Managing Innovation in Organizations -
A Framework for Creativity and Collaboration

by Paula Gamonal

The Opportunity

It is a great paradox that there are innumerable obstacles to innovation in the current corporate environment. It is also absolutely essential to the survival, growth and prosperity of any company to have some means to manage innovation.

Competition, mistrust, and scarcity of time, money and other resources make it very difficult to innovate. These same reasons make innovation imperative. Nearly every major innovation in the world was developed as a response to a problem of some kind; that being true, there will never be a shortage of opportunities to innovate. Historically speaking, a series of innovations have changed the economy of many countries and the world. Many times, these innovations were badly managed (or not managed at all) and had uncomfortable and sometimes nearly tragic consequences for the people involved with them.

The Solution

Since history tends to repeat itself, we'll take a quick tour of some of the perils of innovation, and then outline the framework that will help manage and minimize the risk and maximize the rewards.

The Obstacles to Innovation

There are a number of obstacles to realizing and profiting from innovation to the fullest. Among these are; the tendency to fight over recognition for one's individual innovations, the development and guarding of "industrial voodoo", the risk that time and energy will be spent on innovations that are not relevant to the company's central purpose, and the risk that an innovation will be over- or underestimated in a way that will result in mismanagement and cause a financial loss or a lost opportunity.

Fighting Over Recognition

Wilbur and Orville Wright locked up their airplane for 5 or 6 years while they tried to lock up commercial contracts. They did not allow anyone to see it. They soaked up information from others but did not share their detailed drawings. Some feel that this may have caused companies that otherwise would have been interested in the new invention to be distrustful of it.

The Wright Brothers' rival Glen Curtis in Hammondsport, New York; meanwhile, developed another airplane called the June Bug. Curtis was the first to sell an airplane to another person, the first to fly from one city to another, and the first to obtain a pilot's license. Curtis believed in open, shared access to innovation. He collaborated with others to solve problems and make improvements to his airplane, and was much more commercially successful, although much less known by history.

The Wright brothers sued Curtis for violating their patent, and it became an ugly personal feud. Many historians feel that Orville Wright's insistence on enforcing his patent, and forcing both companies to devote their time to court battles rather than concentrating on innovation and on their businesses may have put the United States behind in military positioning for World War I.

The US Government finally paid off both companies to quit suing one another and get on with building airplanes to help with the war effort. Had this continued, the United States would not have had an air force during World War I, and things might have turned out very different.

This is an example that approximates what happens in many companies to a greater or lesser extent. People guard their own innovations and ideas carefully, fearing that sharing them will rob them of the recognition for their creativity and hard work. There is a risk that people will take their best ideas to a competing company where they feel they will be recognized and compensated, or to start their own business in competition with yours. They cause untold damage in terms of lost opportunities and time and energy spent fighting with co-workers rather than collaborating.

"Industrial Voodoo"

A closely related phenomenon to overt fights over ownership of a particular innovation is "Industrial Voodoo" or those small secrets that any experienced worker tends to acquire. These are tools and methods that are not in any procedure manual that improve productivity and are used to improve individual performance.

The Wall Street Journal recently ran a story on a manufacturing plant that was trying to find out the "secrets" of a machinist who could retool a machine in half the time that other workers were taking to do the same job.

The machinist refused to share his secret. He felt that if his methods became common knowledge and standard practice in the company, it would remove his own competitive edge over other machinists, raise the company's expectations for performance, and "have us running all day long" without any added compensation.

Experienced workers tend to collect knowledge about how to do their job better and faster than everyone else, and they may or may not share this information with other workers. The ethical question about this "industrial voodoo" is this: is this knowledge (acquired through the workers' own intelligence, innovation, experience and sweat) owned by the worker or by the company that is paying them for their time? (The LEGAL answer to this question, in the United States, is that the company owns this knowledge. The ethical and practical questions remain.)

Irrelevant Innovations

One of the problems with allowing the time and space to think out of the box is that sometimes workers come up with innovations that are of questionable relevance to their jobs and to the bottom line of the company.

One IT manager was irritated by innovation. The software developers working for him were continually coming up with "cool" things that were flashy or interesting from an academic point of view, but didn't significantly contribute to the company's products or services. "I don't want to be paying people to be inventing better paper airplanes on company time. We have a hard enough time meeting the deadlines we have. I wish they would put their energy into the task at hand."

The developers were exercising some very natural urges to experiment with technology and supplement their training, the problem was that they were obviously out of step with their manager's priorities and deadlines, and his views on how company time and equipment should be used.

Booms and Busts

Even successful innovations cause incredible booms and busts. People under- or over-estimate the importance and potential profits of innovations. Electricity, the railroad, the telephone, the fax machine, the 8 track tape, and the Internet are all examples of the chaos that new innovations can cause for people who work with and/or invest in them.

The larger an innovation is, (that is, the greater potential gain) the more difficult it can be to manage. More people get involved, more money is staked, and more is put at risk.

A Framework for Innovation

In order to capitalize on the innovative capacities within your company, you have to provide some basic elements that foster it in your organization. The way that you provide these elements can be formal or informal, and adapted to the size and nature of your company, but they must be present in some form to truly encourage and leverage innovation. They are direction and alignment between the goals of the individuals and the company, a safe environment to take risks and share ideas, and a compensation system that recognizes and rewards innovation and its close cousin, collaboration.

Direction and Alignment

The best place to start is to ensure that everyone in your company has a "line of sight" from their individual job to their department's goals to the company's mission. There are so many people in the workplace that simply follow the directions of their superiors without any idea of how their work will be used. Understanding the larger picture of how the products of their work will be used gives people a perspective to think creatively. They may come up with better ways of meeting their work requirements, or moving beyond them.

In the "Industrial Voodoo" section, there is a clear example of opposition rather than alignment. The machinist felt that his goals were different (even opposed!) to the company's goals. This is an intolerable situation brought about, probably, from years of history that told the machinist he couldn't trust the company and that "anything he said would be used against him" for the company's profit but not his own.

A correction in that case would involve time and trust built up on both sides. We'll talk about this example in more detail when we talk about compensation.

A Safe Environment

Innovation involves risk. There is the risk that the idea will fail. There is also the risk of having one's ideas "stolen."

The free marketplace has some checks and balances that help manage risk - the stock market spreads the risk among many stockholders, who make decisions based on their knowledge and experience (or that of their brokers.) Bankruptcy laws and corporate entities in the United States are set up to have various levels of risk protection - an entrepreneur who starts a business based on an innovation that turns out to be a flop has some protection from being financially ruined for life. The penalties for failure are mitigated somewhat so that this person may eventually go on to improve his idea and become a raging success.

Your company can provide similar checks and balances to make sure ideas have venues to be aired, evaluated for risk, and implemented in a responsible way that compensates the individual for his contribution but doesn't punish too harshly for an idea that doesn't work out for whatever reason. Having a Research and Development board that receives ideas from employees can be similar to the patent or copyright function. This board can also launch individual special projects to further explore or implement ideas. The originator of the idea should be involved in this process whenever possible to ensure continuity and morale. The board should include a variety of members, including legal, accounting, marketing and other skills to ensure that the idea aligns well with the company's direction.

For innovations to be truly exploited, they need to be shared. Great developments by lone inventors, such as Thomas Edison, are largely of the past - most truly great inventions of today are the result of collaborations. Ideas are usually just starting points. They need to be refined, augmented, and merged with other ideas.

Having common goals with co-workers, aligned with the goals of the company, goes a long way in this regard. It's also important to have an environment as free of cliques, back-stabbing and idea stealing as possible. As a manager, it is important to be alert to these types of behaviors that are hostile to collaboration and to have (and enforce!) disciplinary procedures for any type of harassment or unethical behavior.

Like the Wright Brothers, many people hide their ideas to avoid having them stolen or criticized. Much time and energy is wasted defending the intellectual property of various employees. This can be avoided.

Many companies focus solely on individual achievement, to the detriment of other qualities essential to innovation and teamwork. You can resolve this, somewhat, by including references to people's interactive behaviors on performance reviews. Some companies even have co-workers participate in the performance review process by rating their teammates.

Resources and Equipment

Most companies have programs for education and training of their employees. Beyond that, many companies provide resources and equipment for employees to innovate without impacting their "real jobs."

At Conoco, for example, developers were allowed to use the mainframe computers during lunch times or during a 6-hour window on Sunday to run their own projects and experiments. Groups of developers would bring ideas that they would like to try out or experiment with, some which may have dubious practical value to the company but all of which were great learning opportunities. Many of the "lunchtime programs" were later implemented into production and did provide great value to the company.

Many other companies have a portion of a server where employees can build their own web pages, or try new things, without impacting business critical systems. These companies are building a "sandbox" for their employees to play in, and putting up well-marked, well-understood "fences around the sandbox" to ensure that innovative, creative play stays in its time and place, and is clearly separated from "regular business."

Although many irrelevant innovations rise from this use of resources, the constraints on their use ensure that the impact on your bottom line is minimal. Our IT manager's concern in the above example with software developers coming up with "cool" tricks would be mitigated by these limits.

Providing resources, and putting careful restraints on the conditions of their use, can be an inexpensive way for companies to encourage innovation.

A Compensation System

This is the final, and perhaps most important ingredient in managing innovation as a company. It is important to reward innovators for their contributions, and to reward people who collaborate as well as individual performers.

So many compensation systems are dependent solely on the easiest metrics to measure - personal performance metrics based on the company's current structure (or whatever it was last year when the budget was drawn up!)

The inherent problem is that when someone creates something new, it may challenge the way the company measures and compensates employees.

Profit sharing programs are an outstanding means of rewarding individuals for improving the company's standing. The down side is that everyone generally gets an equal proportion that doesn't recognize their individual contributions that year. A person who makes a revolutionary contribution will be rewarded the same as his co-worker who performed adequately.

Bonuses based on performance evaluations that emphasize innovation and collaboration are a more specific option. Just be sure that the criteria are laid out beforehand and are as fair and objective as possible.

Even if you have no control over financial compensation, there are generally other things, like time off with pay, and recognition programs that can be utilized to reward innovators and collaborators.

Conclusion

I'll conclude with an example of a situation using these principles successfully. In this situation, John Williams had just accepted a position as a data center manager.

Entering the job, he found that morale was low, inspections had been failed, and there was an atmosphere of distrust. John had some barriers because it was a civil service situation and he did not control the salaries of the individuals working for him. After evaluating the situation, he called a meeting and announced that everyone would be cross-training everyone else, and all procedures would be documented.

This was met with significant resistance, as you can imagine. Each employee had his or her own small innovations - "cheat sheets," informal procedures, and other "industrial voodoo" that they guarded jealously. They each felt that his or her own job security was dependent on their exclusive knowledge of some essential part of the data center. John explained that participation in the cross training was mandatory, and failure to successfully teach one's job to one's teammates would result in termination.

He also indicated that once the cross-training was completed, employees would rotate getting a week off with pay every six weeks, rotating alphabetically through the six-member team. The caveat to that was that the employee "on leave" would have to be near a phone in case his teammates needed assistance, and could be in the office within one hour.

Everyone was much more enthusiastic, given this motivation. People became helpful to one another, they supported and helped one another, systems were documented, trained and explained. The staff working was very careful not to disturb the team member on leave because they knew they would have their turn soon and wanted the same consideration.

The data center passed the next inspection with improving ratings, and the following one with nearly perfect ratings.

The team had truly accomplished something, and had accomplished it together. They were successful, and success breeds success!

By creating common goals, an atmosphere of collaboration, and a compensation system that recognizes and rewards innovation, your company can mitigate the risks and maximize the rewards of innovations from within the ranks.


Paula Gamonal is the co-host of Ravenwerks, an online community serving managers and executives addressing topics of leadership, teamwork, best practices, customer service, marketing and technology. Paula is also the author of Taming the Dragons- 50 Essays from the Business World. Contact Paula by e-mail: paula@ravenwerks.com and visit ravenwerks.com for more information.

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Copyright 2002 by Paula Gamonal. All rights reserved.

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