Issue No.

292 March 2006

Human Capital Strategies

CharacteristicsofanInnovativeCulture

In todays fastpaced business environment, innovation is a prerequisite for success and perhaps even for survival. Thats why innovation has found its way to the top of the agenda at organizations around the world. Once considered primarily an output of R&D labs, innovation has become a corporate priority that touches every facet of and, indeed, everyemployeeinanorganization.

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ntodaysfastpacedbusinessenvironment,innovationisaprerequisiteforsuccessandperhapseven forsurvival.Thatswhyinnovationhasfounditswaytothetopoftheagendaatorganizationsaround theworld.OnceconsideredprimarilyanoutputofR&Dlabs,innovationhasbecomeacorporatepri ority that touches every facet of and, indeed, every employee in an organization. External constituents, too customers, academia, the government, vendors, even competitors are playing a growing role in companies creativeprocesses. TheAMA/HRIInnovationSurvey2005foundthatmorethantwothirdsofthe1,356globalrespondentscon sideredinnovationeitherextremelyimportantorhighlyimportanttotheirorganizationstoday.Yet,those impressivenumbersseemmodestwhencomparedwithrespondentspredictionsaboutthefuture.Abouthalf ofrespondentsthinkinnovationwillbeextremelyimportanttotheirorganizationsin10years,and35%sayit willbehighlyimportant. The AMA/HRI survey, combined with 16 indepth interviews and an extensive literature review, clearly showsthataninnovativeculturehasvariouscharacteristics.Theabilitytofocusoncustomersisviewedasthe toprankedfactorfordevelopinganinnovativeculture,accordingtothesurvey.Thisisnosurprise,giventhat othersectionsofthesurveyshowthatcustomersarethenumberonedriversofbusinessinnovation. Buttheinnovationliteratureshowsthatafocusoncustomersalonedoesnotguaranteethataculturewill beinnovative.Currentcustomersmaynotseethepossibilitiesofmajortechnologicalparadigmshiftsandmay havefewinsightsintohowcompaniescanexpandintonewmarketswithaverydifferentsetofcustomers. So, organizations also need to have enough resources, teamwork, communication, autonomy and other qualitiestoallowinnovationstoflourish.Thetablebelowillustratesarangeofinfluencesrankedaccordingto theimportancethattheAMA/HRIrespondentsassignedtothem.Inthispaper,weexaminetherolethatmany ofthesefactorsandsomeadditionalonesthatshowupstronglyintheliteraturereviewprocessplayinshap inginnovationfriendlyorganizationalcultures.

Introduction

Factors
Customer focus Teamwork/collaboration with others Appropriate resources (time and money) Organizational communication Ability to select right ideas for research Ability to identify creative people Freedom to innovate Ability to measure results of innovation Encouraging both small ideas and big ideas Innovation accountability/goals Culture of risk-tolerance Organizational structures Diversity Balancing incremental improvements and breakthrough discoveries

Today
1 2 3 4 5 6 7 8 9 10 11 12 13 14

In Ten Years
1 2 6 3 4 5 7 8 9 10 12 11 13 14

CustomerCentricity
urrentandpotentialcustomershavealwaysdriveninnovationincompaniesinthemod ernage,buttodaysorganizationsaretakingtheideaoffocusingoncustomerstoanew levelbycapturingtheirideasoractuallyallowingthemtoinnovateintheirownbehalf. Somecompanieslooktoleadusersorluminariestohelptheminnovate.GEshealthcare division,forexample,callsuponpublishedscientistsanddoctorsfromwellknowninstitutionsto attendadvisoryboardsessions,wherediscussionsoftechnologicaladvancescanleadtonewGE products.BMWhasreachedouttocustomersviaatoolkitonitsWebsitethatallowscustomersto proposeandexpandnewideas.Notonlyisthecustomerking;nowheismarketresearchhead, R&Dchiefandproductdevelopmentmanager,too,sumsupTheEconomist(TheRise,2005,p. 59). Tappingintotheinnovativenessandimaginationofcustomerscangeneratetremendous value, said Harvard Business School professor Stefan Thomke. He recommends encouraging customerstodesignwhattheywantwithstateoftheartsoftware.Itcouldgenerateinnovations thatsupplierssimplycannotimaginetoday(SpeedingUp,2004,p.8). Somecompaniesarealsoworkingtocreatenewproductsandservicesgearedmoreforthe individualtastesofcustomers.Inwhathasbeencoinedamassmarketmutiny,customersare clamoring for the hostof personalized products that companies allowthem to create. Such cus tomization has become a trend in the clothing, music and telecommunications industries. Re searchbytheconsultancyBrandKeyssuggeststhatbetween1997and2005therelationshipbe tweencustomizationandbrandloyaltygrewfivefold(Laue,2005). And then theres the trend toward design thinking, an increasingly popular notion for boostinggrowthandinnovation.Theideaisthatweareevolvingfromaknowledgeeconomy toanexperienceeconomy.Thisneweconomyisincreasinglycustomercentricandfocusedon deliveringnotjustgoodsbutexperiencestocustomers.Successfulfirmswillbethosethatcan deliverbettercustomerexperiencesbyusingempathyskillstobuildnewbrandsordevelopnew consumerexperiencesusingestablishedbrands(Nussbaum,2005). Thereslittledoubtthatasnewbusinessmodelsariseandnewtechnologiesemerge,organi zationswillfindotherwaysofgainingnewcustomersandinvolvingcurrentcustomersinthein novativeprocess.

oth the AMA/HRI survey and the re searchliteraturereviewshowthatteams andworkgroupsarecriticalintermsoftheirabil ity to encourage and support innovation. Of course, not all work groups are created equal. Theyremostlikelytobeinnovativewhentheyre abletointegratepeoplewithdiverseperspectives

TeamworkandCollaboration
andallowthemtoeffectivelyswapideasandex pertise (McLean, 2005). Crossfunctional teams may be especially good at arriving at new ideas thatarebothinnovativeandpractical. Teams probably wont be successful unless they have the support of leaders who provide

themwithcleargoalsandnecessaryresources.On theotherhand,poorleadershipcanbeverydam aging to teams. One recent study examined how well crossfunctional new product development (NPD) teams are supported. These cross functional groups typically include representa tivesfromR&D,design,engineering,manufactur ing, and marketing as well as key customers and vendors. A survey of 269 product development managers at U.S. and Canadian manufacturers foundthatNPDteammanagersoftenbelievethat the teams will usurp their power, and theres sometimesalackofcommitmentandcommunica tionwhenitcomestosuchteams(Boyle,Kumar, &Kumar,2005).

that teams and teamwork are important to inno vation,buttheyrequireskilledleadershiptomake themaseffectiveastheyshouldbe.

InternalandExternalCollaborations
More innovation occurs through collabora tion and community than through the inventive thinking of a single mind, according to Andrew Hargadon, author of How Breakthroughs Happen: The Surprising Truth About How Companies Inno vate.Hargadoncontendsthatmostnewideasare adapted from existing ones, a concept he calls recombinant innovation. Whats more, ideas can spring from even casual encounters that ex pose one to a new perspective as easily as they can from concentrated teamwork. His book ex plores other theories that support the value of community, too, such as the concepts of serious play and communities of practice, in which companies purposely create internal networks to foster knowledgesharing and creative thinking (Kleiner,2004). Collaboration occurs both within organiza tions and among them. These days, only slightly more than half (55%) of innovation is generated internally. Organizations are tapping academia, the government and other firms for fresh ideas, according to the 2004 Making Innovation Work study by The Conference Board. That survey foundthatorganizationsseekinnovationthrough collaborationwithuniversities,privateR&Dlabs, andgovernmentagencies,andthroughparticipa tion with consortia. Such open innovation is expectedtostrengthenasfirmscontinuetodiver sifytheirinnovationportfolio(Troy,2004). Companies with R&D located in the U.S. seem particularly interested in collaborations based on alliances. There have been relatively large increases in participation in alliances and joint R&D ventures in recent years. In fact, 61% of surveyed companies expect to increase their participation in those endeavors in 2006, accord ing to the IRIs 22nd annual R&DTrendsForecast (Ayers,2006).
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TheNeedforDiversity
The most creative teams are drawn from di verse backgrounds, says Michael West, professor of organizational psychology at Aston Business School. West says suchteams bring diverse skills andknowledgetoprojects,offeringmanycreative solutionstoproblemsbecausetheyapproachsuch problems with different perspectives (Glover & Smethurst, 2003). Team diversity can also help companies improve their focus on customers. Whendiverseemployeesrelatetodiversecustom ers, companies can tap into new product ideas andmarkets(Lockwood,2005). Tania Aldous, a manager in the global con sumer design department of Whirlpool Corp., says that if employees are to work on cross functional teams, We need diversity of thought, various perspectives and cultural heritages. It is importantnottobringinallclones,saidRobert Sutton,aprofessoratStanfordUniversityandau thor of WeirdIdeasThatWork:11PracticesforPro moting, Managing and Sustaining Innovation (Pomeroy,2004,p.50). Michael West cautions, however, that teams madeupofpeoplefromdiversebackgroundscan generateconflict,andtheymustbewellmanaged to make sure such conflict remains constructive (Glover&Smethurst,2003).So,thebottomlineis

Sometimes companies collaborate through investment. Companies that do not want to risk trying to achieve their own breakthroughs find waystoinvestinothercreativebutriskyfirmsby providingsomeoftheirstartupcapitalorbybuy ingthesecompaniesoncetheyprovethevalueof theirideas.Realoptionsreasoningprovidesvalu ableinsightintohowflexiblecommitmentscanbe made to fund breakthrough research projects by taking the investments of large companies and spreading them across many pathbreaking smaller firms in the hope that some of them will succeed(McGrath,1997).

But whether collaboration is among compa niesorindividuals,thedifferingbackgroundsthat parties bring to the table can often produce fric tion or conflict that erodes trust. Cultural differ ences must be taken into account. If properly channeled, such conflict can benefit the innova tionprocess.Thecollaboratingentitiesmustfocus on their commonalities, such as goals and chal lenges,ratherthantheirdifferences,butproperly managed friction can serve as a catalyst for pro ductivechange(Hagel&Brown,2005).

he 2005 AMA/HRI survey showed not only that appropriate resources (time andmoney)wasamongthetopfactorsfordevel oping a culture of innovation but also that insufficientresourceswasthemostwidelycited barriertoinnovation.

TheRightResources
Its not true, however, that more is always better. Having too few resources hinders innova tion,buthavingtoomanymightalsobeakindof obstacle (McLean, 2005). Employees with long spans of time in which to come up with results may losemotivation. The right balance of money is important, too. Too little, and employees have to put time and energy into seeking other re sources. But too much (beyond the threshold of sufficiency) has not been shown to have a posi tiveeffectoncreativity(Troy,2004). This rule applies to research and develop mentaswell.ArecentBoozAllenHamiltonstudy foundthatthereisnorelationshipbetweenR&D spending and the primary measures of economic or corporate success, such as growth, enterprise profitability and shareholder return (Jaruzelski, Dehoff, & Bordia, 2005). On the other hand, the samestudyshowsthatspendingtoolittleonR&D canhurtcorporateperformance.

TopRankedBarrierstoInnovation*

Barriers
Insufficient resources No formal strategy for innovation Lack of clear goals/priorities Lack of leadership/management support Short-term mindset Structure not geared toward innovation

Rank
1 2 3 4 5 6

*Seenby10%ormoreofrespondentsasthe numberonebarrierintheirorganizations

trulycreativeculturetendstobedistin guished by open communication and the free exchange of ideas (McLean, 2005). This means communication among different parts of the organization, communication among team

Communication
members, and communication up and down the corporate hierarchy. Communicating not only means sharing ideas but also sharing the lessons learned from failures and successes. Ways to en hance communication include more inclusive

meetings, better online tools for sharing knowl edge, crossfunctional assignments and more brainstormingsessions(McGregor,2005). The most suitable type of communication e.g.,viatechnologyorfacetofacemeetingswill oftendependonthetypeofcollaborationneeded to solve problems that call for creativity (Sonnenburg, 2004). In situations where an or ganizationistryingtodevelopmoreradicalinno vations (or find more radical solutions to prob lems), collaborators are often friends or partners who need to communicate on a more personal

level. In other situations, technologymediated communicationisprobablysufficient. Communication also includes storytelling. Thismeanstellingbothinspirationalandcaution ary tales. After all, stories about why ideas fail mightbeasvaluableasourceoflearningforbusi nessesasstoriesaboutsuccess.Withoutanexami nation of why ideas fail, valuable lessons that mightbelearnedarelost,accordingtoJerkerDen rell,assistantprofessoroforganizationalbehavior at the Stanford Graduate School of Business (Wagner,2005).

ully96%ofallnewinnovationinitiatives failtoatleastmeetreturnoninvestment targets (A Creative, 2005). While having an ideasharingcultureinplaceispartoftheprofile of innovative firms, the bigger challenge may lie in having the right processes in place to quickly cullthroughthoseideasandselectthosetoshep herdthroughtofruition. But there is no obvious strategy for selecting orevenevaluatingideas.Nearlyhalf(48%)ofthe AMA/HRI respondents reported that they dont haveastandardpolicyforevaluatingideas,byfar the largest responsetoa question on this subject. The next most common responses? About 17% saidtheyuseanindependentreviewandevalua tionprocess,while15%saidideaswereevaluated by the unit manager where the idea was pro posed. PercentUsingTheseApproachestoEvaluate IdeasinTheirOrganizations

AnAbilitytoSelecttheRightIdeas
Some experts contend that the best way to sort through multiple options in the pursuit of innovationistocreateadefinedportfolioofinno vationapproaches.Thisallowsacompanytobal ancedifferenttypesofinnovationssuchasincre mentalandbreakthroughinordertomaintaina healthyrangeofselections. Some companies vest their employees with theresponsibilitytoselltheirownideas.Whirl pool Corp., for example, encourages innovation teamstopursuenewideasbycreatingabusiness case and applying the $25,000 in funding to quickly prove the ideas worth. The lowbudget, quickturnaround method is a far cry from the bigdollar projects of Whirlpools past and was designedtogenerateradicalandlowriskideas (Pomeroy,2004).Whirlpoolalsousesanipipe, or online idea pipeline, where ideas are shep herded through the process by trained i consultantsandimentorswhohelpemployeesto workaspartofaninnovationteam.Surveys,busi ness plans, focus groups and brainstorming ses sionsarealltoolsthatmightbeutilizedtomanage the project. Separate teams may nurture an idea through the research, development and imple mentationphases,aswell(Pomeroy,2004). AmericanFamilyInsuranceGroup,too,gives peergroupsthevotefordeterminingthefeasibil ityofnewITprojects.ITcodewritersareencour

Approach
There is no standard policy for reviewing and evaluating ideas There is an independent review and evaluation process for ideas Ideas are reviewed and evaluated by the unit manager where idea was proposed Ideas are reviewed and evaluated by the unit that would be impacted by the idea The employee is responsible for starting and managing the review process

Percent
47.6 16.5 15.4 12.6 7.6 4

agedtodevelopprototypesquicklywithoutheav ilyinvestingtimeandefforttodemonstratewhat a new application might accomplish. Depending on colleague reaction, the project might get ap provedforcodedevelopment(Ulfelder,2005). Technology plays an important role in idea evaluation as well. Some organizations are by passing physical models and using Webbased simulations or rapid prototyping to test designs (Shelton&Davila,2005).Onepieceofadvicefrom UK business school Henley Management College istousetechnologysolutionssuchascomputeror mathematical simulations to evaluate ideas. And whenitcomesdowntodecisiontime,itsrecom

mended that companies ask questions from a commercialperspective.Identifyingtheproblems that will need to be addressed in order to imple ment the idea is one of the key decision points (Henley,2005). All inall,theabilitytomakequick decisions and to move from idea to action appears to be a keydeterminantofsuccessfulinnovation.Accord ing to Patrick Kulesa, global research director for ISR, Successful innovation companies excel not onlyatsettingthestageforgeneratingnewideas, but also have the business discipline and proc esses necessary to take those new ideas to mar ket(Kulesa,2005,p.41).

CreativePeople
ompanies need creative people, of course, but its a myth that innovation stems only from a small cadre of creatives(Breen,2004).Infact,whenitcomesto creativity, there are few areas of human activity whereweallstartoutsoequal,accordingtoKris tinaMurrin,managingpartneroftheWhatIfcon sultancy (Glover & Smethurst, 2003). Some ex perts say that creativity is, to a large degree, a trainableskill. Still, its true that people who are prone to inventiondotendtosharecertaintraitsorhabits, notes Murrin in her book StickyWisdom. For ex ample, they have a stimulating life outside of work thattriggers creativity, they use prototypes to bring ideas into reality, they often go their own way, they communicate and are open to ideas, and they have the courage to express new ideas(Glover&Smethurst,2003). Someoftheseobservationsmaybeborneout byhistory.CreativepeoplesuchasEdison,Shake

speare, Mozart, Einstein and Darwin had wide ranging interests and ideas that allowed them to innovateintheirfields.Theyalsohadthecourage oftheirconvictions.Theysufferedvariousfailures but eventually brought finished projects to frui tion(Sutton,2004). Ofcourse,thecorporateenvironmentplaysa largepartinhelpingpeopleliveuptotheircrea tive potential. The freedom to fail without heavy penalty can, for example, be a powerful support toeventualsuccess.Socanphysicalenvironment oftheworkplace.WhatIfresearchclaimsthatthe physical environment stimulates eight out of 10 newideas,withcreativitytriggeredbysomething immediately visible to the employee (Glover & Smethurst,2003). So,notonlydoemployersneedtorecruitand retaincreativepeople,theyneedtoprovidetrain ing in creativity and set up work environments thatstimulatecreativityinallemployees.

he autonomy to work toward goals is an important feature of an innovative culture.Thisdoesnotnecessarilytranslate,how ever, to the autonomy to decide those goals. Re
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FreedomandRiskTolerance
search conducted by Professor Teresa M. Amabile of Harvard University shows, in fact, that employees creativity is enhanced when their goals are clearly specified but theyre

granted freedom to pursue those goals by what ever means they decide. Too much control can impedecreativityandinnovation. Laird D. McLean combed through the re search of innovation experts and concluded that several types of control can inhibit creative per formance.Itcouldbecontrolindecisionmaking, control of information flow, or even perceived controlintheformofrewardsystemsthatputtoo much emphasis on increasing extrinsic motiva tion,McLean(2005)writes. Organizationsmustalsobewillingtoallowa certainamountofrisktaking.Riskimpliesadan ger of failure, but innovative companies know that failure is as essential a part of the growth

processassuccess.Organizationsthatunderstand risktaking is necessary make that message come alive through their employee communications, their ideasharing and evaluation processes, their recognitionprogramsandtheirrewardsystems. Managing employees in a way that encour ages innovation requires leaders to acknowledge and reward risktaking behaviors not just suc cessfuloutcomes.JohnSweeney,authorofInnova tionattheSpeedofLaughter,suggestsmanagersuse techniques such as initially welcoming all ideas without first judging them, creating an atmos phere where opinions can be freely shared, and reinforcing the value of employees contributions byactingonthem(EmployeeInnovation,2005).

nnovationanditsimpactcanbemeasured inanumberofways,thoughnoneofthem isperfect.Thetoprankedmeasurementtype,cus tomersatisfaction,isntamajorsurprise,giventhe high ranking of customerrelated factors in all partsoftheAMA/HRIsurvey.Butitsinteresting to see how much more important respondents consideritcomparedwithmeasuressuchasinno vationasapercentageofprofitsorasmeasuredin terms of intellectual property. On a 1 to 5 Likert scale, where 5 is extremely important and 1 is not important, customer satisfaction received a whopping 4.36, compared with just 3.40 for innovationasapercentageofrevenuesandprof itsand3.07forintellectualproperty. RelativeImportanceofWaysofMeasuring CreativityandInnovation Measurement Types
Customer satisfaction Market share New products/services/processes produced Financial impact of ideas submitted by employees Innovations as percent of revenues and profits Spending on research and development Spinoffs/new operations based on new products Intellectual property (e.g., number of patents)

WaysofMeasuringResults
Itsinterestingtoseehowthisdatacompares withthatofotherrecentresearch,whichlooksless at the importance of innovation measures and moreattheirdegreeofusage.Onlyabouthalfof thefastgrowingU.S.businesses(48%)havetried tolinkinnovationtomeasuresofsuccess,accord ingtoresultsfromPwCsTrendsetterBarometer.Of those that made the effort, the most common measuresincludedoverallrevenuegrowth(78%), customersatisfaction(76%),revenuegrowthfrom new products/services (74%), productivity in creases (71%), earnings (68%), recruitment/ retention (34%) and market capitalization (17%) (PricewaterhouseCoopers,2005). A2004ConferenceBoardstudyfoundthatto track the success of employee innovations, re spondentsusedmeasuressuchastotalnumberof employee ideas submitted annually (76%), finan cial impact of implementing employee ideas (76%), and percentage of ideas implemented (56%). TheConferenceBoardsurveyalsofoundthat respondentssaidmeasuresrelatedtoinnovations (e.g., patents, R&D spending as percent of sales) werethemostuseful,followedbyfinancialmeas ures (e.g., sales, market share), process measures

Rank
1 2 3 4 5 6 7 8

(e.g., time to market, fulfillment speed) and peo ple measures (e.g., performancebased awards) (Troy,2004). Someexperts(Muller,Vlikangas,&Merlyn, 2005)sayinnovationshouldbemeasuredthrough threedifferentlenses:1)theresourceview,which analyzes inputs such as capital, talent and time withfactorssuchaspercentofworkforcetimein vested in innovation, number of employees with entrepreneurial experience or percent of capital dedicated to innovationrelated activities; 2) the capability view, which measures inputs through number of innovation tools, the percent of em ployeeswithinnovationasakeyperformancein

dicator, and the percent of employees receiving training in activities related to innovation; and3) the leadership view, which measures inputs through percent of executive time invested in in novationversusoperationsorpercentofmanage mentteamtrainedintheuseofinnovationtools. Its clear that companies have many options when it comes to trying to measure innovation. Theirchoiceswilldependontheirindustry,their experienceatusingsuchmeasures,andtheirabil itytomakeeachmeasureasaccurateaspossible. Theliteraturesuggests,however,thatmanycom paniescoulddomoreintheareaofmeasurement thantheyarecurrentlydoing.

AnAbilitytoBalanceIncrementalandBreakthroughInnovations
hile radical or breakthrough innova tion can reap handsome financial profits, the largest percentage of revenue is still morelikelytocomefromincrementalinnovation. Balancing efforts to capture the advantages of bothcanbeawisebutchallenginggoalfororgani zationstopursue. Someresearchsuggeststhatexecutivesexpect a growing percentage of future innovations to come through breakthrough rather than incre mental innovations (Troy, 2004). Thats under standable,giventhatcompaniesthatcanleverage more radical innovations can realize huge finan cial gains. Clayton Christensen, author of TheIn novatorsDilemma, conducted a review of innova tions and found that, in 2000, 37% of the compa nies that were leaders in terms of providing a

disruptive innovation such as computing via cell phones exceeded $100 million in revenues. Incontrast,just3%oforganizationsattainedsuch revenuelevelsiftheywereinalreadyestablished markets(McLagan,2002). And for firms in the hightech sector, while nextgenerationinnovationsrepresentonly14%of product launches and 38% of revenue, they still bring in 61% of profits, according to a study by the Harvard Business Review. The study also showed that while incremental innovations ac countfor62%ofrevenue,theybringinonly39% ofprofits.GregoryC.Tassey,senioreconomistat theNationalInstituteofStandards&Technology, said, We should invest more in nextgeneration technology(Rovner,2003).

ot only is leadership crucial to innova tion, the reverse is true as well. In an other AMA/HRI survey, the Leadership Develop mentSurvey2005, it was found that the ability to foster creativity and innovation isamong the top competencies required of leaders today and that thisabilitywillbecomeconsiderablymoreimpor tant over the coming decade (American Manage ment Association & Human Resource Institute, 2005).
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LeadershipandAccountability
So,whatarethemostimportantrolesleaders play in spurring innovation? The AMA/HRIInno vation Survey 2005 found that the single most widely selected action that leaders take is developing an organizational strategy for inno vation, followed by redesigning organizational structureorworkflowandincreasingemployee involvement.Leadersare,inanutshell,expected toshapetheorganizationandtheoverallmanage ment philosophy to make sure innovation can

thrive. They must set up systems that regularly encourageinnovation. Toooften,however,leadershavetheopposite effect in organizations, inhibiting or disrupting innovations by setting up bureaucratic barriers, quashingcreativeideasbeforetheyregivenafair chance, or trying to take charge of development teams instead of giving the necessary autonomy. TheAMA/HRIsurveyfoundthatlackofleader ship/managementsupportisasignificantbarrier to innovation, as is no formal strategy for inno vation, lack of clear goals/priorities, and, as mentioned before, insufficient resources. In eachcase,topleadershavethepowertobuildup thesebarriersorremovethem. So, who is responsible and accountable for innovation in an organization? Some companies

have specifically designated leaders for this. In fact, about 40% of firms have someone to fill the role of chief innovation officer, though this re sponsibilitymayresidewithofficerswitharange of titles, from head of R&D to vice president of globalinnovation(Troy,2004). But more and more organizations are seeing that creativity and innovation are not the exclu sive province of a small group of employees. Many are working to change their corporate cul tures to make innovation everyones job (Troy, 2004). This, of course, means finding ways to en courage innovation and hold people accountable without making them riskaverse. Figuring out ways of doing this well is likely to remain a sig nificantorganizationalchallengeincomingyears.

MotivationandRewardSystems
hat are the most effective means of rewarding employees for innova tion?Theanswerisamatterofdebate.Someex perts argue that if companies focus too strongly on providing employees with extrinsic rewards suchasbonuses,theyriskdestroyingemployees intrinsic motivation. This viewpoint is based on empirical research showing that following re ward,individualsoftenspentlesstimeperform ing an activity and stated they like the activity less, as compared to a control group that per formedthetaskwithoutreward(Eisenberger& Shanock,2003,p.123).Experimentshaveshown thatthissometimesappliestocreativetasks. On the other hand, other social researchers havearrivedatcontraryconclusions.Inonecase, forexample,studentswhohadbeenpromiseda reward for inventing creative story titles were found to be more creative than those who were giventhesameinstructionswithoutthepromise of a reward. Eisenberger and Shanock looked at theresearchandconcludedthatencouragement of creativity, in the form of tangible and so cioemotionalrewards,strengthenscreativemoti

vational orientation (p. 128). This implies that employerscaneffectivelyusetraditionalreward systemstomotivateemployeestoactmorecrea tively in the workplace and that rewards dont necessarilyreduceintrinsicmotivation. Thats good news in light of the fact that manyemployersengageinsometypeofreward and recognition system at work. The AMA/HRI survey found that the most commonly cited formsofrewardsarenonfinancial,asthefollow ingtabledemonstrates: RewardandRecognitionPractices

Type of Practice
Innovation is not rewarded in this organization Innovation is recognized with nonfinancial rewards Innovation often leads to more challenging work and/or autonomy Innovation is rewarded by individual bonuses and/or salary increases Innovation is considered in promotion decisions Innovation is rewarded through team bonuses Innovation is rewarded with larger staff and/or budgets

Percent
26.0 20.9 19.3 17.6 9.2 4.4 2.0

If companies do decide to use financial re wards such as bonuses for innovation, they shouldrecognizethattheremaybeafinelinebe tweentoomuchandtoolittle.Stanfordprofessor Antonio Davila says the issue can be controver sial.Someexpertssaythatthebonuscanbecome a larger focus than the innovation itself for some employees,whileothersfeeltheabsenceoffinan

cial incentives will dampen motivation. In one survey, Davila found that bonuses averaging about30%ofpayseemtobeoptimal,depending onthecomplexityoftheproject.Allinall,recog nitionseemstobeasimportantamotivatorasfi nancial incentives when it comes to innovation (Pomeroy,2004).

Conclusion
anyoftodaysbusinessesfaceaconundrum:Theyreacutelyawarethatinno vation is a growing imperative but they see themselves as only moderately successfulinnovators.AmongorganizationsrespondingtotheAMA/HRIsur vey,theresnoconsensusonhowtoevaluateideas,andnearlyhalfofrespondentsdonthave aclearunderstandingabouthowtheircompaniescanbecomemoreinnovative.Itslittlewon der,then,thattheliteratureshowsmostinnovationinitiativesfailtoattaintheirgoals. Organizationsmustgearupforanewerainwhichtheybecomemuchmoreeffectiveat spurringandmanaginginnovation.Beforetheycanachievethis,theyneedtogetbetteratthe basics,suchasunderstanding,communicatingandevaluatinginnovation.Untiltheydo,they simplywontknowhowtoallocatetheproperresourcesorsetthebeststrategies. Whatotheractionsshouldcompaniestake?TheAMA/HRIsurveyfindsthatrespondents all over the world believe that focusing on the customer is crucial to innovation. Thats no doubt true, especially in our age of mass customization. Insights from customers as well as potentialcustomerscanleadtogreatnewproductlines.Butitsnotthewholepicture.Long termsustainabilitydependsonsuccessfulbreakthroughinnovation,andthisislesslikelythan incrementalinnovationtocomedirectlyfromcurrentcustomers. Thereisnosinglebuttontopush.Inthispaper,wevelaidoutavarietyofapproachesto spurring innovation, but we recognize that no one way is best for every company. Still, we think that becoming an innovative company usually requires looking at the whole system, from culture to process to strategy. Companies must forge an innovation strategy thats alignedwithitsoverallstrategy,choosetheprojectswiththebestvaluepropositions,manage the system efficiently so it doesnt waste time or resources, and commercialize innovations well,witheveryoneworkingtogetherasateam(Jaruzelski,Dehoff,&Bordia,2005). Leadership, of course, is critical. Not only can excellent leaders influence culture over time,theycansetthestrategiesandgoals,modelthedesiredbehaviors,demandgoodmetrics, permit smart risktaking, reward creativity, cultivate collaboration and teamwork, and pro videenoughbutnottoomanyresources.Innovationrequiresambidextrousleaderswho cansimultaneouslycontrolandpromotefreedom. Intheend,innovationmeansmorethanjustcreatingnewproductsandservices.Italso means considering new management principles and challenging old orthodoxies in smart, valueaddedways.Ofcourse,suchthingsarealwayseasiersaidthandone.Butnooneever saidsurvivingintothefuturewasgoingtobeeasy.
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McLean,L.D.(2005,May).Organizationalculturesinfluenceoncreativityandinnovation:Areviewof the literature and implications for human resource development. Advances in Developing Human Resources,7,2,226246. Muller,A.,Vlikangas,L.,&Merlyn,P.(2005).Metricsforinnovation:Guidelinesfordevelopingacus tomizedsuiteofinnovationmetrics.Strategy&Leadership,33,1,3745. Nussbaum,B.(2005,March8).Theempathyeconomy.BusinessWeekOnline. Pomeroy,A.(2004,November).Cookingupinnovation.HRMagazine,4653. PricewaterhouseCoopers.(2005,March15).Fastgrowthcompaniesmakeinnovationawayoflife.Trend setterBarometer.Retrievedfromwww.barometersurveys.com. Theriseofthecreativeconsumer.(2005,March12).TheEconomist,5960. Rovner,S.(2003,December22).Badnewsfor2004investmentinR&D.Chemical&EngineeringNews.Re trievedfrompubs.acs.org/cen/topstory. Shelton, R., & Davila, T. (2005, August). The seven rules of innovation. Optimize. Retrieved from www.optimizemag.com. Sonnenburg,S.(2004,December).Creativityincommunication:Atheoreticalframeworkforcollaborative productcreation.CreativityandInnovationManagement,254262. Speedingupexperiments.(2004,JanuaryFebruary).THEFUTURIST,89. Sutton,R.(2004,Winter).Whytheseideaswork,butseemweird.DesignManagementJournal,4350. Troy,K.L.(2004).Makinginnovationwork:Fromstrategytopractice.TheConferenceBoard. Ulfelder, S. (2005, June 27). Beyond the suggestion box. Computerworld. Retrieved from computer world.com. Wagner,C.G.(2005,JanuaryFebruary).Learningfromfailures.THEFUTURIST,14.

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AbouttheAuthors
PROJECTLEADER JayJ.JamrogistheexecutivedirectoroftheHumanResourceInstituteanddistinguishedlectureratTheUniver sityofTampa.Asafuturist,hehasdevotedthepast20yearstoidentifyingandanalyzingthemajorissuesand trendsaffectingthemanagementofpeopleinorganizations.Jayistheassociatearticleseditorforthebuildinga strategicHRfunctionkeyknowledgeareaofHumanResourcePlanning,hashadarticlespublishedinmajorbusi nessmagazines,andisfrequentlyquotedinbusinesspublicationsandnewspapers.Heoftencollaborateswith, andspeaksbefore,otherorganizationsandassociationsonmajorresearchtopicsrelatedtothefutureofpeople management.PriortojoiningHRIin1982,Jayheldnumerousmanagementpositions,includingvicepresidentof purchasingforalargeimport/exportwholesaler.Contactinformation:(727)3452226orjamrog@hrinstitute.org. AUTHORS DonnaJ.BearistheCreativityandInnovationKnowledgeCentermanagerfortheHumanResourceInstitute.She hasaB.S.degreeinbusinessadministrationandanM.S.degreeinmanagementandiscertifiedasaSeniorPro fessionalinHumanResources.HerpreviousexperienceasanHRgeneralist/consultantspansthePEO,corporate andnotforprofitsectors.Contactinformation:(727)3452226orbear@hrinstitute.org. MarkR.VickersisafuturistandseniorresearchanalystattheHumanResourceInstitute.Hehasauthoredmany HRIreportsandwhitepapers,isHRIsformermanagingeditor,andiscurrentlytheeditorofHRIsTrendWatcher andTheFortnightReport.Contactinformation:(727)3452226orvickers@hrinstitute.org. OTHERCONTRIBUTORS WandaV.Chaves,Ph.D.,isanassistantprofessorofmanagementattheJohnH.SykesCollegeofBusinessatthe UniversityofTampa.Shereceivedherdoctoraldegreeinindustrial/organizationalpsychologywithaminorin crosscultural studies from the University of South Florida in Tampa. Her work experience includes training, teaching, and consulting within the Training and Development and the Organization and Executive Develop mentdepartmentsattheWaltDisneyWorldCompanyaswellasworkasanexternalconsultant.Sheisaprofes sorofleadership,humanresourcemanagement,internationalmanagement,andorganizationalbehavior.Contact information:(813)2536221ext.3968orwchaves@ut.eduorDwvchaves@aol.com. SusanConte,Ph.D.,hasover25yearsofexperienceasaconsultant,corporatetrainer,anduniversityprofessorin strategicmanagement,organizationalchange,businessleadershipandpersonaldevelopment.Throughheredu cationandexperience,shehasacquiredathoroughknowledgeoftheforprofitandnonprofitworldsandanabil ity to analyze and evaluate individuals, groups, organizations and organizational systems. Susan received her Ph.D.inmanagementandstrategyandanMBAfromTheWhartonSchoolattheUniversityofPennsylvaniaand a bachelors degree and masters degree in organizational behavior from Yale University. Contact information: (813)2536221ext.3625orsconte@ut.edu. DonnaJ.Dennis,Ph.D.,isaleadershipdevelopmentprofessionalwithover30yearsofexperiencehelpinglead ers and teams increase leadership and team effectiveness through coaching, strategic planning and team building. She is known for innovative, businessfocused solutions to organization and leadership issues. She holdsamastersdegreeineducation,aPh.D.inhumandevelopment,andcertificationinpersonalityassessment andexecutivecoaching.Contactinformation:(609)4971997ordonna@leadershipsolutions.info. James W. Forcade retired from PepsiCo with 30 years of human resources experience focused in China, Asia, Russia,CentralEurope,theMiddleEast,LatinAmericaandtheU.S.A.Theseassignmentsincludedstartups,re structuring and realignment to a highperformance organization along with the development of a professional HRfunctiontoensuresustainment.JimholdsanM.B.A.fromTheAmericanUniversityinWashington,DC,and aBSBAfromtheUniversityofNebraskainOmaha.Contactinformation:(727)3848182orjwforcade@aol.com. 12

JackHipple,Principal,InnovationTRZ,isaninnovationandorganizationaldevelopmentprofessionalwithover 30yearsofindustrialexperienceleadingbreakthroughinnovationandnewbusinessdevelopmentprogramsfor CabotCorporation,AnsellEdmont,andtheNationalCenterforManufacturingSciences,withresponsibilityfor theDiscoveryResearcheffortattheDowChemicalCompany.Heisamongthemostrecognizedconsultantsin industrialinnovation,focusingonthebreakthroughinnovationandinventiveproblemsolvingprocessknownas TRIZ.HeistheinstructorinInventiveProblemSolvingfortheAmericanInstituteofMechanicalEngineers,the AmericanInstituteofChemicalEngineers,andtheAmericanCreativityAssociation.Heisalsoafrequentwork shoppresenterattheAltshullerInstituteforTRIZstudiesandtheWorldFutureSociety.Inaddition,heiscerti fiedinDeBonoandMichaelKirtonKAIorganizationalassessmenttools.Contactinformation:(813)9949999or jwhinnovator@earthlink.net. Dr.MaryB.LippittispresidentofEnterpriseManagementLtd.,afirmthatspecializesinleadershipandexecut ing organizational change. Her book, The Leadership Spectrum: 6 Business Priorities That Get Results, earned the Bronze Award as the Best Business Book of 2002. The firms Leadership Spectrum Profile Web site, www.leadershipspectrum.com,wascitedbyHumanResourceExecutivemagazineasoneoftheTopTenTraining Productsof2000.HerworkhasappearedintheJournalofBusinessStrategy,HRExecutive,T&DJournal,ODPracti tioner,andExecutiveExcellence.Contactinformation:(727)9349810ormlippitt@enterprisemgt.com. RickRiesenberg,Ph.D.,isanexecutiveinresidenceatHRI.Hehasextensiveexperienceinallaspectsofinterna tional and domestichumanresources.HehasworkedasaninternalorexternalconsultantatDigitalEquipment Corporation,AlliedSignal,AT&TWireless,Nextel,AdvancedMicroDevices,Corillianandothermultinational companies.HehasledHRteamsrangingfromoverseasstartupbusinessestolargemultinationalcorporations. HereceivedhisB.A.degreefromHarvardUniversityandhisdoctoraldegreeinpsychologyfromtheUniversity of Massachusetts. Prior to entering the HR profession, Rick was a clinical social worker and psychologist. The NationalCancerInstituteandtheHudsonontheHastingsInstituteacknowledgedhisworkatDartmouthCol legeMedicalSchoolasoneofthetopfivetreatmentcentersforthephysicalandemotionalcareofterminallyill childrenandtheirfamilies.Contactinformation:(206)4633199orrickriesenberg@hotmail.com. Dr.GlenTayloristhedirectorofTheCenterforInnovationandKnowledgeManagementattheSykesCollegeof Business,UniversityofTampa.Heteachesbusinessstrategy,innovationmanagementandstrategiesforacceler atednewproductdevelopmentandistheacademiccoordinatoroftheMastersofSciencePrograminTechnology and Innovation Management. He holds a bachelors degree in business administration, a masters in environ mental studies, a masters of business administration and a Ph.D. from York University in Canada, where he taughtandservedastheassociatedirectoroftheOntarioCenterforInternationalBusiness.Glenwasthedirector ofAPECsprogramonsupplychainmanagement,whereheledworkshopswithhundredsofseniorexecutivesin Chile,China,Mexico,thePhilippines,Thailand,andVietnam.HehasalsobeenanactivememberoftheWorld ResourcesInstitutesworkinChina,whereheservedasatrackleaderforM.B.A.curriculumdevelopmentwith businessschoolsatthetopfiveuniversitiesinChina.

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