Management's focus on innovation comes and goes in cycles. Right now, it is all the rage again (although it remains to be seen if that's still the case as innovation budgets may be cut when the looming recession hits the US), and the business press is covering it all across the board. Managing innovation is one of the most critical tasks companies face, and yet it remains one of the biggest challenges. Not only do companies need to come up with new ideas, but they also need to nurture a culture that consistently encourages and rewards innovation. If they don't, well, then they may be the next Dell or Motorola -- both companies had gained major competitive advantages as the result of major break-through innovations (Dell with process, Motorola with design) but failed to follow-up on their successes with new innovations and instead focused solely on most efficiently exploiting their one "big idea."
It's the old antagonism between excellence and efficiency that is at play here, and along with it, the conundrum of creativity versus process. In a recent issue, BusinessWeek questions the value of Six Sigma, the Holy Grail of process (and performance) optimization in which many corporate heavyweights fervently believe. The Six Sigma methodology, with its emphasis on quality management, was once understood to be a strong innovation enabler. However, as competitive advantages are increasingly built upon top-line growth, in other words, explorative rather than exploitative strategies, it suddenly seems to be a little dusty. Six Sigma was developed to minimize risk and variation, but for free-spirited innovation to blossom, allowing risk and variation is paramount.
Process-obsession may in fact be opposed to the new age of creativity that propels hyper-customization and attempts to save brands from the death spiral of commoditization. If you measure everything you manage, risky ideas will not spark. Employees need to be able to dream, and they need to know that their company not only encourages risk but in fact exhibits a high tolerance for failure. Culture is key. A risk-taking environment, an open-source conversation with internal and external contributors, and a high agility to develop ideas, test them (and sometimes fail with them) are the main attributes of truly innovative organizations.
Gary Hamel, professor at the London Business School and "management innovator without peer" (Financial Times), argues along the same lines in his new book "The Future of Management" (excerpt published in Fortune). He understands the importance of organization-wide innovation and contends that the reigning management paradigm -- efficiency above excellence -- discourages innovation and is in fact an outdated model that needs an innovative overhaul itself: "Most of the essential tools and techniques of modern management were invented by individuals born in the 19th century, not long after the end of the American Civil War. (...) Now think back over the past 20 or 30 years of management history. Can you identify a dozen innovations on the scale of those that laid the foundations of modern management? I can't. Our Industrial Age management model is languishing out at the far end of the S-curve and may be reaching the limits of its improvability."
Referring to the cases of Whole Foods, W.L. Gore, and Google, Hamel prescribes radical decentralization, flatter hierarchies, more incentives for employees at all levels, and stronger ties between results and recognition: "The sooner your company starts sloughing off its legacy management beliefs, the sooner it's going to become truly fit for the future. As we've seen, a few companies are already traveling light, having left a lot of their outdated management baggage back there in the 20th century. In the end, there's really not much of a choice: You can either wait for tomorrow's management heretics to beat the orthodoxies out of your company, or you can start coaxing them out right now."