Innovation: the new ‘it’ corporate buzzword?
Is being more innovative your New Year’s resolution? With Apple becoming the most valuable company in history by market cap in August this year, and its competitors trying their best to imitate Apple’s success (risking IP infringement lawsuits along the way), developing innovative capabilities is a priority for many companies.
In terms of PR, innovation is one of the most common key messages promoted. Anecdotally, it has surpassed the popularity of ‘synergy’ in corporate parlance. But for companies that are at the mature stage of growth, developing an innovation engine from within is a significant challenge. With thanks to my MBA colleagues, I give you an adapted version of our recent group assignment on this topic. (Davy, Anthony, Jenny, Oli, Nick and Neil: this blog is dedicated to you.)
We analysed an existing large financial services business and identified these crucial changes that need to occur so the business can innovate:
- Implement an organisational structure that supports innovation,
- incentivise employees and strategic partners, especially customer-facing staff and intermediaries, to develop an innovative culture, and
- develop IT systems as the backbone of innovation.
There is no silver bullet, however, assessing whether your business’ structure, culture and systems are ‘innovation-fit’ will guide your journey towards being a bit more like Apple.
A separate business unit can be established alongside the current structure, with enough autonomy to allow it to pursue entrepreneurial activities. Alternatively it can be a department embedded within the current structure, perhaps through matrix reporting lines, so that the culture change penetrates other departments. In addition, successful culture change requires commitment by all of its leaders and ultimately across all employee levels. Remuneration, training and other HR systems must be aligned.
Instilling a mindset for innovation amongst its employees and partners will help a business identify innovations in the market. An innovative workforce can be motivated to find ways to achieve efficiency and simplification. And of course an innovative culture will also improve a business’ capability to enhance its existing product suite and develop new products to take to market.
Many mature companies will need to undergo a culture shift from their current ‘hierarchical / market based culture’ to one that is focused on promoting creativity and flexibility, an ‘adhocracy’ culture. Figure 1 (below) represents the typical culture for an insurance business across the four opposite culture types (in blue). Insurance companies are risk averse, and therefore favour the hierarchical quadrant. A culture shift towards innovation, creativity and risk-taking would see an insurance business occupying more of the adhocracy quadrant (depicted in red).
Businesses can encourage this culture shift amongst its business partners such as intermediaries and even customers through incentive structures. Similar to Google’s incentive program for its Top Contributors, businesses can foster an innovative culture by creating an exclusive community who are invited to exclusive invitation-only events and rewarded financial incentives in exchange for sharing market intelligence and product improvements.
A missing link, particularly in financial services, is that there is no industry-standard metric for innovation. Sure, there are industry awards for innovation, but there is no objective measure on where businesses stand against each other on innovation, nothing like the Roy Morgan research on banks’ performance on customer satisfaction. The financial services industry has not co-operated to establish an innovation benchmark, probably due to the intense competitive rivalry in the industry (Bátiz-Lazo 2004). In the absence of an innovation index, this metric can be additional sales from new products, time to market with new products and benchmarking against innovation industry leaders. The KPIs for the business’ top management team and for all staff across the ranks should align with the innovation metric; for example bonuses should be dependent on achieving innovation targets.
A business can further facilitate culture change by initiating rituals and applying symbols that promote innovation in the organisation. Rituals such as sharing stories of successful innovations in the organisation can be incorporated into all staff meetings or at functions. Furthermore, holding brainstorming days to generate new ideas on products or customer service and regularly running competitions can promote a culture of innovation. Leaders play an important role in embedding the message that innovation is encouraged across all business units. Leaders must be persuasive communicators who can inspire their teams to work towards a shared vision on innovation.
Shifting to a more creative culture is not without its risks and challenges. Firstly, it takes time to effect culture change. Businesses that are subject to strict regulations tend to place a high emphasis on process efficiency and standardisation to achieve cost effectiveness, thus innovation is stifled. Secondly, potential conflicts with the existing risk averse and structurally orientated managers may occur. Thirdly, a focus on innovation may generate large numbers of ideas which can be costly to pursue. In order to mitigate these challenges, it is recommended that all managers are involved in the planning stages and that the change is staged so that all employees become accustomed to the new approach before aligning KPIs and rewards.
Part and parcel of being innovative is having the intelligence on customer needs so that a business can respond better to those needs. Apple’s suite of mobile devices is so successful in part because the company understands its customers. Many financial services businesses do not have an integrated view of the customer base. Since launching CommSee in 2004, the Commonwealth Bank has been a market leader in Australia and provides a good model for others in the industry. Many mature businesses have grown through acquisitions, with each brand using different systems, processes and distribution channels. This fragmentation has resulted in integration initiatives to migrate applications to a single platform that will provide the necessary tools to capture, review, update and assess end customer information. This is the stage of the innovation journey that many businesses find themselves in.
Innovation needs to be backed with the right structure, culture and systems so that it becomes more than just an empty buzzword on your list of New Year’s resolutions. This adaptation of my MBA group assignment only scratches the surface.
Bátiz-Lazo, B (2004). ‘Benchmarking financial services and online innovations’, Benchmarking: An International Journal, Vol. 11 Iss: 5, pp.431 – 446
Commonwealth Bank (2004). Media release: Commonwealth Bank rolls out new customer service platform in Tasmania, 13 February 2004, http://www.commbank.com.au/about-us/news/media-releases/2004/130204-news-customer-service-tasmania.aspx
Google (2012). Top contributor program benefits, http://support.google.com/bin/static.py?hl=en&topic=2546991&guide=2518472&page=guide.cs&answer=2519097