HR leaders have a very important role in fostering innovation, according to an expert in the area, who said there are specific steps that HR can take in order to help create a culture of innovation and further the practice of “intrapreneurship” within organisations.
The first key driver of innovation within companies is leadership, and it is important for organisational leaders to frame innovation from the top when it comes to innovation strategy and mission, said the director of UTS’ Advanced MBA, Dr Natalia Nikolova, who has conducted research into effective strategy, innovation and leadership.
“To foster innovation, you do need some direction from leadership. It’s not about innovating blindly in all directions, so companies do have to set some directions for innovation” she said.
“Be very clear on the key areas where you can create value for clients and customers; these are the key areas you want to focus on.
“This direction for innovation is really important, because otherwise, innovation efforts can be too scattered and won’t lead to a real agenda for change.”
Nikolova, who recently spoke at an Oracle HR innovation series breakfast event in Sydney, said the second important consideration for HR in fostering innovation is communication.
Leadership has to communicate the importance of innovation, and Nikolova said the CEO, senior executive team and the Board need to be clearly aligned in this process.
A research project Nikolova undertook with colleagues from UTS Business School and partners 2ndRoad and SpencerStuart in 2016 has found that some Australian companies have a risk-averse attitude towards innovation.
It is therefore extremely important that CEOs and chairs align their agendas and communicate their support for innovation both internally as well as externally to the market.
Similarly, organisations need to have appropriate governance structures in place to support innovation.
“Many companies have an innovation director, but it’s not enough to have one or a few people who are working out of a centralised innovation unit”
“An innovation council, comprising senior leaders, including the CEO, is very helpful in providing both oversight as well as a show of support, because you need a proper governance structure to direct innovation efforts,” said Nikolova.
In this process, it is important to think about what drives innovation from a governance perspective and carefully consider the composition of innovation councils, company boards and senior leadership teams.
“For example, when it comes to company boards, there is a big issue with diversity,” she said.
Research published in Harvard Business Review in 2013 as well as 2017, and studies by McKinsey have clearly shown that boards that are more diverse in age, gender, cultural background and including individuals with backgrounds in the technical and digital space, are much more successful in fostering innovation.
Nikolova cited a US study which demonstrated a clear connection between diversity and innovation, and she explained that this link is often not considered when it comes to governance and the composition of boards.
Structure and processes are also key drivers of innovation, and in addition to innovation leaders, companies also need “innovation champions”, she said.
“Many companies have an innovation director, but it’s not enough to have one or a few people who are working out of a centralised innovation unit.”
A good starting point is to negotiate with managers across different business units for team members to fully engage in innovative activities one or two days per month.
Nikolova said this should be recognised as part of their workload, performance and career aspirations, and these people should also be supported by dedicated innovation leads or champions.
“You do need some dedicated roles, but you also need to encourage and engage everybody to innovate,” she explained.
There are a number of processes that can be employed to encourage innovation, and Nikolova said that many companies are starting to use design thinking to drive innovation because this process is user-centric clearly connecting innovation to customer value.
“A lot of large organisations who have become successful at innovating are adopting the so-called lean start-up methodology”
Starting with the user needs, and building back to the technology, design thinking is changing the way teams deliver value, organise work and find solutions.
For example, Oracle’s design thinking team in ANZ works with HR leaders to help build out human-centric approaches to every stage of design, which is helping deliver fast prototypes and quicker, tighter paths to innovation.
Providing resources is “absolutely critical” in the innovation process, and Nikolova explained that this does not need to be an expensive or large exercise.
“In fact, a lot of large organisations who have become successful at innovating are adopting the so-called lean start-up methodology,” she said.
“They start experimenting, trialling innovative ideas, products and services with a very small budget, and see how it goes.
“If you fail, you start again. If you succeed, then you put in more money. You don’t have to make big bets where you put a lot of money in at the start.
“In fact, in many cases, companies put in anything between $10,000 to $50,000 to test a new idea, and then if it is proven to deliver value, they continue to prototype development by increasing investment in the idea.”
Innovation obviously requires funding, and Nikolova said that clearly communicated financial commitment not only enables the process of innovation but also signals serious organisational intent and support for innovation.
Metrics also play an important role in the process of innovation, however, innovation takes time and she said expectations on quick returns on investment need to be managed.
“You cannot expect the people who are engaged in innovation to deliver short-term return on investment benefits,” said Nikolova.
“If you fail, you start again. If you succeed, then you put in more money. You don’t have to make big bets where you put a lot of money in at the start”
“You have to give them time – normally, three to five years at least for an innovation initiative before it starts delivering something back.
“In some cases, if it’s radical innovation, it might take much longer, so a long-term orientation with metrics and how to measure the success of innovation is absolutely critical.”
Executives and boards often look for short-term outcomes as a result of market pressure. However, Nikolova said, there is a way to communicate with the market to show clear conviction and commitment to innovation and to justify investments in innovation which will deliver long-term results.
“As long as you can demonstrate that you are obviously hitting some of your short-term targets, then you can communicate long-term goals as well,” she said.
The last driver of innovation is talent, and Nikolova said this is where HR leaders have a particularly important role to play.
“Think about talent as an ecosystem of different capabilities. It’s not just your internal talent; think about people who are external to the organisation but who can actually play a part in innovation,” she said.
Established partnerships between companies or a very important group of individuals who bring ideas into an organisation could be considered here, while crowdsourcing is also assisting organisations with the creation of more innovative ideas and solutions.
“However, with this approach comes risk and the potential loss of IP or loss of innovative ideas,” said Nikolova.
“When you manage these external relationships, there also has to be a very clear management or even contractual agreement on how you manage questions around IP so that you don’t lose it.
“To build a culture of innovation, you first have to build a culture of employee satisfaction and wellbeing, where people really feel that they’re nurtured”
“Nevertheless, if you’re just worried about losing IP and don’t engage with the outside world, you’re not going to be as successful, because innovation now is created as much internally as through open sources,” she said.
Nikolova explained that some companies have started developing a formalised external innovation strategy which sets out criteria characterising key partners that they’re willing to work with in order to minimise IP risk issues in the short-term.
Lastly, in relation to talent, recognition and reward are critical to the process of successful innovation as people need to be motivated accordingly.
“Quite often, this is not happening in organisations,” she said.
“People are ‘punished’ if the innovation initiative doesn’t go well, so they have to carry the responsibility for why there has been a failure, but they’re not properly rewarded and recognised if there is a big success.”
“If this is the case in your organisation, your people are not going to be open to innovation so it’s really important to think about building a culture of innovation in which there is no fear of failure.”
A company’s culture needs to genuinely support innovation, Nikolova added: “All of the above elements come together into building an open, supportive culture,” she said.
“People are not going to innovate if they feel insecure in their jobs or if they feel that they’re pressured all the time to meet short-term financial targets, with no support and no understanding of their needs,” she said.
“To build a culture of innovation, you first have to build a culture of employee satisfaction and wellbeing, where people really feel that they’re nurtured.
“HR leaders need to focus on helping to creating cultures and environments where people feel that they’re supported and that their specific needs are understood, and this will help them be more open towards being more innovative.”
For more information on the Oracle Design Thinking for HR initiative, contact firstname.lastname@example.org.