The Four Principles of Good Innovation Governance
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Independent of company size or industry, innovation constitutes a driving force for growth. With intensified competition, increasingly demanding customers and a fast paced technological landscape, businesses are forced to take action. As a result, the discipline of managing the process of innovation is gradually becoming a key competitive advantage.
Since most corporations have become extremely complex conglomerates, a rigid set of rules will not be easily transferable between the different business units of the same company. Leading to low adoption, poor performance and a general state of chaos in the innovation practice. Contextualizing governance tactics is becoming mandatory. But it can only be done after the underlying principle are agreed upon. The universality of principles makes them the ideal starting point for the tailoring work waiting ahead.
Looking at the innovation governance of the companies which are ahead of the curve, four core principles become apparent:
1. Efficiency (& effectiveness)
With resource scarcity (especially in talent and time) and the ever growing opportunity cost, the ability to swiftly allocate resources to high-potential projects while killing low-potential ones is a crucial governance principle.
A good yardstick to measure your company’s innovation governance efficiency would be the time it takes to reach a go/no-go decision. If that time is longer than the time required to get the evidence upon which the decision will be based, the system in ineffective.
A recent study on drug development shows that the number of approved drugs for any company strongly correlated with a high termination rate for drug candidates in pre-clinical stages. In other words, companies making hard decisions about which project to terminate earlier in the project life-cycle did much better than those postponing these decisions for later.
2. Evidence-based
We want to think of ourselves as rational and fact-driven entities. But unless challenged, most of our decisions are still emotions based. We constantly need to be reminded that facts don’t cease to exist because they are ignored. Hence, a good innovation governance system should enforce evidence-based decision making over faith-based.
A recent Harvard Business Review study, found companies that rely on data expect a better financial performance. The study, which surveyed 646 executives, managers and professionals from all industries around the global, found many corporations are integrating data capture and analysis into their decision-making processes. At Southwest Airlines for example, customer data is used to determine what new services will be most popular and the most profitable. Southwest has found that by understanding customers’ online behaviors and actions, the airline can offer the best rates and customer experiences. As a result, Southwest has seen its customer and loyalty segments grow year after year.
3. Clarity
Clarity should not be confused with transparency. Transparency is a necessary condition for clarity but not a sufficient one. Clarity lives at the intersection of purpose, transparency and process. Lack of clarity costs companies, billions yearly. Absence of clarity inserts unnecessary risk, in the already uncertain environment of innovation management. It demotivates employees and it confuses clients to the point of questioning what the organization stands for.
Toyota is one of the best in clarity. For them is not only about the cars they produce or how they produce them, but about reliable transportation. Toyota’s focus on quality and reliability instills a sense of confidence in the customer that their Toyota is going to get them anywhere they want to go.
Sadly for most corporations ambiguity is the status quo. When an organization doesn’t know why it exists, how it behaves, and what makes it unique, if falls back on policies and procedures. Which is as demoralizing for customers looking for service, as it is for the employees unable to use their judgment to make decisions.
4. Psychological safety
Paul Santagata, Head of Industry at Google, is positive that: “the highest-performing teams have one thing in common: psychological safety. The belief that you won’t be punished when you make a mistake”. Besides, the teams with the biggest amount of mistakes prove to be more successful than others.
Indeed, individuals feel more self-motivated and open-minded when they have the freedom to speak up without bearing the consequential humiliation. Hence, by:
(i) encouraging lateral communication,
(ii) replacing blame with curiosity and
(iii) asking for feedback on the message delivery, companies can expect employees to feel comfortable taking risks which will eventually lead to better results.
As a whole, organizations are a collection of human beings working towards the same goal. Their performance is in large shaped by the way these individuals think and interact. For the common goal to be attainable, companies have to keep their focus on improving their governance system. Understanding that principles are universal while tactics are contextual, managers focus should be on managing the system of innovation not the people in it.
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