Cultures of Innovation

The successful companies of tomorrow must invest in innovation today. At least, that seems to be a premise of two lists recently developed by major business magazines.
In October, BusinessWeek produced an anniversary issue presenting its “Investing for the Future Index,” a list of companies that are deemed most future-oriented based on their capital spending and their investments in research and development (R&D). In a similar vein, the December issue of Fast Company introduces the “Innovation Scorecard,” produced in partnership with professional services firm Monitor Group. The highest-scoring companies are those that are best in terms of past performance, future potential, and innovation capacity.

Underlying these lists is the assumption that innovation will be key to future business performance in many industries, perhaps even more so than in the past century. This would be amazing indeed, since the last 100 years have brought astonishing technological and cultural changes. But there’s a good chance it will happen. Globally speaking, spending on R&D has risen considerably over the last two decades, the world’s labor force has become ever more highly educated, and the number of science and engineering articles has been skyrocketing. Companies that don’t figure out how to generate more innovation in such an age are bound to be overrun by competitors who do.

For large and successful companies, this could spell trouble. As Bill Joy writes in Fortune magazine, “big companies almost never innovate.” Why? There are various explanations. One has to do with the fact that large corporations may listen a little too closely to customers, a dynamic that Clayton Christensen of Harvard Business School calls the “innovator’s dilemma.” At first, high-end customers may reject truly breakthrough innovations, which may seem inferior and fail to mesh well with current work processes. And big companies would rather not undercut their successful products with potentially low-cost innovations that disrupt their business models. They prefer incremental improvements to established product lines.

Another problem is that the bureaucracies of large companies can frustrate true innovation. “The problem with large companies isn’t that they fail to do large and seemingly ambitious projects,” writes Joy, “it’s that they fail to do small, quirky, controversial projects – truly innovative projects that wouldn’t be accepted by the organization at large but that have the potential to grow.”

Other experts simply point out that there’s a lot of luck associated with a major innovation, and lightning doesn’t always strike the same company twice, no matter how large it is.

But there are organizations that somehow “make their own luck,” reports BusinessWeek. They’re able to create a culture of innovation largely through the process of excellent management. One strategy is to encourage intelligent and creative people to work with one another in small teams and get the bureaucracy out of their way.

A company that fits the bill pretty well is W.L. Gore & Associates, which Fast Company has reported may be the most innovative company in the U.S. Its penchant for innovation “springs from a culture where people feel free to pursue ideas on their own, communicate with one another, and collaborate out of self-motivation rather than a sense of duty,” writes Alan Deutschman. The company encourages employees, known as associates, to spend about 10% of their time on creative ideas, and associates can work for years on such projects without seeking official permission. From this dynamic sometimes spring breakthrough innovations.

Another company determined to stay viable in the future through innovation is Whirlpool, and it has changed its HR approaches accordingly. To train employees in the field of innovation, for example, Whirlpool puts together teams that formulate an idea and then create a business case supporting it. If it’s good enough, the idea might even be funded. These are “low-budget, fast, 100-day kinds of experiments,” according to Dave Binkley, Whirlpool’s senior vice president of global human resources, as quoted in the November edition of HR Magazine.

Whirlpool has also modified its compensation and performance-management plans to support its strategic focus on innovation. “All our HR systems – pay, spot awards, the long-term incentive plan, the balanced scorecard objectives – are ‘hard wired’ into Whirlpool’s innovation strategy,” says Binkley.

This kind of revamping of workforce-management programs to develop cultures of innovation may, in fact, be one of the most important roles that HR takes on in coming years. And no doubt it will require its own brand of creativity.



For more on BusinessWeek’s “Investing for the Future Index,” go to
http://www.business week.com/magazine/content/0441/b3903476.htm


To read a chapter of Clayton Christensen’s Innovator’s Dilemma, go to
http://www.businessweek.com/chapter/christensen.htm


BusinessWeek ’s article “Building an Idea Factory” can be found at
http://www.businessweek.com/magazine/content/0441/b3903462.htm


Alan Deutschman’s “The Fabric of Creativity” can be found at
http://www.fastcompany.com/subscr/89/opengore.html


Subscribers can read HR Magazine’s “Cooking Up Innovation” by going to
http://www.shrm.org/hrmagazine/


Fortune subscribers can read Bill Joy’s “Large Problem” article on why big companies have a hard time innovating at
http://www.fortune.com/fortune/ideas/articles/0,15114,749578,00.html

For information on Gary Hamel, who helped Whirlpool develop innovation tools for employee training, go to
http://www.garyhamel.com/author.htm


For more information on Whirlpool and innovation, go to
http://www.strategos.com/articles/whirlpool/innovdemocracy.htm


For more information on W.L. Gore & Associates, go to
http://www.gore.com/index.html


The following sources were used in the writing of this TrendWatcher:

Coy, Peter. “The Search for Tomorrow.” BusinessWeek, October 11, 2004 , pp. 216-220.

Deutschman, Alan. “The Fabric of Creativity.” Fast Company, December 2004, pp. 54-62.

Hof, Robert D. “Building an Idea Factory.” BusinessWeek, October 11, 2004 , pp. 194-200.

Joy, Bill. “Large Problem.” Fortune, November 15, 2004, p. 214.

Mandel, Michael J. “This Way to the Future.” BusinessWeek, October 11, 2004 , pp. 92-98.

Pomeroy, Ann. “Cooking Up Innovation.” HR Magazine, November 2004, p. 46.

Prospero, Michael A. “Introducing the Fast Company/Monitor Group Innovation Scorecard.” Fast Company, December 2004, pp. 65-66.