Tenet of Leadership #7: Encourage innovation
Setting the right environment for innovation requires a conscious effort. But there are, perhaps, two major enemies of the innovative environment: poor accountability measures/rewards and uncertainty and fear. (In the near future, I plan to outline my “10 Tenets of Innovation.”) Your level of innovative output will be driven by how you measure success and then react to failure, and how well you create an environment of clear expectations and trust.
Accountability measures: Encouraging well-reasoned risk-taking while requiring accountability requires a delicate balance and maturity in leadership. Good judgment in risk-taking is hard to measure; accountability to agreed-upon measures is usually much easier. So we tend to err on the side of applying many quantifiable accountability measures (like schedule or budget commitments) and few “good judgment” measures. But many of these chosen accountability measures may actually destroy the kind of environment we want to create and hold us back from generating highly creative solutions.
Does this mean that accountability isn’t important? Not at all. When all is said and done, our best measures of success should be clearly quantifiable. The best measure of success for a firm might be revenue growth, operational profit, or shareholder value. For a product-development organization, the best measure may be the overall returns from investment in new products. But these are aggregating and time-lagging measures. So we usually look for more timely proxies that allow us to measure the effectiveness of individuals and their efforts. We set up annual goals for each employee and declare the individual to be a success or failure at his or her annual performance reviews. But we sometimes forget that these are just proxies for what we really care about:
- Are our people making well-reasoned judgment calls? Are they among the best resources that we could imagine making these tough daily decisions?
- Are we setting the right environment for them to succeed?
- Are our overall efforts leading to success in the top-level, quantifiable but lagging measures we really care about?
If your proxy measures of success for the individual do not support the desire for well-reasoned risk-taking, you will get a conservative workforce. Remember that with risk comes opportunity. If you show your desire for a risk-free environment by your measures, you will drive out innovation. Instead, find better measures and reward people for appropriate and well-judged risk-taking. And be cautious with the “easy to quantify” accountability measures. Choose your measures carefully.
Uncertainty and fear: It makes sense that if you create an environment of fear of retribution, you will also drive away risk-taking and therefore innovation. If people do not feel trusted in their judgment (and assuming they remain with the organization), they will be careful to walk the conservative line. If the rules are many and apparently arbitrary, or if they have no clear path of logic in the minds of your employees, you can count on people being more cautious. But what may be less clear is that an environment of uncertain responses will do the same. Here is the connection: Uncertainty creates fear; fear leads to less risk-taking; less risk-taking leads to less innovation.
Do you have any unwritten rules in your company? Anyone who has a powerful leader with silent expectations, sometimes referred to lovingly as their “quirks,” has unwritten rules. But any organization that has a culture (and that’s all of us) has a set of unwritten rules. We all encounter unwritten rules and have to navigate our way through them. The real question is, How long does it take to understand the boundaries? Clear boundaries free us to work within them. They can eliminate fear. Fuzzy boundaries and especially varying reactions to breaching the boundaries cause fear. It’s as though we were walking in a field of land mines, knowing that with one false step, our careers may be over. Have you ever seen a dog being trained to stay within an invisible fence (that is, buried sensing line with a shock collar)? The uncertainty in where the boundary lies creates a high degree of anxiety, until the boundary is well known. After that, the dog is free to play within the known limits. It’s the fear of the boundary, and especially the fear of variable retribution that causes the greatest fear.
To create the most innovative environments, reduce the number of rules to the critical few. This will increase freedom and the feeling of trust. But where rules are important, make them clear and consistently enforced. To do otherwise will create an environment of uncertainty. Clear rules give us freedom. Fuzzy rules cause us to walk with trepidation.
Larry Pendergrass commented:
In response to sistla vamsi: I am afraid I have not read any works by the author that you have mentioned, although I did a quick search on the internet for this name. I see association with MindTree Ltd. and the book “The Professional” among others. Is this the right person? In any case, I agree with what say. Excellent leadership is seen in our ability to encourage and develop the environment for the right level of innovation (for the industry in which we compete), challenged by the varying ways that others in the firm might see innovation. The magic is in recognizing the required levels, understanding how to create this environment, and then defending this environment in the face of sponsors that may be used to measuring success on a short time frame, or taking fewer risks and expecting greater assurances of concrete achievements.
Thanks for your comments.
Larry Pendergrass
sistla vamsi commented:
Thanks for the nice elaboration larry. Recently i read a book by Subrato Bagchi, where he quotes his experience as Head for the TQM initiatives at his workplace. I could see your point in his narration...yeah innovation need to be understood as different package by different people across domains. The beauty will be in driving innovation in the face of these variations through apt leadership.
Larry Pendergrass commented:
In response to sistla vamsi: I certainly agree with your comments sistla vamsi. The danger is, as you say, when either too much or too little formal process is applied. This will either kill innovation or leave it un-tapped and under-utilized. Handling this balance “just right” is among the toughest jobs a leader can have.
Also as you have pointed out, the way innovation is viewed across the organization varies quite a bit. But perhaps this is as it should be to achieve the proper balance. The level of risk taking we wish our employees to take is based on the stakes and potential for high payback. So in regulated areas like finance, legal, safety, etc. we might hope that there is little risk taking, and the innovation in those areas are largely confined to incremental process improvements. In our manufacturing areas, we may have more freedom, unless we have an FDA or otherwise regulated product, copy-exact expectations, or other confinements.
On the other hand, in our R/D groups, we usually have a different perspective. We know that risk and innovation, including the potential payback that comes with innovation, go hand in hand. Our general managers then have a mixed bag to watch… areas where risky variation is unacceptable, and areas where it is essential to add value. It’s no wonder then that it’s a rare individual that can remember at all times to treat the different functional areas the way they need in order to thrive… to have different measures of success ranging from rewards for effort in the most creative and risky areas, to rewards for results for the most algorithmic and less risky.
The responsibility is on the product development leader then to remind others in the organization of the different nature of investment in innovation.
It might also be noted that from industry to industry we will see a very different level of risk taking as acceptable. In industries where your percentage of revenue invested in new products is high (like pharmaceuticals) perhaps 1 in 10 project starts make it through the process to commercialization. “Expecting failure but being delighted with success” is pounded in through experience. But with industries whose products are essentially commoditized, any money spent in R/D is expected to be fairly risk-free. The way managers “feel” about innovation is different by industry. Still, in all industries, risk is expected to be reduced to near zero through the commercialization process.
Thank you for your comments sistla vamsi.
Larry Pendergrass
Larry Pendergrass commented:
In response to savroD: What an interesting couple of observations savroD! If by this you mean that by applying strict algorithmic decision making at all times you may undervalue and perhaps sacrifice innovative and risky projects, and may produce an atmosphere driven too much by accountability measures, then yes, I agree!
It is certainly true that if we focus solely on quantitative measures and numbers on a spreadsheet, we may miss the critical reasoning and/or instinct necessary to know when to take appropriate risks. Numbers can guide us, and perhaps our models can improve over time as we learn more. But few top leaders are driven solely by algorithmic decision making.
In fact, those who study the physiology of emotions and their impact on decision making agree: emotions, gut feelings and intuition are real, though not always easily explained. The way you “feel” about a decision is wrapped up in processes in the amygdala and other parts of the limbic system. (By the way, there is a physiological connection between the limbic system in the brain and the “gut”. Gut feelings are real, and physiologically based on processes in the brain.) And it has been shown that those who have had damage to various parts of the limbic system can still reason very well. Their algorithmic processes are intact. But how they “feel” about a decision is destroyed. In the worst cases, patience with damage to the limbic system can reason, but can’t make decisions.
Instincts, emotions, and gut feelings are critical for all decision makers. But they are perhaps most important as the quantitative or algorithmic methods start to fail. In the risky world of innovation, perhaps leaders need to lean more than usual on the pull of the limbic system.
Larry Pendergrass
sistla vamsi commented:
Larry, your thoughts on nurturing innovation are convincing. The wave of knowledge management practices seeping in to the organizations show some promise to support the innovation frameworks. I would say that "Vision of the leader towards innovation" goes a long way in creating right set of expectations among employees. I observed there are varied expectations about the outcome of innovative practices across organization. Either making that set too formal or leaving it unguided, sooner or later results in drawing immature conclusions. Hence resulting in perceiving innovation as a "just another formal practice" or "show off thing" or "doesn't yield practical results". Nevertheless as said in your article instilling confidence that risk-taking is also a "Gift-in-disguise", is a tough job and few leaders can handle it just-right, with out disrupting the much needed formal web of practices in an organization.
savroD commented:
Well written and well said Larry. I would only add that the bean counters and MBAs are the enemies of innovation. Usually, the size of their paycheck is inversely proportional to their ability to contribute to innovation!
