Leadership and Innovation: A Capability-Centric View

Step 1: Lay the Foundation

The first important role of leadership which goes straight to addressing the first challenge of building the idea pipeline is the importance of identifying innovation priorities for the organisation. This is based on an understanding of what are the strategic challenges or priorities at that particular point in time. The top management needs to address or identify what are the key innovation challenges the company needs to address, and also what kind of innovation makes sense for the company.

For example, if you are an R&D-driven company where your competitive advantage comes from your technology, then your innovation priorities will be centred around R&D (think of a chip company like Intel). On the other hand, if you are a marketing-driven company where your edge comes from understanding the needs of customers better than anybody else (think of Procter & Gamble or ICICI Bank), then that needs a different approach to innovation altogether. Finally, you might be a company that is competing largely based on efficiency and cost advantages. Then your innovation strategy is going to be largely focused on process innovation to drive operational excellence (think of IndiGo Airlines).

The second thing that the leadership needs to do is to put in place a good idea management system. Why is an idea management system important? Because this is what helps different stakeholders share ideas with the company and thereby enhance the idea pipeline. A good idea management system needs to be well-designed and adequately resourced. It needs to have managers devoting enough time to the review of ideas. The leadership must be willing to spend time to support good ideas. In addition, in order to embed the idea management system, the leadership needs to emphasise a process orientation in the review and approval of ideas. Ideally, the review and acceptance of ideas should be as transparent and objective as possible so that organisational members are motivated to share their ideas on a regular basis.

Creative innovation campaigns help build strong innovation capabilities. An innovation campaign creates excitement. It enables people in the organisation to feel energised to undertake innovation activities. Further, innovation campaigns enable the company and individuals to focus on a particular innovation theme. These themes, again, ideally, need to be identified by the senior management of the company and aligned with the innovation priorities that have already been discovered. At one point of time, Titan’s jewellery business chose ‘Simplify and Automate’ as an innovation theme to address production bottlenecks caused by the inadequacy of skilled manpower to scale up their business.

Last but not least, to build a strong foundation, the leadership needs to support training for creativity and innovation. To help people exercise their creative skills in the organisational context, it is helpful to provide adequate training on creative problem-solving methods such as design thinking or TRIZ. We would strongly recommend that the leadership allows enough time for people to work on innovation projects that might be part of these training programmes.

Step 2: Create a Challenge Book

The second important challenge for a company to address in building a systematic innovation capability is to identify the problems which the company needs to focus on.

Any company typically has many problems but limited innovation resources. So, one of the prime tasks of the leadership is to identify which of these problems to focus innovation resources on. We recommend that a company should create what is called a challenge book. A challenge book is a collection of the most significant problems that the company needs to address through innovation.

How do you identify these problems? We found in our work that the best way to identify these problems is to look for three things. First, look for pain points or, as we say, feel the pain. Second, look for trends, or sense the wave. And finally see where you can find waste of energy, materials or human effort. That is going to be a third important criterion. In other words, wherever you see pain, wave and waste, you are likely to have a juicy problem on which you could focus your innovation efforts.

One of the startups which did amazing work during the COVID-19 pandemic is a company called Cloudphysician in Bengaluru (see Figure 2). The founders of Cloudphysician had created a telemedicine solution that enabled them to remote manage an intensive care unit (ICU) in a hospital (Prashantham & Krishnan, 2020). Why is this important? Because many hospitals build ICUs but they do not have the specialised personnel required to run them.

OPEN IN VIEWER Figure 2.

Cloudphysician.

What Cloudphysician did was they addressed an important pain point that is the lack of ICU capacity owing to the inadequate availability of skilled personnel. They followed an important wave that is the significant increase in demand for ICU beds due to COVID-19, and they addressed an important waste issue, which is that because of the lack of intensivists, many hospitals were not able to utilise their ICU facility well.

Another important thing the leader needs to do is to be aware of the three top disgusters and the three top delighters of every important segment of its customers. Unless you have this independent understanding of the needs of different segments of your customers, it will be difficult for you to identify the pain, wave and waste and thereby identify the right problems.

Some companies take specific steps to facilitate this process. For example, Tesco, a well-known retailer in the UK, has an interesting practice of requiring its top managers to spend one week a year doing frontline or customer-facing jobs. What this enables its leaders to do is to understand the problems in the store at an operational level and then support or encourage innovations which might help these problems be addressed.

In fact, it took the Tesco CFO one such spell at the cash counter in a Tesco store to realise that the demand from staff that an extra bar code be put on each product to be sold was a legitimate and relevant demand.

In the data-driven world in which we live today, an additional dimension of building the challenge book is the intelligent use of data. Leaders at Bajaj Finance, a pioneer in the use of data-driven decision-making to grant consumer loans in quick time but with low delinquency, are required to be proficient in formulating problem statements as well as the tools to use data to improve the quality of the loan products the company offers.

Step 3: Build Participation

The third important step is to build participation. Enabling more people in the organisation to participate in the innovation process is a good way of addressing the pipeline problem.

How do you enhance participation? What we found in our research is that there are at least four things that leaders can do to enhance participation in the innovation process.

The first thing they can do is identify good role models. The ideal role model is not a genius but an ordinary person who does extraordinary things. Leaders should look for a person who comes from perhaps a rather humble or ordinary background but has shown the ability to be a successful innovator and problem solver.

The second task for leaders is to encourage the creation of communities of practice. A community of practice is a group of employees with a common interest who come together out of their own individual volition to work on problems together. These communities of practice can be very lively hubs of innovation in the organisation. Mindtree, the IT services company, at one time, had as many as 50 communities of practice, all encouraged by the management of the company (Garvin & Tahilyani, 2010).

A third important way of building participation is for senior leadership to enable managers in the organisation to be catalysts for innovation. While every manager need not necessarily be an innovator themself, what is important is that managers do not get in the way of others who are doing innovation. Cognizant Technology Solutions found that if managers can be trained to be innovation catalysts, they will play a much more constructive role in helping innovation activity.

Finally, an important leadership role is to identify rewards and recognition. The right kinds of rewards and recognition will enhance participation. One of the key takeaways here is that perhaps the most important thing creative people are looking for is appreciation and recognition. Leaders need to ensure that innovators are recognised and appreciated. Global biotech major Amgen recognised the scientist who pioneered their first blockbuster drug by giving him pride of place in their annual report (see Figure 3).

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Figure 3.

Source: https://www.slideshare.net/finance18/amgen-investors2004annualreport

Research shows that managerial practices can either ignite or thwart intrinsic motivation. People are likely to be more innovative when they are internally motivated to do so rather than when they are lured by external rewards. Research by Amabile (1998) and others shows that there is a whole set of areas in which managerial practices can influence whether intrinsic motivation is kindled or not.

The first thing leadership can do is to match people’s expertise and skills with the kind of jobs they are doing. The second thing they can do is to set goals and communicate them clearly but give a lot of autonomy regarding the means of achieving those goals.

The third element is not to give either too much or too little resources. Maybe give just a little less than ideal, so that people stretch, but at the same time do not feel that the task is impossible.

Good leaders put together diverse teams, that is, people with diverse problem-solving approaches. They also provide supervisory encouragement, which means they freely and generously recognise creative work. They avoid long delays in giving feedback. They are, of course, evaluative of the suggestions they receive, but they do not overdo critiques and they tolerate a lot of honest failure.

And, last but not least, good leaders facilitate information sharing, and they do not allow the organisation to be dysfunctional or over-political, as this could come in the way of people sharing their ideas.

We now come to the second big challenge which is improving idea velocity.

Step 4: Experiment with Low Cost at High Speed

The velocity problem is all about creating a supportive environment to experiment with low cost at high speed. In other words, the leadership has to provide a supportive climate and environment in the company that allows people to experiment rapidly and test out their ideas.

The critical point here is that we all know that failure plays a critical role in innovation. Yet, we also know that people are often scared of failing, and that is one of the reasons why they do not innovate too much. One of the big leadership tasks is, therefore, to create an environment where honest failure is permissible.

How could you do this? One of the ways you could do this is by giving awards for failed innovation. The Tata Group does this in their InnoVista innovation awards through an award category called ‘Dare to Try’ where they acknowledge and appreciate teams who took on tough problems but were unable to solve them despite their best efforts.

Other companies like 3M encourage legendary stories about individuals whose innovations failed earlier in their careers but went on later to be successful innovations and careers in the company.

Another important task for leadership is to create enough infrastructure so that there are adequate resources for experiments. If you do not have enough infrastructure to try out things, there is a very small chance that you would be able to encourage experimentation in the company.

Just to sum up, there are three important things you can do as a leader to facilitate experimentation: encourage experiments and tolerate honest failure, provide enough infrastructure for experimentation and be generous in recognising creative work.

It is important to add here that experimentation is a competitive necessity in this digital era. Both divergent and convergent experiments are necessary (Rogers, 2016). In this context, the role of the leader is increasing that of an orchestrator of experiments rather than just a decision-maker.

Step 5: Go Fast from Prototype to Incubation

Once a prototype has been created, the challenge is a bit different. The challenge is to scale up or commercialise whatever is at a prototype or ‘Proof of Concept’ stage. This is the time when investment of significant resources is needed. This is also the time when the risks go up because the kind of investments you are making can be very substantial. The role of leadership at this time is to act as a champion for promising ideas.

India’s former Railway Minister, George Fernandes, played this role as the champion of the Konkan Railway which is today the lifeline for long-distance travel along India’s west coast.

Remember that a lot of good ideas are lost out because they do not get organisational buy-in. So, leaders play a critical role in providing the political, social and economic capital that can help an idea go to the next stage.

Good leaders essentially stick their necks out to champion good ideas in the organisation. A precaution is in order here—do not get so attached to the idea that you lose objectivity!

Step 6: Iterate on the Business Model

Another important role of leadership is to encourage iteration or experimentation on the business model. While we often think of experimentation in the context of a product or a service, we do not always realise that experimentation is equally important to get the business model right. We have several examples in history where the business model needed significant tweaking before it could become the right business model.

To give you an example from our book, you could look at the case of shaadi.com where the founder Anupam Mittal first thought that his ideal customer was going to be a young man or woman who wanted to get married, that they would reach them through the internet and they would fund his business through subscriptions paid. But, some months later, he found that these assumptions did not hold up, and, instead, he had to target the parents, who are perhaps more worried about the kids getting married! The parents at that time did not have good internet access, so he had to target them through the regular media.

And, last but not least, the parents were smart. They were not going to pay for a subscription upfront unless they saw some profiles that were relevant to their son or daughter. So, the entire business model had to be changed for shaadi.com to be successful.

Coming to the last challenge, which is the batting average challenge. Here, we are basically looking at how you can create more impact out of your innovation, that is, how you can improve the probability that your innovation will have good business outcomes.

Step 7: Sandbox, Platforms and Open Innovation

Here the leadership has a different role. One role that leadership has to play is to encourage the creation of sandboxes. Sandboxes are safe spaces with well-defined boundaries that allow or encourage intensive experimentation. The second thing the leadership can do is to adopt a platform approach. The main advantage of platforms is that you are able to spread your risk over a larger range of products or services which may all be coming out of the same platform. Maruti Suzuki has just three or four core engineering platforms but creates a large variety of models meeting the needs of different customer segments.

Another way in which the leadership can play a critical role is by encouraging open innovation. Many of you might have heard of the role that A. G. Lafley played at Procter and Gamble (P&G) in changing the way it did innovation. He expected and encouraged P&G to look for at least half of its new product ideas outside the firm. The logic for this was simple. There are so many good innovators outside the company. If only you can tap into them, you can tap into a whole new set of ideas. And a lot of very successful P&G products came out of this collaborative approach. A critical role for leadership in this context is to overcome the ‘not invented here’ syndrome that can come in the way of collaboration.

The new frontier for collaboration is with startups, and the role of leadership is to have very clear goals for collaborating with startups. For example, a few years ago, I visited Cisco’s LaunchPad here in Bengaluru and what I found at that time was that Cisco had three very clear objectives when they collaborated with a particular startup. They either wanted to use that startup to track emerging technologies or they wanted to associate with technologies of products that are complementary to their own, which they could then use in complex systems, or, of course, they were looking for possible additions to their sales engine. In short, the leadership needs to structure the collaboration with startups in an effective way.

Recent research, such as Prashantham (2021), gives a clear indication of how collaboration with startups can be managed effectively.

Step 8: Creating a Margin of Safety

Finally, an important role of the leadership in building innovation capabilities is risk management or creating a margin of safety. There are a number of methods by which the company can do this, and the leadership should embed these different risk management techniques across the organisation. Failure to do so can result in very significant costs to the company as Boeing experienced in the troubles it faced with the launch of both the Dreamliner and Boeing 737 Max aircraft.