How to foster innovation and a performance culture

The dominant trend of the digital age is disruption. Business and operating models which have essentially been around for years are being rendered obsolete at a very rapid pace by technologically enabled usurpers.

The strategic implication is that constantly driving for efficiency will not be enough for an organisation to survive and thrive. You might well be the best at a certain process or technique, but that could very quickly become irrelevant as markets and technology move on.  Your company needs to nurture innovation, so that it can exploit these changes rather than be left behind by them.

This is one of the issues that AICPA & CIMA addressed in the Integrated Performance Management research project. Our goal was to create a framework setting out how to achieve high performance in the complex, multi-capital world we are living in today. Enabling the innovation vital for businesses to thrive and grow is one of the areas we touched on.

Structuring for success

When you look at how many businesses are structured, you start to see how efficacy is given a higher priority than innovation. Often the organisation is divided into functional silos, each striving for operational excellence. The result is operational excellence in established areas.

This effect is compounded by the way budgeting inevitably follows the functional structure. The implicit question will always be “how much does this department need to do its current job the best it can”, rather than “what can the organisation invest in to be different in the future”. Prioritising innovation clearly requires a different approach.

Shifting from a functional structure towards a strong matrix management concept could be a step towards building a more agile organization. The matrix would mean that strategic leaders could identify new projects, and then call on the functional teams to resource them as and when required.

Since the strategic leaders are the people competing for resources, funding would be allocated according to their needs, rather than the historical requirements of the functional departments. In this way, a focus on strategy is built into the budgeting process, rather than shut out by arranging activities into siloed functions.

Enabling controls

No business can function without effective controls. However, a set of coercive controls which factor in all possible negative eventualities will stifle creativity and innovation. If you take the decision, which I believe all organisations must, to prioritise innovation it is inevitable that not every possible contingency can be anticipated and designed into formal control systems.

An innovative business will aim to build a set of ‘enabling controls’, which encourage employees to take on challenging responsibilities that could lead to new ideas and ways of executing them. An example of an enabling control is the stage gate review. These are pre-agreed points in an initiative when progress is reviewed, before continuing on the next stage of the initiative. They could be triggered by outputs delivered, work done, or sometimes simply by time elapsed. The goal is to allow your teams to innovate and build the no-blame culture to foster innovation, while still maintaining overall control of the organisation’s resources.

Towards a performance culture

Enabling controls are one example of the proposals we identified which can contribute towards the creation of a performance culture. The key to organisational success is people. People closest to your markets are best placed to respond to opportunities and disruptive forces and to inform leaders what’s not working (the feedback loop for innovating and refining strategies and plans). Innovation will thrive in an environment where people are empowered, trusted, and engaged to drive strategy and create value – a performance culture.

Creating this performance culture requires everyone in the organisation to understand, accept and be aligned with the strategy. That is easier said than done, but a good starting point is to think of it as a continuous process, requiring ongoing conversations at all levels of the business. These conversations should connect individual and team goals and strategic objectives. They will also help with coordinating various strategic initiatives and preventing duplication from occurring.

The ideas I have set out here barely scratch the surface of the possibilities we examined in our research, and I urge you to take a look and see if it has implications for the organisation you work in. You might find that there is more you could be doing to foster the innovation which is increasingly essential for survival in the modern marketplace.