When companies proclaim their commitment to innovation, they are usually referring to new technology, products, research and strategic thinking. Seldom do they talk about innovation in management: yet this may be the most important kind of all.
Management innovation matters because new technology and products are more easily replicable and competitive advantage thus gained is quickly lost. Innovations in management systems and practices, on the other hand, are much harder to imitate.
Gary Hamel (pictured below), a professor at London Business School, believes that today such advances are few are far between. “Real innovation in management has slowed to a crawl.”
Speaking last week at a meeting sponsored by the Management Lab and Advanced Institute of Management at London Business School, Prof Hamel contrasted the modern situation unfavourably with the early 20th century, when innovators such as Frederick Winslow Taylor were pioneering new ways of managing businesses. Later in the 20th century came some other famous examples, such as the Toyota system and total quality management.
Today, says Prof Hamel, when executives are asked to imagine new ideas in management, “they mostly come up with structures that are familiar from their own businesses, and have difficulty imagining structures that are different from what they know”. Managers need to wake up to the importance of this issue before it is too late, he adds.
Julian Birkinshaw, another LBS professor, cites examples of management innovation including the balanced scorecard, which enable companies to look at performance in different ways. Another is what he calls the “blowing up of budgets”, the replacement of budgets with more flexible guidelines on spending and performance.
According to Jeremy Holt in his book Reinventing the CFO, this not only saves time – in some firms the budgeting process can take as long as three months – but it also encourages innovation. Budgets, says Mr Holt, often act as a straitjacket: the guiding principle becomes “we can’t afford it because it’s not in the budget”, and this prevents people from acting creatively.
Where should innovation begin? Prof Hamel and Prof Birkinshaw believe that, whereas previous advances focused on processes, the management innovators of today must concentrate on people. This is as true of start-ups as of big companies. Prof Hamel says that companies “need to learn how to use employee imagination”.
At IT training firm Happy, the most important metric is not financial performance, or even customer satisfaction, but employee satisfaction. Managers say that if employees are happy they will create happy customers. Managerial and technical functions are kept separate. Happy has some of the highest customer satisfaction rates in its industry.
Whirlpool, the US white goods and appliance maker, set out several years ago to make innovation everyone’s job. “There was no best-practice model,” says Prof Hamel. “No benchmark that anyone could follow.”
Every business process, from marketing to finance, was examined with a single question in mind: how could this process become a catalyst for innovation? Whirlpool set up a bulletin board where staff could post their ideas for innovation. It also began measuring success by number of new products introduced each year as well as financial performance. The company is now rated one of the most innovative in the world.
Customers can also get involved in the process. Danish toymaker Lego has been using customers as a source of innovation for several years, says Torben Pedersen, a professor at Copenhagen Business School. As a result, the boundaries of the firm have started to blur. Lego fans now combine features of both customers and suppliers. Some new products are even labelled “created by Lego fans”.
Proof that even the biggest companies can innovate in this way comes from IBM, which launched its “Innovation Jam” in 2006, posting dozens of white papers and internal documents online and inviting comment.
“Everyone got involved in discussing IBM’s strategy,” says Prof Hamel. “Customers, suppliers, employees, family members of employees.” The result was 10 initiatives and hundreds of millions of dollars of investment.
But the majority of companies are failing to realise similar benefits. Part of the problem lies in how managers are trained and educated. “Most managers are not taught to think of themselves as people whose job it is to create and invent,” says Hamel. But businesses too must play a part, giving people the tools of creativity and encouraging their use.
Most people are fundamentally creative, he adds: the evidence can be seen in their homes, their gardens and their hobbies.
“Then when they get to work, they are somehow expected not to be creative. We need to get the organisation out of the way, and let people bring their creativity to work.”
