Why are some companies more innovative than others? We know that we need ideas to spark innovation, but that is just a starting point. What obstacles do many companies face in becoming more innovative, and what are the attributes of an innovative culture? Rita McGrath discusses these issues in her book, Seeing Around Corners: How to Spot Inflection Points in Business Before They Happen.

Blockers of Innovation

As I have mentioned several times before, many of the corporate practices we see today are ingrained in the ideas of Adam Smith and Frederick Winslow Taylor. Once a company identifies its business model, the emphasis turns to optimization and efficiency. When business processes do not change, the company is primarily interested in optimizing the operations by breaking down all the activities into smaller parts in order to maximize the efficiency of each component. Workers' job is not to innovate. In fact, it is the exact opposite. Taylor believed that workers should be trained to complete a task in the most optimal way. He instructed supervisors to watch and ensure that workers performed the assigned tasks in the exact way they were told. Workers' ideas, thoughts, and suggestions were not to be solicited or welcomed.

This approach does not work in today's environment, where everything is rapidly changing. Business models and practices cannot stay static. Companies must innovate to respond to complexities, which, by definition, requires one to think differently and reevaluate existing systems.

In her book, McGrath methodically discusses the need to recognize inflection points as early as possible. Inflection points influence organizational constraints. These constraints could be the general pool of resources, the consumption experience, or particular product and service attributes becoming more or less valued by the customers. Constraints usually serve as protectors of the existing business and prevent disruption commonly caused by innovation.

Aside from internal constraints, McGrath mentions the following operational features as blockers of innovation:

• Lack of incentives to work on innovation/growth projects
• The existing business is too powerful
• Operational silos
• Lack of customer focus
• Fear of failure
• Innovation as "no one's job"
• Focus on quarterly earnings and near-term success
• Fear of cannibalizing successful businesses
• No tolerance for unpredictable results
• Stock buybacks that boost stock prices but reduce resources for investment in the future

Attributes of Innovative Culture

To develop an innovative culture, organizations must have:

• Clarity of strategy, broad agreement, and enthusiasm for the direction the company is taking
• Support for employees who are trying new things
• Focus on leading indicators rather than the traditional lagging indicators
• Collaboration across the organization to source ideas and "creative value"
• Continuous reconfiguration vs. reliance on stability
• Allocation of resources across the entire organization
• Access to new information
• Ensuring that all voices are heard

McGrath emphasizes the importance of a shared purpose:

"In a complex situation, when you want to empower the entire organization to be able to act without direction from the top, having a shared view of what the purpose is and how each participant fits into it is absolutely critical. It is only with a basis of a shared understanding of what we're all trying to achieve here that distributed action is possible."

McGrath and her colleagues developed the innovation proficiency scale that can help organizations assess where they are in their innovation capabilities. The goal is to move up the scale if the organization is committed to change.

Level 1: Organizations are mostly set in their ways. They might have a long history of success and find innovation risky and unattractive.

Level 2: This is the earliest stage of introducing innovative thinking. There is a desire to improve, and a lot of talk about innovation, but no sustained effort is being put in place.

Level 3: Some innovation is starting to take place in one or two groups within the company. However, all these efforts are highly fragile and lack organization-wide support.

Level 4: As senior leaders start to see some success from level 3 innovation, more resources are starting to get allocated to innovative opportunities. Most of the organization continues to operate with the "business as usual" mindset.

Level 5: More time and money are dedicated to innovation with more sustained executive sponsorship. Organizations are starting to introduce innovation-related metrics and governance practices.

Level 6: Innovation has become a significant part of executive compensation. Senior leadership monitors innovation metrics and encourages company-wide collaboration and utilization of tools and connections.

Level 7: Innovation is integrated into the organization's defining mission. Innovation efforts are supported by the CEO and executive team and connected to central governance, funding, measurement, and cultural practices. Employees are empowered to innovate.

Level 8: "Innovation Mastery" – The organization is presented as an example to all others. Its institutionalized innovation practices are highly praised by the company's shareholders.

Conclusion

The word "entrepreneurship" can be replaced with "innovation" in Peter Drucker's quote to highlight the effort required by an organization to establish an innovative culture.

"Entrepreneurship is not 'natural'; it is not 'creative,' It is work...Entrepreneurship and innovation can be achieved by any business...They can be learned, but it requires effort. Entrepreneurial businesses treat entrepreneurship as a duty. They are disciplined about it...they work at it...they practice it." - Peter Drucker