By now, every board expects innovation to be at the top of its strategic list. As proxy season ends and ‘say on pay’ ceases to distract, directors will get down to the real work of the board: the strategic success of the business and fret innovation. And every year most boards find that actual innovation remains elusive. Regardless of the money spent on innovative ‘stimulus’, innovation continues to founder– in operations, in budgets, in corners, in concepts, and, yes, in courts. For true innovation, businesses need invention. Invention requires backbone. Boards need to understand how inventive minds work.
While strategic fads come and go with economic cycles, “innovation” has been hot for years. Legions of change managers, business improvers, and innovation leaders have all weighed in. Disproportionately their plaudits have gone to companies that have sliced their in-house R&D in favor of global outsourcing. For over a decade the hippest advisors have trumpeted every dispersive tool from free-lance science to managerial equivalents of ‘mesh networks’ across ‘the cloud’. Their invocations of ‘employee passion’ perhaps mean Marketing and Sales? Do one-off deals and competitor-shared innovation an internal ecosystem and innovative culture make? Has this gone well?
Take Procter & Gamble. In 2004, a P&G executive told Fortune proudly that P&G had outsourced its “gobbledygook chemical synthesis problems” as global one-offs via InnoCentive.com. improbable ROI. By 2011, Harvard Business Review proclaimed that “P&G Tripled its Innovation Success Rate”. On top of a $2 billion R&D budget, $400 million went not to science but ‘foundational consumer research’. Hardly science. Meanwhile P&G’s top drove “inspirational” purpose downwards through staff and out to “improve” consumers. By 2013, Fortune reports that P&G has been fighting “brain drain”, “innovation machine” shut down, 20% cut in net income, and loss of share in “2/3 of its markets”. Worst, the board refused to hear top complaints as its members fought their own disasters, even an insider trading indictment (Gupta). CEO McDonald, a West Point educated engineer, hopes that a “culture of productivity” will revive company (and job).
Innovation cannot be commanded, taught, or artificially induced. Inventive inspiration comes spontaneously from within. Teaching only provides a toolbox of knowledge, process, and method. Students may be indifferent. By definition, passion is poorly controlled. Confuse innovation with passion, and the business will repeatedly lurch off course, chase up blind alleys, and sink costs in futile invention. Persistence is necessary but insufficient for innovation. Persistence is necessary to carry invention through to fruition, but will never generate invention where there is no imagination. Persistence will, however, push futility farther up a blind alley. Law demands close tracking and careful verification all the while each invention is a work in process.Collaboration may stimulate invention but tracks the process poorly; not far down the collaborative channel, your business may be left without intellectual property secure or securable.
For years when economics have cycled down, innovation has suffered as companies axed R&D first. On the up-cycle, those companies then wondered why innovation stalled. They see invention as cost and risk, not asset and opportunity and inventive minds as fungible bodies, not talent and chemistry. Worse, the same short-termism that demands quarterly performance goes further to insist that inventive process pay out now. Inventions that do not pay out now are good as lost, not valuable future building blocks. Cut preferentially, assailed as a company ‘supercargo’ and work denigrated as “gobbledygook”, scientific and other technical staff learn to hate company, business, and the model. This is not a smart way to treat the inventive minds, the essential lifeblood of the product pipeline.
Innovative companies, by contrast, understand that while marketing may sell product, without R&D there is soon no new product to sell. Innovation is continuum, not a collage of one-off solutions. They see that if they outsource their inventive mission, they will lack inventive energy, the chemistry that drives talent to inventive genius. Investment that short-termists see as cumulative risk, innovators see as aggregate hedge. Here too, however, when innovative companies depreciate the value of their inventive minds, they cease to be innovative companies.
The ‘culture of innovation’ is actually a strategic and financial backbone for invention. Given central presence in the business model to keep it strategically on track, invention will become innovation. Given marketing and sales interaction and legal guidance, invention builds real world innovation. What inventive minds need is a culture of acceptance, budget, and legal guidance. Accept that invention will often be off center, over budget, or simply ahead of its time. Budget so that organic invention keeps your company ahead of its time. Have counsel develop close interaction. Unlike marketing and sales, R&D buffers the continuum of risk and produces long-term enterprise value. The backbone requires continual recommitment as managerial succession revalues the inventive minds.
How then can the board encourage innovation?
- Invention Front And Center. Recognize that it is crucial to keep your innovative process front and center, primed for legal and commercial capture, not marginalized as ‘weird’, ‘expensive’, or ‘non-productive’, or “risk of loss”.
- Bring Your Inventive Minds To The Top Table. The board must hear from the inventive minds directly; R&D must be part of the business model and have a seat at the top managerial table. It alone can advocate fully for itself and inform the other strategies within the model. Inventive minds need the structural guidance of the business model for strategic path, comprehension of financial capability, and the real world opportunities and barriers of operations, marketing, and sales. Inventive minds will need constant legal guidance in the age of open collaboration and global impact on nations’ intellectual property regimes.
- Inventive Directors. Bring on board directors who themselves have inventive, but non-jealous, non-arrogant minds, otherwise they will not be open to others’ inventiveness.
- Innovation Committee. Be bold. In a day of board committees, constitute one committee that is not defensive, coercive, or exclusive in mission. Technology committees are perhaps too hyper-focused or too self-referential. The Technology Committee seems to have done little good for, say, Hewlett Packard, HP. Try instead an Innovation Committee to keep the pace of all the creativity and not just the productive technologies of your company. Have it pace the creativity of your sector, adjacent sectors, and the innovative world.
- R&D = Profit.Support R&D not as a cost center but as a profit center with a seat at the senior table and direct report to you.
- Don’t Count R&D As Beans. Groom top management to admit into the dominant company culture one element that is not solely numbers driven on the output side but also amply rewards talent on the input side.
- Groom Different Management. Encourage creative managers who know how to focus creative intellect, impose self-discipline and pace, while indulging the thinking process. Promote managers with foresight, those who can appreciate and articulate long-term value of inventive output.
- Explain, Guide, Anticipate. Accept that inventive minds will frustrate your bean counters, analysts, lawyers, and compliance jockeys. Your inventive minds will not necessarily ‘come in’ on budget, on time, or even on target. As with Fleming and penicillin, inventive minds contemplate one thing and come up with something else. Like Jonas Salk, your inventive minds may actually focus the work of others. Inventive minds are inclined to ‘overshare’ their inventions early, often, and widely, in journals, poster sessions, lectures, online communities (think Open Source), email discussions (think “Climategate”), and websites (just like Marketing).
As John Lienhard might say, be interested in the way inventive minds work.