Innovation remains a continuing concern for CEOs. Highly innovative companies, such as Tesla, Salesforce.com, and Alexion Pharmaceuticals, garner the admiration of others. Many executives, however, tell me that their CEOs resist taking steps to improve innovation for fear that their organizations will lose focus on current operations and miss their financial goals.
Becoming a highly innovative company, while achieving excellence with your current operations, isn’t easy. Innovation involves taking an iterative approach with your current products and services, and looking for the lead signals of disruptive innovation, which may present opportunities or threats to your current business model. But, the future success of your business depends on the innovation of your workforce and external partners.
Executives can take some solace because there’s strong evidence that they can have both great financial performance and innovation. The converse is also true – organizations that stick to the “tried and true” and do not seek to innovate actually have worse financial performance. Indeed, status quo thinking is a risky strategic position.
Brooke Dobni, PhD. of the Murray Edwards School of Business, University of Saskatchewan, conducted a survey of 324 Canadian firms, representing a cross-section of Canada’s economy. The survey asked organizational leaders to rate their firm’s overall level of innovation and financial performance[i]. Survey takers rated their organization’s overall innovation based on these factors:
- Innovation is an underlying culture, a core value, and not just a word in the organization.
- The organization’s business model embraces innovation, and is premised on the basis of strategic intent.
- Senior managers effectively cascade the message of innovation throughout the organization through well-articulated objectives.
- There is an innovation vision, which is aligned with projects, platforms, or initiatives.
- The organization’s leaders are diverse in their thinking.
The leaders were also asked to rate their firms on nine measures of financial performance, including: top line growth (revenue), bottom line growth (net income before taxes), return on investment, profitability, overall firm performance, customer satisfaction, market share, year over year change in market share, and overall enterprise value.
Highly innovative firms had a statistically significant, positive relationship with top line growth, customer satisfaction, bottom line growth and profitability. The survey results also found a positive relationship between return on investment and innovation, although not statistically significant. Conversely, low innovation organizations had negative correlations with return on investment, overall firm performance, and the overall enterprise value. In conclusion, it is clear that organizations with lower levels of innovation have distinctively lower performance when compared to those with high innovation orientations.
The research of consulting houses, such as Booz and Company and Arthur D. Little, have also found a strong correlation between highly innovative organizations and strong financial performance.
The Takeaway for CEOs
The CEOs who fear that the activities required for innovation will distract their workforce from meeting today’s manufacturing quotas, sales numbers, and quarterly profit goals, are missing the point. If those CEOs fail to develop cultures of innovation within their companies, their financial results will actually diminish over time. Innovation can actually reduce risk, rather than increase it.
Here’s How to Get Started
The path forward is clearly laid out. The most important step for CEOs who want to improve their organization’s innovation is to inform the workforce that innovation is important. They need to articulate a vision and strategy for innovation, and continually invite employees to participate. They also need to invest in the culture, skills, behaviors, and infrastructure necessary for innovation (which often is not expensive).
CEOs need to promote strong collaborative and transparent organizational cultures as well as systems that promote ideation, build analytics, and knowledge management. They need to include their external partners, and make strategic decisions about which innovations to commercialize. Finally, they need to align their current operations in order to bring new innovative products, services or business models to the market.
Cultures of innovation can be measured and managed from ideation to commercialization and financial returns. This enables organizations to more systematically embed innovation-building behaviors and actions within their firms.
For the CEO who builds a strong culture of innovation, the financial rewards will be great!
Are you debating improvements to your culture and capability for innovation? Join the discussion…
Victor Assad is the CEO of Victor Assad Strategic Human Resources Consulting and is a Managing Partner of InnovationOne. He consults on talent management, leadership development and coaching, innovation, and other strategic initiatives. Please e-mail Victor at firstname.lastname@example.org or visit www.victorhrconsultant.com. For innovation visit www.InnovationOne.US.
[i] C. Brooke Dobni, (2011), “The relationship between innovation orientation and organizational performance,” Int. J. Innovation and Learning, Vol. 10, No. 3, 2011. Copyright 2011 Inderscience Enterprises Ltd.