How Companies can Build Innovation Capability


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*First published in Oct. 2015

Innovation is very critical to organisational success. With industries in more flux these days, there is a huge pressure on organisations to build a strong culture of innovation. The operating systems of an organisation need to be inherently innovative.

However, very few companies get innovation right. The numbers are quite startling. An MSNBC report, citing a Cincinnati Research agency, AcuPoll, asserts that 95% of new products every year fail.1 This is in many ways, a proxy for the success rate of innovation. The questions therefore begs to be asked; why do many companies still get innovation wrong? One of the most telling reasons for this is undeveloped or underdeveloped innovation capability.

Lawson and Samson (2001) define innovation capability as, “The ability to continuously transform knowledge and ideas into new products, processes and systems for the benefit of the firm and its stakeholders.”2 It is a measure of the ease of innovation process in the organisation. A lot of companies are unable to innovate because they use innovation as a reactive tool to fight declining market share, reduce cost, meet short-term financial targets, to mention a few. A culture of viewing innovation as a defensive tool to defend market share, control costs and meet short-term financial targets is at best sub-optimal and at worst flawed.

From our experience in consulting, an approach like this leads to two outcomes. One outcome is once these companies achieve their short term objectives, they return to the pre-innovation mode and it’s only a matter of time until the process starts again. The other outcome is that since there is hardly any strategic structure or cultural basis for the innovation process, these companies baulk once their attempts at innovation meet some level of opposition.

For most organisations, there is no structured measurement and reward framework for innovation, so there are no incentives to oil the innovation engine. Most times, employees are asked to innovate, by management who lack a legitimate interest in change. This is like creating supply in a market where there is no demand.3 Economic theory teaches that such a situation will lead to market failure.

Innovation capability is a very robust area in management, so it is some effort to exhaustively deal with it. We share two of the most fundamental thoughts that will guide companies in building innovation capability.

Innovation Capability is Systemic4

Developments in strategic management over the years have created a tendency to view management concepts as variables that fall within different functional areas. Unfortunately, information capability is also viewed as an activity to be developed and implemented in silos. Some organisations will locate innovation in the Strategy function, some others under marketing / new product development, and some under Research and Development. Locating innovation in one functional area connotes that it is the responsibility of that functional area. By democratising innovation throughout the business functions and systems (with measurement and reward structures all across the organisation), management is creating a demand for innovation, which will ultimately promote its supply, creating a system of collaboration and interaction of innovation forces.

Innovation Capability is within a Strategic Context

Innovation capability has to be in alignment with outcomes that give an organization a competitive advantage. A good example of this is Ryan Air, the budget carrier based in Ireland. With huge operational cost being one of the biggest challenges for Airlines, CEO Michael O’Leary has built a culture of continuous improvement in cost control. Its low-cost (fleet commonality, no frills and point-to-point) model made it post impressive financial performances when its competitors were filing for bankruptcy in other parts of the world in the 2000s. This cost control capability ranges from the quite mundane (staff are not allowed to charge their mobile phones while at work) to the extraordinary (the record time it takes to board and de-board passengers and then prepare aircraft for the next flight). Clearly, this is an innovation capability cuts deep within the organisation and is at the heart of its competitive strategy.

References

  1. Forbes (2010) New, Improved … and Failed http://www.msnbc.msn.com/id/36005036/ns/business-forbes_com/t/new-improved-failed/ (accessed on June 27, 2012)
  2. Lawson, B. and Samson, D. (2001) “Developing innovation capability in organisations: a dynamic capabilities approach.”International Journal of Innovation Management, 5(3): 377-400 (DOI: 10.1142/S1363919601000427)
  3. JCC.COM (2010) Building a Systemic Innovation Capability http://jccavalcanti.wordpress.com/2010/03/18/building-a-systemic-innovation-capability/ (accessed on June 27, 2012)
  4. Gibson, R., (2010) Making Innovation a Systemic Capability http://www.rowangibson.com/images/stories/RGres/RGColumns2/C36_MakingInnovationASystemicCapability_April2010.pdf (accessed on June 27, 2012)

Pictured above is Toni Maraviglia, Co-Founder and CEO of Eneza Education, an organisation with a mission to make 50 million kids across rural Africa smarter through by deploying mobile technology. The company was recently named among the Top 10 Innovative Companies of 2015 in Africa by Fast Company.