Barriers to delivering innovation

The principles for developing an innovative enterprise are straightforward, but the practice is challenging and the chief executive of a medium- sized business has to approach it passionately in a consistent, committed and purposeful manner.

• Most organisations have significant opportunities to improve. For example, Darryl Bubner ^{[ 3]} applied a diagnostic process for innovation capability (called WAVE ^{[ 4]} ) to a number of Australian businesses. His conclusions were:

• Human resource management and leadership provide a working environment in which the potential for innovation is high (but may not be actively promoted).

• The development of ideas, concepts and business cases is an area of relative weakness.

• Few companies have a coherent innovation strategy that is integrated with business strategy. In particular, the perceived ability of a number of the companies to achieve breakthrough thinking was seen as low.

• Leaders were concerned about their capacity to focus attention and demonstrate how to do it.

This section will address some of the reasons why chief executives need to apply breakthrough thinking to achieve their innovation goals, and identifies some of the barriers they must overcome in order to turn their businesses into innovating enterprises .

Our experience is that the reasons or excuses for not delivering fall into seven categories (which we call easy outs).

1. Underestimating what is required

• Easy out:We ll just add it on to everything else we do.

It is not unusual for a busy chief executive to underestimate the extent of the change needed to become an innovating enterprise and the adequacy of capabilities to achieve the task. This is usually for three good reasons. First, they have not experienced or worked in an innovating enterprise (and therefore cannot see the true difference between the current position and where they would like to be). Second, they have some serious blind spots about the current capabilities of the business. Third, they have an insufficient understanding about the principles of organisation effectiveness.

Capable chief executives of small and medium-sized businesses have often come from a background of growing and/or establishing the business they lead. They often do not appreciate the step changes required in management and systems complexity, particularly when the organisation has been grown from a startup. This can lead to major change being addressed as an incremental task in addition to the ˜day jobs of an already very busy executive. The work simply does not get done.

The chief executive needs to guard against understating the effort required to deliver the innovation thrust . This is a major area of risk, and in many cases warrants engaging external help to assist with the change process.

2. Inadequate formal systems

• Easy out: I know my business well and can grow bigger with the (largely intuitive) practices I use now.

Small and medium-sized businesses have particular strengths in communication. This often leads to emphasis on informal systems and reliance on understandings rather than explicit arrangements.

A key problem for these businesses is understanding and accepting the need to develop the right areas of formality needed for an innovating enterprise. It is important to understand that this change is about developing formality in the key areas in which it is essential, not simply for the sake of formality itself. The areas that are critical typically include planning, product development and performance management.

The plain fact is that becoming an innovating enterprise in a globally competitive market requires a significant increase in focus and systematic attention by executives and leaders.

3. Inadequate resources for the change process

• Easy out: It costs too much and takes too long to have outsiders help.

This is a variation on the first theme. Small and medium-sized businesses rarely have been exposed to major change processes. They usually do not have experience of what is required to design and manage change successfully. Moreover, resources are scarce and good help rarely comes cheaply.

These things encourage chief executives to attempt the change using only existing resources. This is usually a mistake. Managers in small businesses are typically very busy with several different types of jobs. The work of making and institutionalising change is usually a part-time activity alongside the work of getting the operations to run well. The capacity to get some serious time to think strategically together as a top team is limited.

The fact is, creating strategy and then implementing organisational change are projects. Projects require, for a time, additional resources or reprioritisation of existing resources if the business is to avoid burn out. This costs money and the chief executive must understand that. Moreover, the resources must be adequate for the task.

We have seen many examples of different ways around these problems. Getting initial diagnostic help can repay large dividends . Finding external help that will act genuinely as a counsellor to the chief executive is usually the best use of consulting horsepower. Sometimes this may mean promoting junior staff to roles of responsibility to make space for the senior group to think.

Creating joint consulting or client project teams to transfer tools for managing is another practical approach. Often simply seeking advice from a trusted adviser on how to design the organisational change to build the innovating enterprise can make a big difference to the chief executive.

So, if the chief executive is serious about making change then they must make the space available for the management team to work together to shape and implement the plan for creating the innovating enterprise.

4. Insufficient front-line input

• Easy out:The people on the shop floor aren t interested in improving the business.

It is a serious mistake to believe the sole source of creative, value-adding contribution is from managers and technical staff. A wise manager once shared the ˜six metre rule ( ˜twenty foot rule for readers accustomed to ancient measurement systems) with us. This rule states that the only people who can improve practices are those working within six metres of the process in question.

The cumulative impact of front-line input can be very large indeed and particularly effective for driving accelerated change. Moreover, these changes build a mastery of the processes and can establish the conditions for really effective step change and the best use of scarce capital.

The key point is that the front-line employees will usually have a deep understanding of the processes and are likely to have effective ideas about how to improve them. A wise chief executive will find the means to create an environment that encourages employees to give their best and harnesses the results to create value for the business.

5. Lack of knowledge management

• Easy out: My business is different and other people don t know it as well as I do.

Small and medium businesses tend to use intuitive, informal management methods and make strong use of direct communication. Documentation and formality tend not to be utilised. Valuable knowledge about the business, its customers and its opportunities are locked up in the minds of key executives (often the chief executive).

As a result, the business is excessively dependent on a small number of highly productive people. Because the skills are not readily transferable the value of the business is diminished.

6. Inadequate governance

• Easy out: All this talk about governance and boards is for big companies, not for me and my business.

At early stages of life, smaller businesses are driven by the need to achieve the business plan that provides survival rather than prosperity . Often there is not a board (apart from the executives, who often are the owners ). As the business consolidates and the capital base is broadened, the need for a sounding board for the executives becomes strong.

Good governance is an essential piece of infrastructure for an innovating enterprise. An innovating enterprise is, by definition, a purposeful risk-taker. As businesses grow into innovating enterprises, they must develop the requisite systems and governance arrangements to drive profitable growth while managing risks.

Usually the arrangements that were sufficient when the business was small (such as personal scrutiny by the chief executive) are simply inadequate when the business aims to grow to the next level of complexity and size . By one means or another, the business must institutionalise the effective encouragement, scrutiny and risk management that the chief executive was able to personally deliver when the business was smaller.

Governance is essential for building the innovating enterprise. This is where a board, chosen well, can offer the chief executive an experienced sounding board and a source of real value to strategy. Boards can add real value to the business by injecting wisdom, experience and insight to test plans, to provide counsel and support for the CEO, and to ensure the shareholder interests are upheld.

That said, there has to be clear understanding of the respective roles of the board, executive managers and managers, and a clear understanding of managing key tasks . A board provides approval, counsel and sufficient time for the CEO to reasonably achieve the plans for the business. On occasion a board will advise against a course of action in the interests of the shareholders. The board, however, does not do . Only the executives make things happen. The role of the chief executive is to take action to make things happen.

7. Strategic planning

• Easy out:Theoretical planning in our size business is pointless because you have to react intelligently to events as they happen.

The short form of this ˜easy out is ˜hope is not a method . Building innovating enterprises that survive is a very purposeful process. Success calls for thinking through the potential of opportunities, creating a vision, building a business case and a plan, and then getting on with it. As a chief executive, you have to get your people to react intelligently to events and you have to build the environment that enables your people to do so.

Commitment to the plan by all the key players is essential. A good CEO works hard at building a united, committed team that can carry the plan forward. So it is essential that the chief executive delivers the commitment needed to both create a challenging but achievable plan and deliver the business objectives. This is not a part-time job.

Chief executives who aim to make change on a part-time basis are deluding themselves . They are better off not starting a process that will be doomed to failure and which will be seen by employees as a hypocritical exercise. In turn this means they need to take an objective view of the current capabilities of the business and make a dispassionate assessment of the gaps between what is and what is not needed in the business.

A critical starting point is the experience and horsepower of the executive team, measured against the tasks that must be completed to entrench the innovating capability in the business.

^{[ 3]} D Bubner, An Innovative Approach to Measuring Innovation , Conference paper, 2001, available from www.waveglobal.com.

^{[ 4]} The WAVE diagnostic tool has been developed by Darryl Bubner to measure the innovation climate and systemic capability for innovation using an Internet-based survey tool. It has been applied to a selection of organisations operating in the public and private sectors. For further information see www.waveglobal.com.