Creating an innovation engine
This article was first published in Innovation Leader’s Pointers Magazine
The pace of digital change has exploded, and organizations are struggling to respond to market volatility, increased consumer demand and new ways of doing business. As a result, incremental innovation is out. Game-changing digital business models, fast-paced pivots and a constant cadence of new products and services are in.
At its simplest level, becoming an innovative organization requires four steps.
- Leaders must develop a long-term innovation strategy aligned to their firm’s business strategy.
- They must focus their efforts on their purpose and execution strengths.
- Organizations must set up an agile operating model that enables cross-functional collaboration, provides tools for experimenting and scaling results, and uses metrics for tracking progress.
- People need to feel empowered to learn, try new approaches and socialize their findings.
It is this fourth step that we explore in this article.
Creating a collective growth mindset
To foster innovative thinking and continuous innovation, organizations need to change their mindset from thinking about “how” to asking “why?” With “how” thinking, teams operate within predefined structures and optimize what exists. With “why” thinking, teams are free to redefine problems and experiment with new approaches.
Asking “why?” is the approach Ørsted, a Danish multinational power company, took in the late 2000s. The company was one of the most coal intensive power generators in Europe and had an expanding oil and gas production business. The company’s leadership realized that the future of energy needed to be sustainable and decided to transform their organization into a wind producer. Let’s explore how Ørsted leveraged key structures organizationally to accomplish this goal.
Set up support structures to develop and sustain a culture of innovation
At companies like Ørsted, leaders and teams need critical supports to codify innovation as an institutional practice. At the highest levels bringing in cross-industry knowledge, organizational leadership and experience navigating disruptive change can have a profound impact. When provided with the right information, leaders within an organization can provide strategic guidance on which priorities to set, how to overcome critical obstacles and how to maintain momentum on multi-year strategies.
When provided with the right information, leaders within an organization can provide strategic guidance on which priorities to set, how to overcome critical obstacles, and how to maintain momentum on multi-year strategies.
What leadership needs from the C-suite is the truth. Leadership is often on the receiving end of strategies or initiative proposals that are long on ambition but short on data. In addition, these proposals often lack thorough assessments that would enable leaders to accurately consider risk versus reward. To be effective, company leaders need accurate forecasts, upfront risk assessments, and quarterly progress reports. In addition, management teams should participate in product sprints to better understand the organization’s direction and processes.
At Ørsted, the board agreed to a long-term strategy to pivot to wind production. The board was aware of the new business opportunity with renewables and the risks involved with the transformation, as 85 percent of the company’s revenues came from fossil fuel production. However, maintaining the status quo would have meant grappling with new regulations and stakeholder pressure. They approved the updated strategy and encouraged the company to stay the course in 2012, when a 90 percent drop in natural gas prices harmed revenues and threatened the new strategy’s progress.
Keep the C-suite accountable
Teams within an organization are typically brilliant at generating innovative ideas and game-changing strategies. However, they need support in the form of accountability from leadership within the organization. Teams within the organization need to help the C-suite ensure that innovative initiatives align to the corporate strategy and organizational goals, will move the business forward and are clearly communicated to the workforce. In addition, C-suite leaders need to be held accountable for modelling new behaviors.
Leaders can provide support by asking probing questions about organizational strategies and codifying desired C-suite behaviors in their personal development plans. They can also provide support by requesting and attending quarterly business reviews and keeping conversations focused on outcomes, rather than new technology features.
Similarly, the C-suite can support the workforce. It can do so by aligning staff around purpose, sharing business and innovation strategies, demonstrating how initiatives support these strategies, and providing evidence that leadership is changing. To that end, as an example, C-suite leaders can participate in hackathons, recognize innovation champions, and even lead training courses. The C-suite can also share case studies of how experimentation can help drive the business and deliver game-changing results.
Be clear on your purpose
At Ørsted, then CEO Anders Eldrup, shared a compelling purpose with the entire organization, to tackle climate change as one of the most important problems of the era. This purpose energized staff and helped them stay focused, as the company weathered a downturn and committed to even more rigorous renewable energy targets over the years. As a result, the company was able to achieve its goal of using renewables to generate 85 percent of its energy production in just 10 years – 21 years ahead of schedule.
Ørsted developed a new operating model, identifying customer value streams and aligning multi-disciplinary teams around delivering results. Teams use data-driven insights, like client usage patterns, to drive new service development. With an agile approach, they can now launch services in as little as two months, that previously took up to 24 months. That means more revenues and profit for the business units.
Leaders within an organization are more empowered to innovate than ever. Their control over IT budgets has outpaced the IT department since 2018. That means that they can easily purchase the outsourced services and support they need to launch initiatives and drive them forward. However, this process can easily lead to innovation in silos.
Organizations don’t need to dismantle current structures if they align business units around a shared purpose, equip employees with what they need and communicate what’s in it for them. These rewards can include larger innovation budgets, the right to hire more staff, marketplace recognition and revenue-sharing, among other gains.
Leaders within the organization can support the C-suite by actively participating in innovation programs, freeing staff for these initiatives and championing innovation to their teams. They also can form public-private partnerships to tap new capabilities quickly, without the headaches of hiring more staff.
Train your workforce to be innovative
At Ørsted, teams were trained on new agile ways of working and digital tools, as they also learned about renewable energy. In addition, they had to solve a tough challenge, driving the cost out of wind energy, which was too expensive to be commercially viable. Using data-driven insights, staff managed to cut costs by 60 percent, as the company also built three major ocean-based wind farms in the UK and acquired a U.S. company.
Organizational workforces need direction, tools, and training to innovate. They also need ongoing reinforcement that their ideas are valuable, considered and reflected in new processes and products.
Your workforce needs help rearchitecting their thinking and skills so that they can contribute to innovation on an ongoing basis beyond hackathons and email submissions. People and talent teams can offer training on new skills and give workers stretch assignments, to gain expertise and build their careers.
Creating an innovation engine isn’t easy. In fact, only 24 percent of the executives we’ve spoken with are confident that they have defined the skills and activities they need to be innovative.
That’s why taking a methodical approach to developing innovation strategies, areas of focus and operating models is an important precursor to launching these programs. However, the ability to align and drive people around a shared purpose is critical to ensuring long-term success. Identifying key roles and the support they need and can provide can help organizations equip and motivate people to deliver the right results, creating exponential advantage over time.
That’s proven true for Ørsted, the leader in offshore wind production, which used a galvanizing purpose, agile operating model and ways of working, and analytics to become the world’s most sustainable energy company. The company is now capitalizing on sustainability-linked funding and customer demand to expand its market leadership in wind energy.
Vidhyu Rao is a People and Change Expert at PA Consulting