As the organization’s leader, you set the agenda, priorities, and cultural norms under which your company operates. You choose how to carry your organization forward. Some CEOs advance with the company’s practices that have underpinned its successful expansion, behaving as a steward of its legacy; others create a lasting impression through disruptive change in order to shake things up.
Both approaches are high risk and can lead to an insecure future and troubled organizational health. The first, because the world changes, and new markets and technologies frequently emerge. The better you get, the less attention you pay to the signals changing the game. The second, because ‘shaking things up’ creates fear, apprehension, and mistrust among your employees. The notion of caring for people is viewed as hypocrisy, and the result is cynicism and dramatic reduction in loyalty.
As organizations grow in size and complexity and as they age beyond the second or third leadership generation, they need to develop new capabilities. Most occur naturally, such as business process standardization. But, one that doesn’t is the capability for strategic innovation, to ensure ongoing strategic renewal. In other words, the organization must develop a way to future proof itself. The reason it doesn’t feel natural is because the capabilities the organization has developed to succeed in its mainstream core businesses differ from those required to create the new stream businesses of tomorrow.
The future is uncertain. Markets don’t necessarily exist yet, novel discoveries are just coming into view, and global societal trends intersect in weird ways. While your company has excelled at keeping customers and shareholders satisfied in a world that it knows well, operating in a world of uncertainty is a different beast. And, you, the CEO, must ensure that both occur at the same time. Otherwise, external forces will determine your company’s future.
We know companies have succeeded at transformational innovation, but we find these occur as one-off events typically borne of existential threat or a senior leader’s personal vision.
When threat is the motivator, survival instincts take priority over strategic intention. Companies defunding R&D lay off valuable talent, and become vulnerable to takeovers. The company’s leadership has demonstrated that they cannot lead.
When threat is the motivator, survival instincts take priority over strategic intention.
When the CEO’s personal vision drives the transformation, the company doesn’t develop an organizational capability beyond responding to the CEO’s immediate call. They aren’t set up to repeat the behavior, or to learn and improve on future strategic innovation attempts.
Strategic innovation should become your next business capability, so your organization can create its far future — which takes time, vision, and investment. Requiring and supporting this development should be your priority. It’s more expensive to put off than to invest in it.
How might this work? I have six recommendations to resolve six key mistakes, for the CEO wishing to secure their company’s future health.
Requiring and supporting [strategic innovation] development should be your priority. It’s more expensive to put off than to invest in it.
First, rather than sponsor one-off opportunities, work on building the capability so it extends beyond one person or point in time. A colleague in the energy industry recently returned from CeraWeek, the major annual Energy conference held in Houston. There, she heard competitors proclaiming progress toward the energy transition by investing in major innovation.
“In every single case, the directive came from senior leaders,” she observed.
That’s unfortunate. Strategic innovation shouldn’t depend on individual leaders. It should be part of the norms of a company that wants to thrive.
Second, focus on governance, not hierarchy, to oversee strategic innovation. Governance shouldn’t be concentrated in a few top leaders. Rather, institute an Innovation Council, with a range of corporate leaders responsible for the company’s future, and have them focus on a few carefully chosen Domains of Innovation Intent.
Third, recognize it takes time to develop a new organizational capability with staying power. One year to install it, one year to get used to it, and one year to start reaping the fruits of your investment. Once those returns begin to come in, the persistence of the council and the capability that you have built will yield growth and renewal every year.
Fourth, develop career path options for people who prefer creating new streams of growth over working in the mainstream. These people have different talents and motivations than those who excel at operational excellence and serving current customers. Develop people in those positions to assume leadership roles in innovation.
Fifth, resist the temptation to micromanage pet projects. Consider your Domains of Innovation intent as portfolios. Operate at the domain level. See what the team is learning and how it’s unfolding. Call the shots on strategic choice points where domain leaders are seeking input, but otherwise let them learn their way around the domain and bring the Innovation Council the news so they make these decisions together.
Sixth, hold people accountable for progressing their work. Oftentimes, those working in high-uncertainty areas are given too much latitude. While it’s true the objectives and metrics that are valuable for strategic innovation differ from those that help monitor the mainstream, relevant metrics can be established. What are the objectives, so you set the right expectations? This is the Innovation Council’s second job: to determine short- and long-term objectives for strategic innovation and its portfolio.
Why is this so difficult? Most organizational leaders of mature companies have succeeded in the world of the mainstream and operational excellence, and lack experience in the world of high uncertainty that pervades breakthrough innovation. It takes someone who can be visionary, or who can partner with a trusted Chief Innovation Officer, to guide the development of this capability and avoid making their predecessors’ mistakes.
The most important inventions of the past 150 years: electricity, antibiotics, automobiles, refrigerators, cell phones wouldn’t be available if not for the invention of modern management. Advances in management have provided the power to turn science into prosperity. Organizations must continue to develop innovations in management capabilities to renew themselves. Profit is no longer acceptable as the only objective. Society is calling us to do more.
Dr. Gina O’Connor has expertise in Breakthrough Innovation, Corporate Entrepreneurship, Organizational Design for Innovation, and New Market Creation. She develops curricula and action plans for executives based on her research in Breakthrough Innovation capabilities in large mature companies. Dr. O’Connor works with companies from strategy to execution phases.
Before joining Babson, Dr. O’Connor spent 29 years at the Lally School of Management at Rensselaer Polytechnic Institute. She has also worked as a contract administrator for McDonnell Douglas Corporation and as a research analyst for Monsanto’s Department of Social Responsibility. She was named a Crawford Fellow by the Product Development and Management Association, one of only six recipients of that award.