Why top executives do not get innovation

Many innovation leaders struggle to get the support they need from executives higher up in the organization. Top executives can be skilled at talking the talk about innovation, especially in public venues, but frequently fail to walk the talk when it comes to making key choices that determine whether an innovation project will happen or die on the vine.

This may seem paradoxical because everyone knows that innovation is what drives business success in the 21st century, right? Well, sort of. While corporate leaders may intellectually accept the need for innovation and tout their commitment to innovation at every opportunity, they often fail to really “get” innovation and as a result, they become a major roadblock in your path to succeed as innovation leader.

In 2007, the Center for Creative Leadership sought to identify leadership trends by surveying 247 senior executives and leaders who had more than 15 years of management experience and managed more than 500 people. Fifty percent of these leaders believed their organization was “top in class” in innovation.1 Either they do not want to admit otherwise or their standard for “top of class,” (which is usually defined as the top five to 10 percent) is very low. My estimate, based on experience with organizations around the world, is that less than 10 percent of companies are world-class innovators.

Yet even if we accept the 50 percent figure as being accurate accurate, that still leaves plenty of room for improvement. So wouldn’t you assume that these leaders would be pursuing every possible avenue to improve their organization’s innovation capabilities? Unfortunately, the responses to the next question show that not to be the case. When asked what they were doing to promote innovation in their organizations, the percentages of respondents who said their companies were trying various strategies were surprisingly low.

For example, the most popular strategy, adopting “overt innovation processes (systems and structures),” was named by only 25 percent of respondents as something their company was doing. Only 17 percent said they were undertaking “talent/talent development,” the second most oft-used category. And just 13 percent said they had rewards/recognition programs to support innovation.

I contend that these responses show that CEOs are actually doing surprisingly little to build cultures of innovation in their companies. If they were, surely more than 10 percent of these leaders would say they were following “best practices” in their industry in their pursuit of innovation. Perhaps this is why only about 25 percent of the members of my network groups say their CEO has the right mindset and understanding of innovation to support the company’s innovation success.

The Whys

Here are some reasons why I believe CEOs and other C-level officers often don’t support innovation even though the business climate of our time demands that innovation be a core capability:

•  The demand for short-term gains nearly always wins the day. Top executives at public companies are under enormous pressure to produce strong financial results each and every quarter. This is the area where they are rewarded for producing results, and their job security increasingly depends on it, as shown by an annual study conducted by Booz Allen from 1995 to 2006. In tracking CEO turnover rates at the world’s 2,500 largest publicly traded companies, Booz Allen found that annual CEO turnover grew by 50 percent during that period, meaning CEOs are in greater peril overall. Equally interesting, a CEO who delivered below-average investor returns stayed in office as long as high performers in 1995, but by 2006, a CEO who delivered above-average returns was almost twice as likely as one delivering sub-par returns to remain CEO for more than seven years.

There simply is no room in this equation for CEOs to put their necks on the line and support investments in innovation efforts that won’t produce near-term results or may even have a negative impact on the bottom line for some period of time. Thus we see ourselves in a world where incremental innovation is the norm.

In an ideal world, boards would be demanding that investments are made in innovation to assure the long-term health of the organization. But few organizations have metrics for measuring innovation, and boards don’t pay executives based on innovation objectives. Dynamic values such as entrepreneurship, creativity and risk taking are not measured, let alone valued at bonus time.

Current leaders got to the top of the heap by being able to fulfill on the static financial metrics that are so beloved on Wall Street. Often, it is only when a crisis strikes and a company is in deep trouble–and not meeting those financial metrics– that many boards start demanding innovation, which, of course, can’t be cranked up overnight.

The exceptions to this tend to be companies that are still run by their founders and these companies are less susceptible to this problem because founders are generally deeply committed to assuring their company’s long-term health, not just making the quarterly numbers. CEOs who are standouts at leading innovation tend to be founders. 

•  They missed out on innovation education. Many of today’s top executives got their business education before innovation was a significant part of the curriculum at many MBA programs. This could be compensated by experience, but many also missed being trained on the job, because innovation training usually goes down through organizations, not upward and innovation was an even less underserved area when they gained experience than today.

In the early to mid-1990s, a major breakthrough on innovation education happened when thought leaders such as Clayton Christensen, Gary Hamel, C. K. Prahalad and others started to drive attention to innovation. That’s when the top business schools began to give innovation a higher priority in their MBA programs. The people educated in these programs are now reaching the top executive level. I hope this will give us leaders who better understand how to develop an innovation strategy and stick to it – in good as well as in bad times.

A sign of change that supports this theory is that innovation leaders have begun reaching the top executive level when they transfer to new companies. I know of several innovation leaders who have advanced to the top level when they transferred to companies in need of an innovation strategy. They started as innovation leaders but they were quickly promoted when the CEO of the new companies realized the potential of their mindset and skills. You can also argue that today’s leaders were trained to be problem solvers, not innovators.

• Top executives are risk-averse. Innovation is scary to people who reached the heights of the organization because of their knowledge of the existing business. Who wants to consider changing business models or going after an amazing, yet high-risk break-through innovation when that may mean your expertise in the business might become obsolete? Who wants to risk having a major innovation effort fail on your watch?

People who truly understand innovation embrace failure as an inherent part of innovation. They realize that often out of the biggest failures come big lessons that then lead to success. An attitude that doesn’t allow for failure is contrary to an innovation culture, yet that’s what too many company leaders possess.

• Top executives are control freaks. Innovation done well requires the right people as well as the right processes. If there are no processes in place, this can lead to confusion and the feeling of having no control of things. And although many top executives should be trained to setup processes, they still need to make room for the unexpected and create an environment where you have to be able to deal with many uncertainties. You have to let go of some control, which can be a difficult thing for top executives who want to run tight ships and be on top of everything.

• Top executives are too far away from the action. It is easy to preach innovation when you do not have to make it happen. I have been in several situations where innovation leaders have to struggle with middle managers who prefer to focus on their day-to-day business rather than support innovation efforts that might take away resources here and now but will contribute significantly to the overall business in the future. This is often rooted in the way in which top executives decide to compensate the middle managers. Get your stuff done and execute flawlessly. This can be counter-intuitive to making innovation happen. But top executives are often too far away from the action to understand how this makes it harder for the innovation leader to succeed on their stated goals. This is why when you really need the support of the CEO in a fight for resources or in a battle of wills with another executive, you’ll often find that your CEO sides with the status quo. Most leaders are more wedded to rewarding the core business rather than pursuing something new and untested.

Well, these are takes on why top executives do not get innovation. I hope this can lead to a good discussion. You might also ask how innovation leaders can work around this challenge. You will get my suggestions on this in one of my next posts.