know of very few executives that will forego their bonuses to support your long term innovation plan. The more successful organizations recognize this early in their strategy building and will provide the operating executives new incentive mechanisms.

[1] https://hbr.org/2015/06/you-need-an-innovation-strategy

[2] http://innovationexcellence.com/blog/2012/12/29/why-corporate-culture-is-important-for-innovation/

[3]http://www.forbes.com/sites/henrydoss/2014/04/29/being-innovation-leadership/#7f99aa369076

[4]https://hbr.org/2002/08/creativity-is-not-enough

[5] http://www.forbes.com/sites/scottedinger/2012/11/20/dont-innovate-create-a-culture-of-innovation/#4b5036dc1e2d

[6] http://insights.som.yale.edu/insights/how-do-you-build-culture-of-innovation

[7] http://theleanstartup.com/principles

[8] http://www.forbes.com/sites/daviddisalvo/2011/10/02/what-i-saw-as-kodak-crumbled/#6f6d811420f5

[9] https://hbr.org/2016/07/kodaks-downfall-wasnt-about-technology

Leave a Reply