Digital Economy Dispatch #040 -- The Importance of Creating a Climate of Innovation in Your Organization

Digital Economy Dispatch #04013th June 2021

The Importance of Creating a Climate of Innovation in Your Organization

Over the past few years, my conversations with Large Established Organizations (LEOs) inevitably end up at the same question: Why do we struggle to build momentum and deliver meaningful change across substantial parts of our organization? Time and again, as they adopt digital technologies to drive transformation, promising pilots and prototypes stumble and eventually run out of steam. Why?

Many have recognized that a core aspect of any digital transformation is to establish a climate that encourages, rewards, and supports innovation. In transforming LEOs, this is particularly critical, and also difficult to achieve. Taking lessons from successful Silicon Valley startups may be helpful. But certainly not sufficient to ensure they can overcome the challenges of scale, complexity, and inertia frequently experienced in many LEOs.

Over the past 2 decades, many organizations, academics, and authors have looked to define the key elements of innovation, to assess the status of an organization’s approach to innovation, and to describe the steps that LEOs must take to develop a culture that supports innovation across the enterprise. Three specific examples illustrate the approaches commonly in use.

In Goran Ekvall’s model he defines the characteristics of an innovation climate in 2 distinct categories, each comprising five factors. The first covers the “atmosphere for work”, and the second addresses the “attitude to work”. The 10 factors defined provide a general overview of an organization’s innovation culture and by using a standard questionnaire this model is used to present an overall perspective of the current innovation culture status of an organization. Ekvall’s model and questionnaire have been in use for more than a decade across many organizations, so has the benefit of a large dataset of previous questionnaires, and trained consultants in its use.

In John Bessant’s High Involvement Innovation (HII) model, he offers a simplified, broad 5-level maturity model of an organization’s innovation culture. Bessant is a well-known academic and author in the field of innovation with several best-selling textbooks, and he is a frequent consultant to large organizations. His maturity model captures his experiences by establishing an increasing set of behaviours that he believes are essential to underpin innovation success. Again, supported by a questionnaire, a current perspective of an organization’s innovation maturity can be obtained, and the position in the maturity model then used as a basis for an innovation action plan.

Wazoku is an open innovation and idea management software and services company. They provide an infrastructure to capture and evolve innovation tasks (ideas), often referred to as an “ideas management platform”, and a structured approach to share, refine, and evolve them. Over the past 5 years it has been promoting innovation culture under the title of “everyday innovation”. Using a 4-stage maturity model, Wazoku has assessed over 1,000 senior leaders in large corporations to understand their innovation practices and current needs. Combining aspects of organizational leadership, innovation management, and innovation tooling, the resulting innovation assessment report and associated questionnaire is widely used as a benchmark for assessing the fundamental themes of innovation in large corporations.

Commentary

The three innovation models from Ekvall, Bessant, and Wazoku offer very general frameworks for understanding innovation climate and culture. They address core elements of an organization’s innovation climate based on a strong underpinning in innovation theory and optimized through widespread use. They are helpful aids for any organization aiming to understand and improve their capacity for change in a digital world.

However, experience from their practical application has also highlighted several limitations. How do they relate to today’s fast-paced, volatile, digitally driven environment? What are the issues for LEOs as they establish their innovation climate? Certainly, much of the basis for innovation culture remains unchanged. But several aspects of what is happening at LEOs today need to receive additional consideration. Several areas are worth emphasizing as critical to establish a positive innovation culture.

• Highlighting the challenges and opportunities that require news ways of working. Largescale change demands a way to create the required innovation momentum across a LEO. There must be compelling reasons to act to make it clear to leaders and managers that taking on the risks associated with new approaches is essential. Also, a LEO must ensure that the environment exists in which those taking risks will not feel they are punished if everything does not work out as planned. Honesty and transparency here are vital. First, in accepting that there is risk involved in innovation. Second, in how the risks of trying new, unproven ideas are viewed with in the organization. And third, in recognizing that a level of “psychological safety” is a prerequisite for taking on the challenges that come with trying out new ways of working in a LEO.

• Introducing practical techniques for exploring new ideas, testing them in realistic scenarios, and defining meaningful approaches to their adoption. The technical, business, and human aspects of innovation must be addressed with methods and tools that help to apply them, measure their impact, and quickly drive them toward adoption or rejection. It is not that people in LEOs don’t know what can be done. Many such approaches exist. But they need a disciplined framework in which to apply this innovation. Unbounded innovation sounds good in theory. But in LEOs there frequently need to be managed innovation channels or pathways to guide innovators and innovative ideas.

• Creating adoption models and pathways that overcome innovation barriers. Any internal entrepreneur will tell you that coming up with good ideas is a small part of the challenge they face. The biggest issues are trying to move from a workable initial solution to broader adoption in an organization that has built up many layers of resistance to change. Clear approaches to manage the scaling of innovative ideas is essential. These pathways to adoption need to be defined, managed, and illustrated with explicit support from many agencies across the organization. Escalation processes are important when blockages occur because too often good ideas are simply abandoned as the innovators become overwhelmed, frustrated, and disillusioned.

• Adapting to the organization’s history and environment. The challenges of innovation within a LEO raise particular issues that must be addressed when working within a highly structured, complex environment. Any intrapreneur in such a context will spend a large part of their time looking beyond direct innovation aspects to overcome the inertia, organizational complexity, domain-specific regulations, financial controls, and other concerns typical of such an environment. While general techniques can be useful, progress will require deeper knowledge of that organization and its context to make significant progress.

• Bringing insights from deep knowledge of the domain. Measuring innovation culture through a set of maturity levels gives a useful starting point to define the innovation journey. However, it must be refined with local knowledge of the domain, market conditions, competitive environment, and current macro-economic events. That is particularly important given the current unprecedented circumstances for business and society. Practices, priorities, and processes for innovation that seemed relevant just a few months ago may now be inappropriate. Barriers to innovation practices from just a few months ago may today seem irrelevant. Prioritizing such contemporary concerns is essential.

• Recognizing the unique digital drivers for change. Digital advances in the past decade bring new opportunities and challenges to innovation. While it may be easy to dismiss these as incremental ways to “go faster”, there are more fundamental aspects to consider. The digital world brings a combination of a massive jump in technical feasibility (heralding a new era of artificial intelligence, machine learning, pervasive high-speed communications, and much more), diverse approaches to business viability (driven by innovative business models presenting new ways to capture value in the production process and as products are used and stream real-time operational data), and rising expectations in client desirability (including the willingness of end-users to share personal data by using mobile devices to access complex data in real-time from a plethora of embedded sensors). As a result, the ongoing digital revolution changes innovation culture and approaches in critical, substantive ways.

Any approach to assess or develop an organization’s innovation culture needs to address these concerns. The innovation experiences captured in models defined by Ekvall, Bessant, and Wazoku offer a substantial backbone from which to start. But they must be augmented with additional elements that recognize current needs and concerns for any LEO looking to survive and thrive in a post COVID world.

Digital Economy Tidbits

So you want to be a software company? Link.

It is now a decade since Marc Andreesen declared that “every company is now a software company”. What happens when non-software companies try to become software companies? A really interesting article looking at the challenge for Large Established Organizations (LEOs) wanting to transform to digital business models and software-driven solutions. Spoiler alert: It is not as easy as they think.

But while getting software into the core of your business model—or launching entirely new software businesses—might seem an obvious play in the current business environment, that doesn’t mean it will be easy. In reality, there are few successful cases of nonsoftware companies building software businesses (Exhibit 2) and many notable failures, including from otherwise high-performing companies. Of the approximately $500 billion in total global software revenues in the year 2019, nonsoftware natives captured only 20 percent. Nontechnology players, for their part, brought in only 6 percent (Exhibit 3).