Measuring progress towards innovation culture

By Dr Sorin Cohn

One of the myths about business innovation implies that innovation results are proportional to investments. There may be a correlation between investments and results but if, and only if, innovation is properly managed. This ranges from the selection of innovation targets, to resource allocation to the actual management of innovation activities, their commercialization and the timely evaluation and adjustments of the firm-level innovation portfolio.

Astoundingly, about 50% of Canadian firms of all sizes and sectors surveyed for the Conference Board of Canada in 2012 did not have a formal innovation management process. About 80% of these companies do not structure their innovation activities into proper projects. It should not come as a surprise that the average performance of such companies is about 40-50% below the performance of firms that manage their firm-level innovations in a structured way.

Notably, about 45% of Canadian companies surveyed do not use innovation metrics, and less than 8% of companies use between six to 10 metrics of innovation at the firm level, which appears to be the optimum size of an innovation metric portfolio. The difference in average performance between these two groups is over 50%. Consider how much better Canadian industry would perform if we could train industry management to use the optimum number of metrics for their firm innovation assessment and manage them adequately.

And let's stop considering productivity gains as a good measure of innovation. It is not. Interestingly, productivity gains are most used as an innovation metric by companies in decline. Productivity is a black box measure assessing the ratio of output vs. the labour or capital input. But it does not say anything about what goes on inside the box.

Should we blame workers and demand more worker training and more investments in machinery? The real cause for poor overall productivity may have been the management that took lousy decisions, or the research that missed the mark and the design that was faulty, or the development team which was late or the supply that got inferior materials, or the marketing that was inefficient or the sales channels that were weak.

Should the Nortel and Blackberry workers be blamed for the problems of their companies? Was it their production or design machinery and tools that were not sufficiently productive?

The 2012 survey data shows that the group of companies (13% of those surveyed) which had low time-investments in innovation (<2%) exhibited poor performance as a group, while the companies with moderate investments (2-7%) had a better performance than the average of the entire group of companies surveyed.

On the other hand, the group of companies with high time-investments in innovation showed a performance not much better than the average. Companies that invest a lot in innovation but do not manage it formally have a terrible performance – on average worse than companies that do not invest much in innovation.

This is why I am stating so strongly that innovation at the business firm level must be managed comprehensively, competitively and methodically, using adequate portfolio of innovation metrics. This is how we transform innovation from being an art into being an engineering science, with adequate technologies and tools. I am promoting such a management methodology as a competitive Firm-Innovation Technology, (cFIT) with seven major stages based on statistically proven principles of management:

1. Leadership espousing a powerful vision and selecting manageable goals and inculcating a strong competitive will. When I asked executives in the 2012 survey what they considered to be the most critical competitive attributes for their companies, they provided lots of good answers about customer satisfaction and agility in response to market changes, and personnel skills and scientific/technological strength. But they placed very low, in the bottom 20 attributes, such as strong channels to market and financial strength. That tells us a lot about Canadian culture.

How can companies achieve good revenues and competitive positions without strong channels to the market? How can they evolve to leadership without financial strength to grow rather than be acquired by their competitors?

2. Selection of rewarding business models and the determination of reality-based competitive imperatives: IBM knew how to innovate its business model from being a manufacturer of mainframe computers to becoming a global supplier of customer solutions. FedEx and Apple and Google came up with winning business models. But neither Nortel nor Kodak were capable of changing their business models and died. It remains to be seen if Blackberry can make the transition.

3. Selection of the firm's innovation portfolio. This includes the allocation of necessary and sufficient resources to undertake them, and the organization of the innovation portfolio into projects with primes, plans, milestones and metrics for evaluating progress.

4. Conducting innovation projects in a structured and methodical way. This is another topic that deserves serious attention for the management of Canadian industry innovation activities.

5. Evaluation of the innovation portfolio, its review and its timely adjustment. Projects that do not perform should be closed in the spirit of Fail Fast, Fail Forward, while projects that show promise should be expanded for faster and bigger impact in the market. Failure is a badge of experience and expertise in Silicon Valley. In Canada it is still treated as a matter of shame.

6. Learning to be methodically pursued out of both success and failure. This must be communicated to all those that matter, inside the company and partners.

7. Innovation management covers all stages and needs to be pursued at all times. This concerns the nurturing of a culture of innovation and the implementation of an organizational structure to support innovation.

Culture is King. This was the title of a seminal 2001 study by Booze and Co as part of its 1,000 global companies survey. It showed that aligning culture to business goals and innovation strategy is more critical than additional R&D investments by firms. Likewise, recent studies at the Conference Board of Canada came to the same conclusion by denoting culture as the secret sauce for success in business innovation.

Dr Sorin Cohn strategic development executive with extensive international management, business and technology expertise.