|The Innovation Imperative|
How Leaders Can Build an Innovation Engine
| Printer version|
by Carole France, Christina Mott & David Wagner
Companies today face a harsh ultimatum: Innovate or die.
Senior executives tell us repeatedly that failing to innovate
would create a critical risk to their enterprise’s growth,
even its survival.
The greatest challenge in this area is “leaders creating a
climate for innovation,” according to a recent survey of
almost 300 senior executives worldwide in 17 industries
and interviews conducted by the Economist Intelligence
Unit on behalf of Oliver Wyman (see exhibit 1). This was
followed closely by the related challenges of “creating an
organizational structure that facilitates innovation” and
“focusing innovation in the right places.”
This article aims to help executives set their priorities
in building an innovation engine. What’s most useful is
not a generic framework, but rather a close focus on
three areas: leadership, values and culture, and
Innovation involves the introduction of something new,
particularly something radically different. The “something
new” could be products and services, business processes,
product/service delivery, business designs, or new ways
Sophisticated companies distinguish among different
types of innovation. One financial services company
defines innovation as “a viable new business concept”
and distinguishes between “incremental” improvements
to existing business lines, which can be implemented
with limited risk, and “transformative” innovation, which
results in path-breaking products or services. Other
companies focus innovation efforts on business processes
to cut costs or deliver a superior customer experience.
Executives generally agree that innovation should be
everyone’s responsibility, but that employees can’t
innovate unless their leaders empower them to do so in an
environment that values and rewards their contributions.
Developing leaders who can create that kind of climate
is seen as a key challenge, but there are many ways to
allocate accountability. Whether a company creates a
center of innovation expertise in corporate headquarters or
diversifies ownership of innovation across business units
depends both on the company’s market focus and on its
Our 2007 survey found that executives recognize the need
for enterprise-wide approaches to innovation. More than
70% said that their companies either had a well-established
innovation strategy or were developing an approach, and
about three-quarters said that developing an innovation
strategy is important or critical.
Such enterprise-wide approaches to innovation are
better described as models rather than strategies.
Many executives describe these efforts in terms of broad
multifaceted approaches stratified across the organization.
Yet many companies that view sustained innovation
as essential lack an innovation strategy per se because
innovation is ingrained in their fundamental values.
Creative ideas are expected. As Annmarie Neal, vice
president of talent management and development at
Cisco, says, “Innovation is in the DNA of the company
and is core to everything that we do. There’s almost this
entrepreneurial or creative expectation that everyone is
innovating in their space.”
David Greenberg, senior vice president of human resources
for L’Oréal USA, described innovation at his company as
more of a “social model” than a strategy, where creativity
and innovation emerge from the many interactions that
happen on a daily and informal basis among employees.
Other firms have launched concerted initiatives to
enhance innovation. Some have revamped underlying
systems to gain better control over their established
innovation capacity. When Sara Lee underwent an abrupt
transformation from a diversified holding company to an
integrated operating company in 2005, it implemented a
new strategy to leverage the value of its broad spectrum of
brands by focusing on products and listening to customers.
As important as a strategy or model is, then, the
executives interviewed emphasized that the real
challenges lie in filtering ideas, developing the best ones
into economic models, and then executing them.
Successful innovators share traits in three critical areas:
- Leadership. Successful innovators have leaders who
establish a climate for innovation. They create a
compelling vision for their people, become champions
for innovation, challenge the status quo, and explore
unconventional ways of solving big problems.
- Values and culture. Successful innovators say they
believe innovation is a business priority, that employees
are expected to develop new ideas or create new ways of
doing things, that they recognize and reward employees
for innovation, and that they are open to ideas from
external sources, especially customers.
- Organizational structures and processes. Successful
innovators report that their organizational structures
facilitate cross-functional or cross-business
collaboration, that they include diverse networks of
external organizations that share ideas, and that their
companies are skilled in collaborating and managing
Let’s examine each trait in more detail.
Leadership: Creating a climate for innovation
Leadership competencies for creating a climate for
innovation focus more on how to instill values than on
traditional management skills. Survey respondents believe
their leaders possess broad competencies for leading
innovation in this sense. Almost half said establishing
a compelling vision for their people and creating a climate
open to new ideas and change are most important.
Successfully leading large and complex organizations
requires whole leaders – those who use their heads,
demonstrate heart, and act with guts. The appropriate
balance among the three types of competencies is
situational: When data is plentiful and reliable, the
head dominates, but when decisions must be made
with little or no data, guts and heart become more
important. So it takes whole leaders with all three
types of competencies to drive sustained innovation
in a constantly changing environment.
In this regard, executives surveyed say the most important
competencies are these:
- Head – establishing clarity of purpose. Leaders need
to make a personal commitment to innovation,communicate what it means inside the company, and
lead by example, emphasizing innovation in their dayto-
- Heart – cultivating an open and supportive environment.
Leaders must have the ability to build trust and mutual
respect with employees, foster open airing of problems
and disagreements, and solve conflict in creative ways.
- Guts – facilitating idea generation. Leaders should
challenge people to consider alternative approaches
and give them time and resources to pursue
Almost every interviewee at highly innovative companies
agreed that there is not just a need but a responsibility to
hear every idea, however contrary to others. They have
widely differing views about how creative disagreement
can be harnessed as a positive force, but almost none of
them describe this process as “conflict management,”
since disagreements are expected, and even valued, as
long as all players keep their eyes on the company’s
Values and culture: Instilling the right principles
Changes to the corporate culture may be necessary to
improve a company’s innovation capacity. A culture that
encourages innovation includes values of risk taking,
challenging the status quo, and freedom of expression.
Employees should be expected to generate ideas for
improving all aspects of the business and believe that their
ideas are welcome and valued. When companies achieve
this state, they can establish the critical mass necessary to
sustain a process of continuous innovation.
Senior executives of innovative companies say building
capacity for innovation involves refocusing existing
leadership competencies toward innovation rather
than developing new skills. This process puts more
emphasis on values than on capabilities. Nonetheless,
existing leadership-development systems can be ideal
tools for instilling cultural values while building related
competencies. Participation of the CEO or other senior
executives in leadership-development events is the most
effective vehicle for instilling cultural values, according to
several of those interviewed.
Communicating the innovation process is also critical
to instilling corporate values. Specifically, executives
interviewed pointed to three key communication needs:
instilling corporate values that encourage innovation
across the organization; focusing idea generation in areas
where the company is most likely to act; and maintaining
the transparency of the idea pipeline and providing
systematic feedback so the originators of ideas not acted
on don’t disengage.
Organizational structures and processes: Aligning crucial systems
A bountiful flow of creative ideas is worthless without
business processes to assess them, put them into action,
and motivate risk taking and other behaviors that drive
execution. Corporate systems and processes that facilitate
cross-functional or cross-business collaboration as well
as partnerships with external organizations also play an
Companies with well-established strategies report
substantially more success in implementing these types
of corporate systems. Moreover, respondents from
those companies are much less likely to say that their
bureaucracy slows down decision making and hinders
innovation (see exhibit 2).
Many executives agree that the biggest challenge in
improving corporate systems is developing a pipeline of
ideas that can be evaluated systematically and filtered
for execution priority. Companies that have established
innovation as part of their daily business activities
describe the components of a fully developed idea pipeline
- An innovation portal on the corporate intranet or some
other forum for sharing, testing, and developing new
ideas, with participation from external partners.
- Cross-functional focus groups or product groups to
assess new ideas according to established criteria,
classify them, and build prospective economic models.
- Links between product/service development and
marketing/sales teams to expose new proposals to
- A senior-level board to systematically allocate
investment among the best ideas.
McDonald’s enjoys the advantage of an owner-operator
community that provides a filter whereby ideas are
evaluated by the entrepreneurs who must put up their own
money to launch new products. Adam Kriger, senior vice
president of corporate strategy, says that this is a powerful
way to prioritize all the products, systems, and services in
Other executives say that a company can reduce the
need to choose among strong concepts if it can increase
its capacity for execution. Developing leaders capable of
executing new ideas, however, is broadly recognized as an
obstacle by respondents of the survey.
Innovative companies agree that transparency along the
pipeline is essential, because seeing the process work is
a big part of what motivates people to think creatively
– whether or not their ideas are implemented.
Firms that succeed in taking innovations successfully to
market have developed a system that assesses leaders not
only according to what was accomplished, but also by how
it was accomplished. Performance-management systems,
therefore, provide essential crosswalks between values,
behaviors, and performance.
Such systems typically need to be updated when a
company elevates innovation to a top priority; for
instance, short-term business results may suffer, and a
certain amount of failure is guaranteed. This means that
performance-management systems must assess whether
business challenges are being addressed in line with the
company’s values, regardless of the short-term outcome.
Luxottica has integrated innovation into performance
management. “We focus our leadership competencies
around a profile described in the book The Leadership
Challenge,” says Mildred Curtis, senior vice president
of human resources. One practice that executives are
expected to follow under their performance assessment
system is called “challenge the process,” which Curtis says
is really about innovation.
“Our performance management tools tie back to those
practices, so this is one element that our leaders
are evaluated on,” she says. “It’s partly individual
competencies, but we also believe that it has to be a
mindset within the organization. We want the leadership
at the highest level, as well as the doers, movers, and
shakers of our world, thinking about ‘Within my realm,
how can I do things differently?’ ‘What is the customer
asking for?’ ‘Can I do something that more effectively
addresses their needs?’ ‘Can I exceed their expectations?’
So we see it as being integral to the culture as much as
Implications for enterprise leaders
Failing to innovate can put global organizations at risk
and diminish their ability to sustain or gain a competitive
advantage. This challenge can be met if companies realize
that their ability to innovate is inextricably linked to their
leaders, culture, and organizational design.
Some challenges can be managed largely by building
leadership bench strength, but sustained innovation
depends on developing whole leaders who can create
the right climate. Inculcating certain values – such as
risk taking, challenging the status quo, and freedom of
expression – into the corporate culture is also key. Leaders
must also take responsibility for designing and building the
right organizational structure and processes to support the
development and implementation of ideas that create value
– the essence of effective innovation.
While the conditions that promote innovation must be
supported by leaders across the company, the innovation
process must start at the highest levels. Enterprise leaders
must think about the three key drivers – leadership,
culture, and organizational structure and processes – in
an integrated and mutually reinforcing way. Only then
can senior leadership build an adaptive and sustainable
organization that is truly an innovation engine.
Carole France is a Seattle-based partner of Oliver Wyman – Delta Organization
& Leadership. She can be reached at
Christina Mott is a New-York-based director of solution development
at Oliver Wyman Delta – Organization & Leadership. Her email is
David Wagner is a New-York-based partner at Oliver Wyman
Delta – Organization & Leadership. He can be reached at
This article was adapted from a white paper written in association with the
Economist Intelligence Unit.