There's nothing new about innovation: it's always been an important part of management thinking and business strategy. While the 1980s were a period of product and process innovations, the 1990s were driven primarily by technology innovations. But as we came into the 21st century, the world's largest economy "" the US "" went through some shocks. The Internet bubble burst, the capital flowing into the tech sector dried up and, as a result, innovations in the technology space reduced significantly.
Then 9/11 happened. On the whole, in the late 20th and early 21st century, funding around innovations and innovative strategies remained abysmally low.
However, in the past two years, from what we have seen, innovation and growth is coming back on top of the CEO's agenda globally. To an extent it is driven by the fact that economies are recovering.
But what is interesting is not that people are back investing, but in the way they are going about it. Earlier, innovation was primarily about big ideas, and applying those big ideas in the products and services areas.
The biggest difference in the way companies are innovating today is that they are looking it more holistically "" beyond products and services. They are looking into innovations in their operation models "" that is, how are they operating around the world, how are they tapping into opportunities of talent, of cost arbitrage, of being able to manufacture and produce services in low-cost countries while serving high-cost countries?
One of the trends that has come out of this is that of global sourcing. We believe that although it might have started as a cost-reduction initiative, today it's one of the biggest innovation drivers in the world. How does that work? The trend of global sourcing goes from just a narrow view of shifting from one country to another to that of seeking opportunities across the globe.
GE was probably one of the earliest innovators on this path. Perhaps the first driver for GE, too, was cost. But as it started moving significant chunks of its manufacturing, internal services, transactions and so on to different parts of the world, it realised that global sourcing is not just about finding low-cost locations, but it's often more about finding talent.
Again, if you look at some of the big advertising agencies, they are looking for talent pools in places like Thailand, Singapore and Korea where they think significant pools of creative talent exist.
So, what is it that makes a GE, an American Express or a Citigroup an early and fast mover in the area of business model innovation?
For this, Hewitt embarked on a research with Michael Tracy (author of Double-digit Growth) who is also looking at the concept of innovation within a group and what helps companies "" like Wal-Mart, South West Airlines, Johnson & Johnson "" grow at much faster rates "" three, four, five times faster "" than their peers?
In Tracy's words, finally it comes down to the ability of the company to create management capacity for growth. That is, does your company have enough fire-power in its talent pool to see opportunities, and to go after those opportunities, to strategise and plan based on data, evidence and insights and then execute these plans?
Hewitt worked around some of the top-performing companies to understand what it is that can help companies build management's capacity for growth and innovation. Our research shows that there are five aspects that are a must to build that capacity:
Innovative and growth-focused leadership: If you look at GE, IBM or American Express, all these companies have put in enormous resources and effort to build leaders. I'm not just talking about building managers, but individuals who can create results that are much better than is expected of them, who can look at things as they are today and visualise and execute growth models for the future. These are people who can drive change. And the companies I am talking about have the capacity to produce such leaders almost like a factory.
What makes good leaders? Obviously, individuals must have a minimum acceptable understanding of the business, but beyond that there are specific programmes, practices and strategies that help you groom people to become leaders.
Our research tells us that companies that are doing a good job building leadership actually have to start early "" it takes at least five to six years from the point you start the journey to build leadership and start seeing actual results.
Second, the CEO and the board have to be involved in the leadership development process. If it is seen as an HR exercise, nine times out of 10, it's not going to work. Take GE, for instance.
The business leadership at the company actually spends an entire session "" one or two days "" discussing name by name, person by person, the talent pool of the company. Further, a company has to have the sophistication to develop a full leadership strategy that involves training, feedback, goal settings and rotational assignments.
Talent: Not only do these companies have a strong leadership pools but also a process by which they select, groom and stretch talent. These are companies that would aggressively differentiate between top talent and average talent, being, at the same time, clear about their expectations and performance. For instance, they would aggressively deselect talent that is not shaping up over a period of time.
Performance: Our research tell us that high innovation and high-growth companies have been able to stretch targets and roles for their leaders and managers. For instance, Dell doesn't believe in tracking its market share. Instead, it tracks how fast the business is growing as a multiple of the growth of the economy.
So, if in China the economy is growing at 8 per cent, and if you are the head of Dell China, you might have a 3x target, which is 24 per cent growth, or a 5x target, which is 40 per cent growth. Most companies will sit around the table and say the economy is growing at 8 per cent and, may be, if we do well, we can grow at 10 per cent.
So, setting performance expectations that are, at times, just out of reach is important. At the same time, companies need to back up expectations with resources.
Organisation: These companies focus primarily on what they do very well. Most of them now work with a number of partners "" partners in IT, in HR, finance and investment. They utilise the number of partners who bring in capabilities that they don't have inside. So these are companies that outsource heavily. They not just outsource but always look at opportunities to build long-term partnerships with their outsourcing partners. From an organisation point of view, there is also an cultural issue "" these companies have a high-confidence culture. There is almost always a "can do" attitude. Individuals may fail, but they never lose the confidence that it can be done.
Execution: What we are increasingly seeing in high growth companies is that the concept of accountability is important. How is these companies' execution different from others? We call it "no excuse" execution.
So, when a manager says "I will drive this business forward by 30 per cent or will launch this product in this market in three month", those are promises made with a clear understanding that there is no excuse if it does not happen. But then, how do these companies handle failure?
The concept of failure management is about being able to know what I'm doing, make facts-based analysis and understand that I need early warning signals of failure. So, if it is a six-month project and you go up to your boss at the end of the fifth month and say this is not working "" that's not acceptable.
