Building innovative capability

To recap: As chief executive, you have to understand what things your people and your resources need to handle well and execute enthusiastically. There is an imperative to take stock of your organisations current capabilities in terms of the depth of executive leadership, technical capability, culture, organisational horsepower and organisational systems. It is essential to be realistic in your evaluation of your businesss current performance.

Current capabilities must then be measured against what is realistically required to achieve your aspirations. The gaps define what the implementation strategy must achieve.

In devising the implementation strategy, you must ensure that your people and your resources can achieve the pace of change needed to get there. This includes making realistic assessments of where additional talent and leadership horsepower are needed to strengthen your team. In many cases, your aspirations may leave significant numbers of your people behind. You need to be prepared for this and ensure you build the culture in your business that is right for the future. This work is your accountability as chief executive. If you cant build a plan to do all of this, change your aspirations.

Factors for success

In our experience, there are ten factors that will contribute to the success of building capability and delivering value-for-money innovation.

1. Ensuring the commitment of the leadership team

The key to building an innovating enterprise is firstly the constant commitment of the CEO. Why is this the case? It has been said that ˜leaders cast long shadows, and the shadows are longest from the top. In any organisation people looking upward see the behaviour of leaders starting at the topand impute motives to it and evaluate it. Behaviour at the top that is experienced below as being counterproductive must be sanctioned or explained.

Making major change is a risky business. Not everyone wants to do it. Given a choice between a quiet life and the whitewater rafting that change can become, most people will opt for still waters. A reluctant team will rarely achieve a challenging task. So, once the chief executive is convinced there is an imperative for change and is committed to the process, they must then in turn mobilise the commitment of the executive leadership team.

The chief executive must ensure the top team is willing to be committed to the goal of becoming an innovative enterprise. They must be prepared to replace the executives who are unwilling to make the commitment to the future.

2. Ensuring adequate management capability

The second challenge is to ensure the business has enough horsepower within the managerial leadership team to get the work done.

This is often a time of tough decisions. People who have been important contributors to the success of the business at an early stage of life may be left behind as the complexity of the management work takes a quantum jump. The requisite capability may be lacking in the business. The chief executive may not have experience working at the level of complexity required for an innovating enterprise.

At this stage, it may be useful for the CEO to seek external advice so as to clearly understand who needs to do what to deliver change. In addition, wisdom will be needed to ensure the treatment of the people left behind leaves no adverse perceptions among employees .

Having made the assessment, the chief executive must act to ensure they have people in the top team with the energy and commitment to do their jobs. A team with inadequate horsepower will struggle, the change will be drawn out and the program risks failure. It is far better to bite the bullet early and hard to ensure the right top team is in place.

3. Incorporating systematic innovation

The leadership team mindset, which may be entrepreneurial and visionary , must also become systematically innovative.

One of the key transitions is moving from a visionary and entrepreneurial environment that is not systematically innovative to becoming an organisation that is an innovating enterprise. The self- deception that only small changes are needed to systems is false.

The key systems include new product and process development, planning, communication, risk management and people management. To varying degrees these systems are often intuitive and informal in small businesses. The task of the chief executive is to build an organisation-level set of systems that is formalised enough for many people to operate them so as to deliver innovative products and processes over a sustained period. An aligned infrastructure liberates more energy from business. A key starting point is to evaluate the adequacy of the current systems.

4. Identifying key skill gaps

Small and medium- sized businesses have unbalanced skill sets. They have the skills needed to get the results at their current level of success, but usually lack the full set of skills needed to get to the next level of performance. Usually these skills are the disciplines of financial management, strategic planning and marketing. Often the sophistication of the skills required is an order of magnitude deeper than the experience of the business to this point in its development.

Skills are expensive and they are an investment. Taking the time to understand and identify the gaps and how they can be filled is an essential part of any CEOs role.

5. Using the front-line as a business driver

An important finding in our earlier work was the importance of the chief executive ensuring that they had in place the conditions required for sustained rapid productivity improvement. In many organisations, the framework is missing for making the bottom two levels of the organisation a powerful driver of innovation capability.

A key task for the chief executive is to build the management framework that enables innovation and improvement in the lower levels of management. In particular, this means careful specification of the roles of the front-line supervisor and the front-line manager. In our experience, only a relatively small number of companies have successfully built a productivity engine for the frontline. This is a vitally important observation. It is imperative to create a strong bond between the direct outputs of the front-line employees and the organisations ability to deliver the products that customers want.

6. Building adequate infrastructure

Growth requires more infrastructureyou need to build it as you go. By infrastructure we mean the systems, governance and accountability regime that reinforces the institutionalisation of innovation in the enterprise.

In small and medium businesses, a chief executive can achieve much by direct contact and easy communication. Size stretches the capacity of any one person to maintain the constant attention to the operations and organisation of the business. So growing enterprises require better enabling business infrastructure to maintain this attention.

A chief executive needs to build an efficient infrastructure just in time. In practice this boils down to a few practical options. There is usually scope to make the business infrastructure work faster . This requires simplifying processes, cutting out red tape and delivering results more quickly. In practical terms this also equates to looking hard at the work being done and ensuring a higher proportion of the sweat and effort is productively focused. Greater efficiency in meetings, more attention to purpose and optimising the power of information systems enable a business to get better value from the ˜overhead.

7. Implementing formal structures and systems

Increasing size requires more formal and sophisticated accountability, governance and business systems. As you expand and your business increases in complexity, you have to make sure you have the right accountability and governance systems in place. Size usually brings increased complexity of businessmultiple locations, possibly multiple jurisdictions, additional lines of business and increased size of the management team.

The leader of the innovating enterprise has to build the internal framework of accountability and authority that will enable the people in the business to carry its innovating thrust . This is an important challenge that, if not addressed, can cripple the development of the business. It is a particular challenge because the people who have achieved the success of the business at its current size frequently lack the experience of running larger, more complex businesses. The importance of clear accountability, requisite structure and a small number of effective, formal control systems is often not understood because their value has not been experienced.

8. Developing capabilities

In small and medium businesses, marketing, product and process development capabilities are usually underdeveloped and informal. Systematic approaches to marketing and product development are, however, cornerstones of the innovating enterprise. It is hard to look objectively at the market, competitors and trends at the best of times. For a small or medium-sized business these things are particularly challenging. They often require a capability beyond that which the business can afford on an ongoing basis.

An external view is often helpful. Temporary resources, professional research or consulting advice can provide the expert input needed to formulate the marketing strategy.

9. Developing accountability

Small and medium-sized businesses usually grow successfully following their own unique path . Usually this involves taking a pragmatic approach to specifying and assigning accountability for the work in the business. Managers are accountable for a wider range of activities and functions than in larger organisations. Typically this range of accountabilities is built around the particular strengths and interests of the individuals in a small business.

Very often the accountabilities are blurred, perhaps requiring multiple approvals for action or making several people accountable for essentially the same activity. Often accountabilities are non- specific and imprecise and the process for preventing things from falling between the cracks falls to the chief executive.

Although this legacy may work for the current size of business, it is a barrier to the future. It is also, importantly, a barrier to creating an environment in which every person:

• has a role that adds value and is accountable for doing it

• willingly contributes their creativity and energy in building the innovating enterprise.

In short, the legacy cannot sustain the demands of an innovating enterprise.

10. Ensuring organisational continuity

Becoming an innovating enterprise often means a distinct change of strategy. A change of strategy usually means organisational discontinuity and realignment .

A wise chief executive anticipates this need and works to mobilise the support of his people.