By Edoardo Monopoli

There is an important difference between “creativity” and “innovation,” which explains why very creative environments are not necessarily successful businesses. While creativity stands for “producing novel and appropriate ideas in any realm of human activity,” (Teresa M. Amabile, 1997) innovation is the successful implementation of those ideas, measured as actual value creation. In our experience, the main issue is often not the lack of new ideas but the inability to turn them into meaningful business results.

The purpose of this article is to illustrate the variables that describe an organization’s “innovation readiness” – the likelihood that creative ideas will emerge and be successfully implemented. Understanding the leading indicators of innovation success is crucial to overcoming organizational barriers.

The Innovation Readiness Framework

Innovation readiness is based on three important factors, which are presented in the equation below:

The internal potential of an organization measures how much of employees’ creativity is exploited. The ideas generated by talented individuals and groups need a receptive environment in which to flourish and become real innovations.

On the other hand, the internal potential of an organization cannot be properly used without a clear understanding of the emerging trends and, in particular, the unmet customer needs and insights. The system openness measures how far ahead an organization can see and whether it is capable of scanning the “business periphery,” exploiting relevant but weak signals in the environment. The overall capacity for innovation is a function of both system openness and internal potential.

Significant system openness with limited internal potential leads in fact to a situation in which information coming from the environment, often through front line channels or positive deviants, is not converted into value adding business decisions. On the other hand, internal potential with poor system openness leads to a paradoxical case of “missing the train” or being closed into the “follower’s corner” even if the human resources and the work environment support innovation.

Assessing Internal Potential

As previously suggested, the internal potential score is based on two key factors: the creativity of individuals and the quality of the work environment. The chart below spells out the crucial variables which define the two factors, as a result of field research (namely U.S. researcher Teresa Amabile, 1997) and of our concrete experience with clients.

Factors in the work environment that make it receptive for innovation are:

Organizational motivation: indicates whether a company is truly committed to innovation and what level of support for creativity and innovation throughout the organization is. Some of the most powerful indicators of organizational motivation to innovation are:

• Top management has a clear vision and commitment to innovation
• Middle management endorses and effectively communicates the vision
• The culture accepts risk taking
• The strategy is aggressive: “we take/reinforce our leadership” versus “we protect our past position”
• Employees take a sense of pride in the organization
• Open, active communication flows of information and ideas
• Diverse ideas are welcomed and encouraged
• Strategic planning and budgeting is guided by innovation
• Few conflicts and political battles
• No excessive formality in structures and procedures

Resources: What resources (people, funds, time and information) are available to support innovation efforts? It is particularly interesting that both excess and lack of available resources inhibit innovation. This is probably why most companies belonging to traditionally rich industries often have conservative work environments as are organizations impacted by massive and lasting cost pressures.

Management practices: How do middle managers set goals and give feedback, what do they reward how do they match individuals and groups to challenging tasks? Supervisors play a crucial role in enabling creativity. The recurrent behaviors that are proven to foster innovation are related to the management style focused on coaching:

• Supporting coworkers’ actions or decisions, helping alleviate stressful situation
• Empathy in dealing with employees’ feelings
• Consulting staff members before making changes, encouraging suggestions for improvement, inviting participation in decision making and taking ideas received into account
• Setting ambitious but clear expectations, avoiding frequent changing of assignments
• Maintaining regular contact and providing general guidance, but not checking too often and in detail
• Providing positive feedback on work done but also constructive feedback on work that needs improvement
• Recognizing good performance in private and in public

Management practices are frequently the most important “innovation killer” in complex organizations. Dogmatic, conservative, directive or simply scared supervisors can hinder innovation with their day-to-day actions.

The creativity of the individuals is first related to natural creative traits (part of our personality) and to their competencies (what people can do). Creative individuals show recurrent psychological traits, such as an orientation towards taking risks, independence of thought, self discipline, tolerance for ambiguity, resilience and a lack of concern for social approval. Traits are hard to change, since it is quite difficult to modify people personalities. It is more appropriate to design a thorough recruitment process to attract and screen the right talents. Developing competencies related to creativity (creative problem solving, technical proficiency and diversified experience) is less difficult and can be accomplished through training and coaching by supervisors.

The task motivation, which is heavily influenced by work environment conditions, tells us what the people would actually do. It is the most easily changeable variable, since it is very dependent on person-job fit (intrinsic motivation) and on the performance management system, reward mechanisms and team support (extrinsic motivation). Effective work design is a powerful enabler of innovation – if it creates challenging work.

Work environment and individuals’ characteristics are closely coupled, since the behavior of individuals reinforces some work environment conditions.

Assessing System Openness

As previously stated, system openness tells us if an organization is capable of reading and exploiting weak signals and emerging trends. There are core assets that are predictors of system openness including the brand identity (and its potential to be stretched on different businesses) and the organization’s core competences. There are unique skill sets that provide potential access to different markets because they are valued by customers and not easily imitated by the competitors.

The following table summarizes the main indicators of system openness for each antenna (drivers). They may be considered as relevant measures that indicate if an organization’s business model is designed to capture the emerging environmental trends.

© Valeocon 2006

Making the best use of an innovation readiness analysis

Executives can use the results of the readiness assessment to maximize the likelihood of success of innovation efforts. Low scores on creativity and system openness suggest a need for radical business model innovation and a pervasive culture change program. Average scores are more common and suggest a strong investment in diffusing a culture of innovation, changing the role and management style of supervisors, revising reward and recognition systems, encouraging teamwork and opening new communication channels to connect the antennas with the rest of the organization.

The “island of creativity” is the opposite situation: the potential of the work environment and of the individuals to be innovative is high, but there is limited awareness of brand potential, core competences and environmental trends. The key focus for a leader is to raise this awareness, improving internal communication and investing in relevant business model variables (i.e., customer connection activities, CRM databases, competitive intelligence data or supplier integration).

As with any measurement system, innovation readiness should be assessed at regular intervals to monitor progress, assess the impact of decisions and capture early signs of performance deterioration.

About the Author:

Edoardo Monopoli is the managing partner with Valeocon Management Consulting and leads the Innovation practice. His clients include Pfizer, Whirlpool, Johnson & Johnson, American Standard and Novartis. He is based in Milan, Italy. Contact Edoardo Monopoli at edoardo.monopoli (at) valeocon.com or visit http://www.valeocon.com.