The Secrets to Fostering Innovation

Organizations should include innovation as a major competency in leadership-development plans and tie individual bonuses and/or salary increases to innovation, according to new research.

Wednesday, May 1, 2013
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It's easy for organizations to talk about the importance of fostering innovation, but it takes a whole cultural mindset to make that happen, experts say.

In the Institute for Corporate Productivity's new report, Human Capital Practices that Drive Innovation, more than two-thirds of the 327 business leaders surveyed said that fostering innovation and creativity was the key to adapting quickly and remaining competitive.

"It's more than about inventing new products like the iPhone, it's also about organizations changing the way they do business," says Cliff Stevenson, senior human capital researcher at i4cp.

The St. Petersburg, Fla.-based institute based its study on creativity research by Dr. David Rock at the NeuroLeadership Institute in Australia. The firm then took a broader look at how organizations handled innovation and creativity within their workforces, and determined the top 10 human capital practices that high-performing organizations use to increase innovation.

The top practice is to use technology-enabled collaboration/social media tools to share knowledge -- 36 percent of HPOs versus 14 percent of low-performing organizations in the survey said they did this.

"Brainstorming within the same network produces the same iterations of ideas, and doesn't allow people to come up with completely new ideas," Stevenson says. "Approaching the problem with a different mindset allows people to create a new field of ideas, and so organizations should let their employees use social media within the process, and the results could be better."

Indeed, IBM, one of the companies surveyed by i4cp, even lets customers suggest ideas to solve client issues on the company's online forums, he says. This not only broadens the brainstorming process in a cost-effective way, but it also strengthens customer loyalty for IBM products.

The second-ranked practice described in the survey is for organizations to define and promote organizational values related to innovation.

"My thought is that employees are more comfortable about being creative and innovative once the organization has expressed its importance -- it takes the fear or risk out of suggesting a creative or new idea," Stevenson says.

Organizations should include innovation as a major competency in leadership-development plans and tie individual bonuses and/or salary increases to innovation, the survey found. HPOs were almost three times more likely to do this than LPOs.

"You can't pay for creativity," he says, "but, on a smaller scale, organizations can have some sort of recognition system that rewards employees for being creative and innovative."

The other top practices were for organizations to have a formal program to find and promote creative/innovative programs, products or ideas; put in place discrete budgets to fund innovation projects external to the enterprise (i.e. to generate ideas or products from non-employees); provide internal training in creativity and innovation practices; put in place a formalized or structured idea/innovation review process; track innovation talent at both the college undergraduate and/or graduate level; and reward innovation via more engaging work and/or greater autonomy.

The study included data from the i4cp's Workplace Innovation and Creativity Survey 2013, which was created and distributed in partnership with the American Management Association and the Neuroleadership Institute.

Likewise, Philadelphia-based Hay Group's 2013 Best Companies for Leadership study surveyed nearly 7,000 employers around the world about their best practices in fostering innovation, and found that 90 percent of the top 20 "best companies" designed roles to be flexible enough to respond to immediate projects, compared to 65 percent of their peers.

"There are differences between organizations that tend to encourage and actually drive innovations and those organizations that just talk about it," says Rick Lash, a Toronto-based director in Hay Group's leadership and talent practice and co-leader of the study.

The study's best companies, including 3M, Apple and Google, design job roles that encourage employees to work across functional groups and areas, Lash says. In fact, these organizations look for ways to ensure people get experience across different functional groups, and create cross-functional teams to solve difficult problems in an innovative way.

"Procter and Gamble did that with the creation of Crest Whitestrips, having people from its toothpaste, adhesive and bleach divisions work together to create a completely new product that never existed before," he says. "Companies shouldn't write very rigid job descriptions -- employees need to have an expectation that they will be working outside their area or discipline."

Hay Group's study also found that 94 percent of the best companies were prepared to run unprofitable projects to try new things, while only 49 percent of all other respondents said they would do this.

"Best practices organizations know that in order to be successful, they need to be willing to allow people, within certain parameters, to test out ideas, knowing that most of them may not actually lead to a successful product," Lash says. "But the process forces them to learn and stretches their capabilities, and sometimes what they come away with is another idea that they are able to use elsewhere."

Moreover, 90 percent of the best companies let employees bypass the chain of command with an excellent idea, a practice that only 63 percent of peers said they would tolerate.

Indeed, some organizations have panels similar to the U.S. television show Shark Tank and its Canadian predecessor, The Dragons' Den, in which groups of senior executives meet to hear proposals from anyone in the organization, Lash says.

"If they like the pitches, they will put resources behind the idea and give the employee a working budget and the authority to explore the possibility of bringing their idea to fruition," he says.

Seymour Adler, a partner with Aon Hewitt in New York and an organizational psychologist, says innovation is also a talent management issue, "as innovation breeds success and the kind of environment that most talented people want to work in."

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As such, organizations should assess employees for their capacity to innovate, which also includes a propensity for taking risks, Adler says. The more open, flexible and adaptable a person is, the more likely they will contribute to innovation. HR leaders can also assess for the ability to work collaboratively in a team, and to manage conflict in a productive way to create friction that gives rise to innovation.

Organizations should also assess their leaders' capacity to foster innovation in their direct reports, he says.

Leaders who hog the credit and make themselves the funnel through which every good idea has to pass are inhibiting innovation, Adler says. "Leaders need to share the power and spotlight, if they want to inspire people to innovate."

To truly foster innovation, organizations must ensure they have the right culture, he says.

"They should determine the organization's beliefs around change -- are they about preserving the past or forging brave new paths for the future? Does the organization value diversity of thinking? Does the culture tolerate mistakes?"

In fact, some organizations tackle the cultural issues first, and then implement incentive or recognition programs accordingly, says Amy Sung, director of talent and rewards at Towers Watson in New York.

Cultures that effectively drive innovation typically leverage diversity of thought, have a bias for action, institute effective information-sharing practices, and perhaps most importantly, support risk-taking behaviors, Sung says.

"One thing about getting people to be creative and entrepreneurial is that many people are afraid to take the risk, because the implication is if they were to fail, it would be a lot bigger deal than not doing anything all," she says.

For example, a number of Towers Watson clients have incentive or recognition programs to spark innovation, but then wonder why they subsequently have less than stellar response rates, Sung says. Through employee surveys and interviews, Towers Watson consultants learned that the leadership didn't support the programs in a way they should, supervisors would say, "Yeah, you can do that, but only on your spare time." 

"Employees would also respond that, if they were to go out on a limb and spend time developing something new and it didn't catch on, suddenly they would become viewed as a failure," she says. "That stigma was worse than pursuing the idea in the first place."

To resolve these issues, one of Towers Watson's clients now holds town-hall meetings to not only celebrate successes, but also failures - "not so much the outcome, but the behavior involved," Sung says.

"They congratulated the employees for doing a great job with innovative thinking and encouraged people to learn from their experience," she says.

In another case, a pharmaceutical client developed a program in which the research and development scientists are able to share in the revenues in bringing a product to commercialization. This gives them "skin in the game," a more effective incentive tool than one-time bonuses, Sung says.

"It's really all about recognizing behavior and creating an environment where people feel encouraged to take risks," she says. "Having your employer support your work on pet projects and try out new things can go a long way."

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