Managing Innovation in a Changing Time

We are in a time of rapid change. If you want to be able to innovate and succeed, you must act like an entrepreneur. It is not enough to think like one. As an organization, you must adopt policies that create habits and practices of entrepreneurship. You must manage like an entrepreneur, like an innovator.

There are many large companies that do innovation and entrepreneurship well. A recent Fortune article identified quite a few these companies. These companies, GE, IBM, Coke, and MasterCard, all show that obstacles to success can be overcome by managing innovation effectively.

Managing innovation requires determination
Entrepreneurship is hard work. Any organization that wants to succeed at it must work hard and see innovation as an opportunity, not as a threat. To do this, you need policies and practices that create and support this climate.

If we believe that “what gets measured is what gets done”, then we must review our innovation efforts to build in learning that improves performance. It’s also not good enough to say “if we build it they will come”. Without clean structuring, staffing, and compensation, there will be few willing to step forward to execute.

So, we must develop policies and practices to make innovation attractive. This includes removing anything that is obsolete or unproductive, as well as any mistakes and failures. As with any living organism—and your company is a living organism—we must cut waste products to maintain our health. We must free up our best performers to do the work of innovation.

This may not be possible in all cases. But, in those cases, we must limit resources so they are not consumed by the dead weight of the organization. Knowing that the present product or service will be eliminated in the foreseeable future will help galvanize the innovation mindset.

This requires judgement based on the knowledge of the business, your customers, and technologies. It is a challenge to all the knowledge that can be found and is likely provocative as the outcome assigns “winners” and “losers”.

For the manager of innovation: focus on opportunity. While you are often, and almost only, presented with “problems” from your directs, it is vital to dig deeper and uncover “Why is this a problem?” For underneath this lies opportunities, or at least, the ability to make an informed judgement.

The next step is to develop a complete and systematic review of innovation efforts. Look at the efforts put into innovation in your business with regularity and answer the following questions:

  • Which ones deserve more resources? Why?
  • Which ones have created new business? Why?
  • Which ones are not performing as expected and what should we do about them?

Policies and practices make innovation at companies, regardless of their size, possible. They help to create the proper attitude and provide appropriate tools. Yet, people, not processes, do innovation. The best policies and practices will only foster entrepreneurial thinking when combined with similar incentives that reward, rather than penalize the innovators.

Managing innovation requires support
Most innovation efforts suffer from the same problems. Regardless of the supporting science, consumer interest, or business model, someone has to have time to execute and to make the decision to stop if the effort warrants it.

This new business cannot, nor should it, be responsible for all the burdens an existing business imposes. The new business will not go far at all if this is so. Management cannot wave the needs of the existing business. To expect the same of a new business is at best the “death of a thousand paper cuts”. The effort of innovation, and the unit that supports it within the organization requires different policies. It requires appropriate compensation and reward of its key people.

Unreasonable compensation will burden the new project until it generates revenue. Yet, to motivate the people involved requires support appropriate to their efforts. While this creates a conflict rooted in traditional compensation thinking, it also creates an opportunity on how to structure the new initiative.

First, anyone coming into the effort must maintain current compensation and benefits. The project should stay at a moderate salary. But it is unrealistic, and may be damaging, to expect people to work for less money than they are currently making. When you put someone in charge of a new area within your existing business, they are likely to make money associated with that role. These people who get “promoted” often are also the people that could find another opportunity outside your company. So to be clear again, when you staff an entrepreneurial initiative from within, you must do so with existing compensation.

But, developing and building a new product, market, or service that can deserves reward. The person who leads the successful development of this effort could become the head of that business when deployed. With the appropriate rank and compensation, regardless of where they started before the effort. This can be sizable and at the same time does not commit the company to anything except when there is success. An alternative could be to give people a share in future profits. Treating the effort as a separate entity and when it is ready, buy-out the “founders”.

One thing must be clear. Innovation within an existing business is a venture, just like a startup. Sharing the risk between the employer and employee is a must. Employees can expect to return to their previous level of compensation if the effort fails. Rewarding someone for failing is bad management, but penalizing one for trying is even worse.

Managing innovation requires focus
Remaining focused on innovation is key for long-term success of any company. Attempting to be entrepreneurial without changing your innovation policies is detrimental to any company. For example, forming a joint venture with an entrepreneurial company rarely succeeds. Most of the time, the founders of the startup become stymied by the “new bureaucracy” of the larger organization. Also, the larger company employees often become confused over the objectives of the new entity. They see the the entrepreneurs as wild and undisciplined—the very things they are not!

Companies are more likely, although far from guaranteed, to be successful innovators when they use their internal people. It is vital that the company understands the effort and those working on the effort understand the parent company. Their is mutual trust, knowledge, and respect upon which true partnerships develop.

While it may be tempting to follow the shiniest object you see, innovating in fields outside of existing businesses is difficult. Being new is almost always likely to have problems, at least at the beginning. Solving these problems requires knowledge of the business. Efforts in areas where you do not have knowledge of markets, customers, or enabling science may be almost insurmountable.

Acquiring an innovative stake is difficult. To be successful you must also provide resources to manage the new acquisition well. Management (meaning any manager or higher) from the acquired company is not likely to stick around. As owners, they are likely now wealthy. Disappointment from the new employees is also likely if there is not a bigger opportunity within the acquiring company. This scenario is especially true when non-entrepreneurial companies buy entrepreneurial ones.

For a long time, likely years, a new venture, innovation, effort may not show any profit or growth. While it is starting small it will absorb resources. But then it will grow big and should result in a new major business rather than an addition to the current product line. This growth should be fast and for a long time return the money invested many times over. Otherwise the innovation is a failure.

Measuring returns on innovation will likely be different from the existing business. The only way to know these things is through the analysis of your company and your competitors. This feedback allows you to design appropriate experiments. Designing the right experiments allows you to measure how well units perform, which efforts to push forward, which to adjust, and which to abandon.

Management must staff the innovation effort carefully and correctly. Think through the assignment, consider many people, review their performance, and interview managers, peers, and subordinates. This isn’t different than normal hiring processes. After all, entrepreneurs do not have a higher rate of success than other professionals.

When the innovation effort gets to be successful, often times the company ceases to be entrepreneurial. This will absolutely happen without people who know what they are to be doing; who are motivated to do it; and who have the right resources to support their efforts.

Bill Roschek, PhD

Manager

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