Why CEOs Don’t Get Innovation (BTO Article)

Mar 19, 2010 | Government News

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Stefan Lindegaard

By Stefan Lindegaard*

Note: This article initially appeared on the Bloomberg BusinessWeek site. It is a wonderful source for articles, news items and discussions on entrepreneurship and other business issues. You can check out the BusinessWeek site here. Find out more about Stefan and his own site at the bottom of this post. This post maintains the original links in the BusinessWeek article. 

Executives roundly proclaim the need for new ideas and products, but it’s often little more than empty talk

Everyone knows that innovation is what drives business success in the 21st century, right? Well, sort of. While corporate leaders may intellectually accept the need for innovation and promote their commitment to innovation at every opportunity, many really don’t get it. As a result, they can become a major roadblock in your own career path as an innovation leader.

For instance, the Center for Creative Leadership in Greensboro, N.C., sought to identify leadership trends by surveying 247 executives and managers who supervised at least 500 people and had more than 15 years of management experience. Fifty percent of these leaders in the 2007 poll said their organization was “top in class” in innovation. (The results are impossible, of course, if you accept the standard definition of “top in class” as the best 5% to 10%.)

Yet even if we go along with the self-evaluations, there is still plenty of room for improvement. So wouldn’t you assume that these leaders would pursue every possible avenue to improve their organization’s innovation capabilities? Unfortunately, the responses to the next question show that’s not the case. When asked what they were doing to promote innovation in their organizations, the most popular strategy, adopting “overt innovation processes,” was named by only 25%. Only 17% said they were undertaking “talent/talent development,” the second most often mentioned answer, and 13% said they had rewards/recognition programs to support innovation.

The Wrong Mindset

I contend that these responses show that chief executives are doing surprisingly little to build innovation cultures in their companies. If they were, surely more than 10% of these leaders would say they were following “best practices” in their industry in pursuit of innovation. Perhaps this is why only about 25% of the members of my network groups say their CEO has the right mindset and understanding of innovation to support the company’s innovation success.

Here are some reasons why I believe CEOs and other C-level officers often don’t support innovation, even though the business climate of our time demands it:

• The demand for short-term gains nearly always wins the day. Top executives at public companies are under enormous pressure to produce strong financial results each and every quarter. This is the area where they are rewarded for producing results, and their job security increasingly depends on it.

In an ideal world, directors would demand that innovation investments be made on a widely accepted norm of 80% incremental and 20% radical to assure the long-term health of the organization. But few businesses have metrics for measuring innovation, and boards don’t pay executives based on innovation objectives. Dynamic values such as entrepreneurship, creativity, and risk-taking are not measured, let alone valued at bonus time.

There are exceptions. I’ve worked with several large companies that are still controlled by their founders, and they often remain committed to innovation. They see their companies as extensions of themselves, and therefore they do things to ensure their creations’ long-term success, rather than simply hitting quarterly financial targets.

• They missed out on innovation education. Many of today’s top executives got their business education before innovation was a significant part of the curriculum at many MBA programs. They could compensate for this with experience, but many also missed on-the-job training, because innovation training usually happens from the top down, not vice versa. They were trained to be problem solvers, not innovators.

Innovation education didn’t really take root until the early-to-mid-1990s, when thought leaders such as Clayton Christensen, Gary Hamel, C.K. Prahalad, and others emerged.

That’s when the top business schools began to give innovation a higher priority in their MBA programs. The people educated in these programs are now reaching the top executive level.

A positive sign of change is that innovation leaders of this generation are beginning to reach the C suite. I know of several innovation leaders who have advanced to the top level when they transferred to companies in need of an innovation strategy. They started as innovation leaders, but they were quickly promoted when their new bosses saw the potential of their mindset and skills.

• Top executives are risk-averse. Innovation, especially open innovation, is scary on many levels. People who make it to the top because of their knowledge of existing businesses aren’t that interested in considering a new business model or going after an amazing yet high-risk breakthrough when that may undermine their own expertise. And who wants to risk having a major innovation effort fail on their watch?

People who truly understand innovation embrace failure as an inherent part of innovation. They realize that big lessons that lead to success often come from the biggest failures. An attitude that doesn’t allow for failure is contrary to an innovation culture, yet that’s the kind of attitude that too many company leaders possess.

• They don’t see why a networking culture is important for open innovation. In a world of open innovation, you need to be an expert at networking and building relationships. This holds true at the corporate level as well as the personal level. So I ask leaders and managers: Where is the strategy, commitment, and structure that you need to create a networking culture? Many of them have not bothered to give this important subject any thought.

They may come around, however, after hearing about adroit companies that have prospered by creating networks of partners and collaborators, inside their company and outside.

• Top executives are too far away from the action. It is easy to preach innovation when you do not have to make it happen. I have been in several situations where innovation leaders have to struggle with middle managers who prefer to focus on their day-to-day business rather than support innovation efforts that might contribute significantly to the overall business in the future.

The problem is that top executives reward middle managers for getting stuff done and executing flawlessly. This can be counterintuitive to innovating. But top executives are often too far away from the action to understand how this compensation structure makes it harder for innovation leaders to succeed. Most leaders are more wedded to rewarding the core business rather than pursuing something new and untested. 

*Stefan Lindegaard is a speaker, network facilitator and strategic advisor who focus on the topics of open innovation, intrapreneurship and how to identify and develop the people who drive innovation. His book, The Open Innovation Revolution, will be published in May, 2010. You can follow his work on http://www.15inno.com/.

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