A Culture for Innovation - Liberate the Innovative Spirit

Despite many claims that organizations are empowering their employees and encouraging their innovation by opening the idea generation stage to employee input, very few organizations have actually implemented such systems, and, of these few, even fewer did it effectively. The PDMA survey reports that idea generation is still concentrated or mainly managed by the engineering function in goods manufacturing industries and the marketing function in service industries. This is usually performed at senior and middle management levels, with attention directed to lower management or frontline levels only in limited cases. At a time when 3,000 ideas are needed to come up with a good one for commercialization, the input of every employee in the innovation process is essential. Many organizations therefore implemented systems to solicit ideas from employees and encourage their input with no real success, mainly because these systems had no culture to give them life. When it comes to IM, culture provides the motivation, the passion to innovate, and the recognition that innovators need to carry themselves through the frustrations of the innovation process.

The most important value to cultivate in the organizational culture to unleash the innovative power is acceptance of failure as part of the learning and experimentation process. To engrain these values in the organizational culture, the same methods used under KM of rewarding employee innovative activity and including the values in the appraisal criteria apply. Awards and incentives can be provided, for example, for idea submissions exceeding a certain number and recognition for ideas that make it to market (e.g., 3M's Hall of Fame to honor the most innova­tive employees).

The most important consideration, however, is to make innovation part of everyone's job, which can be done only by providing time and resources for employees to experiment and pur­sue their ideas. 3M, for example, allows all employees 15-20 percent free time to work on proj­ects of their own. Depending on the level of success, the project may be spun off into a new business in which the employee who submitted the idea is given an equity share. Another exam­ple is IBM, where bureaucracy stops at the doors of the labs, allowing researchers time to exper­iment and even to play. The story of inventing the application of laser for eye surgery is indicative of how this functions. A group of IBM scientists, while experimenting with laser for improve­ments to IBM's existing products, started to play. One scientist wanted to see what the effect of laser would be on his finger cut. Getting more intrigued, the scientists started experimenting on cows' eyes and eventually developed its application to human eyes. IBM decided to develop the technology and later licensed it all out, making millions in profit.

It must be noted that both 3M and IBM regard innovation in its own right as their core busi­ness and thus are willing to pursue any idea of their employees even if outside the core business areas in which they specialize. IBM in particular encourages the development of any new prod­uct or technology, as it perceives licensing of the technology afterwards as a business, hence the development of the laser for eye surgery. Other organizations, however, do not share the same ideology and rather focus their innovative capability on defined core business areas. As a result, employees' ideas that are outside the strategic and growth plans of the enterprise are suffocated. This not only hampers innovation, but it may cost the organization millions in lost opportunities and business. Far from being a remote possibility, innovators leave their organizations in many instances and successfully pursue their ideas on their own. Bill Gates and his departure from IBM, Steve Jobs and his borrowing from Xerox, and the former Lucent employee who estab­lished Intel are all striking examples that are continuously repeated. To avoid such a risk and to maintain a culture where innovation—even if outside core areas—is fostered, many organiza­tions incorporated in their business model venues for the unruly innovator—hence the emergence of skunk works labs and venture capital units.

Skunk works labs are separate labs or parts of labs either in central or business unit labs, where entrepreneurial employees have access to state-of-the-art equipment to experiment with their own ideas. Such units are not controlled by the central or business unit-level lab, and thus impose no research agenda or a certain area of focus. Once the project gains momentum, the researcher can approach the business development or venture capital unit for funding and support. Venture capital units are either independent profit centers or part of the business development department. These venture capital units invest in employee ideas by spinning off start-ups in which the organ­ization owns an equity share. For example, Lucent's venture capital unit looks for opportunities within Bell Labs, where 30,000 scientists apply for four patents every day. The venture capital unit invested and spun off around 12 companies by 1999,41 most of them successful. Pricewater-houseCoopers reports that 27 percent of surveyed companies in their "Technological Barometer 2000" study had such units.42 These companies had grown by 30.6 percent in 1999, 31 percent higher than other companies of similar R&D investment that lacked such units.

Skunk works units seem to be used by scientists or researchers only and are not open to every­one in the organization, again limiting the innovative potential of the organization. To effectively maximize the organization's innovative ability and extract maximum value from human capital, it is important that organizations empower their employees.

Many organizations limit IM to the NPD process and thus undercapitalize their human capi­tal. By limiting innovation to the NPD process, only ideas for new products will be encouraged and promoted, excluding improvements to business process. Therefore, the key to empowering employees, and hence extracting maximum value from the IM stage, is to foster process innova­tion. Of course, for organizations that offer no products or services, process innovation is of utmost importance. In addition to cost reduction and enhanced performance, employee-driven process innovation can yield great results in increased employee morale and productivity. One of the most successful models where the promise of empowering employees is taken seriously is that of Dana Corporation, a manufacturer of automobile parts.

The brilliance of Dana's employee-empowered innovation lies in the utilization of its human capital to grow in a mature traditional industry. Dana was serious about its appreciation of the value of its employees' intellectual capital and set out to encourage its transfer into intellectual assets. Dana started with implementing its model at the Parish Light Vehicles Structures Division, based in Pennsylvania, with 36,000 employees.43 Idea submission was made mandatory, where each person, starting with the CEO to the newest hire in the plant, was expected to submit two ideas per month. New ideas could be submitted in relation to "combining operations, functions, and processes. On improving accuracy, quality, customer service, system techniques, storage, ship­ping, production control, machine performance, material handling, house-keeping, working con­ditions, paperwork, plant and office efficiency, and security. ... on reducing rework, scrap, tool breakage, personal or property hazards, waste maintenance, repairs, downtime, person-hours, cost. On saving time, space, material, and manpower. On simplifying design, procedures, and forms."44

Dana encourages employee implementation whenever it involves expenses within certain budgetary limits. Once exceeded, the employee must obtain the approval of the supervisor; a first-line supervisor can approve up to $10,000 in capital expenditure.45 Dana not only set an implementation target of 80 percent of ideas submitted, but incorporated rewards in its compen­sation system for people who submit more ideas than mandated. The Division achieved a 77 per­cent implementation rate in 1995, with considerable financial gains and enhancements to its culture and employee loyalty. Dana reported a 40 percent increase in profitability and a 13 per­cent increase in productivity.46 In one example, record-high customer demand prompted top man­agement to spend millions of dollars to expand the assembly line facility. Just before the decision was made, an idea was submitted by employee on the frontline to add workstations to the assem­bly line in a certain way. Dana instead implemented the idea for a $70,000 investment and was able to "eliminate a third shift, go from a seven- to a five-day workweek, and at the same time boost line rate productivity by 23 percent.

The fact that IM in the knowledge economy is increasingly reliant on networks and the ability of the organization to tap into IC, gave rise to a number of methods designed to mine human and customer capital for ideas and product concepts. In addition, a number of tools emerged to enable management to mine business and technological data for insights to steer the innovation process. A number of these methods and tools are outlined next by reference to the IC they aim to tap.