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The Nature of Innovation: An Exploration

by Eileen Clegg, Chuck Sieloff, Patty Zablock, Institute for the Future

Innovation is imperative in today’s business environment, but it defies linear analysis and traditional management methods. How can business harness this illogical, unpredictable force that can be as frustrating as it is valuable? What are the characteristics of organizations that stimulate successful innovation? What can managers do to create an environment where innovation thrives? How do business leaders differentiate between sinkholes and fertile ground when it comes to allocating resources for creative work?

IFTF researchers knocked on the doors of several different types of companies in order to learn more about what really happens behind the scenes in successfully adaptive innovation systems. During in-depth visits, we looked beneath the platitudes and common wisdom to uncover a multilayered understanding of how innovation works—and why it must—in today’s business environment.

Innovation is not a mechanical process that can be analyzed in a step-by-step way. It is more accurately captured through the biological metaphor of a complex adaptive system. As in nature, innovation in business arises from the successful interplay of three forces: variation, selection, and replication. Organizing for innovation requires acute awareness of all three forces and how they work differently within each company.

Globalization and universal connectivity are reconfiguring the business landscape at an unprecedented rate, putting companies into a Darwinian race for survival. Even the most venerable companies are exposed to new competitors and challenges that require quick response and adaptation. In this dynamic period, organizational fitness requires more than incremental improvements to stable products and processes. Businesses must encourage, recognize, and allow major disruptive breakthroughs, and be ready to implement them in a business plan.

Most businesses recognize the need for innovation and even agree on the theories that advise taking risks, accepting failure, creating interesting work environments, allowing flexibility, and encouraging networks inside and outside companies. But the reality behind those ideas often is anathema to traditional business culture. What happens when failure costs money, offices start looking like dorm rooms, and employees disappear from the office to schmooze with outsiders? Or when new business strategies and practices undermine the existing foundations upon which a successful business has been built? Or when stock prices are hammered and a company is more inclined to be careful than experimental?

Individual companies tend to have unique strengths, weaknesses, and blind spots when it comes to organizing for innovation. The hierarchical company may do a great job of mobilizing resources to support an officially endorsed innovation but may do a poor job of nurturing and rewarding divergent thinking. The decentralized or networked company may enjoy a lot of local innovation but lack the discipline to implement the big winners quickly and broadly. The agile start-up may be able to focus all of its energy on rapidly bringing a key innovation to market, but it may lack the resources to create a sustainable business model. These organizations can learn from one another and by looking deep within the ranks to recognize and improve their own systems of innovation.

The Innovation System: Synchronizing Three Roles

Within successfully adaptive companies, innovation is not viewed as a single event, managed as a specific process, or assigned to a particular person. Rather, innovation is viewed as the byproduct of an effective network, a system of people who understand their roles (which may change from innovation to innovation), and who receive support from one another and from their companies for the hatching, the nurturing, and the diffusion of new ideas. The individual roles within the system are innovator, gatekeeper, and change agent.

They are the active agents whose organizational behaviors drive the three forces that allow ecological systems to adapt successfully to changes in the environment: variation, selection, and replication. Even in an organization that does nothing to promote innovation, these three forces would exist in some form, albeit weak and random. Strong and consistent innovations tend to emerge within companies that understand, guide, and reward the interplay of the three forces.

• Innovators: The players who generate variation. Variation is the source of new ideas, both good and bad, both big and small. Some are minor variations on existing concepts and practices, but breakthrough adaptations usually come from ideas that are wildly different from conventional wisdom. Most variations in nature fail because they do not improve the fitness of the organism, but it’s impossible to create a system that generates only successful variations.
  
  
• Gatekeepers: The key to effective selection. Because generating variations is necessarily messy, inefficient, and unpredictable, there needs to be a way to cull the herd and to identify the ideas that are most promising and most deserving of resources and attention. In nature, “survival of the fittest” is the most basic form of selection. But in the world of business, most innovations have to pass through some kind of deliberate gatekeeping process that identifies the likely winners and kills off the variations that serve no useful purpose.
  
  
• Change Agents: People within organizations who manage the diffusion process by removing barriers and actively promoting acceptance of a new idea. Even the most promising innovations do not always succeed in establishing a sustainable position within the business environment. A successful innovation spreads quickly, gaining widespread acceptance, and displacing older ideas or practices that no longer contribute effectively to the fitness of the organization. The process of replication produces significant business results and sometimes redirects the evolutionary path of the entire system.

The Innovator: Creator of Variation

Innovators—the people who dream the new ideas—produce the corporate equivalent of nature’s variations that allow organisms to experiment continuously with new behaviors and characteristics so they can evolve rather than become extinct. When variations are first introduced to a complex adaptive system, they don’t seem to fit, and it may not even be clear whether the variation is helpful or harmful to the survival of the overall system. Similarly, innovators usually don’t fit the normal corporate mold, nor do their ideas—at first. But among those odd ideas are a few that may become wildly successful innovations, with the sponsorship of people who are better connected within the company.

Innovators often are considered quirky. They pull their ideas from odd, disparate sources, looking for the piece that doesn’t fit in order to change the shape of the puzzle. They are successful because of—not in spite of—the fact that they are disinterested in conforming.

In networked organizations that are more inclined to treasure people who can hatch ideas, innovators may be allowed special freedoms and exotic workspaces. In traditional hierarchical organizations, they may be considered weird, and hence are marginalized. Either way, innovators often are the people who leave big companies for the start-ups that offer more autonomy, flexibility, and immediate feedback for their efforts.

Innovators can be maddening to management, especially to managers who don’t understand what motivates and nourishes creativity. If asked, most managers would admit they have an easier time dictating cost reductions or designing new organizational structures than getting other people to come up with innovations.

Innovators cannot create breakthrough ideas on demand. Most significant innovations appear in retrospect to be almost accidental achievements rather than products of conscious, deliberate management actions. Yet some organizations are clearly more innovative than others. Why?

Successful management of innovative systems requires an understanding of how each role functions not as a solo act but in relation to other parts of the innovation system. Providing an environment where ideas can hatch requires knowledge about the care and feeding of innovators, and also a complex understanding of what innovators need from others. They need a comfortable way to hand off their ideas to gatekeepers and change agents, who tend to be more networked internally and become the strategic players in the innovation game.

Every innovator is different—and each behaves differently within different systems—but they tend to have some qualities in common. They:

are self-described outsiders, swimming against the mainstream



respond to nontraditional reward structures (independence, peer recognition, and a sense of accomplishment rather than power, money, and status



are better connected outside than inside the organization



are disinterested in office politics and corporate “game playing”



need protection from bureaucracy, a “safe place” to explore new ideas independent of short-term pressures



enjoy creating for the sake of creating—not necessarily geared toward the company’s strategy



work best when their talents and quixotic methods are appreciated, often by change agents who understand and will carry the innovator’s ideas across the “no-fly zone” into action



often have many ideas percolating at once—“solutions looking for a problem”—and benefit from guidance about which ones to pursue



may lose out on recognition because they do not spend time promoting themselves and sometimes feel that change agents steal the credit they deserve



often feel misunderstood and unsupported under managers who fail to understand what motivates innovators



may need help understanding what aspects of their work tie into business strategy

Meet Some Innovators

The following people were identified by colleagues as innovators whose contributions have had significant impact on their companies. They work for different organizations, including large networked organizations with decentralized management attuned to the need for innovation and old-style hierarchical companies that historically have not encouraged creativity.

Most of the innovators we interviewed enjoy physical activities and use that time to mull over ideas, everything from walking the dog to yoga and meditation. They also are networked outside their organization and are often frustrated with internal bureaucracy and organizational processes. Some are real outsiders who rely solely on the in-house innovation system to get their ideas across. Others, especially those in old-style businesses, must rely in part on their own political savvy and connections to get attention for their innovations.

OTTO

Otto is a self-described maverick who thrives on shaking things up. He feels that kick-starting change is part of his job. Even though he is given freedom to pursue ideas, he intentionally surrounds himself with good operational managers who “maintain ties to the mother ship” so he won’t get too far afield.

He thrives on staying connected to the customer, and aims for five face-to-face customer contacts every day and checks voicemail 25 times a day. His mental stimulation comes from this constant connection to the outside.

A recent innovation was “driven by fear” when competitors were coming up with products in his company’s turf. His boss provided him “air cover” so that he and his team could implement their disruptive ideas quickly, even though the rest of the organization had no clue about what he was doing. Otto feels that the flexibility of his organization supports this kind of innovation and generally provides the motivation he needs. He is hoping for more space and resources to support his latest initiative, which he would like to run almost like an independent start-up within the larger company. Other companies are constantly recruiting him—and some offer fabulous incentives—but so far he has turned them down. Otto’s story illustrates the tensions that innovation can create within an organization. The high-level innovator can easily become a loose cannon, disrupting existing business processes and creating energized but demanding subcultures that arouse suspicion and resentment in other parts of the organization. Keeping the cannon aimed in the right direction is a constant management challenge.

DENNIS

Dennis sees himself as always “swimming upstream,” but he thrives on the challenge. Naturally competitive with a background in sports and the military, he likes the feeling of making a difference. His social networks lie outside the company, and he doesn’t like to spend time on internal processes and politics He is careful to maintain the contacts he developed while working at other companies and in other industries. (Of the 15 Christmas parties he attended last year, only one was a company affair.)

Dennis doesn’t have much respect for the conventional wisdom of how the company’s managers should operate. Although he is a high-level manager, Dennis prides himself on getting personally involved in all important details. He feels that there are too many levels of management, and other executives rely too heavily on their staffs. He has seen some of his innovative ideas distorted and misused by other parts of the company, in large part because they had only a superficial understanding of the details. Dennis also is frequently approached by competitors, but feels a deep sense of loyalty to his current company.

As Dennis’s example shows, innovators often cannot control how their ideas get implemented or who ultimately gets the credit for them. This can be a source of frustration, but a generally supportive culture can still command the loyalty of innovators.

BECKY

Becky describes herself as an “idea person” and an “iconoclast” who gets an almost physical sensation when absorbed with working on a new idea. “I feel like physically I want to push through and come out on the other side.” She enjoys collaboration, brainstorming, experimentation, excitement, and working with colleagues through lunch. She describes the development of a new idea as conspiritorial and fun. “You try it, you hone it down. We get information. We get the right tools. We realize, I could blow this out!”

Although colleagues consider her to be politically savvy and she feels comfortable entering any office in the building, Becky considers herself a corporate outsider. When she took the job, she told her favorite professor from college, “I’ll never fit in ... I’ll never belong.” Her professor responded, “I’d worry if you did.” She says she prefers it that way. “I do not want to totally fit in. To maintain creativity, you have to be an outsider.”

Becky came up with an idea for a new breakthrough product, and threw herself into the excitement of development, working a lot on her own time. Her company provided staff backup so she could be free to pursue the idea. She also worked on a business plan to implement the idea, but saw it flounder for a while before the powers-that-be recognized the potential and made it a prototype for similar products internationally, which yielded great financial rewards. Because of the hierarchical nature of the company, she was not allowed to carry her own idea forward. If she had, she may have been able to get it implemented sooner. By the time the idea was implemented, she felt she did not receive the credit, satisfaction, or involvement she deserved for having the idea. She quit the company and became a consultant.

Becky’s story demonstrates the benefit to companies of taking a leap of faith and giving someone the trust and resources to pursue an idea. It is also a cautionary tale about what happens—product delays and the loss of a valued employee—when a company does not continue to involve and recognize the innovator as the idea moves through the company.

ED

Ed characterizes the innovator’s role as “playing with blocks.” “You explore things because they are interesting, and you collect building blocks of ideas that may have no immediate application. The real art is to pull the blocks together quickly when a real problem or opportunity arises.” Self-confidence and a sense of selfworth let him pursue “off-the-wall ideas” that tend to find their sparks outside rather than inside the work environment.

Ed is a musician and a constant tinkerer. He feels it is critical to have slack time for which you are not accountable. Technical innovation drops to near zero under conditions of stress and pressure. In the wrong environment, innovators will just hunker down and do their job. “It takes emotional courage to pursue ideas.” Although Ed is constantly coming up with new and potentially valuable ideas, he often has trouble getting them widely adopted within the organization. Like many engineers, he feels that a good idea should sell itself, but he often has been unable to get the level of support needed from the gatekeepers and change agents in his environment.

A good innovator is not enough. Ed is an example of what happens when there is no active gatekeeper to nurture an innovation through its critical early stages.

Many good ideas land on sterile ground and never produce meaningful results.

KEITH

Keith views his innovation work as putting together the pieces of a puzzle. He has several networks outside his company, including friends, people who share his technology bent, and fellow students in an MBA program he’s completing while working full time. He runs his ideas by all these groups before floating them in the workplace, an old-style hierarchical company, where he’s been successful with a major breakthrough innovation in part because he has some political acumen.

He has “backdoor” access to top executives and understands how to approach them. “Change has to be (presented as) a solution. You can’t say, ‘Let’s reorganize the company.’ Instead, you say, ‘I have a way to grow the company.’ Present it as a solution when it’s actually a problem. People buy solutions, not problems.”

Keith came up with a major breakthrough innovation that changed the structure of his company. Company leaders supported the idea with money and staff, and they expect to reap financial benefits. He has other job offers, but he expects to stay with this organization as long as he continues to work on a dynamic project that will have an impact.

Keith’s story demonstrates that in old-style hierarchies innovators must have some internal access and political acumen to get their ideas across. In his case, his formal job allowed access to decision makers. He has the change agent quality of understanding the company’s mission and that innovations must be tied to business strategy. This story underlines the need for change agents, because in many cases innovators within a company—those who lack Keith’s networking skills—may never gain attention for their ideas because their formal job does not allow them access.

The Gatekeeper: The Key to Selection

Gatekeepers are the keys to selection because they have control over resources—human and financial. Ideally, they use their influence to nurture promising innovations and starve less promising ones. Their success as connectors in an innovative system depends on their understanding of the other roles and their judgment about new ideas. Gatekeepers select variations based on a deep understanding of what will enhance the fitness of their organization.

Functioning efficiently as a gatekeeper is more a matter of relationship style than of job description. Innovators and change agents are more likely to approach a manager they trust. Gatekeepers ideally function as benevolent but realistic sponsors, walking a fine line between encouragement for the innovator and responsibility to the company’s bottom line.

Gatekeepers tend to be in management positions, and innovation may not appear anywhere in their job descriptions. Following are some observations about these players and their role in the innovation system:

• A distinction between hierarchical and networked organizations is how high you have to go to find the right gatekeeper.
  
  
• Gatekeepers usually find that money is easier to get than people (the critical phase for an innovation is when it gets to the point where dedicated people are needed to move it forward).
  
  
• It’s easier to obtain a relatively small amount of money to cover the hatching phase of an idea—or a very large amount once its relevance is established—than to get middle-range funding in the early growth phase.
  
  
• Successful gatekeepers can gather enough resources to provide “air cover,” allowing the innovation to reside under the radar screen by protecting it from too much scrutiny during its critical early phases.
  
  
• Training does not make someone an effective gatekeeper; success is based on personality and an astute sense of what will work and what won’t.

The Change Agent: Replicating Ideas

The change agent’s role in adaptation—the diffusion of new ideas—is the equivalent of replicating variations in the natural world. The change agent recognizes a beneficial innovation and makes the necessary inside connections to get the idea moving through many channels at once.

The challenge and the risk come when other insiders are wary of the innovation or even feel threatened by it. Resistance may come from people who do not want to change or from those who are competing for resources. In a volatile environment, a promising innovation may simply fade away because there are too many other innovations competing for the scarce attention of a target environment. In a conservative environment, an innovation may fail because managers do not want to take a risk.

An effective change agent can accomplish diffusion despite barriers, because of political acumen, carefully maintained networks within the company, and an appreciation and understanding of innovators. The change agent is a person who has the ability to communicate with people on both sides of the “no-fly zone,” which separates ideas from their application. Often, a change agent is the main player who gets a gatekeeper to allocate resources (although the system can also work the other way, with the gatekeeper enlisting a change agent to get organizational support for a newly funded project).

The change agent’s strength comes in the ability to see how an innovation ties into the strategic goals and underlying values of the organization. A necessary skill is communicating in the language of creativity with innovators and in the language of business with managers in order to obtain trust from both directions. Occasionally, people switch roles, with innovators assisting one another by temporarily taking the change agent role. This is more likely to occur in companies where the innovation system is not understood and innovators try to weave their own self-supporting system.

As a bridge between innovators and the mainstream organization, change agents play a crucial but often informal role. They do so more as a result of disposition than as a result of formal job expectations. Change agent traits include:

Open to new ideas



Motivated by the desire to “make a difference” and to have an impact



Takes pleasure in exploring creative ideas with other people



Enjoys continuous learning



Well connected internally (more likely than innovators to have social networks inside the office)



Politically savvy, willing and able to play the organizational games



May see themselves as the real innovators because they’re the ones that make it work



Tends to be a “people person” who genuinely takes pleasure in the company of others and wants communication to work

Meet Some Change Agents

Change agents—people who move new ideas through a company—come in many different guises. They may be managers, they may be aligned with an innovation team, they may be people whose job titles have nothing to do with innovation but who are energetic, well connected, and thrive on discovery and sharing within their organization. The following are comments and observations by people chosen by IFTF because colleagues identified them as highly effective advocates for successful breakthrough innovations.

Many people who were identified by colleagues as change agents identified themselves as innovators. This speaks to the pride that change agents take in their creativity. Even if they didn’t come up with the original idea, their role in the innovation system also requires vision and risk-taking, and is crucial to a new idea having an impact on an organization.

BETH

Beth works in a company with a decentralized culture that makes it easy to propose new ideas. There are thousands of “skunk works” scattered around the company.

The problem is aligning the creative energy and leveraging it. There’s no formal process for picking the winners or forcing alignment. It’s survival of the fittest, with the tacit assumption that “the best idea wins.” You have to move very fast to keep the money and resources flowing your way. Because of so much unfocused energy, the company now is looking for ways to balance the unchecked flow of ideas with the need for results.

Beth is personally motivated by “a fierce desire to win, to break out of the pack.” She worked at a start-up, and recently almost went to another one, but decided to stay because her current project gives her the opportunity to influence an entire industry. The key for her is to find leaders who give you the freedom to contribute and give you support in the form of resources and trust. She sees this as more a function of who she works for rather than of the general company culture.

Beth’s story shows that large companies don’t always have to lose the talent competition, if they are flexible enough to provide the right type of challenges and the right type of recognition to their young stars.

EVAN

Evan works in a large service organization with a long history of doing business “a certain way.” Evan is well connected socially within the business, and he also has an elaborate and extensive social network outside the company—people who try new ideas out on each other. He was frustrated with his role in management because he is driven by loyalty: he wants what’s best for the company “even if the company can’t see it.” His role as a successful change agent evolved from his experience—people over the years have come to him with ideas, and as a result he has a sense of what works and what doesn’t. “I know what’s doable and what’s not.” He understands the company’s mission.

Evan considered joining an innovative system when a company reorganization did not accomplish what he had hoped. Evan wanted to do something to have a positive impact on the company, so he took up the cause of an innovation that promised a new approach to the company’s historic mission. He enjoys the excitement, immerses himself in everything related to the idea—everything he can get his hands on, “just to learn.”

Colleagues identify Evan as a change agent, but he sees himself as an innovator. He saw a need and partnered with someone else who perceived a similar need and had the technical expertise to fill it. Evan had the in-house political clout to help carry the idea forward, but he encountered resistance from “turf-oriented” department heads and colleagues who did not trust the innovation.

Evan’s story demonstrates what seems to be a pattern. He is motivated by the excitement of being part of the creative process and sees himself as an innovator. In the old one-dimensional model of innovation, “credit” went to the person who first got the light bulb. In that model, the change agent could have been viewed as a secondary player, and so may have wished to be seen as the innovator. In the new model, the innovator, change agent, and gatekeeper work together as part of a system that is credited for the complex series of activities necessary to develop an innovation.

CHARLES

Like Evan, Charles was a manager who had just had a difficult experience with an attempt at restructuring his department, when someone in his office proposed an innovative product that represented a departure from the old way of doing business. He was captivated by the idea, proposed by someone he hired because of her inventive nature. He took up the cause and felt enlivened by immersion in a creative adventure. “I’m stimulated by hearing ideas and working to create them. I love it.”

Although he was enthusiastic about new ideas, others people in his company viewed the innovation as a diversion from his “real job.” He received little encouragement for moving this innovation through channels. “There are a limited number of pathways through a 100-year-old company.” Charles had to hand off the idea as it moved up through the ranks, and at some point the idea was dropped. Two years later, the idea was picked up again when someone at a higher level of management met someone in the community who suggested a similar idea. Then the innovation had sponsorship and moved forward—earning sizable sums for the company.

Evan’s story illustrates the recurring theme that carrying an innovation forward provides satisfaction in and of itself for effective change agents. This knowledge is particularly important in large older companies because the recognition and reward structures may not be in place. Like Evan, Charles saw himself as an innovator until a discussion made him realize that he was a change agent—and that both roles were equally valuable.

CORRINE

Corrine is part of a large, old service organization that recognized innovation as imperative for growth, and so allocated staff and funding specifically to develop new products and programs. She is motivated both by the chance to participate in a creative venture and by the desire to make the world a better place—and she chooses innovations based on their potential for helping people.

She relies on networks both inside and outside the organization. “I’m known for being able to work with anyone. I enjoy the challenge of working with different people. I try to find the effectiveness in everyone.”

She is keenly aware of the “no-fly zone” and the change agent’s role in carrying innovations across that divide. For her, the key is understanding and appreciating innovators. “Innovators often are kind of zealots. The personality of innovators is not necessarily that of salesmen. They want to own (the idea), but they’re not the most effective salesmen.” She sees part of her job as aligning the innovation with the goals of the organization. She does literature searches and talks with colleagues so she can help innovators cross the roadblocks.

Corrine’s experience underlines the innovation conundrum in big organizations that on the one hand are clamoring for new ideas but on the other hand seem to be squelching them. She says the culture is slow to change. Although her company has a designated pocket of innovation, it is not well connected to the rest of the organization. Other workers sometimes resent her flexible workstyle and fail to understand her importance to the organization. She believes sponsorship of the innovation process by corporate leaders is helping change the culture, but slowly.

CHARLIE

Charlie has worked in the same company for the past eight years. Although he does not enjoy recognition for some of his division’s primary innovations, he does get satisfaction out of keeping his staff motivated, having some impact on the bottom line, and being a component of a team that is producing products that have revolutionized his industry.

Charlie is socially well networked within the company. He rarely uses the company intranet, but he describes it as useful for many of his employees. “One of the ideas that’s been implemented by some other people in the this company is to post lessons that they have learned as they have gone through some project developments. It’s very easy for different teams to kind of solve the same problem in different ways, so we’re using the good old Internet as a communications vehicle to share ideas and to spread information around, and so there’s a Web page for every project you can go to. You can share your ideas there. You can learn what other people are doing. You can see all the documentation for that project. And I think that’s something—coupled with face-to-face meetings—that is a way that people can learn about issues kind of independently. And we’ve been doing that for maybe a year or so. It’s down to a weekly set of documents that say, ‘Hey, I learned these lessons by solving this problem, and I’m making all this information known so that if you have a problem developing your phone, you might be able to take advantage of some of these lessons I’ve learned.’“

VIC

Vic is a product development person in a large organization and is an effective change agent because he has credibility, senior management contacts, influence, and a lot of tentacles in different areas of the company. He is motivated by the enjoyment of being part of the creation of something new. His satisfaction comes when a product goes to market, and his reward is seeing an increase in sales. He likes feedback in the form of notes, voicemails, and other in-house communication.

One recent innovation came about during an informal meeting. He wasn’t consciously seeking a solution but rather was looking at consumer problems that could be met by existing technologies. “Something truly innovative is looking at the trends that are looming on the landscape and then coming up with creative solutions to meet those hierarchies of consumer needs—the higher-order consumer needs.”

Vic is an example of someone who is successful in part because he is selfmotivated. “There has to be more personal satisfaction than company satisfaction because the company doesn’t recognize innovation as much.” But like other change agents, he enjoys relationships within his company—both inside and outside his own department—and likes to hear back from his peers.

He suggests that companies would do well to look at extrinsic rewards—a combination of recognition and monetary incentives—and to model that reward structure at the top. He also observes that his company would do well to encourage innovation of more ideas that are outside the known areas of competitive advantage. The hardest part of the protocol for new ideas is getting funding in the midrange ($25,000 to $50,000) for product development, and that can stop some innovations that aren’t obvious and familiar winners.

Nurturing Innovation in Different Types of Organizations

Successful innovation requires variation, selection, and replication. However, these forces can operate in very different ways within different organizational contexts. There is no single answer for how to manage the interplay of these forces, but there is much to be learned by looking at some of the different patterns that have emerged in the modern economy. There are at least three distinct business ecologies that coexist, and sometimes compete, within the economy. The table below summarizes how the three forces play out in those different business contexts.

All three patterns can be successful. The key is to understand which pattern best fits your circumstances, and then to consciously create an environment that effectively supports that pattern.

Removing Barriers to Innovation: Finding a New Framework

Even as business leaders are becoming more familiar with the language and concepts of creativity, their vision often remains clouded by invisible filters. A mandate to change is not enough to unravel a tightly wrapped culture and years of doing business a certain way. Assumptions are ingrained. And the workings of an innovation system often are anathema to ordinary business culture.

Many large companies are experiencing “start-up envy” as they see the adaptability of new companies that are leaping ahead in the innovation game, unburdened by bureaucracy, large investments in legacy environments, and a long history of conventional wisdom about “how things are done around here” and “existing best approaches.” At the same time, they may be missing opportunities for capturing new breakthrough ideas that are being stifled before they can grow within their own organization. The components of an innovation system may be present within existing staff, but barriers prevent activation. Recognizing the barriers is a first step toward freeing innovators, change agents, and gatekeepers to perform. We’ll explore three barriers:

*The “Big” Problem: Size may be an advantage in many aspects of business, but it’s usually a disadvantage in the innovation game. Companies often have the resources but not the culture to support innovation. * Trouble Retaining Talent: By the time employees announce they’re ready to leave a company, especially long-time employees, it’s probably too late to change their minds. Companies may have a lot to offer, but make fatal errors when it comes to understanding what keeps innovative people engaged. * “Can’t Manage” Innovation: Managing innovation is an oxymoron because new ideas cannot be mandated, and, in fact, a directive to “go create” probably will have the opposite result. Managers who fail to understand how an innovation system works may inadvertently stifle it.

Size: The “Big” Problem in Innovation

In interviews with people who had contributed significantly to successful innovations, IFTF consistently heard words of frustration from people in old-style hierarchical companies, who said they wrestled with red tape or tripped over bureaucracy because others weren’t accustomed to dealing with new ideas. In networked companies with sophisticated R&D departments, on the other hand, innovative people voiced a different type of frustration—new ideas failed to diffuse because of organizational fragmentation and competition for the attention of management.

In talking to people who had left larger companies for start-ups, it was clear that one of the biggest perceived benefits was the ability to get things done more quickly, to see more immediate results for their efforts. Ironically, large companies can offer more to innovators than start-ups can, in terms of resources, staff, and a chance to make a big impact. But old companies have complex legacy environments that resist rapid change.

It’s not that business leaders overtly reject new ideas. Most would say they support innovation. The problem is more subtle. A mature and successful business, because it has so much more to lose, favors “safe” incremental change that’s familiar over “out-of-thebox” disruptive innovations—something wildly different that could bomb or could lead to major breakthroughs for a business.

Companies often fail to recognize that their size does offer some advantages that can be exploited in the innovation game. Large companies have more ability to:

• create protected environments for low-risk experimentation
  
  
• offer innovators, change agents, and gatekeepers the chance to have an impact on a big playing field
  
  
• sustain a large innovation network, more people, more ideas, and a more dynamic environment
  
  
• provide financial, staff, and other resources to innovators, once companies have a trusted innovation system in place • support a more sustainable work-life balance
  
  
• tap into a human resource pool and backfill employees so that people excited by new ideas can step back from their “regular” job and pursue innovation (Founders of start-ups spend 70% of their time on hiring--very unproductive.)
  
  
• multiply the number of channels for new ideas to diffuse
  
  
• free up employees to work on state-of-the-art projects
  
  
• keep talented people motivated and keep them working on projects they feel are rewarding and career building, even if they eventually want to work somewhere else, or desire to advance in the company

Reflections on the “Big” Problem

The following quotes are not just watercooler complaints or idle secondguessing.

These are observations from people who have track records for major innovations that led to successful changes and financial gain for large organizations. In many cases, these people found workarounds or shortcuts that allowed them to circumvent barriers.

“No one openly resists changes, but large organizations can always find reasons not to act quickly enough or not to go far enough.”

“Too many large companies are still trying to protect their own business. They need to find the innovators and let them create the internal tension that drives change.”

“Large companies believe what outsiders tell them more easily than they accept new ideas from insiders.”

“Desperation is a powerful stimulus to innovation. When a company’s current approach isn’t working and you have nothing to lose, why not try something different?”

“The formal organization sends mixed messages. On the one hand, there is a lot of talk about the need to focus in order to win, about the need to eliminate waste and redundancy, and to move quickly. But this is in direct conflict with the way innovation happens. Innovations are ‘distractions’ to the focused organization.”

“Good ideas often die because innovators will simply pursue other paths rather than fight the frustration.”

“Growth and size have made things less flexible. It takes more personal energy to keep things alive and to stimulate creativity. It’s like swimming upstream all the time. It also seems that new managers don’t have the selfconfidence to swim against the stream, and are more likely to just go with the flow.”

“There is a mixed message from management. There is a lot of emphasis on ‘invention’ and returning the company to its innovative roots, but there is also tremendous pressure to focus on operational efficiency. In theory, it makes sense, because you have to clear away a lot of the clutter and the inertia in order to free up energy for invention, but it means that different parts of the organization are pulling in very different directions.”

“People are very turf-oriented. Only the heads of departments are supposed to have ideas.”

“People give lip service to experimenting, but failure is career-threatening.”

“Organizations are so hierarchical. For all the lip service people give to respecting the individual, it’s just not the case.”

“It [innovation] is easier when you have a business that is very experimental. You don’t talk about two years from now. It’s immediate.”

“There are a limited number of pathways in an old company.”

“The traditional company has a hard time with failure. People involved with failed projects seem to no longer stay within the company.”

“Critical judgment about innovative approaches can thwart creativity.”

“Layers and bureaucracy are what get in the way of innovation. Too many cooks in the kitchen. Fear of failure and fear of taking a risk are what hurt the innovation process. The bureaucrats are afraid that if they aren’t involved, something may fail; and if it does, they will be blamed.”

“First thing you can do as a manager at our level is to get behind an idea. People look to their bosses for which way the wind is blowing, which direction they should be leaning. So the first and simplest thing to do is to show your support for a new idea. And it’s amazing, when you do that, people will line up.”

“The second thing to do is clear the way for people to work on this idea. If someone is working eight to ten hours a day on one problem and you want him or her to work on their proposed innovation, some of the simplest things you can do are to change their workload, to get them some help, and to reprioritize what he/she is doing within the organization, so that people know that this is an important thing for him/her to do and that something else is a second priority.”

“The ‘not-invented-here philosophy’: if a certain person has solved a problem and someone else thinks he has a better a solution, there’s a process of getting the ‘old guy’ to even accept and acknowledge the ‘new guy’s’ approach to this. So that’s stimulating to the point of being comical at times. And in working with a group of talented, strong-willed people, you encounter these situations day in and day out.”

Trouble Retaining Talent

Recruiting and retaining top talent is a competitive necessity, but is increasingly difficult in a volatile business environment where talent gravitates toward the most dynamic places. People are moving through start-ups so fast that executives in new companies often find most of their time is spent recruiting and hiring. Larger companies are lamenting the enormous drain of energy and financial resources that are flowing into smaller companies as a result of several conditions, including:

• The Internet’s disruptive technology has devalued legacy infrastructure and lowered barriers to entry for start-up competitors.
  
• The promise of stock option wealth has been difficult for mature companies to match.
  
• Inflated stock market valuations are giving start-ups an artificial advantage in entering traditional marketplaces and attracting talent and investment capital.
  
  
• The ten-year stock market boom has devalued the security and stability that made large companies attractive to previous generations.
  
  
• The flexibility and workstyles in smaller companies appeal to the younger generation of workers more inclined to ask, “What can this company do for me?” than “What can I do for this company?”

But just as large companies may be missing out on opportunities to flex more muscle in the innovation game, they also may be failing to exploit the considerable advantages that large companies can still offer employees. Stock market bubbles don’t last forever, and even within a booming market, a high percentage of start-ups fail within a few years. Participating in a start-up also can take an enormous toll on one’s personal life, and most of the players do not see it as a lifestyle that can be sustained for more than a few years. During a certain phase of one’s life and career, the temptation to “try your luck” may be irresistible, but large companies can offer a more sustainable model for the vast majority of people who do not win the “start-up lottery.” For some, the benefits may be the learning opportunities and job challenges that come from being part of a large, diverse organization. For others, it may be financial security, comprehensive benefits, and a generous retirement program. Others might like the social and professional interaction of belonging to a large community of like-minded peers, or the ability to achieve a more reasonable work-life balance.

From interviews with people who left large companies, including many long-term employees, IFTF learned that by the time someone starts to think seriously about leaving a company, it’s usually too late to try to keep them. Retention is not about reacting to a potential loss; it’s about preventive measures that keep people from even exploring alternatives. It’s about actively studying, understanding, and responding to employee motivations. As one prominent CEO used to say, “I want to create a work environment in which people don’t even bother to return headhunter calls.” Retention is a complicated issue that often has more to do with psychology than with salary compensation plans. Most people do want long-term security and stability as long as they don’t feel they have to sacrifice their individuality and opportunities to grow. Companies that see their staff as a flexible system—taking advantage of what people do best and matching them with others who can assist in their weak areas—are more inclined to put individuals in meaningful roles that will keep them connected and prodtive. Reflections on Trouble Retaining Talent

The following comments and stories came from a variety of sources, including exit interviews and discussions with people who were well established in their new jobs.

One theme from the interviews was that once people decide to leave a company, particularly if they have worked there for a long time and the decision was difficul to make, there is little that management can do to change their minds. In many cases, the employees felt frustrated and dissatisfied for years. In other cases, they simply had offers that were too good to refuse. One exception was a manager who announced she was leaving but was talked into staying by the CEO of her multinational corporation.

Money was not cited as the primary motivator for leaving in most cases. Rather, people wanted growth opportunities, the ability to impact the business, and the opportunity to learn more, faster. They liked the passion and excitement of people in start-up environments. However, after experiencing the change, some talked about missing colleagues and other aspects of their old companies, and thought about returning.

Sanjay joined his company right out of graduate school and had been there for 14 years. Until about two years ago, he found his job exciting and challenging. He was convinced that he would retire from the company. But during the last couple years, he received less satisfaction from his job, felt that he was not delivering anything very useful to the company, and was not having a major impact on results. Repeated organizational restructuring left him frustrated. He left when a former manager recruited him for a new start-up opportunity. He feels successful in his new job because things move much faster and he has been able to make major contributions from the first day. However, he feels no emotional commitment to the new company at all. He would jump to a better opportunity in a second, and would even consider going back to his old company, because his stock options in the start-up have not proven to be nearly as lucrative as he had hoped.



Becky left her company after contributing to a major breakthrough innovation in technology that proved lucrative to her company but did not bring her satisfaction in terms of ownership of the idea. The hierarchical structure of the company meant she could not even make her own presentations about the innovation, nor could she quickly move on to another innovation because getting resources was so difficult.

“Technologically, I felt I was dying,” she said, after she let go of her innovation. Instead of Becky, a change agent was carrying the innovation up the corporate ladder, and she was expected to go back to routine work.



Corrine enjoyed her role as an official change agent within a venerable, old service organization that set aside a large fund for innovation, which Corrine helped administer. She received satisfaction from choosing worthwhile projects and growing the ideas with healthy doses of funding. Risk was part of the mix and failure happened. The problem came with colleagues outside the innovation “greenhouse,” who resented the working style of people inside. Within the innovation section, flexible work arrangements and workspaces were effective, but this wasn’t the case in the more traditional work environment. Despite her enjoyment of her work, Corrine considered leaving, in part because of ill will from colleagues that left her feeling out of step.

Many people who left their jobs complained about bureaucracy, conservatism, and slowness in a big company—too many rules and protocols. One talked about being surrounded by “repressed entrepreneurs.” Another said, “I felt squelched as an innovator. I could not drive anything forward. I ran into a brick wall constantly.”

Here are some other comments from people who moved to start-ups:

"brain is so engaged, it sometimes hurts! I am constantly stimulated. I am learning so much, so fast.”

“I’m making real decisions in real time … [The new job] tests true leadership skills that were never truly tested [in the old job].”

“I became a vice president only one year after being with my new company. It would have taken me 30 years [at the old company].”

Here are some words of advice from people to the companies they left:

“Take some risks.”

“Recirculate people through companies—encourage them to go to start-ups and bring back what they learn.”

“Listen to young people in the organization. They often have a perspective that is unique and diverse, but it is often ignored in favor of the hierarchy.”

“Truly listen to what external customers have to say. What are the new ideas in their suggestions?”

“Incentive/reward structures have to change. Reward breakthrough thinkers. Consider different incentive models.”

“Cross-fertilize with other companies.”

“Keep looking outside to see what the best companies are doing. Set stretch goals for your organizations.”

“Keep the organization flat, and keep managers personally accountable.”

“Innovation comes from the outside in rather than the inside out. Too many large companies are still trying to protect their old business. They need to find the innovators and let them create the internal tension that drives change. They also need to protect and reward them for performing that role.”

“Failure’s got to be okay.”

“Fundamentally, there’s got to be a lot of trust.”

“Can’t Manage” Innovation: Frustration at Both Ends

In our interviews, the word “frustration” came up frequently as people in innovation systems talked about time wasted, creativity squelched, or communications crossed while they were trying to develop and grow new ideas. Even in companies with sophisticated R&D departments, people lamented that unwieldy corporate processes thwarted creativity. The barriers seemed amorphous, and were not blamed on specific people or management processes. Rather, the barriers seemed to rise from some underlying but pervasive aspect of business machinery that is anathema to creativity.

The source of the frustration is difficult to pinpoint. Logically it would seem that innovative people should find harmonious conditions within businesses that are open and sometimes desperate for change. Supporting innovation is a competitive necessity for business; creating something interesting that has an impact is a personal necessity for innovative people. So why isn’t this a natural fit?

The barriers that come between innovative people and their employers often are hidden or invisible: invisible filters dim the vision of managers when they confront a radically different person, product, or idea. Hidden pathways help the well-connected insiders navigate easily through the organization while the uninitiated struggle with the very visible bureaucracy. Invisible guidelines define “what our company does and doesn’t do.” Subtle forms of negative feedback—rolled eyes, indifference, impatience, getting left out of the loop—remind innovators that they are “out of it” even though management knows it should be celebrating the iconoclastic qualities that are most likely to produce a golden egg. At the same time, innovators take a perverse pride in being seen as mavericks, in ignoring organizational politics, and in constantly swimming against the mainstream.

Usually managers are rewarded and rise through the ranks in companies precisely because they are the types to perceive and respond to the invisible rules that help define business culture. But those rules often cause barriers to innovation. When it comes to innovation, the effective managers are those who understand they are not “in control” but are part of a system—serving as change agents or gatekeepers—whose job is not to “manage” or “mandate” but to “nurture” and “allow” innovations to develop.

In a mature business, more than 90% of the effort goes into execution, into running the existing operations as effectively and efficiently as possible. Is it any wonder that management processes are tuned to this task, and managers often find it difficult to deal with activities that are deliberately divergent, messy, and unpredictable? Nurturing innovation calls for a different style of management. For example, the following are activities cited by highly successful innovators as necessary to their creative work (but which would drive managers mad and businesses into the red if everyone did them).

• Staring into space
• Leaving work to take a walk or a drive
• Long lunches with people in their external network
• Going to conferences that have nothing to do with their formal job title
• Working late into the night at home, coming into the office late
• Cruising the Internet for hours
• Frequent vacations
• Having a large amount of discretionary time and money up front before being required to give a schedule and budget for the innovation

Some managers seem to be very effective at nurturing innovation, and the innovators and change agents we interviewed often mentioned their importance. But such people cannot be trained or told to serve as part of a system; they must already have a certain type of disposition. They are tolerant and collaborative (able to take risks, to create bridges between quirky innovators and highly focused executives, and to set limits that are not threatening to the innovation system) but at the same time incisive and tough (able to recognize the promising innovations and willing to kill the others).

Start-ups have an easier time nurturing innovation. With no ongoing business to consume their energy, with no legacy environment to support, with no history to constrain their thinking—and with no invisible filters—they can be much more focused on building a business from scratch. There are few management layers to slow things down, and the very nature of a start-up attracts people who are risk takers. During the exciting formative period of a new business, everyone can see themselves as part of an innovation system. But the advantage is a temporary one, because successful start-ups quickly begin to create their own legacy environments and their own operational constraints.

The start-up model of nurturing innovation has not gone unnoticed by large companies. Some large companies thrive by acquiring start-ups and absorbing their innovations. Other large companies are trying to stimulate innovation by spinning off their own start-ups. Although both these strategies may work under certain circumstances, they are not a substitute for learning how to foster innovation more effectively within the existing organization.

Large hierarchical companies have trouble managing innovation as a system because:

• they give inconsistent messages about tolerance for risk and failure
• it’s hard to create “protected areas” for innovation that are still connected to
• the enterprise
• they tend to designate certain people as having the “charter” for innovation and thus fail to recognize that innovation can show up anywhere
• innovations must compete against operational pressures for management attention
• there is a tendency to overmanage the selection process; you can’t plan for big innovations
• they worry too much about innovations cannibalizing existing businesses

Large networked companies also have trouble managing innovation as a system, but the issues are different than those facing the traditional hierarchical company, because

• too much local variation causes confusion, fragmentation, and duplication of effort
• there is reluctance on the part of high-level management to pick winners and kill losers
• reliance on internal or external market mechanisms for selection often takes too long
• a limited number of passionate change agents are depended on for successful replication
• it’s hard to align resources behind big breakthrough ideas, especially if the innovation crosses organizational or functional boundaries

Comments About Companies That “Can’t Manage” Innovation

People who have served effectively in the role of innovator, change agent, or gatekeeper (and sometimes more than one role) offered some observations about why traditional management often fails to support innovation systems. They also described some workarounds, attitude shifts, and new approaches that appeared to be very successful.

“It is important to have self-directed time—slack time—for which you are not accountable. Technical innovation drops to near zero under conditions of stress and pressure. In the wrong environment, the innovators will just hunker down and do their job. It takes emotional courage to pursue ideas. Encouragement from managers and peers is very important.”

“The person who gets the [management] job is usually the one who runs the day-to-day businesses—not the idea person. There has to be more personal satisfaction than company satisfaction [for innovators], because the company doesn’t recognize innovation as much.”

“It’s hard to mix operational responsibility with creativity. The company needs to give you time and flexibility to pursue more creative ideas. You need to feel recognized and rewarded for the innovative things you do, as well as for carrying out your formal responsibilities.”

“If you’ve created opportunities for people to express ideas and delineated people’s responsibilities, let them take some risks. There’s a need to recognize that when you delegate, something’s going to go awry.”

“Innovations just sit there if you don’t have someone ‘moving the baby along’ and ‘fighting the bureaucracy’ along the way.

“Innovators need to clue in to the core values, the mission of the company, so they can get beneath the obvious. They need to be brought in on an intimate level to the organization.”

“There are great ideas and smart people, but the bureaucracy at the higher levels gets in the way. It needs to be more streamlined with less layers, less people.”

“Layers and bureaucracy are what get in the way of innovation. Too many cooks in the kitchen. Fear of failure and fear of taking a risk are what hurt the innovation process. The bureaucrats are afraid that if they aren’t involved, something may fail; and if it does fail, they will be blamed.”

“Innovation doesn’t help you in the company. You are either tagged as being someone who can run big organizations or as someone who comes up with new things—very rarely both.”

“Managers should be more personally involved and accountable.”

“A lot of times, innovation centers are funding people on the fringes, and they need to be heard. But there’s a need to tie these people into operations so others feel they have a stake in the innovation—get them more involved.”

“The worst thing you can say to an innovator is, ‘Go out and create this.’ “

Recommendations for Improving Organizational Fitness

• Do away with command and control. Recognize that an innovation system cannot be managed by traditional command-and-control approaches. Breakthrough ideas emerge when appropriate combinations of people work in an environment conducive to creativity. The role of management is to provide that environment, and to protect it from the short-term pressures of operational efficiency. The work of innovation can be messy and unpredictable. The challenge for management is to celebrate the messiness rather than to try to stamp it out.
  
  
• Learn the care and feeding of an innovation system. The motivations and appropriate reward systems for creative people—whether they’re in the role of innovator, change agent, or gatekeeper—are complex and depend on the individual. Ask people in your innovation system how they would like to be rewarded. Ask what motivates them. They’re often not working for power, prestige, and money but are driven by factors such as intellectual stimulation, peer recognition, and the knowledge that they are “making a difference” or “having an impact.” Although start-ups can offer tempting rewards, many of these people do not even look for alternatives until they become frustrated or bored with their existing jobs.
  
  
• Develop an ongoing conversation about the innovation system. Encourage individuals to create their optimum working environment. Allow them to self-identify and change roles. For every project, make sure at least one innovator, change agent, and gatekeeper understands his own role (and the other people’s roles) in hatching and then moving an idea forward through the company. Match people’s inherent strengths to each of the roles critical in the innovation system—innovator, change agent, and gatekeeper.
  
  
• Create protected areas for innovation and experimentation. Loosen standards for “efficiency” in creative zones, allowing slack time, risk taking, and resources for activities that people in the innovation system identify as useful, even if they may not appear “relevant” to outsiders. People with promising ideas or solid track records should be free to meander—going to seminars that seem off-subject, taking long lunches with people from outside networks, or keeping odd working hours.
  
  
• Allow slack time. Encourage thinking time, playtime, and other activities that may not make sense to outsiders. Conduct meetings in unusual places (e.g., art galleries, zoos, parks, alternative locations in your building, recreation centers, and history museums). This is a way of signaling permission to conduct business out of the box. Challenge the existing physical environment. Unfortunately, large companies have an investment in existing physical assets, which often makes it difficult to completely change the physical environment. Are there ways to adapt it for more creativity? Or to allow employees to work off-site?
  
  
• Encourage executives to develop their skills as gatekeepers. Give them some discretionary resources to invest in innovation. Gatekeepers can multiply the chances of generating innovations within an organization by allowing redundancy, developing feedback loops through identified change agents, and being open-minded about new ideas even if they don’t come through “channels” or from “official” innovators.
  
  
• Take many “swings at the plate.” Large companies have human and capital resources to tackle many innovations simultaneously. Some will succeed, some will fail. If you don’t swing at the plate, neither will happen.
  
  
• Tackle the innovation conundrum. Many breakthrough ideas may sound strange at first and come from people who don’t seem to understand the company’s mission. You don’t want to miss the possibilities, nor do you want to overinvest in tilting at windmills. Use peer review mechanisms and 360-degree performance evaluations to identify the key players—colleagues can generally recognize an innovator in their midst who doesn’t have the political savvy to catch the eye of executives.
  
  
• Learn how to shepherd innovations through the entire system. To stimulate variation, you have to be open to new ideas, generous with initial resources, and genuinely tolerant of risk and failure. To select the best opportunities for innovation, you have to sanction rapid experimentation, gather feedback from the most trusted experts, and empower decision makers to think long-term. To implement the innovation successfully, you need to align organizational priorities and resources, push past inertia and resistance, and make constant adjustments to reflect what you’ve learned from experience. The need for adaptation and innovation is never ending, so all these styles and approaches must coexist and interact continuously.
  
  
• Analyze your hiring and recruiting strategies. Do they encourage diversity and the hiring of innovative people? Do you look for people who would assimilate in your culture? Do you tend to hire “like-minded” people? Look for alternative recruiting styles and processes that can more easily identify innovative individuals rather than those who seem to fit the mold. Likewise, look for ways to identify the innovators that already exist in your organization.
  
  
• Hold up as role models those already in the innovation system. Identify and reward people who have successfully served as innovators, change agents, and gatekeepers. Other individuals in the organization will then learn from and want to emulate those who have managed to work together as an innovation system. Then the forces of innovation will flow more freely, improving the fitness of the organization and allowing for broader innovation.
  
  
• De-layer the organization. Nowhere in any of the companies studied was bureaucracy cited as an advantage in the innovation game. It only gets in the way.