Best Practices for Leading via Innovation

 

What do General Electric (GE), Procter & Gamble (P&G) and IBM have in common? All three companies nurture and energize talent, carving out the necessary resources to invest in recruiting, selecting and growing the people who will become their future leaders.

So it's no surprise that GE, P&G and IBM occupy the top three spots in Hay Group's seventh annual Best Companies for Leadership (BCL) ranking. Our study clearly shows that great leadership is a strong competitive advantage, with the top 20 BCL firms far outperforming the S&P 500 benchmark on shareholder returns.

 

Beyond strong financial performance, the top 20 BCL companies have something else in common. In an era of intense globalization, rapid demographic change and accelerating technological progress, the best companies for leadership recognize the value of innovation, putting it at the heart of their corporate culture and using this targeted, focused innovation to drive shareholder value and improve efficiency.

 

Which companies populate the top 20? Every year, we see some familiar names including GE (#1 the last three years), P&G (#2 this year and last year), McDonald's and Coca-Cola. But some of the most interesting examples of innovation come from new additions to the BCL Top 20 list. These examples illustrate five practices that any company can adopt to create a culture of innovation:

 

1. Create a safe space for innovation. BCLs invest in creating an environment that allows innovation to thrive while encouraging employees to feel comfortable taking calculated risks. At Walmart (#8 on the BCL list), a group called @WalmartLabs provides a supportive environment for testing new ideas. Similarly, Toyota (#11) encourages innovation by removing some of the pressure for short-term returns. Toyota's decade-long investment in its Prius sub-brand ultimately succeeded in strengthening the company's reputation as a respected product innovator while allowing Toyota to capture first-mover advantage in the fast-growing hybrid category.

 

2. Enable organizational agility. At most innovative organizations, job definitions tend to be flexible and fluid. These companies recognize that the roles their employees play must adapt to the changing needs of the marketplace. For example, at FedEx (#20), the company actively assists executives in moving between functions in order to accumulate a diverse range of experiences that improve their overall adaptability. Dow Chemical (#19) is another firm that encourages employees to move functionally and geographically to gain new perspectives on the business and build capabilities for independent thinking and problem-solving. By giving employees room to explore their full potential and range of interests, BCLs also gain a competitive edge in the talent market. Our study shows that BCLs are much less reliant than their peers on pay and bonuses when it comes to attracting and retaining talent.

 

3. Broaden perspectives. BCLs foster opportunities for new ideas to flourish regardless of their source. For instance, Unilever (#10) recently unveiled its Open Innovation Initiative that solicits new ideas for designs and technologies to tackle a range of challenges around health, hygiene and the environment. The company's Pureit home water purifier, which delivers safe drinking water to more than 30 million people across developing and emerging markets, was developed using this open innovation model. In April 2012, Unilever continued to display its commitment to open innovation by hosting a 24-hour live online discussion that generated 4,000 comments from over 2,000 thought leaders to give the company feedback on its sustainability goals. The discussion prompted CEO Paul Polman, who participated in the event, to remark that he was "struck by the richness of the ideas, new suggestions and constructive challenges."

 

4. Promote and reward collaboration. The eccentric lone scientist toiling away in his lab may be the poster-child for inventors, but studies have shown that the vast majority of important innovations actually spring from collaborative, team efforts. BCLs not only have innovative leaders, but more importantly they have leaders who create conditions that facilitate innovation by encouraging, measuring and incentivizing collaboration. In his book Imagine: How Creativity Works, Jonah Lehrer describes how researchers at 3M (#13 on the BCL list) have free rein to spend 15% of their time exploring new ideas in whatever way they like. They can brainstorm while playing ping pong, going for a walk or lying on a couch. The only rule that 3M places on this innovation time is that they must share their insights with others.

 

5. Celebrate success and learn from setbacks. BCLs are essentially twice as likely as other companies to celebrate innovation and to see any performance problems as opportunities to learn and improve. Recognizing innovators sends other employees a powerful signal that innovation is something that the company greatly values. But employees will be reluctant to take the risks inherent in innovation unless they know that their leadership team is willing to accept a certain amount of failure as an inescapable component of the innovation process. At Dow Chemicals (#19), risk-taking is not only accepted, it is encouraged, which helps the company to stay agile and innovative. Dow evaluates its leaders not only in terms of customer value, but also taking into account whether they are leading courageously, whether they are collaborating themselves and whether they are encouraging collaboration among others. As a source with Dow put it, "It's empowerment that really helps us stay agile. We encourage everyone to lead courageously — constantly asking ask "what if?" or "why not?" We challenge our employees to recognize possibilities and push beyond boundaries."

 

Leaders who want to foster innovation should ask themselves these questions:

1. In my quest for the next big innovation, have I overlooked smaller incremental innovations that could still have a big impact on customer experiences or on employee productivity?

2. Do I reinvest my spare capacity into expanding my own knowledge, exploring future trends and learning from others? Or does my focus on performance and results preclude any consideration of unproven innovations?

3. Am I doing one thing every day that scares me? How much time do I spend pushing my own boundaries and working at the limits of my competence, where the next great innovations are most likely to be discovered?

 

 

More blog posts by Rick Lash

More on: Innovation, Leadership

 

(Harvard Business Review :

http://blogs.hbr.org/cs/2012/08/best_practices_for_leading_via.html?awid=5075677264768061396-3271)