Managers have no shortage of advice on how to achieve organic sales growth through innovation. Prescriptions range from emulating the best practices of innovative companies like Amazon, Starbucks, and 3M to adopting popular concepts such as design thinking, lean startup principles, innovation boot camps, and cocreation with customers. While this well-meant advice has merit, following it without first understanding your company’s innovation narrative is tantamount to going from symptoms to surgery without a diagnosis.
An innovation narrative is an oft-overlooked facet of organizational culture that encapsulates employees’ beliefs about a company’s ability to innovate.1 It serves as a powerful motivator of action or inaction. We find innovation narratives in two basic flavors: growth-affirming and growth-denying, or some combination thereof.
Companies that lead — or aspire to lead — their industries in organic growth need to have a coherent, growth-affirming innovation narrative in place, and we will discuss why that’s important and what it can look like. But what actions support the development and maintenance of such a narrative? To answer that question, we tested 18 possible innovation levers and identified the four that are most relied upon by organic growth leaders to stay ahead of their competitors: (1) invest in innovation talent, (2) encourage prudent risk-taking, (3) adopt a customer-centric innovation process, and (4) align metrics and incentives with innovation activity. We will look at each one in turn.
These four levers will be familiar to innovation practitioners, but their effects intensify with managerial focus. They serve as so-called simple rules.2 That is, they avoid the confusion and dilution of effort that result from trying to pull too many levers at once or in an uncoordinated manner, and they channel and prioritize leaders’ efforts to embed a growth-affirming innovation narrative in their companies.
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Identifying Your Company’s Innovation Narrative
Organizational narratives, and especially innovation narratives, provide a useful means of diagnosing the current operating reality in a company and guiding interventions to sustain or change that reality.3 What is the prevailing innovation narrative in your company? To sort that out, listen to how the people responsible for innovation talk about it and the stories of successes and failures that they tell. Then ask yourself what values and beliefs they are conveying.4
When we spend time with companies that lead their industries in organic growth, we typically find a refreshingly upbeat, constructive, ambitious character to their innovation narratives. These are the kinds of things we hear: “If you want to get ahead, build a new business.… Everyone knows our growth strategy.… Well-intentioned failures are learning opportunities.… If you innovate and it’s not something that benefits the customer, then it’s not innovation.”
Within companies that are growing more slowly than their rivals, the prevailing narrative about innovation is often decidedly discouraging.We hear things like “Immediate needs soak up our innovation resources.… There are no carrots when it comes to innovation, only sticks.… Innovation activities are usually just added to our primary operating responsibilities.”
You can gain further insight into a company’s prevailing innovation narrative by asking the executive team questions such as “Are you confident that the company’s organic growth goals can be reached? Why?” and “Are those goals usually hit or missed? Why?” It is crucial to understand what executives are really saying when they answer. For instance, are they rationalizing the company’s past innovation performance? Are they ascribing that performance to factors and forces outside their control? Those types of responses signal a defensive posture, which can easily undermine growth. But if leaders instead take responsibility for missed goals and say what they are changing to improve future results, they are poised to affirm growth. Then whichever narrative their answers suggest should be tested with an in-depth analysis of a sampling of the company’s innovation initiatives. No narrative should be taken at face value.
When the vice president of development at a large alcoholic beverages company was having difficulty getting senior leaders to support proposals for new products, we worked with her and her team to interview them regarding their beliefs and assumptions about innovation and its returns. What emerged was a picture of a defensive, play-it-safe organization that believed the market was tired of new products and competitors would match one another’s moves. The interviews also revealed a distinct aversion to the uncertainty of innovation and an assumption that once a product is launched, it is too late to fix mistakes. The company’s narrative was growth-denying, and its anemic innovation activities and lack of relevant new products confirmed it.
If you discover that the prevailing innovation narrative in your company is growth-denying and impeding innovation, all is not lost. You can begin to change it by envisioning a desired future state in which the company has become an industry leader in organic growth through innovation.5 Answering these questions can help: If our organization acted out a growth-affirming narrative, what behaviors would we see? What would a storyboard showing “the way innovation works around here” look like? Once you have a growth-affirming narrative in mind, you can turn your attention to bringing it to life within the company.
Four Innovation Levers Dominate Them All
Bringing a growth-affirming innovation narrative to life is complicated by the sheer number of interventions available to companies. When we examined the existing literature on innovation and analyzed the recommended actions, we found a total of 18 widely touted levers to pull, such as investing in a systematic search for ideas, opening the innovation process to partners, conducting postmortems, and changing the governance structure.6 Attempting to pull this many levers at a time is a prescription for failure in any change initiative — it diffuses managerial efforts and resources, and complicates coordination and implementation. But without a clear sense of what really works, organizations may be tempted to try a little bit of everything. They need help narrowing the field of possibilities.
In our study, we found that only four of the 18 innovation levers consistently and significantly set organic growth leaders apart from growth laggards and average performers. (See “About the Research” and “Profiling Growth Leaders.”)
The following four levers — and associated behaviors — can support a growth-affirming innovation narrative:
- Invest in innovation talent: The leadership team signals a strong commitment to innovation through visible and sustained investments of resources and time.
- Encourage prudent risk-taking: Innovative companies foster a tolerance for risk throughout the organization by accepting internal cannibalization, endorsing a fail-fast approach, and learning from innovation disappointments.
- Adopt a customer-centric innovation process: The process used by growth leaders starts with deep insights into customers and anticipates emergent needs.
- Align metrics and incentives with innovation activity: The innovation dashboard emphasizes learning over scorekeeping and creates a credible link to rewards and recognition for innovation accomplishments.
Lever 1: Invest in innovation talent. Innovation is a pursuit that requires intensely creative and tenacious team efforts in the face of frequent setbacks. So it should come as no surprise that of all the levers represented in our surveys, investment in innovation talent best explains growth leadership. This result was reinforced during our in-depth interviews, with statements such as “We can’t promote the best technical people if they don’t know how to manage people and projects” and “Innovation benefits from diversity in the membership of project teams, so you can’t afford to take the easy way out by assigning whomever is available.” Some respondents even noted longer-term benefits for company leadership. One person observed, “You are not just hiring and developing innovation talent — this is a great training ground for senior jobs.”
Unfortunately, our survey also revealed a disturbing lack of attention to and investment in innovation talent: Fully 41% of the respondents said that their companies do not make it a priority. As the CMO of a large packaged goods company that missed the emerging market in organic gluten-free foods ruefully told us, “We put our best people on our biggest brands to protect earnings, and everyone gets the message.”
Progress on the innovation talent challenge begins with the CEO making the chief human resources officer (CHRO) a strategic partner. With the right CHRO taking a lead role, the leadership team can begin addressing questions such as the following:
- Are we considered an employer of choice by the people we want to hire?
- What is the retention rate for our top innovation talent, and how can we raise it?
- Are headhunters trying to recruit our innovation talent? If not, what does that tell us?
Senior executives also need to pay special attention to nurturing the team leaders, project directors, and program managers who champion and lead innovation initiatives. In that spirit, one manufacturing company studied its best innovation leaders — conducting lengthy interviews guided by “critical incident” questions, such as “What was your biggest success and your greatest failure, and how did they come about?” — to identify the competencies that distinguished high performers. Traits that were deemed difficult to develop, such as conceptual thinking and a consistent focus on end-user needs, became the basis for recruiting and selecting new talent; traits considered easier to develop, such as technical product knowledge and presentation skills, were incorporated in training.
Lever 2: Encourage prudent risk-taking. All leadership teams harbor anxiety about the prospects for their innovation initiatives — after all, sure bets on innovation are rare. But how companies deal with this uncertainty is an important factor that separates growth leaders from laggards. The uncertain payoff from investments in innovation initiatives can be paralyzing for growth laggards, who were among the 64% of respondents who identified their companies as highly risk averse; but it energizes growth leaders, who embrace it as an opportunity.
We found three major differences in their approach to risk-taking. First, growth leaders are convinced that more can be learned from the careful dissection of failures than from successes. They routinely conduct innovation postmortems, whereas laggards and average performers do not, forgoing much potential for improvement. Second, growth leaders are more willing than other companies to share the risks and rewards of innovation with their development partners. The mantra of “share to gain” also extends to the way leaders distribute project risk internally, by sharing accountability up and down the organization. Third, growth leaders are more likely than other companies to contain and manage innovation risks by making small, staged bets. They take cues from startups and employ concepts such as rapid prototyping, frugal experimentation, and lean methodologies.7
Lever 3: Adopt a customer-centric innovation process. “Rather than ask what we are good at and what else can we do with that skill, you ask, Who are our customers? What do they need?” says Jeff Bezos of Amazon’s innovation process. “And then you say we’re going to give that to them regardless of whether we currently have the skills to do so, and we will learn those skills….”8 Our results confirm the effectiveness of an Amazon-like customer-centric innovation process: Growth leaders were much more likely than other companies to say that all of their senior managers were attuned to the voice of the customer.
Growth leaders start their innovation process by stepping outside the boundaries of the company. They seek answers to questions such as How and why are our customers changing? What new needs do they have? How can we help them solve their problems and become more successful? What emerging competitors will appeal to these customers?
This is not to say that growth leaders are making a trade-off between an outside-in (what’s needed) and an inside-out (what’s possible) approach to innovation.9 Rather, they are seeking to converge on the best growth opportunities from both directions. The perspective of the customer opens the innovation aperture of the company and helps it avoid the myopia that often accompanies technology-driven approaches to innovation. While, to paraphrase Steve Jobs, customers can’t always tell you what they want, they can be extremely eloquent when describing the problems they face, the frustrations they have to overcome, and why they prefer one supplier over another.10
Growth leaders connect what’s needed with what’s possible. Witness James Dyson and his innovative vacuum cleaners. Consumer studies revealed a lot of frustration with the way upright units quickly lost suction when the disposable bags became clogged with dirt particles. Yet vacuum cleaners were made that way for a century, until Dyson found a solution with a novel design, enabled by high-strength materials, that used centrifugal force to separate dirt from air.
Lever 4: Align metrics and incentives with innovation activity. Most leadership teams lack confidence in the measures tracked in their innovation dashboards; hence, they don’t connect individual and group incentives to innovation activity. The main cause of this distrust is the paucity of metrics. Long-term output, or “tailpipe” measures, such as percentage of sales from products launched in the past three years, are too far removed from day-to-day innovation activities to be useful motivators. And most companies do not track innovation metrics related to nearer-term results, or “input” measures, such as process effectiveness, leadership commitment, or competency development.
But we find that input measures are what growth leaders emphasize in their innovation dashboards. These metrics reveal a variety of insights, such as loose screening processes that leave poor ideas in the innovation pipeline for too long, sloppy development processes that cause delays in hitting project stage gates, and poor product quality that requires recycling innovations back through the development stage.
Whirlpool, for example, has a real-time innovation dashboard that any manager can use to track new concepts in process, which part of the globe they are coming from, and how many are headed for commercialization. And Whirlpool’s leaders pay close attention to these metrics, because roughly 30% of executive compensation is tied to innovation performance — a rare example of incentive-innovation alignment.11
Executives are awash in advice about the need to grow and to innovate — but too much advice can be just as bad as too little. A growth-affirming innovation narrative and the four levers that make it manifest within a company can help leaders focus and prioritize their innovation efforts. The process of identifying and articulating the narrative is essential to understanding the culture of innovation within a company and envisioning what it can achieve. The levers bring that narrative to life. Without them, organic growth leadership in any industry is a hit-or-miss endeavor.
1. C.A. Bartel and R. Garud, “The Role of Narratives in Sustaining Organizational Innovation,” Organization Science 20 (January 2009): 107-117.
2. D. Sull and K.M. Eisenhardt, “Simple Rules: How to Thrive in a Complex World,” (Boston: Houghton Mifflin Harcourt, 2015).
3. G.P. Shea and C. Solomon, “Leading Successful Change: 8 Keys to Making Change Work” (Philadelphia: Wharton Digital Press, 2013).
4. The pivotal role of the innovation narrative was first revealed in a study of 12 highly innovative companies: S.A. Buckler and K.A. Zien, “The Spirituality of Innovation: Learning From Stories,” Journal of Product Innovation Management 13 (September 1996): 391-405.
5. Shea and Solomon, “Leading Successful Change.”
6. A small sampling of the sources we examined includes E.D. Hess, “Smart Growth: Building an Enduring Business by Managing the Risks of Growth” (New York: Columbia Business School Publishing, 2010); V. Govindarajan and C. Trimble, “Ten Rules for Strategic Innovators: From Idea to Execution” (Boston: Harvard Business Press, 2005); M.L. Tushman and C.A. O’Reilly, “Winning Through Innovation: A Practical Guide to Leading Organizational Change and Renewal” (Boston: Harvard Business School Press, 1997); C.M. Christensen and M. Raynor, “The Innovator’s Solution: Creating and Sustaining Successful Growth” (Boston: Harvard Business School Press, 2003); and M. de Jong, N. Marston, and E. Roth, “The Eight Essentials of Innovation,” McKinsey Quarterly (April 2015).
7. M. Schrage, “The Innovator’s Hypothesis: How Cheap Experiments Are Worth More Than Good Ideas” (Cambridge, Massachusetts: MIT Press, 2014); and E. Ries, “The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses” (New York: Crown Business, 2011).
8. D. Lyons, “The Customer Is Always Right,” Newsweek, Jan. 4, 2010, 85-86.
9. G.S. Day, “Innovation Prowess: Leadership Strategies for Accelerating Growth” (Philadelphia: Wharton Digital Press, 2013).
10. W. Isaacson, “Steve Jobs” (New York: Simon & Schuster, 2011).
11. G. Hamel, “The Why, What, and How of Innovation Management,” Harvard Business Review 84 (February 2006): 72-84.
i. Details of the methodology and analyses can be found in G.S. Day, “Explaining Organic Growth Performance: Why Dynamic Capabilities Need Strategy Guidance,” in “The Oxford Handbook of Dynamic Capabilities,” ed. D.J. Teece and S. Heaton (Oxford, United Kingdom: Oxford University Press, 2015).