Can large businesses innovate? Not ‘are they good at it’, but ‘can they’?
Businesses want to innovate to make money. So they do what comes naturally – offer their innovators financial rewards. But financial rewards undermine innovation. Not just prove unhelpful, but actually undermine it.
London Business School Professor Lynda Gratton has developed compelling evidence to show how innovation is hindered by extrinsic motivation – the possibility of a pay rise or a promotion, for example – because the individual will focus on how he will be evaluated, usually in direct competition with others: “Creativity is most free-flowing when people are inspired and self-motivated, and enjoying the process itself, rather than under pressure to deliver what someone else wants”, she points out.
So businesses aren’t good at rewarding innovation because they don’t understand the innovator’s motivation. But that alone doesn’t mean that businesses cannot innovate. Lynda Gratton has spent a long time looking at those models of internal competition so beloved by larger organisations, and how encouraging competition can suppress creativity and hinder performance. Gratton states “the best performance is actually proven to come through collaboration. If more than 32% of team members are competitive, collaboration will not work”.
Even if 32% sounds suspiciously precise, the principle is sound. Internal competition (such as competing P&Ls), almost always backed up by direct financial incentives, is consistently trumped by collaboration within and across businesses.
Last month New York Times columnist David Brooks said that businesses were architects of their own doom for promoting competition, arguing “competition has trumped value-creation and the competitive arena undermines innovation”. He pointed out that we shouldn’t be looking to compete – because we should concentrate on defining a niche market – creating and dominating that niche.
So it’s not just failing to understand innovators that large businesses are doing wrong, it’s their continuing reliance on internal competition to drive growth. But isn’t there still hope for businesses, provided they abolish internal competition and try harder to find the right motivational systems?
Here’s where it gets really tough for those larger businesses. They got to be that size by developing advanced systems to address uncertainty and volatility. As changes gathered pace, they deployed a range of traditional management techniques and increasingly algorithms to improve their ability to react to and evolve in a world increasingly marked by uncertainty and volatility. The entire management structure was built to improve the organisation’s ability to deal with uncertainty and volatility. And by being better at coping with these than their competitors, they got to survive and even prosper when uncertainty and volatility seemed to be dominant in a changing world.
But now it’s ambiguity that’s knocking businesses for six. Uncertainty is not knowing which number will come up on the dice. Ambiguity is not knowing how many dice there are, or how many faces on each dice, or even what the numbers mean on each face. Go back to David Brooks’ comments now and “concentrating on defining a niche market, creating and dominating that niche” becomes the new purpose for business. Now larger businesses’ ability to handle uncertainty and volatility don’t count for much. Because while they’re dealing with those threats, innovators are coming along redefining entire business sectors by creating and dominating those niches.
Entrepreneurs seek out ambiguity, because that’s where their agility, lack of corporate overhead and speed off the blocks allows them to spot, create and dominate niches. In a time of intense ambiguity, larger businesses need to get better at managing a portfolio of innovation, allowing their most innovative people to explore and define new niches. That’s going to require not only the HR department to re-examine reward systems, and the COO to re-examine a company structure of competing P&Ls, but also the whole Board to re-examine how the business is measured and the CEO to develop a tolerance or even a taste for ambiguity. We will need to innovate organisational structures and behaviours, reward systems and hierarchies at the same time in order to succeed. And we will need to finally bury the idea that internal competition is valuable.
So what we can we do right now? Let me finish on a pragmatic note – a few learnings from my time as an innovation catalyst in a large creative organisation as well as my time as an entrepreneur:
- mix it up; move people around physically and organisationally; form and re-form teams with different disciplines; distribute HR and finance throughout the building; put left-brain people and right-brain people next to each other
- provide official channels (like corporate social media channels such as Yammer) for ideas-sharing and internal communication; and let unofficial channels prosper; understand that some of these initiatives will fail
- provide space and time and encouragement for groups to come together to think; look for new corporate strategy to come from these impromptu groups
- implant “innovation catalysts” – events; people; or ideas; or stimulus to think differently
- encourage different thinking in areas outside your core business focus; innovation often happens in the “white spaces” between what we think we’re supposed to do each day
- openly celebrate the outputs of all this new thinking; praise the ideas and the innovators; show staff that their thinking is valuable and is contributing to new energy within the company
- ensure the CEO, CFO and COO are seen to buy in to the approach