Why are so many businesses—though seemingly intent on fostering innovation—unable to get new products through their organizations and into the marketplace?
Ed Ludwig faced such circumstances as the new president of New Jersey-based Becton Dickinson's Diagnostic Instrument Systems (DIS) division. Continued success in diagnostic systems relies heavily on product innovation and software engineering. But Ludwig found that the DIS division had lost its edge—a key competitor had improved its own products so that they outperformed DIS's instruments along several important dimensions.
Technology wasn't the issue—the division still had the superior technology overall. Nor was talent a problem—Becton Dickinson continued to retain the skilled engineers that had made it the leader in its field. The organization's design didn't seem to be the problem, either—the division had implemented a project organization strategy to enable the different functions to work together to bring products to market more quickly.
As Ludwig grappled with a way to jumpstart change at DIS, he began to suspect that people throughout the unit were talking about the division's innovation problems with one another but not with him. He then deduced that plenty of managers a few layers below him had insight into the situation, information that he should be hearing. But those conversations were occurring behind closed doors. So any information that might point to the truth about the gaps between Becton Dickinson's business strategy, its capabilities, and the market realities it faced weren't accessible to him or, ultimately, to the organization at large.
The problem that Ludwig faced—leading an organization that didn't have the ability to conduct candid conversations about internal problems—is common. Worse, it's also the reason why many technically excellent innovations get stuck inside an organization and never make it to market.
According to our studies, the most effective way for a leader to realign his company is to facilitate open and honest conversation about any barriers the organization is facing. For the most part, this requires management to look closely at the roles of various parts of the business and alter the way employees interact. Increasing the pace of business innovation almost always requires reallocating decision rights and, more critically, power. Speeding time to market means delegating authority to heavyweight product development teams. But senior functional leaders, used to making key decisions, are likely to resist.
The most effective way for a leader to realign his company is to facilitate open and honest conversation.
Creating a culture where open, companywide conversation about critical issues can occur painlessly is vital, to both innovation and the company overall. But in an environment where such frankness never existed, effecting a shift toward candor and truthfulness can be arduous and agonizing.
Nevertheless, most organizations won't change unless the leadership has the courage to initiate the measures necessary to do so.
We've discovered that standard initiatives such as employee surveys, interviews by external consultants, and even relatively straightforward, one-on-one conversations between managers and the CEO don't usually help an organization shift toward greater candor. Primarily that's because employees don't believe that management, particularly the CEO, will actually listen and act on their comments.
Often, such initiatives have a negative effect on the company, fostering cynicism. In one multinational company we studied, a task force of valued managers, when asked by senior management to conduct and analyze a worldwide employee survey, refused to do so. They simply did not want to be associated with what they perceived would be yet another useless exercise. At the same time, top management honestly believed that past initiatives they had instituted were the result of past feedback.
Creating organization-wide conversations is a crucial task of leadership—but often a very difficult one. Therefore, we've developed a four-point process for fostering such conversations:
1. Advocate, Inquire, Repeat
A conversation that surfaces the unvarnished truth about an organization's innovation strategy needs to move back and forth between advocacy and inquiry. CEOs and senior leaders need not only to defend their initiative but also to find out what others think, up front. Indeed, the two activities should be closely linked.
Innovation initiatives tend to fall apart right from the start when top management advocates for a specific project and then begins to implement it without discussing it with key team members and partners in other parts of the organization. This inevitably leads to management later discovering that employees had legitimate concerns about the project that they never felt free to voice.
Some managers err in the opposite direction. They don't advocate at all, opting instead to simply inquire. So they assemble a large team of trusted employees and ask for a consensus on direction. This just leads to frustration and, often, stagnation.
It's the leader's job to point managers and team members in a specific direction but to make sure it's a direction they can respond to. To effect innovation, a leader must advocate, then inquire, and continue to repeat these actions as necessary.
2. Cut To The Chase
Energizing an initiative requires that the conversations about it focus on only the most significant factors facing the organization—the company's ability to carry out the initiative and any obstacles to performance. All too often, leaders become mired in mundane business details and lose sight of the issues that will guarantee overall success. Leaders must ask themselves, "Do we have a coherent and distinctive innovation strategy that key managers believe in? Do we have the capabilities to execute? Is our leadership effective?"
When Ludwig implemented a strategic fitness process at DIS, he focused on the most important issues: the division's overall strategy and the barriers to innovation. Through honest conversations, he quickly learned about the real cause of DIS's inability to get its new products to market. The division had a hierarchical culture that dated back to the original owners of the business, which had been acquired by Becton Dickinson several years earlier. The various departments, accustomed to being directed from the top, were unable to cooperate effectively, and therefore the project organization strategy intended to speed innovation had failed.
DIS's open conversation about the issues that really mattered clarified the company's strategy and energized the organization.
As Ludwig says, "Getting feedback from the employees was indispensable, and putting it into a strategic context is important. We discussed… strategic issues, such as delivering the goods and services to our customers more effectively than our competitors. Once we decided it was strategic, we had to fix it or suffer the consequences; and no one was willing to suffer the consequences of gradual loss of competitive position."
Soon after these candid conversations took root, DIS regained leadership in its market. "The process got things on the table quickly," Ludwig says.
3. Be Open And Inclusive
Fundamental business innovations almost always require changing the worldview and the behaviors of a whole set of interdependent players—the CEO, the senior leadership team, and managers down the line. This won't happen without a collective, public conversation. Several levels of management across important functions and value-chain activities must be part of the conversation, and leaders need to keep everyone three to four levels below them informed about what they've learned, and what changes they're planning.
This collective, public conversation was critical when sales managers at Mattel Canada were trying to initiate a different kind of innovation: introducing a new sales channel.
Due to the cyclical, hit-driven nature of the toy industry, excess inventory was a perennial problem for the company. The inventory could be sold off only via heavy discounting, which tended to depress margins for all sales.
Since the warehouse was close to a major Canadian city, a group of employees proposed adding an outlet store to their warehouse. Several managers praised this as an excellent idea, but it was never implemented. It was apparent that conflicts between the sales department and the distribution department were to blame—but no one was willing to confront the conflicts openly.
Mattel Canada finally and successfully implemented its toy outlet innovation only after sales, distribution, and the other departments had an open, fact-based discussion of their issues. At that point, they realized that the outlet store would benefit all of them. Sales could maintain better margins by avoiding discounting, distribution could save time by not having to shift around old inventory, and finance would be able to free up capital that had been tied up in inventory.
Mattel Canada used collective conversations so effectively that it transformed its division from Mattel's least profitable international subsidiary to its most profitable.
4. Strive For Honesty Alongside Low Risk
In most of the companies we've studied, managers discussed innovation-related problems with the few people they trusted but acted on their findings in more public venues. Since most managers fear that being honest would hurt their careers or even endanger their jobs, they are naturally reluctant to speak candidly. Plus, many managers worry that candor would only make leadership so defensive that the conversation would not lead to change.
By encouraging honesty, then rewarding it, leaders can demonstrate to all levels of the organization that candor is valued. Once a leader is able to address the real issues facing innovation, issues that could only have been unearthed through truthful give-and-take can be rapidly and effectively addressed. With an increase in profitability comes a side benefit: employee morale will also improve dramatically.
It's surprising how few corporate leaders make a genuine effort to foster candor within their companies. Sadly, they lose any chance at building organizations in which speed and transparency contribute to the vitality of their enterprise. Adopting the process we have outlined here is a critical first step in creating an agile enterprise that can drive rapid innovation and compete on a global scale.