Working with smart CEOs of global companies, I come across the same statements time and again:
“We need to innovate!”
This is true. Innovation leads to growth, and business leaders know this.
“We need to think more creatively.”
Again this is usually true, and we help to make creativity a core part of their processes.
“We need a culture of innovation!”
This is more complicated. Because while they’re right, they often don’t know what they mean by that statement.
To be sustainable, innovation needs to be hardwired. Which means it does indeed need to be part of the company culture.
But what should that look like? And how can you know if you’ve achieved it?
Let me explain.
What is a culture of innovation?
In my view, a company with a true culture of innovation is one where innovation is second-nature - where it’s part of the day-to-day.
That doesn’t mean that it’s boring. Creating new products and overhauling poor processes is what entrepreneurs live for. Your staff can feel this spirit and thrive on the chance to be a part of something new.
It also doesn’t mean that your culture should come easily - that you just say “give me innovation” and wham, there it is. It takes deliberate work to get there.
For me, a culture of innovation has three key steps. You need:
- Unorthodox or out-of-the-box thinking;
- From everyone in the organization;
- That brings about real change.
Without one of these elements, I don’t believe that you have a culture of innovation.
On top of this, you also need to define “innovation” for your own business. What do you actually want to achieve?
For example, insurance firm CSAA IG breaks down innovation into three categories: incremental (small process changes), evolutionary (such as modernizing the customer experience), and disruptive (investigating how breakthrough technologies will impact insurance).
The firm then assigns resources to each of these based on what it values most. This is a real strategy that CSAA IG put time and energy into. I’ll show you how to encourage innovation in a moment, but know this: it won’t happen by accident.
What it’s not
An innovation culture isn’t a once-a-year endeavor. You can’t just decide that “we need to innovate,” hold a challenge or all-hands meeting, and then magically you’ve done it. Even if the end result is good.
You might have innovated, but you haven’t created a culture.
Likewise, you can’t create value statements and talk about innovation without actually giving room to unique and new ideas. Even if the whole company agrees and believes in the values, you get nowhere if behaviors stay the same. You don’t make changes simply by saying you need change.
You might have a culture, but it’s not innovative.
All of this is to say that a culture of innovation won’t build itself. You need to set goals and timeframes. You have to commit.
We’ll look soon at how to actually foster this culture. But first I want to explain why innovation is essential to modern businesses.
Why innovation matters
Let’s begin with the most obvious reason to innovate: it’s the best way to get ahead of your market and become the next Apple or Amazon. One great idea can completely change your business model and set you up for decades.
But innovation isn’t only about moonshots. You can see ongoing, tangible benefits by encouraging team members to make changes and by giving them the tools to do so. In fact, it will likely cost your business if you don’t.
Which is counter-intuitive. For many leaders, innovation and creativity lead to risk-taking. And taking risks leads to mistakes, right? Not exactly.
This line of thought assumes that you’re not making mistakes already - that the way you operate is already optimal. If this were true, then perhaps you really don’t need an innovation culture.
But it isn’t true - I guarantee it.
Perfect processes are basically impossible. Even if literally every aspect of your company is flawless today, that won’t last long. New technologies emerge, as do new business models.
One day you’ll have to explain to your grandchildren what a Sony Walkman was, and why fax machines were so exciting.
Whatever you produce today has a limited shelf life. And this small fact needs to be central to your company culture.
As HBR explains “when our curiosity is triggered, we are less likely to fall prey to confirmation bias (looking for information that supports our beliefs rather than for evidence suggesting we are wrong).”
In other words, you won’t see problems if you don’t know to look for them.
How to encourage innovation
So we’ve looked at the “what” and the “why,” but you really care about the “how.” Because you already know you need to innovate, you just don’t know where to start.
Here are a few suggestions.
This won’t shock you, but employees like to be compensated.
This is especially effective if you want innovation to come from all over the organization - not just the innovation team. To get good ideas flowing in from all corners, give your teams a reason to think innovatively.
You can do this through in-house challenges that come with a prize. You might also offer standing rewards for people who can solve specific problems. Any employee who offers a working solution to XYZ can earn a day in lieu, a weekend away, or lunch for their team.
Of course, rewards don’t have to be monetary. But if you don’t give staff a reason to keep innovation top-of-mind, you won’t see results.
Make innovation a performance requirement
Another way to incentivize innovation is to put it in employees’ job descriptions. And not just for innovation teams - for everyone.
During quarterly or annual performance reviews, have your managers ask “what changes have you driven here?” These could be small updates to processes, major new campaigns, or simply redecorating parts of the office.
It’s important for staff to know they’re expected to make improvements to the business and not simply do as they’ve been taught. And while not every team member will have the same level of expectation or opportunity, your innovation culture needs to extend to every single employee.
Support failure, not incompetence
Innovating requires companies to take chances, and this can scare some senior managers off. It can feel safer to stick with the status quo.
If you’re committed to innovation, you have to be ready to fail often. Each failure is a chance to learn, and if handled well, each helps the company grow.
But there’s a difference between a well-managed failure and a mismanaged disaster.
“For all their focus on tolerance for failure, innovative organizations are intolerant of incompetence. They recruit the best talent they can. Exploring risky ideas that ultimately fail is fine, but mediocre technical skills, sloppy thinking, bad work habits, and poor management are not.” (Gary P. Pisano)
You can have good people and structured processes, and ultimately end with a flop. But wishy washy work isn’t innovation - it’s negligence.
The easiest way to make sure that innovation doesn’t happen is to make it hard or tedious to innovate.
There are a few ways to make it easier to innovate:
- Provide frameworks. Employees need to know what’s expected, even if the ultimate outcome of a project isn’t yet clear. Give timelines and team structures, and even provide an innovation management system to help guide the process.
- Narrow down problems. Big challenges can seem overwhelming until they’re broken down into chunks. Rather than aiming for “the big overhaul,” identify key problems in your products or processes that need to be addressed.
- Keep doors open - both physically and philosophically. Team members should be able to ask for help and get advice from management. And everyone in the organization needs to have the opportunity to contribute in one way or another.
- Share knowledge and experience. Companies need to have good knowledge-sharing practices. If research has already been done, staff need to know it exists and how to access it. This is especially true for valuable past failures.
Innovation should be a welcome challenge and a chance to explore - not a chore for everyone involved.
Set aside time
Perhaps the biggest blocker is the fact that employees have work to do, and for many, innovation isn’t involved. It’s an afterthought or a lucky side effect of doing a good job, but not the job.
If you want to make significant changes to that mindset - to make employees cherish and strive for change - you may have to remove them from their usual environment.
For instance, CSAA IG gives all employees innovation training that includes a half-day workshop trying to fix a problem in their business group. They also have shared tools and an innovation portal where staff can take part in challenges and share knowledge.
These resources are essential to building an innovative company, and half a day isn’t a lot to give up.
Watch for burnout
Innovating also comes with pressure. Your teams know that you expect big things, and this can weigh heavily.
Small adjustments like offering work-from-home opportunities or secondments between teams can help to keep employees engaged and happy. This in turn keeps them at the company for longer, so projects can continue at a good pace and you don’t have institutional knowledge walking out the door on a regular basis.
Part of this is also to set a good example as a leader. Show that you can maintain a good work-life balance and keep stress to a minimum, and your staff will do the same.
How to measure innovation
This is where a lot of leaders panic. You expect innovation to come in a-ha moments (“moonshots” as I called them above). So you’ll only be able to measure innovation once you’ve made a major change. You’ll know you’ve innovated because suddenly you have new products and services, and the company’s raking in profits.
But that’s not how modern businesses operate. Today, business performance is closely tracked and measured across the board. And it’s not just a matter of win or lose.
As we’ve written before, measuring innovation is both achievable and necessary. There are a range of useful metrics to gauge performance, falling under two broad categories: input and output.
These help you measure how much time, effort, and money your company puts into innovation. If you’ve decided to take innovation seriously, your input metrics are naturally going to go up.
Innovation input metrics include:
- Timesheet hours. Track how much time your teams put into brainstorming new campaigns and products.
- Training. This includes onsite training sessions for all staff, specific education for innovation teams, and grants of money and time to learn new skills away from the office.
- Financial investment. This is the most obvious input metric. What proportion of the company’s budget is going towards innovation?
You can think of plenty more to add to this list. The goal is to have a clear measurement of what you put into innovation, so that you can compare this against what you get out.
Business owners are likely more excited about outputs - their return on investment.
Innovation output metrics include:
- Sales and revenue from new products. If a new product has come directly from your investment in innovation, then the resulting revenue can be used to measure the success of the innovation.
The tricky part about this is knowing when a new product “ends.” If you design a marvellous new toaster, and then iterate with version 2.0 and 3.0, are these still part of the original innovation? You’ll want a clear policy on this.
- Number of new products (and patents). If the big goal is new products (rather than improving internal processes), then the simplest measure for this is the number of new products produced.
- Performance against budget allocation. Take the sales and revenue from new products and compare this against the amount you’ve invested. In other words, if you allocate 10% of the budget to new innovation, are you seeing a return to match?
- Staff competency. Have your staff learned new skills in the way you want? This can be measured both by new certifications attained and through performance reviews.
While it’s natural to get excited about the first three on this list, you mustn’t ignore the impact that innovation has on staff. Ideally you bring everyone along for the ride.
The points above - especially output metrics - help to assess whether innovation is happening, and if it’s efficient. But you’re not just trying to innovate - you’re trying to build a culture.
The simplest way to measure culture is through staff surveys. You likely already run annual questionnaires to gauge happiness, whether employees like their managers, and if they believe in the company.
If innovation is a key company value, it needs to be assessed as part of these surveys. You want to know that employees have bought in and can feel that innovation has become core to the business.
And leaders also need to be reflexive. When it’s time for your own performance review (even if it’s self-administered), can you truly say that a culture of innovation has been established?
This table from Fast Company gives you a nice framework to make this assessment:
The further down this table your company gets, the more ingrained your innovation culture has become.
Culture doesn’t just happen - it needs to be built
I hope it’s clear that lasting innovation won’t happen just because you want it to. You can’t simply set aside some resources, appoint a Head of Innovation, and assume that the culture will follow.
You need to know what a culture of innovation should look like for your business, and then set about intentionally putting it in place, step by step.
This involves time, energy, and money. And most of all, innovation needs to become a core company value that your team members believe in.
If you can’t do this, you risk being left behind by the businesses that can.