An existential challenge especially for large companies
Shorter English version of Thinkpiece No. 13
Innovation is many things: it is more than a technical invention; it can mean the creative destruction of what already exists. It can reach all parts of a company: the technologies, products, methods, applications, machinery, materials, processes, systems (single and combined), organization and marketing. Just think of the vital inventive role played by CAD in engineering design or how simulation is used to combine computing and testing. Innovation is the market-optimized and timely creation of something new.
A recent assessment of the state of innovation in Germany’s largest technology group should give it executives cause to worry. In an internal questionnaire almost half of managers judged the firm to be weak on innovation. Politicians and German trade unions (otherwise sensitive to such issues) have shown little interest. So who is going to call out for more innovation?
Why are some companies weak on innovation? What do they have in common?
Here is a list of obstacles to innovation:
1. Enforced harmony
Managerists tend to dislike questions such as “Why?” and “Why not?” They claim to already know what should be done and how. Questioners are treated as challengers.
2. Refusal to learn (from mistakes)
Well-established major corporations often have a history of fundamental mistakes; the evidence is in the company archives. But these files are seldom retrieved for post-mortems on how mistakes happened or why old failing ways were followed for so long.
3. Lack of ambition
Long-standing corporations, especially when they operate tool which exacerbates this is benchmarking. It is hard to get pioneering innovations accepted internally. But if a branch leader “approves” an innovation, then it’s easier to argue the case for jumping on the bandwagon. Until recently, the managerist consensus has been “Who starts second, finishes first”. Avoiding failure is uppermost in the managerist mind.
4. Defending territory
Innovation does not stop at the boundaries of a discipline, technical unit, department or business division. On the contrary, innovation tends to break down boundaries and “reshuffles the pack”. But within company organizations such boundaries and territories are a dominating fact of life. A company with a wide portfolio and broad technology base should find it easy to try out something new, but often this is prevented by two chief obstacles: first, a lack of curiosity, and second, boundaries between teams and departments. Consequently, innovation only takes place, if at all, within established territories, it does not grow or spread across a company to be adopted by others. In our age of increasing digitization, software and data can be an integrator and driver of innovation. However, organizational and technical boundaries, even those between hardware and software, limit the availability of potential innovative solutions. Nevertheless, new devices are converging to form new universal tools with diverse communication and cyber-technical functionalities in a new world of applications (apps). Consequently, increasingly companies will cross data boundaries, as aggressive internet firms already do, like Google. In a world such as this, intra-company protectionism is an obstacle to corporate innovation and even survival.
What is the difference between innovation hotspots in California and the major corporations on the US East Coast and in Europe, who all claim to be innovative? While in California entrepreneurs, visionaries and makers are now leading big enterprises; European conglomerates are controlled by managerists who repeatedly trim business units to boost short-term returns. For the past twenty years, a large number of general managers (MBA or Grande École types) have been appointed to top positions, some with nothing more than a ‘business consulting’ background.
But there are positive examples, for example Siemens has appointed Divisional Heads with operational/technical backgrounds who take an entrepreneurial long-term view. They have set high innovative standards in Automation Engineering with Sinumerik and Simatic, and in Medical Technology with Syngo, a cross-product user interface, and in this way have created high-margin businesses. Managerists do not have the courage to create innovation hubs because they do not understand the product line or business and therefore feel unable to commit themselves to it.
Based on the above diagnosis of how innovation is being prevented, and understanding how innovation should be cultivated within enterprises, we can draw some general conclusions.
As a general rule: leadership to promote innovation means first of all empowering people to innovate, as well as demanding innovation, and ensuring that innovations are implemented.
1. Act radically, openly and fast
The time when innovation activity could be planned (technology push) is long gone: this was a characteristic of the development of major technologies in the past (nuclear power stations, telephone networks, industrial automation). These are now being superseded by other technologies: alternative energy, smart grids, remote maintenance, intelligent and decentralized automation, digital factories, preventive medicine, social networking and big data management. Today innovation happens within a digital framework in a digitized world.
This means that innovation is no longer bound to a product (like an internal combustion engine and repeatedly improving upon it); instead it now involves considering and creating new applications. Radical approaches may still be devised and tested in garages, but no longer in R&D departments that have mutated into ‘innovation agencies’.
If innovation is desired, being open to reality is essential. Employees often have good reason to withhold bad news as long as possible. That is why managers, if experienced at assessing and judging, must have an open ear for such information. It is important that the know-how of specialists and the authority to decide are no longer separate. Procedures and tools will not change this state of affairs: what is requires is trust and collaboration across internal borders. This must be desired by management and encouraged and supported.
It is noticeable that in many cases it is at peripheral company sites (at the coalfaces of technology and markets) where innovation takes place and not at corporate or divisional HQs – if such smaller facilities (near the bottom of the corporate pyramid) are even empowered.
2. Create spatial proximity
Innovation requires constant personal interaction between actors who jointly develop new ideas, transfer outcomes to production, launch them on the market, and assimilate feedback from users. Experience and evidence shows that spatial proximity saves transport costs and facilitates personal communication. Although, exceptionally, this may not apply to pure software products, it still applies for most manufacturing industries and their supply chains (despite the emergence of teleconferencing). Clusters of successful small and medium-sized enterprises (the mittelstand) are widespread in Germany. This is a good example of an external benefit that is hard for competitors to copy. A case study is the Medical Valley around Erlangen, near Nuremberg, in southern Germany.
3. Create overseeable units
It is well known that large, centralized and complex organizational structures have a very detrimental effect on work performance, and especially on creativity. Innovation prospers best in overseeable structures with clear reference points. These overseeable structures should be created and spun-off, on a case-by-case basis, from existing organizations to encourage co-operation, informal exchange, and synaptic connections between operating and technical teams. This must be reflected in the original design of innovation centers and the architecture of their buildings. Why not copy Mother Nature, and imitate cells, which split up to create new cells? The natural entrepreneurial option of spin-outs should (at long last) be put into practice by conglomerates, to counteract their own disproportionate size and complexity. After all, the often cited synergetic benefits of mergers are often purely imaginary. So, instead, companies should decentralize their multi-layered organization structures and create and empower smaller business units.
4. Put more partnership into practice
Large companies often assimilate the output of science and research institutes (such as universities) and high-jack the innovations made by startup and small firms. Whereas major corporations may follow the rules (patent exchange contracts) when dealing with each other, their behavior toward small enterprises is sometimes less praiseworthy. Major corporations should forge fair partnerships (essential for sustaining technology clusters) if they want to trusted innovation partners.
5. Activate existing employees and gain new creative employees
Promoting innovation means, first of all, creating the preconditions for it to prosper. This starts with the insight that employees, above all in research and development, are intrinsically motivated, and should not be pressed into routines with repetitive procedures. Creativity and innovation are incompatible with stifling familiar work, numerous regulations, submissions and approvals, continuous proof of performance, regular reporting, frequent formal meetings, hierarchies and emotion-free workplaces. In general, strict external control over the makeup of teams and their methods of working will inhibit the ability of creators to self-organize and will reduce both motivation and willingness to take on responsibility.
It is crucial, especially for talented employees, to see clear opportunities for getting directly involved in innovative operational matters and gaining greater autonomy within evolving business units. Experience shows that personnel departments and trade unions often come into conflict with research and development departments, as demonstrated by the timekeeping regulations they often attempt to impose upon them.
The principle task facing leaders of major companies is how to create a corporate culture of innovation. Innovation will prosper when the culture is one of openness, curiosity, team-spirit, diversity, appreciation of others, and a determination to succeed. This is the only way to strengthen innovation and safeguard competitiveness.
It is a fact that when unpalatable matters come to light, advisory literature on that topic also expands and ‘management experts’ on the subject will suddenly appear. But problems of corporate culture and leadership have no easy solution. There is no straight and level route to innovation. Observers do, however, agree on one thing: that some thinking, behavior and types of organization, can act as formidable obstacles to innovation or even make innovation impossible. Removing these obstacles is one of the prime challenges facing business leaders today.
Manfred J. Hoefle