If insanity is doing the same thing over and over and expecting a different result, executives are facing an innovation predicament.
Reporting and analysis by Shideh Sedgh Bina, Gregory Trueblood, and Erica M. Wood
If insanity is doing the same thing over and over and expecting a different result, executives are facing an innovation predicament. Nearly 87% say innovation is very important to their company’s ability to succeed or strengthen their competitive advantage over the next three years. The bad news — only 15% are prepared to execute it.
What we found during the 2013 executive sentiment survey was less uncertainty about revenue and job security and more of an acute disparity around innovation. Even more startling, executives expect to increase revenue, in spite of their spotty track record on delivering successful innovation.
This is very bad news for most companies; they know innovation is critical for success, and they are accountable to increase revenue each quarter, but if they haven’t been able to deliver upon this imperative in the past, they certainly cannot deliver it now. Overall, this tepid response leads us to the heart of the innovation disparity. It begs the question — how do you truly drive sustained innovation in an enterprise if you are only partially prepared?
One executive summed up the innovation disparity this way: “We invite people to share innovative ideas and tips, but we do not provide them with funding and resources to get those ideas to market.”
These sentiments take on deeper significance considering the need for organizations to expand innovation efforts beyond product development and technology and into the entire spectrum of the business, including strategy development, operations, the supply chain, go-to-market processes, and customer service.
Says one executive: “If we do not innovate in areas of operations, we will be consistently bringing up the rear and not leading in our industry.”
People and performance
Innovation was just one aspect of the annual survey. Insigniam polled 214 global leaders on their forward-facing sentiments for business in 2013. The sampling included C-level executives, vice presidents, and directors of Global 1000 companies in multiple industries, most from the United States and Europe. Annual revenue at the surveyed companies ranged from $2 billion or less to more than $50 billion.
We wanted to know — how are leaders prioritizing their responsibilities? Respondents say the “most critical” element in their accountability over the next 18 months is operational excellence in specific areas (29%); people development, performance, and retention (27%); and meeting business targets and growth (26%).
This could be a sign that leaders are looking at the future more strategically. Critical accountability factors in the 2012 survey ranked operational excellence in specific areas at 57%; people performance and retention 30%; and business targets 13%.
During this year’s survey, 16% of the respondents say innovation was most critical. Interestingly, business leaders in Europe, whose economies are in recession, rated innovation as more critical for success in their own accountability (23%) than did the respondents in general.
C-suite executives in Europe and the United States, where the rebound from economic recession has been disappointingly slow, also ranked “meeting business targets and growth” as more important than the total population of respondents did (43% and 50% respectively, versus 26%).
The innovation trade-off
This focus on day-to-day accountabilities and meeting business targets creates a tension between delivering immediate profitability and structuring the type of transformative innovation that may take five, 10, and even 15 to 20 years to fully realize true growth.
One respondent discloses why the most profitable innovation — the type that is transformative — is shortchanged. “In the end, the need to generate profitability with new products and services in year one kills many real innovations in an early stage. We are constrained by the amount of non-schedule-driven time available to innovate.”
Or, as one leader elaborates, transformative innovation is at the mercy of corporate culture. “A bureaucracy is like a huge aircraft carrier. You can make fine adjustments now that will slowly turn the shift in the direction you want, but you eat up miles of ocean before you turn. The culture inhibits radical change. We are all not pulling — or pushing — in the same direction.”
Is culture the culprit?
Executives also expressed concern in the Insigniam survey about people and their performance at their companies, and frustration over the amount of time and resources available to them.
Plainly put, “we need to change the way we do business,” one confided. Especially challenging, respondents say, are keeping people motivated and productive, especially after layoffs have reduced team sizes.
Interestingly, however, the C-suite may not share that sentiment. The No. 1 worry by far of the survey’s C-suite occupants were financials (60% of the Europeans) and the economy (37% in the U.S.). European leaders in general also rated people as much less of a worry, with more than 30% of them putting the economy at the top of their lists.
When it comes to elevating the performance of the individuals and groups they lead, executives pointed to “resource and time issues” as their biggest source of frustration (nearly 20%). They also named their organization and its processes (16%), alignment and focus (11%), and accountability and reliability (11%). The top impediment for European C-suite occupants, however, was the way their organizations were aligned and focused; “people engagement” ranked a close second.
Last year when we asked a similar question, frustrations and concerns about people ranked at 38%; operations 29%; strategy 18%; external concerns 15%.
Alternative innovation’ to the rescue
With such challenges ahead, it’s not surprising that more than 33% of the survey respondents circle back to innovation as the most important factor in their organization’s ability to succeed—and strengthen their competitive advantage—over the next year to 36 months.
But wait; the innovation disparity continues to deepen: A whopping 55% say innovation will be very important, while nearly 12% say it will be somewhat important. Many respondents noted the importance of “alternative innovation,” the type of enterprise-wide innovation such as improved processes and marketing and sales solutions referenced earlier in this article.
In recent years innovation—the ability to continuously revolutionize, reinvent themselves, or make positive changes—has become more and more important to companies as competitive pressures have increased.
Many more C-suite executives in the United States (60%) seemed to recognize this, rating the ability to innovate as most important for their companies’ future success, compared to just 25% of their C-suite counterparts in Europe.
Inconsistent track record
These trends were also reflected when the executives were asked to rate the effectiveness and value of their companies’ innovation efforts over the last three years. While most (57%) say such efforts were only somewhat effective, 40% of C-suite leaders in the U.S. said their companies’ efforts had been “very effective.” Only 25% of the Europeans occupying the C-suite gave the same answer. A number of respondents cited inconsistent levels of success with innovation across companies, even though there may be small pockets of successful innovation in specific departments.
Drilling down deeper into their preparedness levels, the executives said their main strengths in innovating were in mandates from their top leaders to encourage and act on innovation—73% rated that “pillar of innovation” very strong or somewhat strong—and in their culture enabling innovative thinking and action (56%). Forty-nine percent cited their dedicated infrastructure and resources needed for innovation, while 35% named a creative process at their companies dedicated solely to nurturing innovation. These results show that while innovation is acknowledged by senior leadership, managing such innovation often remains problematic given time and profitability pressures.
Creating a mandate
What does all of this mean for business prospects in three to five years? Without direct and intentional intervention and funding, it is predictable that many organizations may end up with a shortfall of new opportunities, leading to continued “borrowing” from the funds for the future in order to deliver on the short term. Eventually, this innovation “Ponzi” scheme can have significant ramifications for the overall health of our enterprises. Leaders need to create a mandate, fund innovation infrastructure, create a process for creativity, and build a supportive culture. As one survey participant expounded: “Good leadership can make the difference to ensure people and teams focus on the same priorities and in the same direction. Unfortunately, we have (like many organizations) more career managers than leaders and entrepreneurs.”
More about the survey In terms of annual revenue, nearly 45% of the leaders responding represented companies bringing in $2 billion or less. Nineteen percent had revenue ranging between $2 billion and $5 billion, while more than 13% had $5 billion to $10 billion in revenue. Five percent had $10 billion to $15 billion in revenue; 7% had $15 billion to $20 billion; 5% had $20 billion to $50 billion; and nearly 6% had more than $50 billion in annual revenue. Respondents were from the North and Latin America, Europe, Asia, Australia, and Africa.