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6. SHOW THEM THE
MONEY AND THEN GIVE IT TO THEM
The
sixth symptom of idea rigor mortis is evident from shallow employee incentive
programs. In the wake of Enron and Arthur Andersen, gone
are the days of corporate loyalty. While
there will continue to be a modicum of pride amongst employees, for employers,
patents and passion will continue to hang more proudly in garages than
in R&D labs. The greatest challenge
in the wake of recent business failures, where employees were personally
rewarded for new ideas, is to recognize that the desire to “own” ideas
will not subside although incentive stock option programs may. While ill-structured incentive programs can
derail innovation, so too can shallow employee incentive programs where
employees are treated as vendors instead of customers. Overcoming this barrier to innovation requires
a behavioral and attitudinal shift about the role of employees.
There
are a wide array of options available to organizations for rewarding innovation,
these include:
- Offer
year-end cash bonuses for successful experiments
- Create phantom stock options that track
firm performance
- Package and subsidize employee learning
sabbaticals
- Encourage “resisters” to critically
improve versus critically reject by offering monetary and non-monetary
incentives to those that contribute as adjunct experts
- Evaluate and “sponsor” ideas of organization
alumni (if strategic fit with core business, yet the organization does
not want to invest human capital and internal resources)
7. MEASURE RETURNS
ON LEARNING AS OFTEN AS RETURNS ON EQUITY
While
much has been written about the importance of experimentation and “controlled
failure” in innovation processes, little has been developed for the measurement
of returns on experiments.
In
other words, without the proper metrics for measuring learning, organizations
often kill new ideas due to their inability to deliver on the requisite
ROI common to most budgeting processes.
This is often revealed by organizations that maintain a high income
to revenue growth ratio. Organizations that have sustained income to
revenue growth over a multi-year period are more likely to experience
earnings collapse than those with lower ratios (Hamel).
The logic is quite simple. At
some point, the earnings engine becomes anemic due to issues such as staff
layoffs, budget cuts, and plant closures.
While all necessary tactics of operating and maintaining the enterprise,
there are considerable risks associated with denominator management over
a longer period of time. In fact,
Professor Gary Hamel of The London Business School discovered that firms
who displayed income to revenue growth of greater than 3:1 consecutively
over a five year period have over 80% chance of earnings collapse in the
fifth year. Professor Hamel’s insight
surfaced from studying the performance of the companies that comprise
the S&P 500 Index and their respective income growth to revenue growth
performance over a 5-year period. The point is, organizations must vigorously
pursue innovation as a component of their overall corporate strategy and
invest in new product and service development in search of new wealth
creation.
In
order to alleviate this symptom, organizations must create new metrics
to measure learning. By measuring Returns on Learning, innovative
new ideas will be given the requisite time to incubate and materialize
as they were originally intended. For
example, in many large organizations, new products must contribute to
a minimum percentage of sales within a given time frame (e.g. 2% of sales
within 18 months) in order to be considered a successful product introduction
or addition. The downside of this type of metric is that
the new product may very well appeal to a nascent, yet growing, customer
segment that may take 5 years to develop.
For example, the organic foods movement is the fastest growing
segment in the food industry (eg. Whole Foods is growing at 20% year-over-year);
although it contributes to an overall minority of total food sales. In the near-term this market may not seem as
attractive as processed food; therefore, it requires new metrics to measure
its relevance as the segment grows. These
metrics may include:
- Brand
elasticity. What are “accepted”
levels of product innovation among customers?
What will they “believe”? (e.g. Nike car tires? Organic Foods from Quaker Oats?)
- Customer acquisition costs (e.g. SG&A
expenses are a great indicator of product relevance as great ideas are
bought not sold. Experiments
are great methods for extrapolating marketing and selling expenses associated
with a new product introduction, e.g. online viral marketing communities
as highly-leveraged sales forces for record labels, book publishers,
clothiers, and image branding concepts)
- Concept development (i.e. how did the
experiment contribute to the approval or disapproval of working hypotheses
about the business model?)
In
closing, all organizations have the capacity to overcome incrementalism,
think innovatively, and adopt continuous innovation as an enterprise-wide
capability. In short, by identifying areas within the organization
where these 7 symptoms may reside, the organization can begin to apply
new methods, new perspectives, and new questions to the process of strategy
creation. Most importantly, organizations
that identify these common pitfalls in their own thinking will be able
to embed innovation as a core competency (as they did with quality, continuous
improvement, and knowledge management in years past). The objective is to think of this and that more often, in a more structured fashion, and for the betterment
of all stakeholders. This leaves
only one question, what are the growth strategies available to organizations
once they’ve treated the symptoms of incremental thinking? What does the organization do once it has acquired
a new method of thinking? Stay
tuned in the next edition for “Smart Growth: From the Core to New Markets”.
Now,
get to work. You’ve got that to think about!
SUGGESTED READING:
Competing for the Future; Hamel, Gary;
Prahalad, C.K., Harvard Business School Press, 1996
The Alchemist; Coelho, Pablo; Harper San Francisco; 1993;
The Art of Innovation; Kelley, Tom; Doubleday;
2001
“In Search of Relevance: The Innovation
Imperative”; Razeghi, Andrew; www.strategylab.com
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