According to Assay Advisory, a company specialising in supporting businesses all over the world, creating a work culture that encourages creativity, openness and innovation is a winning formula for business growth.
The key to consistently successful innovation isn't just about having a handful of people with a few great ideas - it's about creating an organisational and relational culture, where businesses truly invest in the needs of their employees. This allows creativity and innovation to thrive systematically, delivering long-term competitive advantage for the business.
Though people often confuse them, leaders and managers have very different roles. Managers are there to manage complexity, ensuring that employees carry out their given tasks as quickly and efficiently as possible. They are concerned with what's going on inside the organisation.
Leaders are concerned with what's going on outside the organisation. It's their task to look ahead and prepare the business for what's coming so that it can survive and thrive. By definition, leaders manage change, and that often requires adapting or doing something different: innovating something within the business in order for it to adapt, grow and retain competitive advantage.
Therefore innovation = change. And change is not always welcome.
In fact, most organisations are resistant to change. People like to know where they stand and they prefer to keep the status quo. There may be vested interests, employees or managers who believe they will lose out if you start doing things a different way. Perhaps it's outside their comfort zone. After all, change inherently means risk and they have spent a great deal of time eliminating risk in today’s operations.
The importance of starting with culture
For these reasons, many businesses at some level are anti-innovation. They do not have a culture that consistently embraces the possibility of change. But to borrow an evolutionary metaphor, if your environment is changing then there's no choice: you have to adapt to survive.
And today’s environment is changing. We are moving to a more flexible working culture, where full-time is no longer the default. Business innovation today means including a capability of truly listening to staff needs and this means being open to the idea of employees working from home, part-time working or even job sharing.
Creating an open and flexible culture is part of building a profitable business, and spending time developing a great team of people makes sense, as this becomes part of the business assets. At Assay we believe that creating the right culture underpins high performance in business. If you get your beliefs, values and intent right, commercial success will naturally follow. Businesses that support creativity, innovation, openness and flexibility adapt to a changing environment faster than the competition.
This kind of creativity and innovation can't be bolted on to a business. It needs to be explicitly built in as part of its culture. Most organisations have a transactional culture: their people do what they do because they're asked to and because they get paid for it. Great innovative organisations have a relational culture: one in which each partner listens to the needs of the other and where people are encouraged to participate in solving problems together. If this philosophy is intrinsically built into the business model, people are happy to participate more fully because they have an investment in the likely success of the future business.
Ideation, invention, innovation
In practice, this process of change has three stages. It starts with individuals creating or generating ideas -ideation. These ideas are then brought together, discussed, honed and adapted to provide solutions - invention. Finally, these solutions and technologies are productised to produce new products and services that can be valued or commercialised - innovation.
The task of leaders is to ensure their organisation is always fit for purpose. The best way to do that is to foster a culture of innovation both at the strategic level and at the operational, or both product and service level.
Culture as an asset
Most owners are familiar with the business valuation equation: V = P x M, where the valuation (“V”) of a business equals profit (“P”) times a multiple (“M”). If profit is £10m and the valuation multiple is five, then the company is valued at £50m.
Whilst Profit (“P”) is a measure of past and current profits, the Multiple (“M”) is a measure and judgement of future profits. The greater the likelihood of future profits the higher the multiple.
When focusing on culture and innovation, most businesses are doing so with a “P” focus only. However, an organisation that creates a culture of innovation and investment in people, and where that culture has been embedded and systemised, will also be creating an asset that has the potential to generate future profits, thus enhancing its multiple or “M” and therefore its likely equity value.
How innovative is your business?
When working with clients on improving their multiple and making them attractive in the future we assess the overall culture and the culture of innovation within their business reviewing several critical competencies, including:
- Leadership/vision – how open are you as leaders to innovation, change and an open flexible culture - do you understand and support it?
- Mindset and culture – how are new ideas treated in your business? The innovation mindset of the organisation must support the exploitation of ideas that could improve your business.
- Clearly aligned strategy – what evidence is there in your business plan and company annual reports that innovation is systematically put into practice?
- Intellectual property – how much of your competitive advantage have you codified and protected – and do you do this systematically?
As it can't be bought, outsourced or delegated, it's a business owner or leader's personal responsibility to create the focus and change needed for innovation to flourish. Focusing on an open and flexible culture as the starting point for consistently successful innovation is a powerful approach for businesses to develop and thrive.
Author: Thanks to Peter Harford from Assay Advisory.