Corporate Innovation: Breaking Through Organizational Barriers

They say, “To innovate, you need to be more agile.” They’re oversimplifying.

I’m not sure who first promoted the idea that the greatest determiner of whether a corporation could successfully innovate is an ill-defined, immeasurable quality named “agility.” I am sure that the individual in question had a penchant for oversimplification. Just do a search for “agile business” books on Amazon, and the results are well over the 2,000 result threshold where Amazon stops counting. It’s not that a company shouldn’t have the qualities linked to the idea of agility. It’s just that agility is an emergent condition resulting from a number of more easily quantified and measurable behaviors. 

Think of it this way. Asking or expecting a company with no history of innovating to be more “agile” is like asking or expecting a heretofore unexceptional basketball player to be more “LeBron James.” Whether we’re talking about corporate agility or athletic LeBronity, framing the end result as the starting point, is well, pointless. You need to work on improving individual skills—ball handling, footwork, free throws, offensive and defensive strategies, plays, etc.—until the subject exhibits skills that lend to an overall more LeBron James-like impression. But that analogy implies you have to do more work than simply decide to be more agile. Bummer. 

But the good news is that once you understand the common barriers preventing most companies from innovating, it’s much easier to address those issues than it is to try to make any mere mortal into LeBron James. So, let’s start with the three most common organizational barriers to innovation—misaligned goals/incentives, unclear managerial vision and unsystematic evaluation of risk—and how to address them.

They say, “It’s never easy to turn a ship this size.” But it’s not the size that matters.

Before I get directly to talking about incentives, indulge me for a moment while I mix boating metaphors. All it takes to turn a ship, or a rowboat for that matter, is an alignment of forces. Rudders and thrusters. Arms and oars. While that kind of alignment is easier to envision for a waterborne vessel, the rules also apply to the business enterprise. The forces, however, are usually applied more indirectly. Okay, now let’s talk incentives.

If you do any cursory searches online on the topic of this post, you’ll likely find mention of another immeasurable quality that innovative companies must have—culture. But I’ll argue that just like “agility,” culture isn’t something you control directly. It’s something that emerges from the myriad behavioral incentives applied across every individual in the business.

For many businesses, the incentives that drive most employees’ behavior were formulated to maximize the output or efficiency of an employee’s individual business function as it looks today. And while that’s important, it can lead to intractable stagnancy, or waste, within the enterprise. 

One of our clients, for example, spends well into the six-figures for their enterprise license for Salesforce.com. In theory, the sales reps should use Salesforce to catalogue everything they know about a lead or a live account. In theory, that data should be available to Marketing, Product Development, etc., to inform, drive or prioritize outreach efforts, product updates or innovation efforts. But, in practice, the sales reps don’t enter much or any data into the system.

The sales reps are incentivized by commission on sales only. And the most valuable currency in a competitive sales environment is customer/account information. The sales reps rightly fear that if they make their customer/account data accessible across the company, other reps could potentially steal their client. So, the reward structure, which in practice works well to maximize the output of the individual rep, has the unintended consequence of increasing customer opacity all around.

The solution? An equal and opposite force must be applied. The sales rep’s incentive plan should include some bonus based on the accuracy and completeness of his customer data. Further, the rep should be rewarded for the collective success of the sales department, the effectiveness of cross-sell marketing efforts based on the data they entered or the number of data-driven product innovations created by the product team, derived from customer profiles. Sales is but one example. You should review incentives across the board to uncover potential conflicts with innovation initiatives.

They say, “Management has no vision.” But it’s likely a language problem.

Not every decision an employee makes is a result of their incentive plan. Obviously. So, that means if we still want everyone steering the ship in the direction of innovation, we need to have guiding principles everybody knows and everyone can understand. There’s a chapter in my book, Innovate. Activate. Accelerate. that talks about how the language a company chooses to articulate their vision can have dramatic effects on their success in innovating. So, how can you ensure your own mission is at once descriptive, directional and inspirational enough to become the bedrock for an innovation culture? Ultimately, the rules boil down to this:

The mission should be aspirational

Often, companies develop mission statements with objectives that are satisfied entirely by their current offering, positioning the job in the minds of employees as “done.” For an innovation culture, it’s best to always keep the carrot at the end of a moving stick. Instead of asking to be great at what you do, ask for something as important as the transformation of the human condition.

The mission should be broad enough to encompass what’s yet to be created

The point here is that being a company that describes itself as offering “next-generation illumination for the world” provides more opportunity for adapting to new technologies than, say, describing the company as “leaders in incandescent lighting.”

The mission should glorify the pursuit of innovation itself

The pursuit of innovation is as much, or more, about taking risks, iterating, failing and discarding as it is about seizing the reins of the next successful new idea. This suggests the mission should, in kind, elevate the importance of the pursuit as much, or more, than any desired end.

They ask, “What’s the ROI?” But they should be asking, “How can we embrace and manage risk?”

We frequently hear from clients that unless they have a clear minimum guarantee of ROI, the company won’t greenlight a new idea. But innovation can’t be procured like office supplies. Risk and reward are the inseparable sides of the innovation coin. Of course, that means you need to embrace a culture of risk and acceptance of a certain level of failure. And, more importantly, what that level of failure could possibly look like before it occurs.

What makes an innovation culture work is that failures are measured, evaluated and learned from. The good news: There are more tools available now to model risk, even in highly complex markets. Machine learning, for example, can be used to evaluate customer and market data for previously unexposed correlations or motivations. Incredibly detailed, behavior-based, third-party consumer data can be purchased that can peel back yet another layer of the market onion. And, unsurprisingly, you have to do the math. But what should you be calculating?

Calculate the cost of innovating (The “I” in ROI)

You need to quantify what the financial investment would be in developing, launching, marketing and supporting the new venture—both initially and over time. That should include capital expenditures, facilities, technology, R&D, labor, IP (prosecuting patents, filing trademarks), etc.

Understand your market size

You can see a step-by-step breakdown of how to perform these calculations in another post on our blog: ““Math for Marketers: How to Evaluate Growth Opportunities””

Disruption factor (loss of existing revenue streams)

It would be nice to imagine that your disruptive solution would steal revenue from your competitors, but you should assume that any true innovation will be as desirable to your own customers. (See: The Innovator's Dilemma).

At some point, any truly innovative venture will bring with it a great deal of uncertainty—if it’s innovative, by definition, it’s not been accomplished before. And while it may be impossible to nail down exact returns, systematic examination of the risks should increase your chances not only of success but also of getting the green light to launch in the first place.

Even LeBron James wasn’t born as agile as LeBron James.

No one is born a great basketball player. It takes years of commitment. The same holds for companies seeking to become more agile. It takes commitment and practice over time. 

Three signs of success that should make you want to innovate.

Success can be a double-edged sword.

In business, we should always celebrate our successes. We should all find happiness and take comfort in classic, somewhat irrefutable, business metrics, like returning a healthy net profit, growing sales and customer loyalty, to name a few. But there are anecdotal success measures most people repeat that, while they directionally point to good things, should also have you start asking whether they actually are signs of a problem. Let’s look at three of the most common.

There’s a line out the door!

We have all seen it. We have all said it. “That place is so great; there’s always a line out the door!” Is that a sign of success? Sure. For the most part. But it’s also a sign that there are potential improvements to be made in operations, service design or customer experience. I should add here that this is not meant to solely reference restaurants or retail. The idea can easily be seen as an analog to a situation like a general manager of a manufacturing business bragging, “Things are going so great, we can’t fill the orders fast enough.”

In either of these scenarios, despite the feeling of success, it’s likely that the business is, at best, leaving money on the table and, at worst, potentially creating a bad customer experience along the way. So, what should you look at if you experience this kind of success?

First, look at your asset turnover ratio. In other words, are you earning more revenue per dollar invested in the business today than you were before there was the proverbial line out the door? If so, success! If not, move on to step two—look for where you might have scale-related bottlenecks emerging. Does the additional throughput (people in line or orders entering the system) make each individual transaction less time- or resource-efficient? Can you simply not fit the resources you need to process those transactions into your current physical plant? Do your servers bog down due to too many simultaneous requests? Is your fulfillment staff simply overwhelmed? Of course, there may be traditional fixes like expanding the number or size of your locations/physical plant, hiring more staff or building up your technology infrastructure. 

But it may be time to start asking a more foundational question, “Does my business have to work this way?” Can you change the layout of your physical location to improve flow? Can you imagine a service model that could increase your asset turnover ratio without any further investment in space or technology?

No one is complaining.

As noted Irish poet and playwright Oscar Wilde famously said, “There is only one thing in life worse than being talked about, and that is not being talked about.” Another way to phrase that might be, “The opposite of love isn’t hate. It’s indifference.” Whether you’re running a retail operation, managing employees in a professional services firm or anything in between, if you find yourself in an environment where there are no complaints, it’s not usually because everything is perfect as it is. So, why the silence?

First, customers or employees may not be complaining because you might not be offering a safe, convenient or simple way to provide feedback. If the process feels too onerous, or if they feel like their complaints will be met with derision or indifference, there is little incentive to speak up. Second, and worse yet, it may simply be that your audience has become indifferent to your offering. So how do you know and what can you do about it?

In our experience, this is why every business should invest in ongoing customer-focused research. Understanding how customers (or employees) feel about their interactions with the company creates a better understanding of what’s happening today as well as a foundation of understanding upon which to innovate.

For example, you could develop a customer journey map that documents the touchpoints of your customer (or employee) experience as it currently stands. Done right, it shows how well, and how easily, your customers (or employees) are currently achieving their desired goals. And if they’re not, why not.

Outline (based on research, analytics, experience and expertise) what the customer is thinking, feeling and doing at each moment of interaction. Try to define how the level of satisfaction and happiness, or friction and frustration, fluctuate within the journey. Basically, identify low points, high points, joyful moments and trouble spots throughout the experience.

Only then can you truly know where and how to apply resources and innovate around your experience to transform indifference into engagement. Ironically, you’ll likely see complaints increase—along with accolades—as people become increasingly passionate about the experience you offer.

People spend a lot of time on your site.

If engagement with your web experience is good, more engagement is better, right? Well, maybe. Looking back to the “line out the door” section of this post, if increased time on your site correlates with increased transaction value, then, once again, success! But if the correlation is neutral or negative, it may be time to reevaluate the experience design. How would you start?

First, scour your analytics. Find out if (or where) the experience may be stifling visitors or impeding conversions. You’ll want to look for signs that people are stalled, confused or overwhelmed by choices. Do a significant amount of visitors spend time filling a cart, then abandon without transacting? Do they go through a process of gathering information but fail to download?

For a more literal understanding of those behaviors, you can also use tools like CrazyEgg and Lucky Orange. CrazyEgg provides heat maps that let you visually assess where visitors are engaging and for how long. Lucky Orange lets you actually watch recordings of visitor behaviors. For example, if you received a form fill, and you wanted to better understand that visitor’s journey from initial landing on the site to filling out the form, Lucky Orange will actually let you go back, DVR style, and watch their session. These tools can build a story about your visitors and what they’re really accomplishing, or not. Once you know that story, it should be easier, if not obvious, what interactions need to be redesigned or re-concepted altogether.

The best of times is the best time to innovate.

Everything we talked about in this article falls into the category of good problems to have. But as any innovator can tell you, the most fruitful place to start on any transformative innovation project is by looking at the best-in-class solution and asking, “Could this work better?”

Who should own the digital customer experience? Marketing or I.T.?

It’s an age-old debate.

In a perfect world, every department within every company, and all of the incentive packages of everyone working in every department making up those companies would be aligned around delivering a seamless, amazing digital customer experience. But in our professional experience, there are frequent debates (some of them quite fierce) about what department or group “owns” it.That debate arises from a number of factors. The most common, as you may have guessed from reading the opening line of this post, is misalignment between budget authority, project accountability, and controls.

It’s not a people problem. It’s structural.

Often, I.T. teams are incentivized to get a digital property launched quickly, at the lowest cost that satisfies the technical and functional requirements. Just as often, marketing teams are incentivized to envision amazing experiences that customers will love and that drive conversions and revenue before they consult about the resource ramifications of their decisions.

In that situation, inevitably the two teams get so far down their respective planning paths before coming together to explore opportunities and evaluate compromises, that each sees the others’ goals as an impediment to achieving their own. Without a massive change in incentive plans and budget controls, how can a company remedy these issues?

Your customers should own the experience.

The first step in answering the question of what department owns the customer experience is to understand the question itself is a distraction from the real purpose of what you’re building. The customer should own the experience. Or, at least, what it takes to make their journey as engaging and emotionally satisfying as possible, in a way that is also lucrative for the business. Elevating the customer to the theoretical position of owner forces decisions made by all involved parties to be evaluated on their experiential value as opposed to their relevance to departmental incentives.

You should create the vision statement together.

Continuing with the idea that you should establish evaluation criteria for project elements based on their experiential value for the customer, a vision statement provides just such a guidepost. This can be a statement as simple as, “To minimize the number of clicks required to find and purchase a product,” to something that is complex enough to cover the emotional requirements of multiple target audiences, or specific parts of the journey.The main purpose is to raise the bar of expectations jointly, so that every interested party—from Marketing to I.T., Customer Service or the C-suite, understands that when the inevitable new opportunity or compromise discussion comes up, everyone has a uniform standard of reference.

You should designate ambassadors.

Creating any substantive digital property, whether it’s an app or a website, can be a long, detailed process. It’s not practical to expect full teams to jointly handle major decision-making regarding every detail. But you can designate one or more people from each department to be on call to attend meetings where those major decisions are being made. It helps to ensure a balanced dialogue around the table, even if it’s not an actual vote.

Ultimately, customers don’t care about governance. They only care if it’s bad.

It’s easy in an enterprise, or any size company for that matter ,for the same incentive structures that help the company manage budgets and drive efficiencies to create unintended barriers between departments. And it is not unusual for those barriers to manifest in a series of small decisions that create larger issues for the customer experience. So, just remember, the customer owns the experience, and the rest of your decisions can only lead to amore fulfilling experience for them and a better business outcome for everyone in the company.