Doug Stephens

The Innovation Paradigm

One of the most frequent questions I encounter as I travel, work and interact with executives across categories is “how can large, mature organizations learn to innovate like disruptors?”  The nature and frequency of the question itself highlights the degree to which incumbent players find themselves stymied by the velocity and scale of innovation rocking their worlds. Barely a day passes, it seems, that Amazon, Alibaba or a well-funded start-up doesn’t launch a creative assault on the status quo in retail, turning conventional wisdom into outdated artifact. The urgency to innovate is palpable.

But what many traditional retail players are discovering is that even if they are able to ignite an organizational appetite for innovation, the actual ability to innovate is far more difficult to harness.  Many companies are simply neither structurally or spiritually seaworthy for the rigorous journey that true innovation demands from an organization.

So, when I neared completion in writing my book Reengineering Retail, it seemed like the story of the new retail world we’re navigating toward simply wouldn’t be complete without a meaningful discussion on how to reengineer innovation itself. 

The place to begin it seemed was by examining the fundamental attributes and mindsets of those companies most widely regarded as innovative – a word that gets thrown around a lot but that only a select few companies truly exemplify. What I found amongst these companies was a pattern of structure, leadership and behavior that I believe can offer a recipe, or at least a starting point, to others searching for answers in a sea of daily disruption.

Define Innovation

I speak with retail leaders frequently who describe “innovative” projects and initiatives within their organisations. In truth, however, much of what they’re describing is not innovative at all; it’s iterative.  There’s a big difference between the two. By definition, innovation means developing products or processes that are entirely new, and that have never existed before. Iteration, on the other hand, is a process of incremental experimentation and development along a known path. While there’s nothing wrong with linear, continuous improvement, problems arise when we start characterizing it as innovation. It simply is not.

Moreover, while most leaders say they want radical ideas, few demonstrate a willingness to embrace them when they’re presented. In fact, in one study among over 1600 executives, fully half of them admitted difficulty in identifying much less embracing innovative ideas.  Innovation can be unfamiliar, messy, and even scary.

A good starting point to rectify this problem is to first agree on an organizational definition of innovation. A clear and simple internal definition of innovation provides the basis for employees to engage in innovation, leaders to recognize innovation and the organization to begin quantifying its value.  And as you consider your definition, think about it this way: if the thought of launching a new idea doesn’t make you a little queasy, it’s probably not very innovative.

Identify It

If we agree that innovation involves producing ideas, methods or concepts that are entirely new or unique, then it stands that the essence of innovation has to be creativity.  And this presents a problem in many organizations because there is a common misconception that all people are endowed with the creativity necessary to develop new and useful ideas.  Research suggests this is not the case.  While we all begin life with the same basic creative propensity, by adulthood only a fraction of us are able to sustain significant capability for lateral thinking – the secret sauce of innovation. 

Without clear identification of the most truly innovative employees within an organization, innovation efforts are often relegated to the most senior positions.  Meanwhile, significant study has confirmed an almost diametrical relationship between leadership and innovation.  Great leaders are often not significantly creative and vice versa, some of the most creative people are the least effective leaders.  Some of this has to do with Western leadership culture.  Leaders are groomed to believe that effective leadership is synonymous with certainty and that leaders are expected to have all the answers.  Regrettably, innovation deals directly in the business of uncertainty and a knack for asking the right questions. While leaders often operate on convergent thinking – finding solutions to problems, innovators practice divergent thinking which opens up new possibilities and frontiers.

To find the right people, truly innovative organizations use very structured and refined hiring practices and testing designed to identify the most creative candidates.   

Just as you trust financial issues to accountants and legal issues to lawyers, innovation is something best left to those with above average creative capacity.

Nurture It

Conventional wisdom is that if you want to promote specific behaviors in humans, you begin by creating an environment that is conducive to fostering the behavior.  Yet few organizations take the time to create environments conducive to innovation.  Most give innovation little thought at all – until they need it, that is.  Then, all too often, a group of employees is sequestered to an off-site meeting, handed reams of flipchart paper and commanded to “be creative”.  As Jonathan Rosenblum of Google once said, “Creativity can be allocated, it can be budgeted, it can be measured, it can be tracked and encouraged but it can’t be dictated.”  That is to say that creativity isn’t something that happens when necessary but a perpetual way of working.  Creativity isn’t an event. It’s an ethos.

Particular among innovative organizations is its habit of asking two important questions; “what if?” and “why not?” Asking “what if?” is what propelled Netflix to deliver its first DVD in the mail.  Asking “why not?” drove Neil Blumenthal and his partners at Warby Parker to challenge the idea that prescription glasses couldn’t be sold online.

Therefore, it’s imperative that organizations take pains in creating a safe and supportive environment for creativity, just as they would provide safety on a factory floor or adequate lighting in offices.  Creativity is a living thing and without the proper conditions to flourish will die.

Reward It

I can’t think of an organization that doesn’t claim to prize creativity and innovation.  Most will claim that innovation is the bedrock of everything they do.   However, dig into the compensation and reward schemes in most of these companies and you’ll find a perplexing paradox. Most employees are rewarded not for challenging the status quo but by adhering to it. 

Compliance, adherence to rules and norms and steadfast delivery of objectives are what comprise most incentive plans.  Likewise, I can’t think of many compensation structures that promise to reward failure. And yet failure is an implicit element of innovation.  It may sound trite but if you’re not failing (at least some of the time) you’re not innovating.  Rewarding employees for risking constructive failure that informs the organization’s path forward is vital to promoting a welcoming environment for innovators.

Measure it

Last, but certainly not least, innovative organizations subscribe to the idea that you can’t manage what you don’t measure.  Innovation is no exception and should be measured from both the inputs and outputs side. On the inputs side, one can measure the percentage of the organization’s time, manpower and financial budgets being applied to innovation projects.  On the outputs side, it’s worth tracking the percentage of new product or service launches, patents or licensing revenue resulting from innovation.

If not now, when? If not you, who?

If you’re looking to build a burning platform for innovation in your organization share this: In 2006 Sears Corporation had a valuation of $22 billion dollars.  Amazon’s at the time was $13 billion.  As I write this, Sears is worth $30 million, while Amazon is valued at $860 billion.  The difference between the two was that while Sears stagnated, Amazon continued to push the bounds of innovation.   

And so, as I’ve said before, the only thing that is certain is that someone will reinvent what you do.  They only outstanding question is whether that someone will be you.

Join us for our next webinar, The Innovation Paradigm for Retail, this Thursday – October 25th at 8 a.m. PST/11 a.m. EST – where we reveal the common pitfalls that the world’s most innovative retailers avoid. If you miss the live event, use the same link to access the on-demand version.