Leadership Tips for Building a Culture For Innovation

In today's business landscape, characterised by rapid technological change, evolving customer expectations, and non-traditional competitors, building the organisation-wide capability to innovate continuously is more vital than ever. With many companies launching one-off initiatives, products, and propositions, it's become a marketing department's dream to profess that the company is now innovative. The challenge is that our world requires us to repeat those one-offs continuously. As my OUTCOME Co-founder, Dan Toma puts it, it's the difference between going for a single moon shot and building a space program!

As I highlight throughout my book, 'Building a Culture of Innovation', companies that fail to make Innovation integral to their cultures risk losing relevance, ceding ground to disruptive start-ups, and struggling to attract and retain top talent. And the complacency costs are only increasing as the world evolves through artificial intelligence, advanced analytics, and digital platforms that not only create new possibilities but threaten established business models. 

 As Satya Nadella, Microsoft's CEO, succinctly states, "The only way to stay ahead is to reinvent yourself constantly."

Innovation has become imperative for organisations seeking to grow sustainably, compete at the highest level, and maintain their competitive edge in a dynamic world.

At its core, Innovation is about identifying and creatively solving problems to deliver new value. It can manifest in enhanced products, transformed customer experiences, improved internal processes, or entirely new business models.

As Steve Jobs emphasised, "Innovation distinguishes between a leader and a follower", and sustained Innovation enables companies to consistently meet evolving customer needs, fend off disruptive upstarts, reduce costs, and strengthen strategic positioning. 

While many leaders theoretically recognise the importance of Innovation today, cultivating and sustaining an innovation-focused culture across an organisation is difficult in practice. It requires more than establishing an innovation team or hosting a few ideation workshops. Genuine innovation capability requires leaders to make tangible organisational changes to strategy, structure, people practices, and behaviours. 

As I describe throughout my book, the tone set by senior leaders is critical when it comes to sparking and scaling creative thinking as innovation efforts flounder without the right vision and commitment from the top. Consider that 89% of executives in a recent McKinsey Global Survey say Innovation will be at least somewhat important for their companies' growth strategies in the next five years, yet only 6% rate their innovation performance as excellent. This reveals a glaring capability gap between innovation aspirations and actual execution.

The Research & Development (R&D) spending statistics also highlight the traps many companies fall into. Globally, R&D expenditures have skyrocketed 46% over the past decade, totalling approximately $2.5 trillion in 2021. Yet increases in R&D budgets do not automatically translate into meaningful Innovation or competitive advantage. For instance, a Booz Allen Hamilton analysis of the 1,000 publicly traded companies with the most significant R&D spending found that their returns on such investments have steadily declined for over 50 years.  

It's changing now, but it's fair to say that in the past, many leaders mistakenly equated Innovation with only product development or technology. While these are essential elements, we know that Innovation is much broader in that it's not confined to R&D and new product teams but requires engagement across the company.

Procter & Gamble's former CEO A.G. Lafley notes, "Every CEO, CFO, CIO, and business leader is also chief innovation officer."

This highlights why Innovation must become ingrained in the organisational culture beyond any leader or function. When creativity is baked into values, mindsets, and behaviours across teams, it leads to more ideas and, ultimately, more impactful Innovation. However, leaders play a pivotal role in fostering the right culture for Innovation through their words and actions. 

First, leaders must serve as role models by exhibiting curiosity themselves. Innovation-focused leaders actively explore emerging trends, technologies, and unmet customer needs. They ask thoughtful questions to understand the latest industry developments and outside perspectives deeply.

As Box founder Aaron Levie says, "These days, Innovation comes from keeping your ear to the ground and having a constant curiosity."

Additionally, leaders must demonstrate openness to creative ideas and unconventional thinking. They cannot be too quick to judge initial concepts harshly. Rather than shutting down ideas prematurely, innovation-focused leaders constructively debate merits and explore possibilities. They also make it safe for others to suggest novel approaches by reacting with curiosity rather than criticism.

Furthermore, innovation-focused leaders stay connected with end users to ensure innovation efforts solve real problems versus chasing fads. They emphasise cross-functional collaboration and provide the space for quick iterative testing and experimentation.

As Xerox PARC founder John Seely Brown advises, rapid prototyping is vital because "the fastest way to learn is to try something, fail, try again."

Along with exhibiting the right mindset, leaders must actively shape culture by implementing organisational systems that motivate and reward innovation-focused behaviour. This starts with tying performance management and rewards to Innovation-specific metrics, agility, learning, and creative behaviours.

As author Jim Collins notes, "What gets measured gets done", so leaders should publicly recognise both intelligent failures and successes since insights come from both. 

Structurally, leaders must break down stubborn silos and facilitate partnerships across teams and functions. Innovation often happens at intersections, so leaders must deliberately enable cross-pollination. They should distribute decision authority so teams closer to the action can quickly and efficiently test new concepts and validate assumptions. Maintaining agility requires deconstructing rigid hierarchies and cascading empowerment.

Regarding investment, leaders must take a portfolio approach to balance innovation spending across incremental improvements and bolder bets. They need to be willing to cannibalise lower-margin legacy products to fund breakthroughs.

As Adobe CEO Shantanu Narayen says, "We're not afraid to cannibalise our own business."

Leaders must also challenge orthodoxies and shift assumptions restricting Innovation, such as only customers knowing what they want.

As we famously know, Henry Ford said, "If I had asked people what they wanted, they would have said faster horses."

So, leaders must be pioneers and paint compelling visions of the future that give teams purpose beyond short-term targets.

Additionally, bringing in outside perspectives is invaluable for sparking creativity. Leaders should actively connect with start-up founders, academic researchers, and technology partners to understand emerging opportunities. Partnering with third parties that possess complementary capabilities can also accelerate Innovation.

While there are many avenues for Innovation, ultimately, leaders determine whether it is treated as a priority and strategic capability versus just an afterthought. They control whether Innovation is considered a core strategic capability or 'A. N. Other' thing that is fitted in when people have time. Innovation requires top-down commitment combined with bottom-up energy from all employees. But, as we've found through our work at OUTCOME helping complex organisations worldwide build innovation capability and culture, there's a third component that most miss through the false narrative of "innovation is either top-down or bottom-up."

In most organisations, the real traction is gained from the 'middle-out', i.e., enabling middle managers to 'Drive' Innovation-focused behaviour on a day-to-day basis. That's where the real magic happens, and the proverbial needle is shifted. As my book emphasises, companies cannot settle for innovation theatre, so leaders must walk the talk consistently because culture follows behaviour and behaviour follows process.

With relentless ownership of the innovation agenda from leaders, any organisation, from start-ups to non-profits to established enterprises, can become a hotbed of customer-centric Innovation. But to do so, leaders must make Innovation integral to strategy, incentivise creative behaviours, facilitate idea flows across boundaries, and embed it within the cultural fabric of their organisation. Although the path is difficult, the payoff is sustainable growth and competitive advantage over the long term.

If this article resonates and you and your team want to chat about Leading FOR Innovation or Building Corporate Innovation Capability and Culture, get in touch for a chat.

Cris Beswick