Why some companies can’t innovate

MANILA, Philippines - If there is a buzzword in today’s global business circles it is innovation. Everybody wants it. Everybody wants to emulate the Apple Computers of the world and create new categories and new levels of consumer value. Every job-hunting candidate will espouse “Being an innovator” on their résumé. We all seek it. But few ever attain the level of innovation needed or desired.

Recently I had an executive recruiter call me about a role as “Chief Innovation Officer” for a mid-sized multinational. As we had a brief discussion, I could not help but laugh. This company was dissatisfied with the level of innovation they were getting… so the solution was to staff-up a “Chief Innovation Officer” role and suddenly they think they will get all the innovation they want? It’s nothing more than out-of-touch, boardroom naiveté. Innovation is a culture. It can come from any employee. It is not just the job of one person, but of anyone in the company. A company is either designed to foster innovation or designed to retard innovation. It’s this simple. And most companies are designed, unfortunately, to stifle innovation. To hire bright and creative young people, and then smother them and suck the innovation right out of them. If most CEOs would stand in front of a mirror and ask themselves why they lack innovation, they would recognize the problem is staring them in the face.

Innovation is all about bold risks. You can’t have innovation without risk taking. Innovation is change and making people feel uncomfortable. Innovation is scary. Innovation means failing with some level of frequency. Now you have to ask yourself a few simple questions if you run a business today: Do you encourage risk taking? Do you accept any failures? Really?

During my time at P&G — a quite innovative company — there was an old saying, “Innovation occurs on the fringe,” meaning the farther away one is from the HQ, the more risks you can take and the more innovation one could foster. And I found this to be true. As I left the US business and went off into the fringes of the empire to Morocco, Poland, Jordan, Syria — all off the map of scrutiny — the ability to take risks and innovate multiplied tenfold.

It is no surprise, really, to find that most multinational innovation comes from the fringes of the company. And those smaller, leaner companies often out-innovate the big, bad multinationals, and what ends up happening all the time is the small innovative player gets bought out by the big MNC. Coca-Cola has spent billions of dollars buying up the innovation they could not do on their own — Vitamin Water, Monster Energy drink, to name a few.

So why can’t some companies, and in particular the big boys, get the innovation they so crave?

• A demand for perfection. Many companies have zero tolerance for errors. They, on the one hand, speak about Steve Jobs and Apple and how they want to be “more like Apple” and yet never realize Jobs had many failures along the way. Not every initiative was an iPhone kind of success! So what they do is publish “initiative success rates” and demand 90 percent success of every new product launched. Or they fire anyone who fails and misses a number. So the rest of the organization, in zeal to keep their jobs, dumbs down and takes no risks. To get a 90 percent success rate on new products means you basically launch vanilla-flavored ideas. Plain and not exciting. You don’t get innovation-demanding perfection from a team. I have personally found once you demand more than a 70 percent success rate you will stifle innovation. Nobody will take any risks any more.  Job preservation trumps taking risks for more innovation.

• Consensus management. As many companies have moved to matrix organizational structures, the name of the game has become concepts like “Alignment” and “Socializing an idea” and outright “Getting everyone to agree.” And with this, innovation is gone and only “safe” ideas will get through. Innovative ideas have sharp, cutting edges. They are bound to upset or make some uncomfortable. Expecting 10 or 20 people to agree on a cutting-edge idea is expecting the impossible. Show me any idea 20 people will all agree to and I will show you a “vanilla” idea that won’t lead to breakthrough results. Breakthrough ideas inherently piss some people off and scare others.

• Overly focused on “Risk management.” The systems and processes a company implements speak volumes about what is important. We seem to have all kinds of systems to ensure nobody does anything “stupid” or “takes any risks.” We have corporate governance. Controls. Risk registers. Audits and self-audits. Risk heat maps. It goes on and on. And the signal we send to people is, “We don’t trust you” and “We don’t want anyone taking any undue risks.” And we wonder why there is no innovation! Every place I have worked has had a monthly update on a “Risk register” which outlines all the things that can go wrong and how to mitigate. But nobody has had an “Innovation register” of all the big ideas in evaluation that could change the face of the company. Do we think Steve Jobs spent time worrying about earthquake risks for Apple and filling in his risk register for “business continuity in case of an earthquake,” or was he in meetings designing the iPad to make it a global success?

• Hiring clones. How often do I hear the statement, “I don’t think he/she will fit into our culture”? And with this statement, another step is taken against innovation. Companies like Apple and Google inherently understand innovation comes from diversity, and building a company of unique individuals. Go to an Apple or Google; visit them. I have. It is eye opening. Nobody cares about dress. Tattoos. Sexual orientation. Marital status. Hair length. Skin color. Religion. Passport. They hire people, brains, fresh thinking. They don’t worry about hiring someone “like everyone else.” They want to mix it up. My most creative team ever was when I ran P&G’s “Near East” Team. We did what nobody thought was possible. We put Israelis, Palestinians, Lebanese, Syrians and Jordanians on one team to build the business in the region. We mixed it up. And yes, we got lots of sparks! But also amazing ideas to the point this small team actually created no less than eight innovations that went global! I never saw a team leverage diversity like that team did and just create new ideas. Now I compare this to the clone hiring I so often see in companies. Same backgrounds. Same schools. Same way of thinking. An obsession with culture fit over a true commitment to diversity. Fill a building with clones and you don’t get innovation.

Innovation is really a cultural choice and one the CEO and the board must embrace and change. It starts with creating a culture of risk taking. Of accepting failure. Of rewarding people for being bold. It allows for a means to try new ideas without worrying that “everyone agrees” and giving some leeway for people to experiment and try new things. It means balancing the risk management with innovation management. And it means hiring truly to diversity, well beyond the obvious such as gender, and being open-minded to the power of mixing it up. Would you hire Steve Jobs today? Dressed in black, fiery and ornery and a college dropout? Just ask yourself this question.

With this, you may well find yourself on your way to all the innovation you desire. And perhaps next time you can grow your own innovation without having to go out and buy it somewhere else. After all, your people were hired by you. They are great. And they can innovate. Just let them do it.

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