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Innovation Leadership Study

Managing Innovation: An Insider Perspective April 2012

Transform to the power of digital

Table of Contents

Introduction Results Implications Demographics

Copyright © 2011 Capgemini Consulting. All rights reserved.

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This Innovation Leadership Study provides insight into the formal and informal mechanisms for managing innovation
 Introduction
Results Implications Demographics

Introduction (1/3) Innovation Leadership Study
Paddy Miller
Professor of Managing People in Organizations

Koen Klokgieters
Vice President Business Innovation

Dear Participant, This Innovation Leadership Study aims to understand how those leading and managing innovation in their organizations think about the innovation function. When looking at the informal mechanisms for managing innovation we notice that the accountability for realizing growth is the main motivational driver for senior executives to be involved in innovation. Many of the innovation leaders and managers we surveyed have been tasked with creating a culture of innovation but interestingly enough it is the CEO and peers that are considered the main drivers of an innovation culture within companies. I would like to thank you for your contribution to this research. Best regards, Paddy Miller

Dear Participant, This joint research by IESE Business School and Capgemini Consulting provides insight into both the formal and informal mechanisms for managing innovation. With respect to the formal part of managing innovation, we see that even though innovation is considered a highly strategic topic it is not organized in such a way. Innovation leaders understand the need to have an explicit innovation strategy and to support it with formal innovation governance mechanisms. However, only a minority of respondents agree they have an innovation strategy or an effective governance for innovation. I hope you will find these survey results useful for leading and managing innovation. Best regards, Koen Klokgieters

Copyright © 2011 Capgemini Consulting. All rights reserved.

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 We have conducted in-depth interviews with innovation leaders from various industries on how they lead and manage innovation. functional specialties. most between July and September 2011. regions.  The online survey. Copyright © 2011 Capgemini Consulting. Approach Managing Innovation  It is based on both qualitative (interviews) and quantitative research (survey).  Subsequently a broad-scale survey targeting innovation leaders has been carried out to validate our hypotheses and generate additional insights. and seniority. 4 . Process LEADERSHIP CULTURE INFORMAL MECHANISMS  25 interviews have been conducted. generated responses from 260 executives around the world. All rights reserved. representing the full range of industries.The study aims to understand how those leading and managing innovation in their organizations think about the innovation function  Introduction Results Implications Demographics Introduction (2/3) Study Overview Objectives FORMAL MECHANISMS STRATEGY GOVERNANCE  The Innovation Leadership Study aims to understand how those leading and managing innovation in their organizations think about the innovation function. culture) mechanisms for managing innovation.  The final report – integrating all findings – is to be expected in early 2012. Content  It looks at both formal (strategy. governance) and informal (leadership. in the field from September 12 to October 12 2011.

18%  The ‘Less than 25%’ category represents the innovation laggard group and the ‘Over 75%’ category the innovation leader group of analysis.  The innovation success rate is determined by the percentage of innovation efforts that have a positive material impact on the company’s business results. All rights reserved. 7% Survey Population Less than 25% 25-50% 50-75% Over 75%  The exhibit to the left shows how respondents are distributed over these four categories. LAGGARDS LEADERS Copyright © 2011 Capgemini Consulting. 5 . namely: ‘Less than 25%’. ‘50-74%’ and ‘Over 75%’ of innovation efforts having a positive material impact on the company’s business results.Our leader versus laggard methodology allows us to uncover good practices in managing innovation  Introduction Results Implications Demographics Introduction (3/3) Innovation Success Rate % of respondents. whereas seven percent belong to the innovation leaders group. 38% 37%  We distinguish between 4 categories of innovation success based on this rate. Thirty-eight percent of respondents fit the innovation laggard profile. n = 260 Leader versus Laggard Perspective Survey Methodology Could you please estimate your organization’s innovation success rate?  The methodology differentiates between innovation leaders and laggards based on a self-assessment by survey respondents of their innovation success rate. ‘25-49%’.

Table of Contents Introduction Results Implications Demographics Copyright © 2011 Capgemini Consulting. 6 . All rights reserved.

n = 260 Leader versus Laggard Perspective Less than 25% 25-50% 50-75% Over 75% Does your organization have someone at the executive level who is formally accountable for innovation? +31% 57% 49% 59% 72% 55% 51% 45% 41% 43% 28% Yes No Yes No 43% of respondents have someone at the executive level who is formally accountable for innovation 59% of innovation leaders have an accountable executive versus only 28% in the laggard peer group Copyright © 2011 Capgemini Consulting. 7 .Forty-three percent of respondents have a formally accountable innovation executive Introduction  Results Implications Demographics Results: Innovation Function (1/3) Formal Accountability for Innovation % of respondents. All rights reserved.

n = 260 What do you consider to be the innovation function’s main role? Top-1 Formulating and communicating the innovation strategy Monitoring and analysis of the external environment Optimizing the innovation processes and governance Building and nurturing an innovation ecosystem ‘Selling’ of innovation within the organization Motivating employees to innovate Running innovation workshops/events Developing employees’ innovation skills 5% 6% 7% 14% 32% 31% Top-2 15% 11% 16% 19% 12% 9% Top-3 11% 9% 18% 13% 12% 13% 2% 5% 4% 14% 7% 17% The innovation function’s main role is considered to be the development of an innovation ecosystem and strategy Copyright © 2011 Capgemini Consulting.Developing an innovation ecosystem and strategy are considered to be the innovation function’s main role Introduction  Results Implications Demographics Results: Innovation Function (2/3) Innovation Function’s Role % of respondents. 8 . All rights reserved.

9 . All rights reserved.The absence of a well-articulated innovation strategy is the biggest constraint to reaching innovation targets Introduction  Results Implications Demographics Results: Innovation Function (3/3) Innovation Constraints % of respondents. n = 260 What most constrains your organization’s ability to achieve its innovation targets? Top-1 The absence of a well-articulated innovation strategy Lack of understanding of the external environment No formal innovation governance structure Lack of formal innovation processes Inadequate innovation budget allocation Lack of top management commitment to innovation No innovation-friendly culture Lack of clarity on what innovation behaviors actually are Inadequate innovation skills within the organization 7% 7% 11% 11% 11% 9% 6% 13% 24% Top-2 9% 15% 12% 9% 10% 9% 12% 12% 12% Top-3 13% 11% 7% 12% 10% 11% 9% 11% 16% The absence of a well-articulated and/or communicated innovation strategy is the top-1 innovation constraint Copyright © 2011 Capgemini Consulting.

10 . All rights reserved.Survey results: Innovation Strategy FORMAL MECHANISMS STRATEGY GOVERNANCE Managing Innovation LEADERSHIP CULTURE INFORMAL MECHANISMS Copyright © 2011 Capgemini Consulting.

The majority of respondents do not have an explicit innovation strategy Introduction  Results Implications Demographics Results: Innovation Strategy (1/3) Innovation Strategy % of respondents. 11 . n = 241 Leader versus Laggard Perspective Less than 25% 25-50% 50-75% Over 75% Does your organization have an explicit innovation strategy? +36% 71% 65% 58% 53% 42% 29% 45% 55% 47% 35% Yes No Yes No 42% of respondents have an explicit innovation strategy 65% of innovation leaders have an explicit innovation strategy versus only 29% of the laggards Copyright © 2011 Capgemini Consulting. All rights reserved.

Targets and partners are the least frequently included elements of an innovation strategy Leaders are more keen to include statements on targets and partners in their innovation strategies than laggards Copyright © 2011 Capgemini Consulting. Respondents who answered ‘Other’ are not shown.The innovation strategy most frequently includes statements on alignment with corporate strategy.¹ n = 98 Leader versus Laggard Perspective Less than 25% 25-50% 50-75% Over 75% Does it include statements on any of the following? Alignment with corporate strategy Technology Markets Innovation culture Innovation processes Internal capabilities Targets Partners 64% 62% 58% 55% 47% 80% 38% 37% Targets 57% 55% 46% 18% Partners 61% 55% +17% 44% 40% +9% ¹Multiple answers possible. All rights reserved. 12 . technology and markets Introduction  Results Implications Demographics Results: Innovation Strategy (2/3) Innovation Strategy Elements % of respondents.

2% 6% 30% 11% 2% 9% 2% 20% 19% 18% 44% 15% The development of an innovation strategy is predominantly a top-down exercise 19% of respondents communicate their innovation strategy also outside the organization Copyright © 2011 Capgemini Consulting. approved by top management Developed by employees. Developed by top management Developed by top management and BU heads Developed by top management.It is often developed by a combination of top management and innovation experts. approved by top management Developed by innovation experts (internal and external). BU heads.¹ n = 98 Innovation Strategy Communication % of respondents. approved by top management ¹Respondents who answered ‘Other’ are not shown. and communicated widely inside the organization Introduction  Results Implications Demographics Results: Innovation Strategy (3/3) Innovation Strategy Development % of respondents. 13 . approved by top management Developed by BU heads. and internal innovation experts Developed by top management. validated by BU heads.¹ n = 98 How is your innovation strategy developed? How is your innovation strategy communicated in your organization? 13% Not communicated at all Communicated to top management layers only Communicated widely inside the organization Communicated widely inside the organization and used as a daily guideline for innovation Communicated widely inside and outside the organization ¹Respondents who answered ‘Other’ are not shown. All rights reserved. internal and external innovation experts Developed by employees. BU heads.

14 .Survey Results: Innovation Governance FORMAL MECHANISMS STRATEGY GOVERNANCE Managing Innovation LEADERSHIP CULTURE INFORMAL MECHANISMS Copyright © 2011 Capgemini Consulting. All rights reserved.

nor agree Strongly agree 45% of respondents do not have a formal organizational structure for innovation Copyright © 2011 Capgemini Consulting. 15% 12% 9% 30% 33% 31% Agree 15% 19% 24% 25% 24% 25% 12% 11% 9% Disagree Neither disagree. 15 . All rights reserved.Only thirty percent of respondents agree they have an effective organizational structure for innovation Introduction  Results Implications Demographics Results: Innovation Governance (1/4) Organizational Structure % of respondents.¹ n = 227 How strongly do you agree or disagree with the following statements regarding your organizational structure for innovation? We have an effective organizational structure for innovation 9% 36% 21% 23% 7% We have a formal organizational structure for innovation We have a well defined governance structure to manage innovation in our organization We have clearly defined roles and responsibilities with regard to innovation Strongly disagree ¹Respondents who answered ‘Not Applicable’ are not shown.

¹ n = 227 How strongly do you agree or disagree with the following statements regarding your decision-making process for innovation? We have an effective decision-making process to manage innovation 8% 31% 26% 25% 8% We have a formal decision-making process for managing innovation We have a well defined process to prioritize. nor agree Respondents disagree most with having a well defined process for prioritization and funding of innovation projects Copyright © 2011 Capgemini Consulting.Thirty-nine percent do not have a formal decision-making process for managing innovation Introduction  Results Implications Demographics Results: Innovation Governance (2/4) Decision-making Process % of respondents. innovation projects We have a clearly defined process for stage gating. 10% 8% 9% 29% 33% 26% 15% 20% 18% Agree 30% 26% 30% Strongly agree 14% 11% 15% Disagree Neither disagree. 16 . All rights reserved. and allocate time and funding to. and making go/no go decisions Strongly disagree ¹Respondents who answered ‘Not Applicable’ are not shown.

¹ n = 227 How strongly do you agree or disagree with the following statements regarding your KPI system for innovation? We have an effective KPI system to promote innovation 15% 41% 21% 17% 4% We have a formal KPI system for promoting innovation We have well defined targets and scope for innovation We have a clearly defined performance measurement and rewarding of innovation success Strongly disagree ¹Respondents who answered ‘Not Applicable’ are not shown.A stunning fifty-four percent of survey participants indicate not having a formal KPI system for promoting innovation Introduction  Results Implications Demographics Results: Innovation Governance (3/4) KPI System % of respondents. 17 . 15% 11% 13% 34% 39% 17% 14% 24% 29% 6% 7% 7% 39% Agree 20% Strongly agree 19% Disagree Neither disagree. All rights reserved. nor agree Only 26% percent agree they have clearly defined performance measurement and rewarding of innovation success Copyright © 2011 Capgemini Consulting.

9% 8% 8% 35% 32% 37% Agree 21% 19% 22% 24% 30% 25% 7% 7% 4% Disagree Neither disagree. 18 .¹ n = 227 How strongly do you agree or disagree with the following statements regarding your organizational alignment of innovation? We have an effective organizational alignment of innovation efforts 9% 36% 27% 19% 5% We have a formal organizational alignment mechanism for our innovation efforts We have a well defined process for alignment of our innovation efforts with corporate strategy We have clearly defined how to align innovation efforts across the organization and utilize internal capabilities Strongly disagree ¹Respondents who answered ‘Not Applicable’ are not shown. All rights reserved.Fewer than a quarter of the respondents have an effective organizational alignment of innovation efforts Introduction  Results Implications Demographics Results: Innovation Governance (4/4) Organizational Alignment % of respondents. nor agree Strongly agree Respondents are most positive about the alignment of innovation efforts with corporate strategy Copyright © 2011 Capgemini Consulting.

Survey Results: Innovation Leadership FORMAL MECHANISMS STRATEGY GOVERNANCE Managing Innovation LEADERSHIP CULTURE INFORMAL MECHANISMS Copyright © 2011 Capgemini Consulting. All rights reserved. 19 .

20 . All rights reserved. Accountability for growth is the main driver for senior executives to be involved in innovation Our leader group stresses accountability for growth as the driver for senior executives to be involved in innovation Copyright © 2011 Capgemini Consulting.Accountability for realizing growth is the main driver for senior executives to be involved in innovation Introduction  Results Implications Demographics Results: Innovation Leadership (1/2) Executive Motivation for Innovation % of respondents.¹ n = 241 Leader versus Laggard Perspective Less than 25% 25-50% 50-75% Over 75% What do you think motivates senior executives to be involved in innovation leadership? Accountability for realizing growth 46% 15% 11% 19% 18% 17% 28% 23% 12% 15% 17% 7% 6% 46% 40% 51% 65% +19% Intrinsic creative motivation 15% Feel responsible for advancing innovation in the organization 22% Innovation is considered a high status area 14% ¹Respondents who answered ‘Other’ are not shown.

The exciting nature of innovation work. the desire to improve things and its teamwork aspects Copyright © 2011 Capgemini Consulting.¹ n = 241 How strongly do you agree or disagree with the following statements with respect to what motivates employees to be involved in innovation? Strongly Agree / Agree Innovation is considered to be exciting work Desire to improve things Like being part of a team or task force for something new An opportunity for self-realization Like being pulled out of everyday Interesting travel and conferences 26% 53% 91% 89% 87% Disagree / Strongly Disagree 4% 5% 5% 75% 7% 17% 35% ¹Respondents who answered ‘Neither disagree. nor agree’ or ‘Not Applicable’ are not shown. 21 . and teamwork aspects motivate employees most to be involved in innovation Introduction  Results Implications Demographics Results: Innovation Leadership (2/2) Employee Motivation for Innovation % of respondents. All rights reserved. Employees are particularly involved in innovation work because of its exciting nature. the desire to improve things.

Survey Results: Innovation Culture FORMAL MECHANISMS STRATEGY GOVERNANCE Managing Innovation LEADERSHIP CULTURE INFORMAL MECHANISMS Copyright © 2011 Capgemini Consulting. All rights reserved. 22 .

All rights reserved. n = 236 Leader versus Laggard Perspective Less than 25% 25-50% 50-75% Over 75% Have you been tasked with creating a culture of innovation in your organization? 86% 66% 65% 57% 34% 43% 35% 35% 65% 14% Yes No Yes No 66% of respondents have been tasked with creating a culture of innovation Innovators with a success rate of 50% or higher are more often tasked with creating an innovation culture than less successful innovators Copyright © 2011 Capgemini Consulting. 23 .Two-thirds of our respondents have been tasked with creating an innovation culture Introduction  Results Way Forward Demographics Results: Innovation Culture (1/3) Innovation Culture % of respondents.

discussing them. making sure they’re followed Acting quickly even outside plan to capture opportunities People throwing out ideas.Openness. to change. innovation as a core value. Our leader versus laggard comparison revealed that innovation leaders are more concerned with facilitating and guiding ideas than others Copyright © 2011 Capgemini Consulting.¹ n = 236 Which elements do you think constitute a culture of innovation? Openness (to others’ ideas. and the sharing of information are most often mentioned as the elements that constitute an innovation culture Introduction  Results Way Forward Demographics Results: Innovation Culture (2/3) Innovation Culture Elements % of respondents. to exchange) 84% 74% 69% 59% 56% 54% 54% 41% 33% 28% Innovation considered a core value of the company Sharing information. Respondents who answered ‘Other’ are not shown. ideas and results Listening to ideas. excited about them Facilitating and guiding ideas Code of trust People are aware they have to have new ideas and bring them up Going in directions you believe in ¹Multiple answers possible. All rights reserved. pushing them forward. 24 .

69% 59% 51% 36% 33% 32% 30% 24% In addition to the CEO.¹ n = 236 Where does an innovation culture come from? CEO Peers. Respondents who answered ‘Other’ are not shown. All rights reserved. 25 . people you work with Managers in general Learning and development. peers and managers in general are most often mentioned as the source of an innovation culture Copyright © 2011 Capgemini Consulting. training Innovation managers Chief Innovation Officer and innovation office Executive sponsor Internal social media collaboration ¹Multiple answers possible.The CEO is considered the main driver of an innovation culture within companies Introduction  Results Way Forward Demographics Results: Innovation Culture (3/3) Innovation Culture Source % of respondents.

26 .Table of Contents Introduction Results Implications Demographics Copyright © 2011 Capgemini Consulting. All rights reserved.

to exchange. • Our research on innovation culture shows that – among other things – openness to others’ ideas. All rights reserved. suggesting that it is easier to drive innovation in small organizations. • Our leader versus laggard perspective shows the relation between company size and reported innovation success rate. INNOVATION CULTURE • Innovation culture is a highly important mechanism to enable agility and be able to survive in a continuous change environment. • There is no one size fits all when it comes to org design for innovation but the correlation between having a formalized innovation governance and the reported innovation success rate suggests that there is much to gain by improving the formal mechanisms for managing innovation INNOVATION LEADERSHIP • Real innovation leadership requires executives to reduce the level of disconnect between themselves and employees. 27 . and acting quickly even outside the plan to capture opportunities. ORGANIZATIONAL DESIGN • Limited organizational design for innovation is impairing growth at large organizations. to change.What does all this mean for executives responsible for leading and managing innovation? Introduction Results  Implications Demographics Implications Drivers for Innovation INNOVATION FUNCTION • The innovation function is in the spotlight to improve the organization’s ability to achieve its innovation targets by formulating a well-articulated innovation strategy and improving its understanding of the external environment. are considered important elements of a culture. Innovation should be in the DNA of the company as well as in its leaders and employees Copyright © 2011 Capgemini Consulting. STRATEGY • Traditional strategy development no longer suffices in the pursuit of sustainable growth under high uncertainty – there is a need to move strategy development to the outer peripheries of the company.

28 . All rights reserved.Table of Contents Introduction Results Implications Demographics Copyright © 2011 Capgemini Consulting.

n = 260 Role What is your role in the organization? Chief Executive Officer 24 23 3 11 8 Respondents’ position within their organizations 9% 20% 10% C-Level VP Director 13% 22% Manager Analyst Other Chief Innovation Officer Chief Operating Officer Vice President of Innovation Vice President of Strategy Vice President of R&D Director of Innovation Director of Strategy Director of R&D Manager of Innovation Manager of Business Development 4 36 4 4 41 9 8 85 27% Manager of Marketing Other 60% of respondents are at the director level or higher Many respondents are directly responsible for leading and managing innovation Copyright © 2011 Capgemini Consulting. n = 260 # of respondents. 29 .Two hundred and sixty respondents contributed to this survey Introduction Results Implications  Demographics Demographics (1/3) Position % of respondents. All rights reserved.

Innovation and corporate strategy functional areas represent 60% of the respondents Introduction Results Implications  Demographics Demographics (2/3) Functional Area % of respondents. 30 . n = 201 Company Size What are your company’s annual revenues? What is your functional area? 18% 1% 4% 7% 8% 8% 23% 15% 37% Innovation Corporate Strategy R&D Marketing Operations IT HR Sales Finance Supply Chain 24% 18% 43% Less than €500m €500m . n = 201 % of respondents.€1b €1b . All rights reserved.€10 billion More than €10 billion 16% 18% Other (please specify) 15% 60% of respondents work within innovation or corporate strategy There is a 50/50 split between big and small companies represented Copyright © 2011 Capgemini Consulting.

31 . high tech. life sciences or consumer products Copyright © 2011 Capgemini Consulting.The survey results represent the full range of industries and geographical regions Introduction Results Implications  Demographics Demographics (3/3) Geography % of respondents. Oil & Gas Automotive 7% 6% 5% 4% 3% 19% 7% 9% 9% 13% 19% Respondents per geographical region 6% 3% 2% 13% 13% 12% 46% Australia Healthcare Providers Transportation and Logistics Retail Utilities Other 3% 37 countries are represented in this study with most respondents based in Europe and North America The majority of respondents work in professional services. n = 201 % of respondents. All rights reserved. n = 201 Industry In which industry segment does your company operate? Professional Services High Tech Life Sciences North America 40% South America Europe Africa Asia Consumer Products Financial Services Public Sector Telecommunications and Media Energy.

com Paddy Miller Professor – IESE Business School Mob: +34 93 253 4200 pmiller@iese.klokgieters@capgemini. please contact: Koen Klokgieters Vice President – Capgemini Consulting Mob: +316 5112 3259 koen.edu 32 .For more information regarding this study.