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The innovation superhighway

Companies that don't innovate stagnate. But Cass research suggests that many are not equipped to keep pace with developments in their markets, reports Steve Coomber.

"Innovate or die" is the tenet that underpins most businesses these days. The corporate history books are littered with examples of companies that failed to keep pace with changes in their markets. Whole industries can be wiped out in a matter of months. In the late 1800s, the buggy whip business vanished almost overnight following the invention of the car. The majority of cases are less dramatic: most businesses that fail to innovate gently wither away or are snapped up by other firms. Surprisingly, given the importance of innovation, recent research reveals fundamental shortcomings in the way some firms approach it. "If you don't innovate as an organisation, if you don't change, you're going to stagnate," says Dr Robert Davies, Senior Visiting Fellow at Cass and co-author of Innovation: Mapping the Role of the Corporate Leader, a survey commissioned by the Chartered Insurance Institute (CII) and Cass. Innovation may take place at all levels of an organisation, but creating a culture of innovation starts at the top. Taking this as a given, the researchers focused on the leader as a catalyst for innovation in an organisation. "The role of the top level leader and senior leadership team is pivotal," says Dr Davies. "If they aren't on board and focused around the need for innovation, any attempts at major innovation and change will fail."

Alarming attitudes
The research was based on interviews with chief executives and top-level leadership teams in the financial and professional services sector, particularly in the City. It reveals some interesting, and possibly alarming attitudes to innovation.
For a start, those questioned had a comparatively narrow view of the need for change. The researchers developed a "palette" of six different types of innovation integral to an organisation's success. These were:
* Offering - new products and services
* Markets - moving into new customer markets
* Distribution
* Process - redesigned organisational processes and structure
* Management - new management principles and practices
* Customer experience - innovating around the way that the customer interacts with the company.
"The interviewees generally had difficulty describing the full range of innovation types, and thought predominantly in terms of product and process innovation," says Dr Davies.

Lost knowledge
This is significant, he says, because during the recession a change has emerged in the way organisations compete. Previously the primary driving force was the creation of shareholder value. Now it has become clear that other stakeholder needs must be considered. Dr Davies and his team also discovered that many organisations failed to make a connection between strategic planning and innovation. They often had a business plan, a budget, a balanced scorecard and various strategic tools, but no explicit innovation plan. For example, there was no process to move from thinking about innovation to actually innovating. "If you're going to be really good at innovating and change, one of the first things you have to do is articulate or communicate the case," says Dr Davies. Many of the business leaders surveyed fear that the organisations they work for may have lost the ability to innovate and grow organically. In recent years there has been a focus on growth through mergers and acquisitions and, during the recession, improving the bottom line through cost cutting rather than innovation. In addition, cost cutting and de-layering have removed a level of middle management and, with it, important knowledge and experience linked to innovation.

Reading the signals
The research revealed that 45% of the interviewees were unable to identify more than three reasons why their organisation should innovate. In general there was a sense that organisations were poor at detecting those changes in the external world that signalled the need to innovate. "Equally, when thinking about overcoming barriers to innovation, interviewees tended to focus too much on changes to internal organisational structures rather than competency, skills and culturally based solutions," says Dr Davies. "A lot of the organisations spent a fair amount of time thinking about skill-based barriers and cultural barriers. But when asked what action they would take, they talked about instigating innovation by making structural changes." A three-step process to help companies to integrate strategic innovation emerged from the research. Dr Davies says: "The first thing is to get a clear mandate for innovation and determine the corporate strategic reasons for innovation. Next, identify drivers, barriers, enablers and outcomes. Finally, map your leadership style and the leadership team's mindset to fit the kinds of barriers you need to overcome.

Leadership response
In the study Dr Davies describes four ways to change, depending on the barriers that need to be overcome: adaptation, evolution, reconstruction and revolution. Each requires a specific leadership response. The least dramatic changes - adaptation, evolution and reconstruction - require leaders to be participative and, with evolutionary change, educational. Revolutionary change requires a less fashionable directive and coercive leadership mindset. Finally, given the current state of strategic innovation in many organisations, as revealed by the research, it is important that someone takes the role of challenging existing thinking. That may well be someone from outside the organisation. "These organisations need to think about innovation in a more strategic and comprehensive way, and then be sure both to implement that strategy and to support it with the appropriate leadership styles. A good place to start might be to consider alternative scenarios for the post recession landscape. This could provide the material for an effective mandate to kick-start the innovation process," says Dr Davies.

Source: Innovation: Mapping the Role of the Corporate Leader, commissioned by the Chartered Insurance Institute and Cass. Research team members: Dr Robert Davies, leader of the Cass team; Nick Marson, leader of the CII team; Dr Chris Storey, Reader in Marketing at Cass; Andy Couchman, Chartered Insurance Practitioner; Sally Sanderson, a Fellow of the Chartered Institute of Personnel and Development; Niala Butt, Chartered Insurer; Mark Towers, Chartered Insurer.

Steve Coomber is a freelance business writer.

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