Good management is often just the catalyst needed for an innovation to create value in a way that is meaningful for the business. And differences in management capacity help explain why some organizations are more successful than others at creating value from innovation.
Is your organization ready to innovate? We explain why generating value from an innovation often requires good management, and how you can use data-driven tools and strategy to enhance management quality and set the stage for successful innovation.
What Drives Innovation?
Innovation – doing the same or more with less – is the primary driver of long-term growth and linchpin for gaining competitive advantage. But what drives value-generating innovation?
We know that a few specific factors can create incentives and opportunities to innovate — like competition, price differentials, and sudden shocks. And sometimes these incentives can switch on at random. Take COVID-19 for example. The pandemic necessitated that companies make use of technologies that help facilitate remote work, and it changed workflows around producing output and deliverables.
We also know that some organizations are better than others at sourcing innovation. A lot of innovation originates not in big corporate or government R&D labs, but in startups and even households and individuals motivated by mass demand and personal convenience (e.g., mountain bikes or open-source programming functionality). Some firms are relatively good at capitalizing on this free system of user-driven innovation. Other firms excel at producing foundational breakthroughs internally.
In either case, realizing value from innovation requires something more. We are used to thinking of innovation in terms of discrete breakthroughs – big advances in products or technology, like the quantum computer, self-driving vehicles, and noise-canceling headphones. But innovation is often multifaceted, taking the form of product or technology, process, and organizational evolution and with each part interdependent with other parallel and complementary innovations that mutually increase the value they generate for the organization.
This is where subtler drivers of innovation come in – not randomly, but through the vision and leadership required to bring innovation to fruition. To refine ideas and make them manufacturable and scalable. To drive organizational shifts in which long-established processes and yes, cultures, need to change to truly unleash the value of an innovation.
Creating the right conditions to innovate
If successful innovation requires both luck and seizing opportunity, then no formula can manufacture innovation. But sometimes potentially valuable innovations are hidden, waiting to reveal themselves until provided with just the right code.
What is this code? We think it consists of complementary inputs – innovations in their own right – that enable organizations realize the full potential of other innovations. Identifying and providing these complementary inputs is what getting ready to innovate is all about.
Innovations are interdependent, and innovation along one dimension can translate into innovation in other dimensions. For instance, a company that appropriately implements tools and processes to measure employee productivity should also find itself more capable of tracking and driving uptake of new processes and practices to help capitalize on sales- or productivity-enhancing tools and technologies.
Getting ready to innovate means appreciating the complementarities between innovations and capitalizing upon them – preparing to realize the full value of one innovation by thinking of its critical inputs as innovations in their own right and ensuring these inputs are available at the right place and time.
The link between good management and valuable innovation
In our experience, good management is often just the catalyst needed for a potential innovation to create value in a way that is meaningful for the business. Differences in management capacity help explain why some organizations are more successful than others at creating valuable innovations.
This experience ties out with what economists have thought for some time. We spoke with Europe-based economist Andrea Canidio, who studies the potential applications and implications of different kinds of innovation, such as blockchain. Canidio notes that historically, good management has been a critical form of innovation in its own right and an essential complementary input to the success of other innovations.
Other economists have attempted to quantify innovation and relate it to measures of firm success. In a groundbreaking study published in 2010, Economists Nick Bloom and John Van Reenen utilized a survey to quantify the quality of management practices along multiple dimensions at ~11,000 mid-market firms in 17 countries and numerous industries. Through regression modeling, they showed that better management was strongly correlated with firm productivity, profitability, and growth.
In our own client work, we are sometimes asked to perform very targeted engagements focusing on one specific challenge or analysis (e.g., building a regression model to identify productivity drivers or designing an anomaly detection algorithm). Where the results of these engagements are deployed into organizations that are “ready to innovate”, we have observed that the impact tends to be larger and more sustained.
Improve core management practices with sound data strategy
Where does that leave organizations that are not yet ready to realize the full potential of innovation? For those prescient enough to recognize the importance of creating the right conditions for impact and sustainability, data-driven tools, training, and other inputs can help overcome the “last-mile problem” and foster the right conditions. For example, some core aspects of management quality (e.g., ability to track and communicate performance to all staff, defining of balanced and interpretable metrics) can be enhanced with relatively simple strategy and tools.
Is your organization ready to innovate? What resources can you tap into to create those capabilities? For firms looking for a place to start with such a strategy and tools, check out what we have written here and elsewhere on Innovate.