CHAPTER 6
Which Models Seem to Work and Why?
The previous chapter listed a number of organizational models that companies typically choose for allocating responsibility for innovation, thus exercising their innovation governance mission. The question management is bound to raise is whether and under what conditions these models will work in practice. This chapter will try to answer this question and discuss how companies perceive the effectiveness – or inadequacy – of their innovation governance endeavors. To do so, we will characterize management's level of satisfaction or dissatisfaction with the various organizational models that their company has adopted. The data in this chapter come from the results of our online survey, complemented by our past work and contacts with a broad range of companies in Europe and the USA.
Does Innovation Governance Work Satisfactorily?
Not surprisingly given the broad variety of companies that responded to our survey, the general level of satisfaction with innovation governance varies greatly:
- Thirteen percent of respondents declared that they are very satisfied with their company's innovation governance system. They generally feel that all aspects of innovation – both hard and soft – have been taken care of and the results are positive.
- Forty-four percent expressed their relative satisfaction with the way their company steers innovation at the top, although they recognized that some aspects of innovation still remain unaddressed or unclear.
- Thirty-eight percent stated that they are rather dissatisfied with their innovation governance system. They recognized a need for better coordination in the way functions work together and for a clearer allocation of responsibilities.
- Five percent confessed that they are very dissatisfied with the way their company handles innovation. They see a need to start with a clean sheet and establish a new overall innovation governance system that really works.
Given that the governance of innovation has not yet been carefully studied and researched, we find these numbers show a more positive assessment than we might have expected. Over half the companies in our sample expressed some satisfaction, and the 44% that expressed only “relative satisfaction” should be in a position to improve their practices and clear up those areas that “remain unaddressed or unclear.” We suspect, however, that these assessments may have been affected by the opportunity the questionnaire gave participants to reflect on their governance practices. When people are asked about their innovation governance practices in, as it were, a vacuum, they generally look blank and are not sure what you are asking about.
In fact, in our consulting practice we have often heard that management devotes too little time to addressing the issues that fall within the boundaries of innovation governance effectiveness. Even practices such as managing the innovation portfolio, which is widely seen as part of governance, are often done in a haphazard manner. Many companies change their innovation governance system regularly, often after the arrival of a new CEO or CTO. When a new leader takes over, it is natural for him/her to address perceived inefficiencies by shifting responsibilities, and since the practices of innovation governance are still so poorly understood, companies frequently try to improve things by bringing in new leaders with different experience and ideas. It is our objective in this chapter to present the different levels of satisfaction with the different models so that companies can explicitly assess their own models and develop plans for changing or improving their practices.
Are Some Models More Effective than Others?
Given that many managers are rather – or in some cases very – dissatisfied with the way their company exercises its innovation governance mission, it is interesting to ask whether their frustration is linked to the particular governance model the company has chosen. In other words, do some organizational models work better than others? The answer to this question conveys a mixed signal.
On the one hand, yes indeed, the degree of satisfaction of respondents in our survey varies quite substantially according to the governance model they have chosen, as Figure 6.1 shows. This depiction shows that some models do seem to work better than others. The two models that receive the highest satisfaction marks are those in which overall responsibility for innovation is entrusted either to a high-level, cross-functional steering group or board, or to the CTO or CRO.
Figure 6.1: Overall Levels of Satisfaction/Dissatisfaction with Chosen Governance Models
On the other hand, none of the models scores a perfect 100% on satisfaction. Even the more popular models have a significant proportion of users who are relatively or very dissatisfied. And, hardly surprisingly, companies that have not appointed anyone to oversee innovation are unanimously dissatisfied with their (lack of) innovation governance.
These mixed results, even for the most popular models, require some comments and raise a number of questions.
Why Aren't the Most “Empowered” Models Always the Most Effective?
As indicated in the previous chapter, overall responsibility for innovation is most frequently allocated either to the top management team (or a subset of it) or to the CEO – or, in diversified and decentralized corporations, to a division president acting as CEO of a business unit. There is obviously no more powerful way to indicate the importance of steering innovation in a company than to apply models that mobilize the top level of the hierarchy. For this reason, we would expect these to be the most effective governance models. However, this is not always the case.
Fifty-eight Percent are Satisfied When the Top Management Team is in Charge
For sure, innovation governance seems to work well in a number of companies that have chosen the top management team as their governance model, for example at Corning, Nestlé Waters, and Lego Systems, among others. In these companies, which have achieved a relatively high level of satisfaction with their innovation governance results, the involvement of top management is most probably intense and this mobilizes the rest of the organization.
However, being satisfied with the innovation governance system that is in place does not mean that improvements are not needed. This is true, of course, of all complex processes, including innovation and quality processes. One reason is the sheer complexity of these processes. Another reason is that continuous improvement is particularly critical when the processes themselves mature, with better practices continually being developed and the range of the processes expanding. For example, several companies among those that have established a well-functioning innovation governance model recognize that their emphasis so far has mostly been on hard issues, like processes, tools and projects. Several of them are now putting more emphasis on softer cultural elements, such as team dynamics, program and project leadership, and functional skills and competencies.
As the numbers in Figure 6.1 indicate, the level of satisfaction with the top management team model is seen as problematic for a significant proportion – over 40% – of companies that have adopted them. There are probably as many reasons for this as there are companies. Among the main causes of dissatisfaction, several problems are explicitly mentioned:
- Lack of formality in implementation of the innovation process, and even if the process is formalized, it is not followed strictly.
- Insufficient customer orientation in the process, leading to missed opportunities to create real value in the market.
- Difficulty in emerging from the old vertically integrated model and migrating toward a more networked approach.
- Functionally oriented organization, leading to a lack of coordination and understanding between functions.
- Lack of consistency in the project prioritization process across divisions and business units.
These problems show that the allocation of innovation governance responsibilities to the top team requires these senior managers to be willing to break down silos and to work as a cohesive team across functional and business turfs, which may not be easy to achieve. It also demands a combination of individual and collective commitment, particularly when the company is facing turbulent conditions. To be effective, innovation needs leaders with a high degree of consistency in their priorities, messages and actions, which external pressures can easily endanger. When lower level managers rely on the top management team to promote innovation, they rapidly notice the slightest change in priorities or level of attention at the top, whether these are triggered by external or internal crises, and they naturally adapt their own priorities to these changes.
The Degree of Satisfaction is Slightly Lower (56%) When the CEO is in Charge
CEOs who see themselves as the ultimate innovation champion in their company – there are relatively few in this category – should, by definition, be highly motivated to share their enthusiasm with the rest of their organization. For this model to work well, CEOs also need to maintain their commitment even in periods of crisis. We have seen this succeed in companies such as IBM, particularly with Sam Palmisano, as well as P&G under Laffley.
But too often the reality is slightly different and the CEOs' commitment may not cascade down to all business units and functions. They need amplifiers and relayers to turn their vision into concrete implementation initiatives. In addition, CEOs come and go, and when this happens, will the new CEO be as motivated about innovation as his/her predecessor? And even if he/she accepts the mission as a matter of fact among many other duties, at the beginning he/she may be too thinly stretched to fully exercise this governance mission, despite the original good intentions.
This is why it is so important, when the CEO takes on overall responsibility for innovation governance, to appoint a dedicated manager, a group of managers, or another organizational mechanism in a direct supporting function. The combination of responsibilities that seems to work best, according to our survey, next to the CEO in full charge, includes either a subset of the top management team or a group of identified innovation champions straddling the organization.
When Does Relying on the CTO or CRO Make Sense?
Many technology-, science-, and engineering-based companies have naturally entrusted overall management of their innovation efforts to the head of their technical function, whatever his/her title.
As shown in Figure 6.1, the results of this model beat all other models, reflecting the fact that it concentrates a lot of power in the hands of a single, specialized leader, and one who is most likely to have the knowledge and resources to decide on and supervise all projects – at least the technical ones. This, of course, puts a lot of pressure on the CTO or CRO, which may help explain why the model does not work satisfactorily in all companies. Success is highly dependent on the credibility and leadership talents of the specific high-level individual.
The applicability of this model is optimal in technology-intensive industries where innovation and markets are driven by technology, and where technology choices and deployment issues are complex and critical. The main condition for the success of this model is linked to the breadth of capabilities of CTOs or CROs. In all cases, they must have a strong business orientation because ultimately all innovation efforts turn into business creation challenges. This is why they are often supported by competent staff departments capable of exploring the market potential of new technologies and linking technology and product roadmaps. This also means that they must develop a strong sensitivity to innovation commercialization and adoption issues to avoid the risk of sterile “technology-push” initiatives. And this, of course, implies that they need to maintain excellent relationships with their colleagues in business management.
The main limitation of this model is its primary and sometimes exclusive focus on technology deployment issues. CTOs and CROs usually have limited involvement in upstream and downstream marketing activities. In addition, their focus tends to be mainly on content, which means that their interest and involvement in non-technical processes and on softer organizational culture improvements is often limited.
What Makes High-level Cross-functional Steering Groups or Boards Effective?
Another innovation governance model almost ties with the CTO/CRO model in terms of its perceived effectiveness, i.e. the creation of an official innovation steering group or board (also called innovation board, innovation process board, or innovation governance board). Such a mechanism includes members representing some of the company's innovation-relevant functions and businesses. In describing this model in Chapter 5, we emphasized that it is different from the top management team or a subset of it inasmuch as it enlists managers from lower levels of the organization, even though the chairperson of the steering group or board is often a member of the top management team. We call it a “high-level” steering group or board more for its high-level mission and visibility than to reflect the hierarchical position of its members.
Whereas the subset of the top management team may be comprised of no more than three or four members, this cross-functional steering group or board may number six to 12 members, depending on the company. They will generally be selected not only on the basis of their functional or business expertise but also because of their intrinsic motivation for innovation and their personal drive. The composition of this mechanism and the motivation of its members provide an initial explanation of why this model is perceived as more effective than most other models.
The main advantages of this approach, compared with other innovation governance models, are threefold:
- To stimulate/supervise innovation process development efforts, for example by:
- appointing, supporting and reviewing the work of process owners and coaches;
- allocating and monitoring the use of innovation process development budgets;
- setting up and monitoring innovation benchmarks and performance indicators; and
- setting up and supervising an innovation online platform.
- To take action to sustain innovation performance, for example by:
- identifying/building innovation-critical competencies;
- identifying and developing high-potential innovation leaders;
- promoting an innovation mindset and improving the culture; and
- building a communication platform to mobilize the organization.
However, this model also has some limits that companies need to fully appreciate before choosing it! The most important ones, in our experience, are twofold.
First, the scope of the model's mandate may be unclear and make for inadequate representation of critical parts of the company. The main question to be clarified concerns its focus. Is the innovation steering group or board empowered to discuss and advise (or even decide) on content issues – specific innovation projects and ventures – or is it only allowed to deal with innovation process issues? The staffing of this mechanism is clearly dependent on the answer to this question. Ambiguity in this case is dangerous, since it will quickly disqualify the steering group or board in the eyes of non-members, who are generally from line management.
The second limitation of this model is that it may lack sustained empowerment and resources, particularly when the company is exposed to severe market, financial, or operational pressures. This lack of empowerment may reflect its membership – are members of the steering group or board sufficiently credible in the eyes of the top management team? Are the members likely to be personally affected by the consequences of some of the investment decisions on risky projects? But it may also indicate a weak long-term commitment to this type of innovation governance, or to innovation as a whole. In our experience, this may happen in companies where the top management team sets up this kind of mechanism to relieve itself of its own responsibilities and rapidly stops supporting it.
Why is Having an Innovation Manager or CIO Less Appreciated?
The appointment of a dedicated manager to carry the innovation flag across the company or one of its divisions is sometimes chosen as a solution because of its apparent advantages, i.e. by concentrating accountability for innovation in the hands of a single, dedicated individual, it avoids overloading other senior managers with additional responsibilities.
Our experience shows that the effectiveness of this governance model – particularly if it is used as a primary model – is highly dependent on the intrinsic experience, qualities, and drive of the manager in question and of his/her reporting level. A lack of recognition of these two factors may explain why this model scores so poorly as a way of allocating primary responsibilities for innovation in the ratings in Figure 6.1. The difficulty of the job, if it is carried out by a middle manager reporting two or three levels below the CEO, is apparent when interviewing those who inherited it. For some of them – and we have had several in our innovation management sessions – it is an impossible task given the magnitude of their responsibilities, their low empowerment level, and their lack of resources. However, innovation managers can be quite effective when appointed in support of another, more empowered model.
The situation is completely different when top management chooses one of its members to assume this dedicated responsibility and appoints a CIO, as DSM, the Dutch life and materials sciences company, did earlier in this decade. Figure 6.2 highlights the differences between a middle-level innovation manager and a high-level CIO of the type found at DSM with a broad range of responsibilities, notably in new business development.
Figure 6.2: Innovation Manager and CIO: Two Different Worlds
Although it is not specifically mentioned in our survey, the chances are that the more satisfactory models in this category are the most empowered ones, i.e. the high-level CIO model is more likely to ensure effective innovation governance than the lower-level innovation manager model.
In both cases, success is dependent on at least three conditions:
- The company must have developed a strong process management culture to ensure that everyone understands that innovation is a cross-disciplinary and cross-functional process that needs to be managed as such.
- The leaders in question must have built strong personal credibility and possess social skills to be able to influence a wide range of managers who will not fall under their direct hierarchical responsibility.
- They need to be strongly supported by the CEO and the top management team, in word and deed, particularly when there are turf conflicts with operational or functional managers.
Is it Realistic to Rely on a Network of Champions to Govern Innovation?
A number of companies noted that they rely on a network of champions as their primary innovation governance model. This probably implies that these companies define innovation governance rather narrowly, with the main focus being on process issues. Identifying, empowering, and mobilizing a network of champions can be an effective way to stimulate innovation, for sure. But it will not be a proper way to address more strategic content issues, which always call for the direct involvement of top management.
Not surprisingly, a majority of companies perceive this model to be unsatisfactory. For many of them, this may be due to the limitations in scope inherent in the model. Given that champions are middle managers, there are only a limited number of things they can do on their own to stimulate and steer innovation. This model is more effective when it is supporting another model rather than being the primary model of allocation of innovation responsibilities. In our sample, networks of champions are used as a supporting model in three main instances – when the primary responsibility has been entrusted to either the CEO or the top management team; or to a high-level cross-functional steering group or board; and/or to a dedicated innovation manager.
But irrespective of its scope limitations, a network of champions is a complex organizational mechanism. It is not easily created and keeping it productive over time remains a challenge: first because its effectiveness is highly dependent on the quality of the motivation and drive of the individual champions being selected; and second because, as with all networks, it will slowly see its energy level fade away unless it is strongly supported and reinforced by management. It will need direct access to its high-level sponsor, adequate support in terms of resources and training, and the guarantee that some of its most important recommendations will be implemented.
So Why are Many Governance Models Deemed Unsatisfactory?
This chapter started with a relatively disappointing evaluation of the perceived effectiveness of innovation governance models – 43% of survey respondents are rather or very dissatisfied with the system their company has put in place. In our experience, this poor appreciation primarily reflects insufficient or inconsistent commitment and personal engagement by the CEO and his/her top management team regarding innovation. This observation may contradict the fact that the vast majority of senior managers see the importance of innovation growing in their company; that innovation is a stated objective in most annual reports; and that a pile of money is invested in innovation each year, typically in R&D.
This contradiction is understandable if we consider the constraints under which most management teams operate. In an insightful article drawn from their practice, two experienced innovation practitioners and coaches1 list a number of possible reasons that senior executives may not fulfill their role and the likely causes:
“Senior executives fail when they:
- are unaware their vision needs to be framed into a compelling message;
- don't understand the importance of their role in communicating and motivating;
- miss articulating the value, importance and benefits to both the company and the individual;
- don't resolve the “hearts and minds” in engagement that innovation requires;
- are unable to set out an overall framework for innovation and define its value creation;
- delegate the role to others who don't have the power to execute and compromise too readily;
- are constrained in their role due to time pressures and/or competing initiatives;
- fail to shape, inspire or clarify the necessary linkages and synergies across the company.”
[…]
“There are a number of reasons why senior executives can often have difficulty filling an innovation leadership role, including:
- Fixated on short term financial goals to the detriment of longer term opportunities;
- Difficulty balancing the complexities of “important” versus “urgent” tasks;
- Pressures of conflicting demands and other growing business issues that take priority;
- Convincing others to convert their vision and translating this into operational reality;
- Unfamiliar with the variety of innovation tools and frameworks;
- Unaware of the level of resistance and inertia that creates the roadblocks;
- Have an unclear or incomplete mental model about innovation and what it fully needs;
- Concerned about upsetting the status quo.”
Besides a lack of top management commitment, a number of criticisms can be leveled at all these innovation governance models, at least in the way they have been implemented. We have personally observed the following problems:
- Problem #1. Whatever the model chosen, management has not defined the scope of its innovation governance activities broadly enough. Some companies focus mainly on content (basically projects), others on process – they rarely focus on both! Also, many companies have a narrower than optimal view of innovation. Most companies have developed a strong bias for developing product or process innovations. Those that look equally seriously at other forms of innovations – i.e. business model, service, and/or marketing innovations – are rare.
- Problem #2. In some companies – managers complain – innovation strategies are rather fuzzily defined or at least are poorly communicated, implying that these strategies and communicating about them are not included in the list of primary innovation governance topics.
- Problem #3. Almost universally, some domains remain poorly covered, even though they are critical for sustaining innovation. Questions associated with the development of values and a culture that are conducive to innovation – which often requires a change management program – are often left aside. The same is true for programs linked to the development of management and leadership competences. The problem is not so much that management considers these issues secondary, but that these soft aspects are difficult to address in a meaningful way.
- Problem #4. Innovation policies and mandates may conflict, in some cases because they have not been made explicit, in others because mandates are not aligned and lead to decisions that are in conflict. This is most likely to occur when different parts of the innovation agenda are involved. One group may have the mandate to explore more radical kinds of innovation, while another may be working toward a conservative innovation portfolio.
- Problem #5. Finally, and this also happens quite frequently, responsibilities and empowerment levels often remain unclear or keep changing due to:
- a lack of management consistency and commitment over time;
- short-term pressures diluting management's attention and long-term efforts; and
- a misalignment between rewards and incentives and innovation objectives.
Many companies would do well to consider this brief overview of governance models and their mediocre current level of effectiveness as a wake-up call. With any luck it will spur management teams on to react and finally put innovation governance at the top of their agenda.
Our next chapters will describe how six innovative companies – IBM, Corning, Nestlé, DSM, Tetra Pak, and Michelin – have organized to govern innovation, each with a different model that seems to work.
Note
1 Hobcraft, P. and Phillips, J. (2012). The Critical Role that Senior Leaders Must Fill for Innovation Success. http://www.innovationexcellence.com/blog/2012/09/10/the-critical-role-that-senior-leaders-must-fill-for-innovation-success/. Used with permission.