Issue 15 winter 08

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Karen Morris has specialised in innovation strategy and execution since joining AIG in New York. She has devised and implemented unique methodologies to sustain and grow AIG’s innovation agenda in its global General Insurance businesses.

Morris is writing a book on the challenges legacy organisational and management models face in adapting to the fast, increasingly flat but nonetheless ‘spiky’ 21st century global economy.

An English barrister, Morris began her legal career as a multi-jurisdictional tax specialist with the international law firm, Morgan Lewis & Bockius. She then became general counsel for a leading global fast-moving consumer goods business, where she expanded her interests to include governance, environmental stewardship and diversity leadership.

Morris moved into the financial services industry, initially entering the insurance sector in a legal role. She subsequently designed and created a new legal advisory function dedicated to trend analysis and innovation. As senior vice-president of this multi-national division of Chubb Insurance Company of Europe, Morris led a diverse team of legal and underwriting experts focusing on trend analysis, notably legislative, business and socio-political developments, to devise innovative, differentiated solutions.

Morris then moved into executive management of multi-national underwriting operations. This inspired her increasing focus on innovation as a strategic capability.

Many businesses now seek to compete on the basis of continuous innovation. So why is it so difficult? In survey after survey, CEOs express frustration with how their organisations innovate, despite it being a strategic imperative. Peter Skarzynski, CEO of innovation consultancy Strategos, describes this as the rhetoric/reality gap.

No one has all the answers to closing this gap. What I can offer are some practical insights into the challenge of creating and sustaining an innovation eco-system within an organisation, and how people’s roles, behaviour and relationships have to adapt in such circumstances. I call these insights the five Cs of strategic innovation.

Change

Innovation implies being in the business of change. Jack Welch of GE said: “When the rate of change on the outside exceeds the rate of change on the inside, you know you’re in trouble.” The reality that confronts 21st century businesses, especially in traditional industries, is that the nature of the change they face has itself changed. The increasingly networked nature of our global economies means that the impacts of change are viral, global and virtually immediate.

Academic research demonstrates a disturbing compression in business lifecycles, in product and service lifecycles and in professional lifecycles. So how does a management team grow its core business, stay sufficiently agile to recognise threats to its current business from competitor innovation, and still actually execute a response?

Champion

This is a leadership challenge and a management challenge.

Sustainable, scalable and systematic innovation can only be accomplished if it is explicitly championed from the top. The occasional innovation can bubble up from anywhere. But an innovation strategy cannot be based on hoping someone comes up with a good idea, nor on ordering them to do so.

Building an innovative culture within an organisation is a matter of realising a vision. It doesn’t need an especially innovative leader: there are not enough people like Bill Gates and Steve Jobs to go around. But it does demand that the leadership commits to a coherent strategy of building innovation capabilities into the organisation, supported by appropriate resources and disciplined execution. Without these, how can you expect innovation to succeed?

A critical part of innovation leadership is ensuring that the organisational eco-system supports it. This is particularly true when it comes to engaging people in the process. They will look at the incentives on offer, the organisation’s commitment to innovation, how the risk associated with it is distributed, and what rights they are given to take those risks, and then decide whether to join in. People will not embrace innovation unless it is obvious that innovation is measured, matters and is rewarded. People will look at the amount of time, space and attention an organisation dedicates to innovation as an indicator of that commitment. If they see that, despite the rhetoric, innovation is still a peripheral activity then you shouldn’t expect them to treat it as anything more.

As with any strategy, choices need to be made. Not all innovations are created equal. Leaders need to decide the right mix of innovation efforts to match the business model, the operational model, and the products and services that their companies are commercialising now, and will commercialise in future.

An innovation agenda is a long way from management as counting things

Organisations are expected to pick a strategy and stick to it. But an innovation agenda is much more flexible – and a long way from management as counting and controlling things. Working with an innovation agenda means managing in a way that confronts orthodoxy, copes with ambiguity, looks for the right question, and exploits incongruity as opportunity. The management challenge is that institutionalising innovation invites you into terrain for which the traditional management tools were not designed.

Core

Management has had to develop dramatically new ways of working to face the innovation challenge. We would expect the way we work today to be distinctly different from the way we worked yesterday, but for most of us, it isn’t. Most management practices are little evolved from their 19th century origins, although enhanced by the 20th century contribution of quality gurus WL Deming and Taiichi Ohno.

The problem is that the quality and cost-control focus of much of today’s management now represents the starting line, not the finish. First-rate companies and their first-rate competitors have, on the whole, closed the gap on quality and cost control.

Innovation strategies require organisations to do something more, or even something else, to gain sustainable competitive advantage. It is the difference between asking ‘What are our capabilities, compared to those of the competition?’ and asking ‘What are our possibilities?’ Answering the first question gets you a better MP3 player. Answering the second helps you persuade customers to pay you for music they were downloading for free: a breakthrough business-model innovation.

Frustratingly, answers to the first question are much easier to capture on a spreadsheet than answers to the second, especially at the idea-creation and early-development stages. Incremental ideas are inherently easier to measure than disruptive innovations. A traditional circus could probably estimate the returns on funnier clowns and on-line ticket sales but when Cirque du Soleil was launched, who could have forecast its success?

So it is vital that innovation initiatives are framed in a way that is consistent with the desired outcome. It is futile to seek game-changing innovations if your screening processes are designed with incremental innovation in mind. Applying measures that require an emerging idea to compete with the current business can trap an organisation into investing in activities that show great margins today but face obsolescence tomorrow.

Create conversations that are more like scientific inquiry than business discussions

The essence of asking different questions is to delay the definitive answer – at least for a while. Instead we create conversations and interactions that are more like theories-based scientific inquiry than hard-edged business discussions. The goal is to challenge current assumptions and tease out as many options as possible, to play with ambiguity to extract the most possibilities from an idea.

Creative

So, if driving innovation involves questioning differently to uncover new opportunities, if it is based on deep inquiry to build insights that will lead to opportunities, it’s obvious that you need a group of highly creative people who can maximise your ‘return on insights’ to do it. Or perhaps you don’t.

Innovation has long been presented as the domain of visionaries who see opportunities invisible to the rest of us, and design solutions to needs we didn’t know we had. Such people exist but repeatable, sustainable and commercially viable innovation does not have to rely on them. On the contrary, it is the diversity of teams that provokes the kind of multidisciplinary thinking and multi-faceted problem solving that creates a set of options. And it takes a rich mix of skills and abilities, applied at different phases of the journey, to move from insight to execution.

There are particular competencies, organisational and individual, that need to be nurtured in an innovative culture. The behaviours and attitudes that are the foundation of a collaborative, questioning community can be embedded throughout an organisation and need not be limited to a few.

Creating this much change is a long-term endeavour. Jack Welch said that transforming GE into a ‘learning organisation’ was the most difficult challenge of his career and took a decade. Creating such change is a courageous endeavour, because it requires ‘trapeze thinking’, being willing to make a calculated leap of faith, letting go of the old trapeze bar, with its biases and assumptions, and reaching out for the new. Only a fool would do so without intense training and absolute confidence in the team. The same is true in the introduction of an innovation agenda: there needs to be explicit training and a broad understanding that everyone in an organisation is enabled, mandated and competent to think differently.

People need safety nets if you want them to take risks

Any trapeze artist would tell you that falling is part of their work, inevitable as the athlete stretches her boundaries. Trapeze thinking has to take into account that an appetite for innovation necessarily involves having a stomach for failure. Dr Peter Temes of The I L O Institute, which studies innovation in large organisations, says it is vital to minimise the political and economic consequences of the failures that arise in the pursuit of innovation. To achieve this the consequences of ‘failure’ need to be absorbed by the organisation, not its individuals. People need safety nets if you want them to take risks. Tom Kelly of product design consultancy IDEO suggests finding ways to enable people “to fail early and often, to succeed sooner”.

Embracing intelligent failure is a matter of organisational culture and education. Apple, Toyota and Disney have long understood failure as part of the process, replacing blame with analysis. This is not new: Thomas Edison argued there was no such thing as a failed experiment, just another step in the process. RW Johnson Jnr, the former CEO of Johnson & Johnson, described failure as “our most important product”. Microsoft has popularised the idea of “failing forward”.

These shifts in attitude are easy to justify in principle but incredibly hard to make part of an institution in practice. It requires a deliberate and fresh focus.

Choreography

The journey towards an organisation that has innovation at its core may involve more false starts and repeated steps than other kinds of reorganisation. The signs of success might be easy to recognise but difficult to measure, such as increasing trust and collaboration among the workforce. The journey may also involve changing our attitudes and rethinking how we work, how we think and the way in which we see our business, our customers, our colleagues, and our individual contributions.

For the people involved, working in an innovation-centred organisation may be more like dancing than marching – a shift from regimented working and imposed agendas to a freer and more opportunistic approach. This is a challenge but with a widely understood and engaging vision, and unambiguous support from the top, plus some practice and imagination, both people and organisational processes can adapt to a different rhythm. This business of innovation is both performance art and science.

Karen Morris

Chief innovation officer, AIG Product Development
Ka.Morris@aig.com

eiq-2008-015-0004