Car maker Henry Ford reputedly said, “culture kills strategy, every time”, which create a challenge for corporations wanting to become more innovative through top-down directives.
It is hard for a company to become more innovative if its culture is one where so-called corporate antibodies effectively kill ideas developed internally and reject disruptive opportunities developing externally through the not-invented-here syndrome (see box, below, on antibodies to classic corporate venturing tools).
And, if it is not innovative already, then merely deciding to become so and putting in place the toolkits – such as corporate venturing, open innovation and joint ventures, mergers and acquisitions and partnerships – used by other companies will yield little until the culture changes to allow the ideas to take root in meaningful development.
Creating an innovation head
Partly as a result, a number of companies are creating the position of chief innovation officer (CIO) to oversee the sweep of innovation tools in the company and often to try to help shape the development of an innovation culture.
In the past year, Jonny Spindler has taken on this new role at advertising agency AMB BBDO, Peter Nagler moved up at Germany-based chemicals company Evonik, and Jeff Semenchuk became CIO at Hyatt Hotels.
This is just part of a broader wave of hiring or creating innovation executives. Consultancy Capgemini Consulting and Spain-based IESE Business School found that 43% of respondents to their survey said their companies had an innovation executive, compared with 33% last year (see Bell Mason Group comment, in related comment).
Part of the increase reflectsdissatisfaction with companies’ existing innovation strategies.
Jean-Philippe Deschamps, professor of technology and innovation management at IMD, and Rob van Leen, CIO at DSM, a Netherlands-based speciality chemicals company evolved out of a state-owned mining concern, in a survey among a number of international companies found just fewer than half to be satisfied.
In a presentation on the results last year, they said that in many cases the scope of innovation was too narrow, with a focus mostly on technologies and products, thereby omitting to look at business model, market or service innovations.
They added: “Other reasons for dissatisfaction are unclear and changing responsibilities and empowerment concerning the innovation process.”
Mark Johnson, chairman and co-founder of consulting and research firm Innosight, in an article for news provider Businessweek, said the increase in senior leaders tasked with heading innovation was in effect due to three reasons:
l The “across-the-board digital revolution” has “massively accelerated” the the rate and scale of disruption brought about by innovation.
l Companies have increasingly come to understand the commercial potential of sustainability innovations to reinvigorate mature industries and create entirely new ones.
l “We now have a much better understanding of the dynamics of innovation.”
But, as Fred van Ommen, chief executive of consultancy Bizz Innovation Group and former chief technology officer at Netherlands-based healthcare company Philips, put it: “Innovation is not one thing but it has different forms.“
“Disruptive innovation requires a change in the behaviour of customers and hence is a complex way of working which involves social economics and business models even more than technology.
“This is where the role of a CIO starts to take shape in managing separate strategies for the different innovation types and bringing in competences on business modelling, partnering and understanding social economics.”
In total, Global Corporate Venturing tracks more than 40 CIOs at corporations, not including people with the role at local municipalities, including Adel Ebeid in Philadelphia and Jay Nath for the city of San Francisco, and those with similar titles, such as Jay Gouliard and Roy Rosin, vice-presidents of innovation at Avery Dennison and at US-based financial software provider Intuit’s Brainstorm unit respectively, and Stephen Meller, chief innovation catalyst at consumer goods maker Procter & Gamble (P&G).
Culture of change
P&G has been one of the longest proponents of the power of looking externally for change through its Connect + Develop programme but has also been keenly aware of the cultural forces that can impede or accelerate its success.
Last year, P&G withdrew its goal of wanting half of all innovations to come from external sources as the target had been met less than a decade after being set.
In an interview in 2008, AG Lafley, former chief executive of P&G, said: “[In 2001], we [Lafley and Gil Cloyd, then head of research and development] thought we would not achieve this in either his or my lifetime.”
Steve Rogers, known as the father of P&G strategic sourcing after 30 years at the company, told Global Corporate Venturing last year: “With hindsight, I think P&G’s achievement is even more remarkable, as it is harder to change a culture at bigger organisations.
“Culturally, it was a tough change. Most people think the cultural side is an adjunct [to open innovation] but it has to be the organisation rather than a few people who get it, otherwise [Connect + Develop] does not play out to the external company as you said it would.
“Trust is the big issue and we had to build it by meeting our commitments or explaining why they had not been achieved.”
Building trust and executing on the potential for innovation to drive change and better financial returns are a CIO’s main responsibilities.
Rob van Leen at DSM put it succinctly: “I was appointed six years ago as the first CIO in the chemicals industry and have two parts to my role – functional excellence in innovation, including establishing an innovation culture, and generating business outside the scope of existing business units.
“Culture, developing the profiles and types of people, characterising the quality of the overall innovation process was initially mainly what my team worked on, using diagnostic tools on business units.”
DSM initially set 100 questions in a self-assessment test for people and compared it with industry averages before these were streamlined more recently as results improved.
Van Leen said its scores gradually went from below average in 2006 to top quartile in the 2012 test.
Van Leen’s team was helped by strong support for innovation from the chief executive (CEO) of DSM, as budgets were not cut after the credit crisis hit in 2008, and that the title of CIO was designed from scratch rather than taking an existing function, such as marketing or information technology, and rebadging it as a CIO (see box on innovation governance, below).
Governance and performance
Van Leen said DSM also had a structured process for developing and executing strategy at the company, which is less the case in other corporations, according to the CapGemini/IESE survey in which 58% of respondents said they did not have an innovation strategy.
He said: “DSM was first to set up a CIO as it is an example of our regular strategy process – the corporate strategy dialogue – that takes nine months to complete every five years but which sets our strategy. The dialogue looks at macro-changes – climate or technologies – and our own skills to come up with emerging business areas (EBAs) that can form new divisons.”
Out of four EBAs trialled, DSM has taken on biomedical materials as a new business unit that has grown in six years from a handful to 450 to 500 people.
The unit was built through organic development and complemented with two acquisitions and four corporate venturing deals and a joint venture with chemicals peer DuPont – its executive vice-president and CIO, Thomas Connelly, will be talking at a corporate venturing conference organised by US trade body the National Venture Capital Association in early November.
While internal idea incubation is just one of the tools CIOs can use to develop business, van Leen said the type of revenues was as important as their development.
He said while DSM’s sales from innovation had doubled since the CIO role was created, and product launches per year increased to 60 from 25 in this period, “as important as turnover is profitability of pipeline – nothing less than a 5% increase for it to be considered – and that our products are better for the environment than currently”.
But creating the role of CIO throws up a series of new problems for managing the executive, including how much influence it should have over existing business units and how it should be organised and staffed to be effective, as laid out in a case study of DSM by Switzerland-based business school IMD in 2009.
Denise Fletcher, CIO at copying company Xerox, said it had CIOs in every business group. “These individuals report directly to the group president and are heavily involved in strategy, organic innovation and research work.
“Our research group is seperate and headed by our CTO who reports to our CEO, Ursula Burns. Each CIO is con-nected to a research manager who oversees the research work connected to that business group across the six global research offices– Grenoble in France, New York in the US, Toronto in Canada, Chenai in India, and Fuji Xerox in Asia.”
In other companies, the CTO and research and development (R&D) functions are starting to report to the CIO, such as at DSM, which peers hold out as an exemplary innovation practice along with P&G.
Van Ommen said: “The CTO function has become less important because of the higher complexity in disruptive innovation. Look at the global trends, for example in life sciences [where] new drugs are less a solution than changing behaviour.
“You need a detailed and differentiated innovation strategy, manage the portfolios of the different innovation types and do competence management … The CTO is clearly a role reporting into the CIO then.”
By joining CIOs to R&D, companies are trying to integrate internal innovation processes with ideas coming from outside. DSM uses a so-called asset-light model, which means it spends half its budget for R&D and manufacturing pilots of ideas outside the company.
In his blog ‘What should a chief inno-vation officerdo?’ in April, Tony Ulwick from consultancy Stratgyn said it was important a CIO protects and grows current revenue streams while also identifying and pursuing new ones.
Jacqueline LeSage Krause, former head of innovation and corporate venture capital at US-listed insurer Hartford, said: “A CIO can act as an important mechanism to see long-term trends and areas to place bets on.
“The innovation tools, such as corporate venturing, incubation, business development and partnerships, and spin-outs, are ways to pursue these visions or potential versions of them but require someone to own the future and own the uncertainty that comes with trying to plan and create the future using these different tools.
“This person requires different skills, governance and mindset to executing on existing business.”
But judging a CIO’s success is also challenging. LeSage Krause said having an “internal badge” from a project going well relatively early was important rather than relying on returns to be realised from a corporate venturing portfolio of minority equity investments in entrepreneurs “as a seven-year fund portfolio is a long time to wait”.
Julie Anixter, CIO at US-based Maga Design group, said the role should be judged both on “returns on investment and imagination, making a huge impact in the market-place, [and] creating a breakthrough product or service or platform that gets adopted [and] solves a big problem”.
It is not, therefore, a role for the fainthearted.
Box: Corporate antibodies
Typical corporate antibodies that emerge to defeat an innovation toolkit:
Innovation tool Antibody
Joint venture Company gains only half the revenue
Partnering We are arming a potential competitor
Venturing We have no control/ losses will roll up to balance sheet
Sandbox What is our liability?
Incubator This is a self-disrupting organisation for which we pay
Open innovation Legal issues
Academia Who holds the intellectual property?
Source: executive complaints to Global Corporate Venturing
Box: Nine models of innovation governance
At a business forum on innovation governance, held at the High Tech Cam-pus Eindhoven in the Netherlands, business school IMD, healthcare company Philips and chemicals group DSM partnered the local Corporate Venture Network Netherlands to debate the question: “Who is really in charge of innovation?”
According to Jean-Philippe Deschamps, professor of technology and innovation management at IMD, innovation governance has to be “first about building a vision and strategy on innovation” – why do you want to innovate, and what do you want to achieve? – before developing the “process of innovation, developing capabilities and steering execution of innovation”.
To organise innovation governance, he said broadly nine models were being adopted, ranging from a dedicated chief technology officer (CTO) to a CIO at the top “to a high-level, cross-functional innovation steering group or a distributed group of innovation champions who are empowered as change agents”.
But Deschamps said the most frequently found model was the top management team. The CEO as the ultimate “innovation czar” was the second most frequently mentioned model, followed by a subset of the management team – an innovation board, a CTO, then a CIO.
A group of selected champions – upper-middle to senior managers who are not necessarily idea initiators but who promote the most promising ideas of others in the organisation – and a duo model where two people with different roles come together with cross-functional reporting lines.
The remaining model is to have no one in charge.