November 21, 2018 – In today’s rapid-cycle business environment driven by technology advances, increasing and dynamic customer expectations, and a shifting competitive landscape, continual innovation has become an existential imperative for most companies — and having the right leadership in place to drive change throughout the organization is critical.
Few businesses are meeting their innovation goals, however, largely because they lack the right leadership, according to a new survey of 636 business leaders by Harvard Business Review Analytic Services. Although there is some consensus around the most important competencies for innovative C-suite leaders, most respondents indicated that their current executive teams fall short. Similarly, many corporate boards lack the skills and experiences needed to oversee innovation.
“In partnering with Harvard Business Review Analytic Services, we were very interested in better gauging and understanding what leadership skills are in most demand, and in asking corporate executives around the world what capabilities they think are the most important for innovative organizations,” said Geoffrey Hoffmann, chief executive officer of DHR International.
“In conducting this survey, we were aiming to see if our hypothesis was correct, which was this: In today’s rapid cycle business environment, innovation has become a competitive imperative; though, more often than not, global organizations have not taken into consideration the breadth and depth of leadership needed to drive a culture of innovation.”
The overriding problem seems to be that companies have not defined what innovative leadership means to them, much less how to measure or reward it, the report found. Nor have they built programs for developing key competencies for innovative leaders or effective approaches to acquiring this talent.
In contrast, a subset of respondents who said their organizations have been very to extremely effective in meeting their innovation goals — those the study identifies as “pacesetters” — illustrates the connection between leadership and innovation success. Pacesetters are more likely to report that their C-suite leaders possess the key capabilities required to lead innovation; to say their organizations are very effective at acquiring, retaining and developing innovative leaders; and to report fewer organizational barriers to doing so.
Innovation and the C-Suite
Innovation means different things to different companies, but only a handful of respondents reported their organizations were satisfied with the status quo. Just under half (45 percent) defined their innovation focus as transforming their existing business models, products and services to leapfrog competitors. A little over a quarter (28 percent) said they want to keep pace with industry change while around a quarter reported a more disruptive stance. Changing technology, customer expectations and business models were the top drivers for these efforts.
The vast majority of companies, however, are failing to meet their innovation goals. Just 16 percent of the respondents said their company has been very or extremely effective in its innovation attempts to date. Such a fundamental shift in how an organization thinks, behaves and operates requires a different kind of leadership — starting at the very top, said DHR. Respondents named the CEO as far and away the most important individual leading their organization’s innovation efforts.
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Companies can only go so far with even the best talent. To succeed, businesses must also show a commitment to continual innovation, says Stephen Dallamore, global chairman of AltoPartners.
“If the CEO doesn’t operate in the way that we know matters to continually innovate, it will never happen in the rest of the organization,” said Linda A. Hill, the Wallace Brett Donham professor of business administration at the Harvard Business School.
“In the executive recruitment business, never have we seen and experienced as much fundamental change in our industry as we are today, due in large part to the rapid pace of innovation among industries and organizations,” said Mr. Hoffmann. “As the pace of innovation continues to advance, an increased number of organizations are approaching our business, seeking help recruiting, identifying, assessing and onboarding leaders who have the capabilities to own and drive innovation across all levels of an organization.”
Creating, implementing and fostering a culture of innovation, they find, is more difficult than it seems. “It takes a unique mix of skills, capabilities, experiences, and a specific mindset to effectively drive innovation,” said Mr. Hoffmann. “And, coupled with that, companies want to ensure that the leader they recruit from the outside also fits within the culture of their organization. Our firm has invested heavily in helping organizations unearth top candidates and, more importantly, effectively assess whether or not they have the ability to be innovative leaders.”
Surprisingly, only 13 percent of respondents pointed to the chief human resources officer as an important innovation leader, although the role is pivotal, said Scott D. Anthony, a Singapore-based senior partner at consultancy Innosight. “Innovation is an intensely human activity,” he said. “Ideas about retaining and developing talent and helping the leadership team think differently should be the purview of the CHRO. The challenge is that inside most large organizations, HR remains a very tactical function.”
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Those organizations that find strategic HR leaders are better equipped to innovate. Mr. Anthony pointed to Singapore telecom giant Singtel, whose global HR leader, Aileen Tan, has been crucial to its embrace of innovation. “She’s an intense strategic thinker and critical to how Singtel future-proofs its talent,” he said.
A New Kind of Leader
The most innovative companies have found leaders who are skilled at communicating a vision of the future to unleash the innovative potential in the larger organization. “Having a narrative about where you’re trying to get to and the organization you’re trying to become is the first step toward driving change,” said Mr. Anthony. A continuous learning mindset and collaborative nature are also important. “You can’t innovate without learning and collaborating,” said Jeff Mike, vice president and HR research lead for Bersin/Deloitte Consulting.
Survey respondents cited all three of these competencies as the most important for innovative leaders. They indicated, however, that their current leadership teams are largely lacking in these areas. Only 44 percent of respondents said their key leaders had strategic vision, while 39 percent said leaders were skilled in collaborative management, and 34 percent said they possessed a continuous learning mindset.
Boards Need to Step Up
C-level leadership by itself isn’t enough, however. “Without the full support of the board, management is unlikely to take the big bets required to innovate,” said Ms. Hill.
Few boards appear to be meeting their responsibilities in this area. Just 16 percent of survey respondents overall said that most of their current board members possess the necessary skills to oversee innovation, compared to 40 percent of pacesetters. Meanwhile, only one-third of respondents reported their boards have a committee dedicated to innovation.
Boards can prove tremendously valuable, not simply in working with the executive team to set up the right environment and culture for innovation but also in providing access to external expertise. Singtel, for example, brought on a serial entrepreneur, Match.com co-founder Peng-Tsin Ong, as a director shortly before it began its transformation from a traditional telecom company to a diversified media and marketing company.
Even so, it takes more than a startup star on the board to effectively encourage innovation and to understand all the facets of it — from industry disruption to emerging technologies. “It’s about the collective literacy of the board and a collective understanding of why it matters to take the risks involved,” said Ms. Hill. “You need a board that’s courageous.”
She pointed to the example of retail grocer Kroger which, facing intense competition from Amazon and low-cost competitors Lidl and Aldi, is making a long-term investment in innovation and transformation that has impacted short-term earnings and resulted in its stock taking a hit. “You need a board that backs management as they work through the inevitable challenges — and, frankly, missteps—associated with executing an innovation agenda,” she said. “That can require not just changing the composition of the board but — perhaps more importantly—its processes.”
A Team of Innovation Leaders
For organizations to succeed at innovation, then, they need to acquire, retain, and develop the right kind of leaders. Unfortunately, very few respondents — just 14 percent — said that their organizations are very effective at doing so.
They blamed a lack of clarity about what their companies expect from innovative leaders. The biggest hurdles, according to respondents, include: not defining what their success looks like (48 percent), not measuring or rewarding leaders for their innovation-related achievements (47 percent) and the lack of an innovation strategy (44 percent).
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Ambiguity also extends to whether and how companies incentivize innovation. Just a handful (seven percent) said innovation performance metrics were an integral part of performance management and compensation, while respondents reported little consensus about whether they should pay innovative leaders a premium. In fact, 43 percent said they did not know how much extra their organizations would be willing to pay such leaders — an indication that their companies have not communicated the value of innovation leadership skills.
The pacesetters, not surprisingly, have done better. Nearly half (45 percent) of this group said their organizations are very effective at acquiring, retaining and developing leaders, and they are less likely to complain of certain barriers to doing so. Nearly all the pacesetters reported having clear innovation strategies, for example, and the vast majority do not feel corporate culture, organizational structure or resistance to change are holding them back. The findings suggest a need to transform how companies assess, measure and reward leaders, starting with the hiring process.
While companies desperately need new kinds of leaders, they continue to rely on traditional interviewing techniques, which provide only limited insights into a leader’s innovative potential. Just 11 percent of respondents said their organizations are very good at assessing new recruits for their innovation capabilities. One out of five said their organizations are not good at this at all. Most conceded the need for better interview questions (56 percent).
Nearly half of respondents (47 percent) agreed that requiring candidates to participate in case-based work simulations or situational judgment tests would improve their ability to assess candidates’ innovation leadership potential.
Measure and Reward Innovation
Companies may not be rewarding leaders for their contributions to innovation because they’re too focused on maintaining the status quo. “There’s so much pressure for execution in most organizations that innovation is not weighted highly in performance evaluations or balanced scorecards, even if companies attempt to measure it,” said Ms. Hill. “And few companies have figured out how to hold managers accountable, yet make space for the need to fail fast and learn when innovating.”
Ms. Hill has developed a diagnostic tool that helps companies determine the impact a leader has on innovation based on the culture and behaviors they have built within the organization. This gives them insight into what a successful leader of innovation looks like. “You can’t just look at outcomes because real innovation can take a while to pay off,” said Ms. Hill, who has worked with organizations from start-ups to NASA to figure out how to identify leadership behaviors needed to support efforts for a manned mission to Mars.
The Leadership-Innovation Connection
In comparing the experiences of pacesetters to the rest of the survey respondents, it is clear that having C-level leaders and board members with the right competencies is the bedrock upon which an innovative organization is built. “To get there, companies need to create clear innovation strategies, define what it means to be an innovative leader, and rethink the ways in which they recruit, assess, retain, develop and incentivize those who are capable of fostering innovation in the organization,” said the Harvard Business Review. “The good news, as the innovative pacesetters show, is that it can be done — and it will deliver results.”
In the end, the survey report indicates a substantive disconnect, said Mr. Hoffman. “While most companies indicated that innovation is an important strategic component, the vast majority of survey respondents believe that their organizations are not meeting innovation goals,” he said.
The survey shows that most organizations generally lack the leadership competencies needed to innovate successfully, said Mr. Hoffmann. “These companies have generally not defined, measured, or rewarded innovative leadership,” he said. “Our view is that, over time, there will be a shift as organizations increasingly, albeit slowly, apply the lessons learned from the innovation pacesetters in their respective industries.”
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; Stephen Sawicki, Managing Editor; and Andrew W. Mitchell, Managing Editor – Hunt Scanlon Media