TOP MANAGERS AND INNOVATIONS

Angel Gurría, Secretary-General of the Organization for Economic Cooperation and Development, said at the International Monetary Fund session that it is necessary to “take prompt and flexible measures to eliminate risks in the process of economic recovery.” Of course, to achieve this it is necessary to reform the commodity and labour markets, education, innovation, environmental area, competition, taxes, and health care. According to Gurría, “it's time for changes in social sphere, and therefore we need to focus on innovation policy in order to protect the most vulnerable groups and people who have lost their jobs.” After the global crisis, it seems that leaders can only pretend that they rule, because old methods are no longer effective, and everyone understands that for a long time at the global scale we need innovation in order to ensure effective control and corporate governance, risk management and proper allocation of natural and human resources.

In Russia, innovation policy has been widely discussed at the highest level, in particular by Russian President Dmitry Medvedev. Establishment of the Skolkovo Research Centre is one of main initiatives in this sphere. Last year, an expert on innovation, Arnold Schwarzenegger himself, came for a visit. However he did not understand what to admire as the centre has not been built yet, so he praised the Moscow Business School Skolkovo.

By the way, it is also designed to achieve high goals of growing and nurturing the next generation of business leaders and become one of top 20 business schools of the world. They will know for sure how to deal with innovations. Meanwhile, former director of the Department of Economic Policy and Competitiveness of RUIE, and now Deputy Minister of Economic Development of Russia, Oleg Fomichev, said that the ministry has established a club that will unite top executives of major companies involved in innovations. “Initially the club will include 47 directors of state-owned companies, who on government order developed their innovative plans.” Here they will need to prove their effectiveness, as earlier this year President Medvedev was unhappy with the level of their involvement in the innovation process saying that little money was spent in this area.

He threatened with disciplinary liability or even dismissal managers and government representatives on company boards who are not engaged in innovations. Within less than six months in all state-owned companies respective directors were appointed, who have already developed innovative strategies of different kinds, concludes Fomichev. There is no doubt that they did their best. But not only heads of innovation departments of state companies are now held responsible. There are only 47 of them. Now all top managers should go with the flow of innovative economic development. As recently declared Krasnoyarsk Regional Minister of Investments and Innovations, Andrey Wolf, at a professional managers’ meeting New Quality of Management, “In today's competition those executives and entrepreneurs will win who generate their own high quality creative ideas that can inspire and unite people.” Now, what do top managers themselves think about innovations and their role in this kind of company activity?.. Korn / Ferry conducted a survey among top managers from 50 countries, representing various business sectors. 54% of them said that they were not satisfied with the level of innovation in their companies, while 19% said that they were “very dissatisfied”. Only 15%, on the contrary, are “highly satisfied” with the level of innovations. It is interesting that 62% of respondents believe that company top executives are responsible for innovations. As many as 98% of managers believe that innovations are important for business development, and only 2% of executives rated innovations as a “relatively important” component.

Summing up the outcome of the survey, Jane Stevenson, Vice-Chair and Managing Director, Korn/Ferry's Board and CEO Services, said, “Managers and companies speak so often about the need for innovation, it has almost become a cliché. However too many companies fail to come up with an innovation, which would lead to steady business growth. Companies that actually succeeded in introducing innovations are managed by bold leaders who understand that leadership and innovation are inseparably linked. The responsibility for the success of innovation policy remains with top management.” There is a need for innovation in any sphere regardless of the market situation. Owing to innovations in the creation of goods and services or innovative business practices companies get main advantage over competitors. According to the well-known business guru and Executive Director of TCG Advisors, Geoffrey Moore, “a pause in taking risks because of economic problems provides an opportunity for others to create something new and beat competitors.”

“You must be the first to step out of the yellow circle of innovation, where your direct competitors cannot follow,” says Moore. “You must be able to create competitive advantage, have a power of attraction to win over competitors.” Of course, innovation in the times of a unstable economy it means taking risks that many companies are not prepared to take.

Recession is forcing companies to cut costs and focus on other vital functions, rather than spend money on innovations and projects associated with the risk of possible failure. The majority of top managers, according to the survey by Korn/Ferry, agree with that and consider innovations important, but clearly associate them with risk. 68% of executives say that they associate innovations with risk and only 10% say they do not link them. But despite the state of the economy and market, in the end, according to Jeffrey Moore, “companies will need to allocate time and resources for innovations if they want to move on, thus preparing to beat the competition on the way”. I agree with this approach, because creating something new does not only mean to gain a market share, it is also about progress, creating new drugs to fight dangerous diseases, exploring the resources of our planet to ensure reasonable consumption, develop high technology to promote awareness of globalization and interdependence of humanity. Economic activity is by definition a “high risk zone.” According to business guru Peter Drucker, defending “yesterday”, i.e. not developing innovations is much more risky than creating the innovations of tomorrow.

So what is an innovative company? According to authors of well-known practical guide “Beyond Entrepreneurship”, J. Collins and W. Lazier, six major components are important:

1. Openness to ideas.

2. The ability to put yourself in the customer’s place.

3. Experiments and mistakes (it is better to act and implement an idea which is not fully developed instead of spending a lot of time to find new reasons why the idea will not work).

4. Creative team.

5. Autonomy and decentralization.

6. Encouragement.

Of course, some innovations come up by chance. A Canon inkjet printer was invented because a technician left a soldering tool near a bottle of ink. But most of the time innovations do not appear by chance; they should be provoked, motivated and supported. The Disney Company, for example, regularly organizes a “Gong Show” contest where any member of the staff may put forward a new concept or idea (it does not mean that it will be immediately implemented, but at least there will be plenty to choose from). Many companies organize two or three-day festivals, innovation summits, “creative days”. Google, one of the most innovative companies, gives their technicians one day a week to work on business ideas (Googlettes) and updates an online list of ideas for open meetings with managers, brainstorming sessions with all employees of the corporation. By the way, companies can also buy innovations like Google, which in 2006 acquired an innovative project YouTube based on the idea of creating content generated by users and free distribution of video content outside the service.

Google needed an innovative model in its complete chain and it succeeded in finding an innovative component. Filling the innovation gaps by attracting best projects from the market is also part of innovation policy. However, despite such positive examples, there have been cases where a team of executives from, for example, an IT company, has superficial knowledge (or know almost nothing) in developing an alpha version of a new product until the need in resources arises exceeding the scope of authority of “innovative” individuals or groups. Intel Chairman Craig Barrett even believes that leaders should not go to business school but to an engineering college. The question is what kind of leaders IT companies need to deal effectively with the dynamics of technology life cycle? Does today’s system of business education provide this knowledge? If we exclude such unique charismatic leaders like untimely passed Steve Jobs or Bill Gates, the leaders, according to Geoffrey Moore, can be divided into two categories: the first type is a visionary, that is an analyst and strategist who can predict the future development of the market or even influence it, a generator of ideas which are implemented by the technological team. The second is a pragmatic inventor who knows technology, but does not have knowledge of the market and its mechanisms. The question is if it is possible to combine these qualities?

An experiment conducted by the Leadership Institute at Berkeley aimed at examining experience and education of technology companies’ executives surveyed both managers without technical education, who received knowledge and specialization in technology in the course of the project, and managers with an engineering degree. The conclusion was as follows: the level of engagement in technical details of the project was the same for both groups. Non-engineers and engineers were equally experienced. However, in the second part of the study where a survey among the same managers was conducted which included questions about the business of the company, its mission, methods, objectives and instruments, the outcome was not the same. The engineers could not answer the questions the managers answered quickly and easily. The conclusion is clear.

In a technology company where innovation is essential for business any competent manager can solve engineering issues, otherwise he will not be able to work there. There are certainly highly complex engineering tasks that must be dealt with by experts, but it is clear that all managers do not need engineering education. According to Geoffrey Moore, “Innovation is not just about technology, but rather about technology of management within the corporation.” To manage innovations, moreover, to measure their effectiveness is a difficult, but necessary and realistic aim for top management.

According to a survey of IT companies conducted by TCG Advisors, innovative projects that provide advantage, usually amount to less than 20% of the total budget for innovations, while failed attempts or projects from the “loss” category amount to between 30 and 60% of innovation expenses. The difference between the latter two types of innovative projects is quite significant. “Failed projects,” according to Managing Director of TCG Advisors, Philip Lay, “if properly managed, mean an important stage in the company work, which provides staff with new skills and helps them succeed in other projects. If the effort is wasted it leads to a breakdown of the team and demoralization.” “The most important thing for top management,” says Philip Lay, “is not to confuse differentiation (innovative projects that provide tangible and sustainable advantage over all known competitors, as demonstrated by market analysis and readiness of customers to pay a high price) with any other kind of innovation. Otherwise, companies either let these issues drift, and new ideas and projects are growing like a weed, or top management takes an opposite approach and strictly controls the innovation process from the top. It is much better to inspire innovation in the company from all parts.”

To do this:

a) Clearly define and describe what you mean by innovation and innovative activity in the company;

b) Do not manage innovation on the basis of statistics;

c) Do not jump to conclusions. As a top manager you need time to see where you are heading, to positive or negative results (failed attempts and loss). It is a challenging but an important process. As Robert B. Tucker said, “Innovation is the invention of the future ... It must cover all activities of the company including new products, services, processes, strategies, business models, distribution channels and markets ... Creativity is about new ideas and innovation is about implementing them. The purpose of innovation is creation of new value.” And with a strategically important goal – building a future – innovation brings added value to your company and increase of its market share, attracting a large number of users and customers to your products and services, increase in motivation and interest of the company's staff. And I believe this is what every manager wants to achieve!

Industrialist of Russia, November 2011. Vyacheslav Konovalov, Development Director, 4Astra/IMD International Executive Search

 
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