The Payoff of Liberating People to Innovate

As a leader, encouraging your employees to innovate isn’t just a nice thing to do for them. It also delivers tangible value for your business. But what exactly can you do to motivate innovation from within your organization?

In my new book, Driving Innovation from Within, I examine how to determine how innovative your company currently is, and what you can do to increase the level of innovation.

How innovative are you, really?

Research into “intrapreneurial intensity” (II) shows that higher levels of internal entrepreneurialism drive faster growth, increased economic value added (EVA), and higher returns (total return to shareholders or TRS). You can measure your company’s II by assessing two elements: frequency (how often your people pursue innovative opportunities) and degree (to what extent those pursuits show innovative thinking, involve risk-taking, and require proactivity).

By measuring frequency and degree, you can determine into which of the following nine organizational profiles your company currently fits:

Business Model Operators (low frequency, low degree)

With a steady, effective business model at its core, Walmart fits snugly into the lower-left box. Though the company doesn’t take huge risks or innovate often, it still manages to operate more effectively than its competition by following a stable business model that has worked for them for decades.

Accumulator (high frequency, low degree)

BMW is a great example of an “Accumulator” because it introduces small innovations into each of its new car models. So the innovations come often, but are relatively low-impact. Accumulators like BMW rarely introduce new business models or enter new categories.

Sporadic (low frequency, high degree)

Ford reinvents itself by introducing a new business model every decade or two. In the height of the dot-com boom of the 90s, it reinvented itself as a technology company, and it’s currently reinventing itself as a mobility company to compete with Google, Tesla and Uber.

Dynamic (medium frequency, medium degree)

In the middle are “Dynamic” innovators, represented here by Mastercard. This is really a “catch-all” for companies whose level of innovation spans various frequencies and degrees.

Revolutionary (high frequency, high degree)

Amazon is an obvious choice for the “Revolutionary” category. The company frequently rolls out high-degree innovations such as new categories, fee structures and lines of business.

Turning innovation into profit

The number in each box represents what the effect might be on your stock price (more precisely TRS) if you are able to move to a higher-order category (these figures are based on research that correlates the level of II with TRS). For example, if you are a “Business Model Operator” with a stock price of 100, simply increasing the frequency of innovative activity could deliver a stock price of 140.

To move past your competition, strive to push ahead by one category. So if you fall in the “Dynamic” box, you should try to move ahead either in frequency (to “Performer”) or in degree (to “Sculptor”). Of course, you can move ahead in both to become a “Revolutionary” innovator, but the good news is you don’t have to. You just need to be one category ahead of your competition to beat them.

4 ways to activate innovation

So how do you activate innovation within your company and increase your II? By prioritizing innovation, cultivating innovative talent, establishing supportive structures, and shaping the right culture.

Prioritize innovation

As a leader, it’s imperative that you take initiative and make innovation a priority. Carve out time in the beginning of meetings to discuss new ideas. Get your hands dirty by spending time working on new products and ideas yourself so you can truly understand them. Help your employees understand what types of innovation to pursue by providing them with a compelling, succinct vision.

Cultivate innovative talent

Create events for employees that activate innovative behavior and give them pockets of freedom to innovate. Replace rigid performance reviews based on strict goals with more frequent, organic conversations about performance.

When you hire new employees, look for people who display the innate characteristics of an internal innovator:

  • They use innovative thinking
  • They’re attuned to the customer and market
  • They’re proactive
  • They take calculated risks
  • They have strong political acumen
  • They’re intrinsically (rather than financially) motivated to innovate

Establish supportive structures

To ensure your employees are not losing innovative steam due to bureaucracy, create the right organizational structure by doing the following:

  • Allocate resources (time and money) to pursue innovation
  • Reward innovative behavior
  • Allow and encourage employees to take risks
  • Provide organizational freedom for innovation (e.g, break large hierarchical units into small, fast-moving teams that can launch “micro-innovations”, reconfigure your physical space to stimulate creativity and collaboration)

Shape the right culture

Encourage innovative thinking, autonomy and proactivity, market awareness, and risk-taking within your organization. Ensure that your company’s vision and mission align with as many of these values as possible.

Conclusion

By giving employees the freedom to innovate, you can push your company’s intrapreneurial intensity score high enough to beat out the competition and increase profits. Liberating your employees to innovate doesn’t just make you look like a great boss – it truly adds measurable value to your company.