July 30, 2018

The Biggest Obstacles to Innovation in Large Companies

It turns out that the word “innovation” is not a Harry Potter-esque magical incantation that, once spoken, renders companies more inventive, creative, and entrepreneurial. The word can be uttered by a CEO speaking to employees or Wall Street analysts. It can be emblazoned on the door to a new innovation center in Silicon Valley. It can be inserted into people’s job titles. (Yes, even Toys R Us had a head of innovation.)

But there are thorny cultural, strategic, political, and budget issues that must be confronted by CEOs and other leaders if they want to ensure that their organizations can be hospitable to — rather than hostile to — new ideas.

In a survey fielded earlier this year for Innovation Leader, an online resource for corporate innovation teams of which I am editor, we asked about the most common obstacles to innovation in large companies. (To be constructive, we also asked about the things that foster innovation.) The responses, from 270 corporate leaders in strategy, innovation, and research and development roles, were illuminating.

We invited survey respondents to cite as many factors as they wanted from a list. The top five obstacles were each cited by at least one-third of respondents. They were:

Politics, turf wars, and a lack of alignment (cited by 55% of respondents.)

Some business units or functions believe they’re already doing innovation on their own, and that any sort of new initiative is edging into their terrain — and potentially competing for resources. Some may be hoping that the CEO’s “favorite child” of the moment, a new Chief Innovation Officer or Chief Digital Officer, will go away if ignored.

“Any time you start something new like [an innovation initiative], that cuts across many areas, there’s a potential for people feeling like you’re in their backyard,” says Michael Britt, a senior vice president who heads the Energy Innovation Center at Southern Company, a major utility operator. That’s especially true, he adds, when the core business is successful and doing well.

Senior leaders may not be able to squash every political squabble, but they can be clear about what the innovation or new ventures group is expected to do, and how others are expected to support it.

Cultural issues (45% of respondents.)

The culture at large companies is typically built on a foundation of operational excellence and predictable growth. Change-makers trying to conduct experiments are rarely greeted with open arms — especially when they’re working on an idea that may cannibalize stable businesses or upend today’s distribution model.

And big companies, like elephants, have long memories. Many long-timers can remember — and will happily detail in meetings — all of the “historical attempts [at innovation] that didn’t pan out – and it may just not have been the right time,” says Stacey Butler, director of innovation at NRG Energy.

Influencing the culture at established companies can seem, at times, like trying to walk into an art museum and just make a few small tweaks to the marble statues: no one wants you to do it, and almost anything you do will provoke a strong reaction. But creating new places where people can gather to work on projects — subcultures within the larger culture — can be constructive. So can designing new kinds of incentives, recognizing and rewarding the behaviors you want to encourage, and bringing in new, more diverse viewpoints and types of talent to the company.

Inability to act on signals crucial to the future of the business (42% of respondents.)

We asked about two related barriers in our survey: how well does your company “pick up” on signals of change, and how well does it act on them? Only 18% of respondents said that their companies had trouble with the former — so at most companies, there’s awareness of disruptive startups entering their sector, or changing customer purchase behaviors. The problem is acting on those signals. When your “forward scouts” see something important, what mechanisms exist to set up collaborations with outside vendors or startups, or run a quick pilot test with a function or business unit? Too many companies wait for the annual strategic off-site to roll around before they address the changing dynamics of their market.

Lack of budget (41% of respondents.)

At many of the largest companies, in industries like aerospace and technology, limited budgets are not an obstacle. Over decades, these industries have built up large R&D functions that are expected to crank out new ideas that the company will be able to leverage. But nearly 40% of the respondents to our survey said their innovation efforts had an annual budget of under $5 million, and 23% were below the $1 million mark. (We asked respondents to include both salaries of team members and direct spending.) Many of those lower budgets are in industries that haven’t historically had an R&D department, like retail, hospitality, and financial services.

In most cases, that budget level produces a small innovation team that may be doing some concept development work, trend scouting, or training employees on innovation methodologies — but isn’t having a broad impact on the company.

“With a budget of less than $1 million, it seems like the job is to build a case for innovation investment, versus [doing the work of] innovation itself,” says Rick Waldron, a former Nike executive who ran the apparel company’s innovation accelerator until last year. That level of funding, Waldron suggests, can be used to “bring senior management along on the journey and educate them” with a few concrete project examples that “will be the key to unlocking more resources for an innovation program.”

Lack of the right strategy or vision (36% of respondents.)

This answer includes a multitude of sins. Are employees clear on what kind of innovation they’re supposed to be doing? Are they looking for ideas to streamline operations and serve customers better, or developing new business models around existing products? Without a coherent strategy and clear vision for what the company aims to achieve, innovation efforts wind up feeling scattershot and isolated.

Interestingly, survey respondents said that their least significant was the “lack of CEO support”; just 10% of survey respondents said that it was constraining innovation at their company. The CEO, it turns out, doesn’t wield a sledgehammer that can demolish any obstacle that blocks a team of smart employees with a good idea.

What can help? Clear expectations set about why innovation is necessary. Appropriate recognition and incentives for people who get involved in making positive change happen. Regular communication and bridge-building between innovation teams, and the functions and business units they require as partners. Measures of progress that illuminate not only the performance of the innovation group, but also the functions and business units that they work with to implement their ideas.

One key enabler of innovation, referenced by more than half of our survey respondents, was the “ability to test, learn, and iterate.” How well does your company run quick-and-dirty experiments, gather the results, and then try again?

Finally, long-term commitment is essential. Corporate cultures reject many new initiatives if people believe they are the flavor-of-the-month. (One write-in response to our question about obstacles to innovation was, “Leadership ADHD.”) When CEOs and other leaders talk about innovation, they need to make it clear it will be more like a daily exercise regimen — part of the way things are done here, from now on — than a magical incantation that delivers instant results.

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