It is the great conundrum. How do managers get a big, established company with its host of rules and procedures to behave like a small, nimble, entrepreneurial one? This tension is at the heart of managing for innovation. Companies need a standardised process to help them work efficiently and meet budgets, control risk, ensure quality and plan for the future. Although necessary, this bureaucracy can be a dead weight, ensuring a culture that fosters a "things have always been done this way" attitude. And this affects not only the internal processes of a company, but also its development of new products and services.
Although two-thirds of a company's revenue is earned from products released in the past five years, more than half of those surveyed said they phase out only 5 per cent of their products each year, research by the Economist Intelligence Unit, released in February, disclosed. It is like a corporate rule of nature: companies keep on reproducing the same-old, same-old without substantial, systemic intervention.
So how do you make continual creativity compatible with nine-to-five? How can something as anarchic as inspiration be managed?
We talked to six diverse organisations with a reputation for sustained innovation to discover the secrets of their success: global mining behemoth Rio Tinto, private packaging giant Visy, boutique fund manager Hunter Hall, Qantas low-cost offshoot Jetstar, South Australia's Government Reform Commission and the United States computing giant Sun Microsystems.
As the range of industries demonstrates, innovation is not inspired by technology or research and development in isolation, although these may well be the tools or locales for refining, producing and monetising it. Culture is the incubator of innovation.
There is bad news for managers looking for sure-fire ways to achieve it. The lessons from these successful companies is that there are myriad ways to foster a culture of innovation, and that what works at one company does not necessarily work at another.
At financial services company Hunter Hall, for example, the company eschews the pin-striped straitjacket of most other financial services firms in its dress codes and stock picks (it prefers small-caps, for example, and has been at the forefront of developing ethical funds).
When it comes to motivating staff, however, Hunter Hall is as traditional as they come: performance fees reward achievers while underachievers are "ruthlessly executed", as managing director Peter Hall says.
At Jetstar, in contrast, the business model is predicated on cutting costs, so motivating staff with large bonuses is neither possible nor desirable. The airline attracts, retains and rewards staff through various means. Because of its growth, for example, pilots are able to rapidly advance from first officer to captain.
The beauty of this, chief executive Alan Joyce says, is that it yokes the individual's advancement to the success of the business and ensures pilots' job security - not to be sneezed at when many of Jetstar's pilots worked previously at failed airlines Impulse and Ansett.
For the business, the rewards of a culture of innovation are increased growth and a jump on competitors.
Another survey by the Economist Intelligence Unit found a correlation between companies' revenue growth, and what it calls "pre-emptive operational innovation" (making changes to operations rather than merely reacting to external forces such as regulatory change).
In a survey, Operational Innovation: Fortune Favours the Brave, published in December, 18 per cent of participants said their companies have introduced practices that were new to their industry or new anywhere. Of those, 54 per cent had revenue growth greater than that of their main competitors.
Research by management consultancy McKinsey & Co backs this up. Its global survey of 1458 executives on how companies approach innovation, released last October, found that more than 70 per cent of corporate leaders named innovation as one of their top three priorities for pushing growth.
Nearly all - 94 per cent - said that people and corporate culture were the crucial element in achieving innovation. However, despite recognising its importance, too many companies are failing in this critical area.
Only 36 per cent of senior managers say innovation is part of everything the organisation does. While a third believe that innovation is part of a leadership team's agenda, the same proportion admit that their companies govern innovation in an ad hoc way.
Companies wanting to improve their culture of innovation can start with three relatively simple improvements, the survey results show (see table, opposite). Innovation needs to be part of senior management's agenda and it must be built into performance benchmarks. Under-utilised talent can be tapped by allowing networks of collaboration and experimentation (between business units, for example, or with customers) to emerge.
Increased risk must be tolerated. This means leaders really putting their words into action and being willing to sacrifice some short-term performance to allow new projects to be developed.
The risk is that some ideas will fail.
But a robust culture tolerates, even celebrates, this and recognises that failure it is not a price to be paid. It is an opportunity to learn for future success.
BRW, Fairfax Business Media
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