The study, which surveyed over 260 innovation executives globally, suggests that while innovation is an emerging functional area within organizations, limited organizational strategies for driving innovation are impairing growth.

1. Innovation leadership study
Managing innovation: an insider perspective

2. About the authors
Paddy Miller
Paddy Miller is a professor of Managing People in
Organizations at IESE Business School in Barcelona, Spain.
His interests lie in the area of innovation, leadership and
organizational change.
Koen Klokgieters
Koen Klokgieters is a vice president with Capgemini
Consulting based in The Netherlands. He specializes in
strategy and transformation and is the global leader of the
firm’s innovation practice.
Azra Brankovic
Azra Brankovic is a research associate at IESE Business
School’s New York Center. She focuses on innovation,
organizational behavior and culture.
Freek Duppen
Freek Duppen is a managing consultant with Capgemini
Consulting based in The Netherlands. He specializes in
strategy and transformation with a focus on growth strategy,
new business and operating models, and innovation.

3. Innovation leadership study
Managing innovation: an insider perspective
March 2012
Paddy Miller
Koen Klokgieters
Azra Brankovic
Freek Duppen

4. Executive summary
This innovation leadership study carried out jointly These and a wide range of other relevant findings for in-
by IESE Business School and Capgemini Consulting is novation leaders and executives are elaborated on in this
Capgemini’s third report in the innovation leader versus report. The most important findings per area can be sum-
laggard series. It aims to understand how those leading marized as follows.
and managing innovation in their organizations think
about the innovation function and offers an insider per- With innovation an emerging functional area
spective into both the formal and informal mechanisms within organizations the innovation function is
for managing innovation. It covers five key areas that becoming increasingly important as a source for
affect a company’s innovation success: the innovation innovation leadership.
function, innovation strategy and innovation governance
(formal mechanisms), innovation leadership and innova- n Forty-three percent of respondents say they have a
tion culture (informal mechanisms). The study offers a formally accountable innovation executive, versus
unique perspective by looking at the differences in behav- 57 percent without such a formalized role. This is
ior of innovation leaders versus laggards across these key significantly higher than the 33 percent who said so
areas - allowing to uncover good practices in managing in last year’s innovation leader versus laggard study.
innovation. Finally, the report offers an overview of the n Building and nurturing an innovation ecosystem
most important implications for innovation executives (32 percent of respondents) and formulating and com-
that seek to improve their innovation success rate. municating the innovation strategy (31 percent) are
considered the top roles of the innovation function.
Our study revealed that the absence of a well-articulated n Companies consider the absence of a well-articulated
innovation strategy is by far the most important constraint and/or communicated innovation strategy as the
for companies to reach their innovation targets, followed most important constraint for their organization’s
by a lack of understanding of the external environment. ability to achieve its innovation targets (24 percent of
There is a need for innovation strategy development in a respondents). It is followed by a lack of understanding
more bottom-up manner, focused on people as the key of the external environment as indicated by 13 percent
source of competitive advantage. One needs to capture all of survey respondents.
those individual insights from managers and employees
to better incorporate an understanding of the external The majority of companies do not have an explicit
environment in the strategy development process. The innovation strategy - those who have one mostly
findings also suggest that there is a correlation between develop it top-down.
having a formalized innovation governance and the
reported innovation success rate, implying that there is n Only 42 percent of respondents have an explicit innova-
much to gain by improving the formal mechanisms for tion strategy, leaving 58 percent without such a strategy.
managing innovation. n Innovation strategy development is mainly a top-down
exercise. Most respondents (30 percent) indicate their
Furthermore, large organizations create so much distance innovation strategy is developed by a combination of
between the executives and those that are tasked to inno- top management, business unit heads, and internal
vate that a disconnect exists between them. Real innova- innovation experts. Only 11 percent of respondents
tion leadership requires executives to reduce the level of explicitly involve employees in the strategy development
disconnect between themselves and employees when it process.
comes to motivation for innovation. Also, our research n The majority of companies communicate their
on innovation culture shows that agility in behavior is innovation strategy widely in the organization. Seventy-
considered a key cultural element of innovation. Behaviors eight percent of respondents say their innovation
that enable better responsiveness to the external environ- strategy is communicated widely inside the organization
ment are required in our present-day society in order to providing employees with a direction on how to act in
be successful in innovation. Such a culture springs from the context of innovation.
both formal and informal sources. The CEO is the most
important source of innovation culture but it has to take
root informally as well.
2

5. Section Title
Section Intro the governance levers for the
Across the board Companies recognize the need to create a strong
formal management of innovation are largely innovation culture that enables organizational
overlooked or underdeveloped. agility.
n Only 30 percent of respondents agree they have an n Two-thirds of respondents (66 percent) say they have
effective organizational structure for innovation. This been tasked with creating a culture of innovation.
is mainly due to not having a formal organizational n Respondents indicate openness to others’ ideas, to
Body Text for innovation (45 percent), not having a
structure change, to exchange (84 percent), innovation considered
well-defined governance structure (45 percent), or lack a core value of the company (74 percent), and sharing
of clear roles and responsibilities for innovation (40 information, ideas and results (69 percent) as the most
percent of respondents). important cultural elements for innovation.
n Thirty-nine percent of respondents say they do not have n The CEO is considered the most important source of an
an effective decision-making process for innovation. innovation culture (69 percent of respondents), followed
This is largely due to not having a well defined process by peers (59 percent) and managers in general
to prioritize and allocate time and funding to innovation (51 percent).
projects (49 percent).
n The KPI system is the least developed governance lever
when it comes to innovation. A stunning 54 percent
of survey participants indicate that they do not have
a formal KPI system for promoting innovation. Only
21 percent of innovation leaders and managers agree
they have an effective KPI system for innovation.
n Less than a quarter (24 percent) of the respondents
believes they have an effective organizational alignment
of innovation efforts.
Executives are mainly motivated by extrinsic
transactional drives whereas employees
are driven by high intrinsic transformational
motivations for innovation.
n Accountability for realizing growth is considered the
main motivation for senior executives to be involved
in innovation (46 percent of survey respondents),
compared to only 15 percent who believe intrinsic
creative motivation plays a role here.
n Respondents believe that employees are primarily
motivated for innovation because of intrinsic drives.
Innovation is considered to be exciting work
(91 percent), employees have a desire to improve things
(89 percent), and like being part of a team or task force
for something new (87 percent).
Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line
Executive summary 3

6. Contents
An insider perspective 05
1 Innovation function 07
1.1 Accountability
1.2 Role
1.3 Constraints
2 Innovation strategy 11
2.1 Strategy
2.2 Elements of strategy
2.3 Development and communication
3 Innovation governance 15
3.1 Organizational structure
3.2 Decision-making
3.3 KPI system
3.4 Organizational alignment
4 Innovation leadership 19
4.1 Executive motivation
4.2 Employee motivation
5 Innovation culture 23
5.1 Creating a culture of innovation
5.2 Elements of culture
5.3 Source
Implications 29
Appendix 31

7. Section Title
An insider perspective
Section Intro
What drives innovation leadership? For many years This report is organized as follows: As innovation is
IESE Business School and Capgemini Consulting have becoming more ingrained as a corporate function we
been studying the topic of managing innovation within will start off with taking a closer look at the innovation
organizations. Both address the topic from their own function itself. Then we will proceed to look at formal
angles and perspectives. This innovation leadership study mechanisms for managing innovation, namely strategy
aims to understand how those leading and managing and governance. This is followed by our findings
innovation in their organizations think about the regarding informal mechanisms for managing innovation,
innovation
Body Text function. It offers you an insider perspective which is leadership and culture. The study is concluded
on the formal and informal mechanisms for managing with a top five of implications executives need to take into
innovation. account with respect to managing innovation.
The study is based on both qualitative and quantitative
research. We have conducted in-depth interviews with
Exhibit 1: Innovation success rate
innovation leaders from various industries on how they
lead and manage innovation. Subsequently an online % of respondents, n = 260
survey targeting innovation executives has been carried Could you please estimate your organization’s innovation success rate?
out to validate our research hypotheses and provide
further insights. The survey methodology allows us to
uncover good practices in managing innovation. The 38 37
methodology differentiates between innovation leaders
and laggards based on a self-assessment by survey
respondents of their innovation success rate. The innovation
success rate is determined by the percentage of innovation 18
efforts that have a positive material impact on the company’s
business results. 7
We distinguish between four categories of innovation
success based on this rate, namely: Less than 25% 25-50% 50-75% Over 75%
‘Less than 25%’, ‘25-50%’, ‘50-75%’ and ‘Over 75%’ of
innovation efforts having a positive material impact on the LAGGARDS LEADERS
company’s business results. The ‘Less than 25%’ category
represents the innovation laggard group and the ‘Over
75%’ category the innovation leader group of analysis.
Exhibit 1 shows how respondents are distributed over
these four categories. Thirty-eight percent of respondents
fit the innovation laggard profile, whereas 7 percent
belong to the innovation leaders group. In addition to
the overall findings on innovation leadership this report
highlights the differences between innovation leaders and
laggards in managing innovation.
Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line
An insider perspective 5

9. 1 Innovation
Section Title function
With innovation an emerg-
Section Intro From our conversations with inno- 1.1 Accountability
ing functional area within vation leaders it has become clear
that the innovation function within One of the best indicators of the
organizations, this study companies can take many different importance of a certain topic within
recognizes the importance forms and that there is an ongoing companies is whether or not some-
of the innovation function movement towards further formal- one at the top of the organization
as a source for innovation ization of the innovation function. As is accountable for it. We asked our
Body Text one interviewee commented: “We’re respondents if their organization has
leadership. We asked moving from working locally to start someone at the executive level that is
interviewees and survey working globally, from innovating formally accountable for innovation
respondents about the in a disorganized way, to innovating (see exhibit 2). Forty-three percent
formal accountability for in a formalized organized way, with of respondents indicated they have
clear standards.” With respect to the a formally accountable innovation
innovation within their position of the innovation function executive, versus 57 percent without
organizations; what they within the organizational structure, such a formalized role. This is sig-
considered to be the inno- several forms are highlighted by nificantly higher than the 33 percent
vation function’s main role; our interviewees. They range from who said so in last year’s innovation
having an innovation board at the leader versus laggard study, an indi-
and what most constrains top level of the organization, to a cator that companies are increasingly
their organization’s ability full-fledged global innovation func- formalizing the innovation function,
to achieve its innovation tion across all business units, to an hoping to achieve higher innovation
targets. independent central innovation office success rates.
that acts as a center of excellence, to
being embedded in another organiza- When looking at the leader versus
tional function such as marketing or laggard perspective in exhibit 2 we
R&D. Often the innovation function see a consistent pattern compared to
has emerged from another corporate previous results. Fifty-nine percent
function as the company’s leadership of innovation ‘leaders’ - based on
acknowledges the importance of in- their innovation success rate - have
novation for future growth. a formally accountable executive for
innovation, versus only 28 percent of
Most of the innovation leaders we our innovation ‘laggard’ group. This
interviewed mention that their in- is in line with last year’s findings
novation function reports directly to which showed a similar gap between
a C-level executive. We will discuss leaders and laggards with respect to
the accountability for innovation in accountability for innovation. There
more detail in the next section. Also, seems to be a correlation between
the role of the innovation executive having a formally accountable execu-
- as well as the innovation func- tive for innovation and the reported
tion at large - is elaborated upon in innovation success rate, suggesting
this chapter. Finally, we will take a that formalizing the innovation
closer look at the innovation function function leads to higher innovation
in the light of the most important success rates.
constraints for reaching innovation
targets. 1.2 Role
We were also interested in what our
study participants considered to be
the innovation function’s main role.
Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line
1 Innovation function 7

10. Exhibit 2: Formal accountability for innovation
% of respondents, n = 260
Does your organization have someone at the executive Innovation success rate
level who is formally accountable for innovation? Less than 25% 25-50% 50-75% Over 75%
+31% 72
57
59
55
51
49
43 45
41
28
Yes No Yes No
We started off by asking our inter- survey respondents to indicate their ecosystem within and outside their
viewees about their personal role as top three from the list of choices in organizations, few explain how the
an innovation executive. In line with exhibit 3. ‘Building and nurturing innovation function at large enables
our finding that companies are in- an innovation ecosystem’ and that. Often it boils down to a sort of
creasingly formalizing the innovation ‘Formulating and communicating the open innovation center of excellence
function, most innovation executives innovation strategy’, scoring respec- that supports ‘the business’ by bring-
commented that their role was newly tively 32 and 31 percent, are clearly ing in ideas from the outside. But
created over the last few years. With considered the top roles of the inno- most of the time the extent to which
respect to their personal role many vation function. ‘Optimizing the in- an innovation function succeeds in
interviewees mention that much of novation processes and governance’ building and nurturing an innova-
their role is being a catalyst: “A lot of comes in third. These findings tion ecosystem seems to depend
my role is creating very, very strong concerning the role of the innova- on the capability of the individuals
strategic alliances and partnerships tion function are largely in line with within the innovation function to
and bringing new thinking to the last year’s findings on innovation network and build relationships for
table. And then being able to trans- decisions to be made by the innova- the company as a whole. The second
late that into engagements with our tion function. Next, ‘determining the most important role of the innova-
businesses, to really help them make innovation strategy’ and ‘the allocation tion function, ‘formulating and com-
the leap. I spend a lot of time with of funds and innovation portfolio municating the innovation strategy’,
the venture capitalists, with start-up management’ were cited most often will be discussed extensively in
companies, and then really manag- as decisions made by the corporate chapter two on innovation strategy.
ing our portfolio of projects that my innovation function. In the context of the innovation
team has.” function’s role, most innovation lead-
Whereas many innovation leaders ers talked elaborately about how they
With respect to the role of the inno- are able to explain how they person- have optimized the innovation pro-
vation function in general we asked ally build and nurture an innovation cesses and governance. This seems
8

11. Exhibit 3: Innovation function’s role
% of respondents, n = 260
What do you consider to be the innovation function’s main role?
Top 1 Top 2 Top 3
Formulating and communicating 31 11
the innovation strategy 15
Monitoring and analysis of the 11
external environment 7 9
Optimizing the innovation 14 16 18
processes and governance
Building and nurturing an
innovation ecosystem 32 19 13
‘Selling’ of innovation within
the organization
5 12 12
Motivating employees 6
to innovate 9 13
Running innovation
workshops/events
2 4 7
Developing employees’ 5 14 17
innovation skills
to have been the innovation func- We are creating a common language ability to achieve its innovation targets.
tion’s main role in the past - whereas about how these things get discussed The absence of a well-articulated
now the fundamentals are in place and then how they get governed.” and/or communicated innovation
innovation leaders are shifting the Another interviewee highlights strategy is by far the most important
attention of their innovation function the importance of implementing a constraint, with 24 percent of the
increasingly and further outward. funding mechanism for innovation: respondents indicating it as a top 1
“Critical was creating a funding constraint. It is followed by a lack
Optimizing the innovation processes mechanism to get pilots or in some of understanding of the external
and governance is described by cases actually get the entire product environment (13 percent of respon-
one Chief Innovation Officer (CIO) developed, to provide a venture fund dents naming it a top 1 constraint,
as the responsibility “to embed that everyone could compete on even 15 percent naming it a top 2
process, techniques and capacity ground to get funding from, and to constraint).
to sustain rapid innovation”, with get funding off of budget cycles.”
the company needing to have “a Thinking about our findings in the
repeatable, ingrained capability In the next section we will dive into previous chapter on the role of the
internally and externally to rapidly what most constrains organizations innovation function, these innovation
bring ideas forward and prototype in achieving their innovation targets constraints become even more inter-
things, discard failing ones and and see how that relates to the innova- esting. ‘Building and nurturing an
double or triple down investment tion function’s role as identified here. innovation ecosystem’ and
on good ideas.” Another interviewee ‘Formulating and communicating the
described establishing an innovation 1.3 Constraints innovation strategy’ were considered
process and governance as creat- to be the innovation function’s main
ing “a set of processes and common Exhibit 4 shows what survey respon- roles. In order to be able to build and
language for how we’re going to talk dents consider to be the biggest nurture an innovation ecosystem a
about innovation in the company. constraints for their organization’s thorough understanding of the exter-
Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line
1 Innovation function 9

12. nal environment is a prerequisite. At Innovation Director mentions the function is in the spotlight to
least if you want this innovation eco- difficulty of anticipating trends, improve the organization’s ability
system to contribute to your com- particularly in technology. “It is to achieve its innovation targets by
pany’s innovation success in terms challenging to set up directions, to formulating and communicating a
of a positive material impact on the anticipate what clients will need, well-articulated innovation strategy.
business results. In addition to under- what markets will need. One needs The next chapter will shed more
standing the external environment, to balance short-term and long-term light on the innovation strategy.
one needs to be able to quickly react research.” Also the challenge of
to it. We will explain this in more generating customer insights is
detail in the chapter on innovation mentioned by one Innovation
culture under improvisation. Director as a lack of understanding
the external environment. “People
Several innovation leaders and think that if they talk to one
managers we interviewed confirmed customer they know the market.
that they have a limited understanding How to get true customer needs on
of the external environment. One the table?”
Vice President of Innovation says that
“the whole global issue is a challenge. The relationship between the number
Even if people are inclined to be one constraint (‘The absence of a
open, different cultures can prevent well-articulated and/or communicated
them from communicating and innovation strategy’) and one of the
understanding each other. Also they main roles of the innovation function
might not have the same priorities (‘Formulating and communicating
and/or not understand each other’s the innovation strategy’) is even
markets and trends.” Another more pronounced. The innovation
Exhibit 4: Innovation constraints
% of respondents, n = 260
What most constrains your organization’s ability to achieve its innovation targets?
Top 1 Top 2 Top 3
The absence of a well-articulated innovation strategy 24 9 13
Lack of understanding of the external environment 13 15 11
No formal innovation governance structure 7 12 7
Lack of formal innovation processes 7 9 12
Inadequate innovation budget allocation 11 10 10
Lack of top management commitment to innovation 11 9 11
No innovation-friendly culture 11 12 9
Lack of clarity on what innovation
behaviors actually are 9 12 11
Inadequate innovation skills 12
6 16
within the organization
10

13. 2 Innovation strategy
Managing innovation As concluded in the previous chapter explicit innovation strategy, leaving
requires having both for- on the innovation function, the in- 58 percent without such a strategy.
novation strategy plays a major role This is in line with the earlier finding
mal and informal mecha- in achieving one’s innovation targets. that the absence of a well-articulated
nisms in place. As a formal Moreover it is expected from the and/or communicated innovation
mechanism for managing innovation function - and therewith strategy is by far the most important
innovation the innovation ultimately from the accountable ex- constraint for achieving one’s inno-
ecutive for innovation - to formulate vation targets. The absence of such
strategy plays an important and communicate such a strategy. In a strategy is explained as follows
part. We asked innovation our previous research on innovation by an Innovation Director we inter-
executives if they have an leadership we found that many in- viewed: “It’s taken for granted and
innovation strategy; what novation leaders have difficulties in done ‘from the gut’. I think people
describing what an innovation strat- would benefit from understanding
elements it consists of; egy actually is, what it includes, and the strategy to be more efficient and
and how it is developed how it is developed. This innovation more innovative.”
and communicated within leadership study’s findings provide
the organization. further insight and context for the Taking the leader versus laggard per-
concept of innovation strategy. spective we note that 65 percent of
innovation ‘leaders’ have an explicit
2.1 Strategy innovation strategy versus only 29
percent of the ‘laggards’. The correla-
First and foremost - the majority of tion between having an innovation
respondents do not have an explicit strategy and the reported innovation
innovation strategy (exhibit 5). Only success rate suggests that indeed the
42 percent of respondents have an absence of an innovation strategy is a
Exhibit 5: Innovation strategy
% of respondents, n = 241
Does your organization have an explicit innovation Innovation success rate
strategy? Less than 25% 25-50% 50-75% Over 75%
+36% 71
58 65
55
53
47
45
42
35
29
Yes No Yes No
Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line
2 Innovation strategy 11

14. big constraint for achieving one’s in- Talking about how the innovation business strategy. Along similar lines
novation targets. Companies need to strategy is aligned with corporate an innovation manager we interviewed
start acting to articulate an innova- strategy, interview respondents talks of deciding whether a new
tion strategy. mention the following. One Chief technology is strategically a good fit
Innovation Officer we spoke with for the company’s overall strategy
2.2 Elements of strategy explains how the innovation office and mission. Even if it’s a good idea
is informed by the corporate strat- that can be profitable, from a focus
We asked respondents what elements egy, while it in turn helps to inform standpoint it may not be something
an innovation strategy includes. the corporate strategy’s focus areas. to pursue.
Exhibit 6 shows the outcome. Clearly In other words, it is an interactive
a broad variety of elements is included process. Another innovation leader Worth noting is the relatively strong
in company’s innovation strategies, we spoke with says it is important to score of innovation culture as an
ranging from the alignment with think through all the different ele- element of the innovation strategy.
corporate strategy to statements on ments and that ultimately everything Fifty-eight percent of the companies
the role of partners in this strategy. is aligned and driven toward creating surveyed include statements on what
‘Alignment with corporate strategy’ value. Some interviewees stress the is desired from a cultural perspec-
is cited most often, namely by need for a separate innovation strate- tive in their innovation strategy. In
80 percent of the respondents. The gy (in addition to corporate strategy) our conversations with innovation
other two elements in the top three because of the difficulty of matching leaders agility was brought up: “In
include statements on ‘Technology,’ short- and long-term strategic objec- discussions on strategy, a frequent
chosen by 64 percent, and ‘Markets,’ tives. One mentions the company point that has come up is the need
mentioned by 62 percent. has a meeting of functional heads to for more agility in the department.”
align the innovation strategy to the This remark bridges the need for
Exhibit 6: Innovation strategy elements
% of respondents,¹ n = 98
Does it include statements on any of the following? Innovation success rate
Less than 25% 25-50% 50-75% Over 75%
Alignment with
corporate strategy 80 38
Technology 64 37
Targets +17%
57
Markets 62
55
Innovation culture 58
Innovation processes 55
46
Internal capabilities 47
18
Partners +9%
Targets 44
61
Partners 40 55
¹Multiple answers possible; Respondents who answered ‘Other’ are not shown.
12

15. understanding the external environ- results. Innovation leaders may have 2.3 Development and
ment - a constraint according to our outpaced their peers by simply being communication
respondents - and the ability to act better at integrating external par-
upon changes in that environment. ties into their innovation process, Exhibit 7 shows how the innovation
We will discuss how innovation cul- leveraging the broader innovation strategy is developed and communi-
ture enables agility in chapter 5 (5.2 potential as a result. The difference cated within respondents’ organiza-
Elements of culture). between leaders and laggards as tions. Regarding innovation strategy
illustrated by exhibit 6 seems to em- development most respondents
Finally, it is important to note that phasize that innovation ‘leaders’ (30 percent) indicate their innovation
our innovation ‘leader’ group of think more strategically about in- strategy is developed by a combina-
analysis more often includes state- volving partners than their lagging tion of top management, business
ments about targets and partners counterparts. The gap between lead- unit heads, and internal innovation
in their innovation strategy than ers and laggards with respect to the experts. Another 20 percent indicate
‘laggards’. One of the main implica- use of targets in their innovation that their innovation strategy is de-
tions from our previous research on strategies is even more pronounced. veloped by innovation experts - both
innovation leaders and laggards was It suggests that innovation leaders internal and external experts - and
that the ability to work effectively are keener to frame their innovation then approved by top management.
with external partners will deter- ambitions and plans in terms of Thirteen percent say their innovation
mine who will be the new innovation strategic targets. strategy is developed by top man-
leaders and laggards. Few companies agement only. If we look at the split
had yet mastered the skill of work- between top-down versus bottom-
ing together effectively with external up development of the innovation
partners to improve their innovation strategy we can conclude that it is
Exhibit 7: Innovation strategy development and communication
% of respondents,¹ n = 98 % of respondents,¹ n = 98
How is your innovation strategy developed? How is your innovation strategy communicated in
your organization?
Developed by top management 13 Not communicated at all 2
Developed by top management
6
and BU heads
Communicated to top
Developed by top management, 18
30 management layers only
BU heads, and internal innovation experts
Developed by top management, BU heads, 11
internal and external innovation experts Communicated widely
7% 44 44
inside the organization
Developed by employees, approved 2
by top management
Developed by employees, validated by Communicated widely inside
9 the organization and used as a 15 15
BU heads, approved by top management
daily guideline for innovation
Developed by BU heads, approved
2
by top management
Communicated widely inside 19
Developed by innovation experts
20 and outside the organization
(internal and external), approved
by top management
¹Respondents who answered ‘Other’ are not shown.
Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line
2 Innovation strategy 13

16. mainly a top-down happening. Only Summing up, innovation strategy
11 percent of respondents have their development is mainly a top-down
innovation strategy developed by exercise (only 11% explicitly involve
employees. employees) and the defined strategy
is communicated widely within the
One innovation leader we spoke with company. Our in-depth interviews
highlighted the fact that often in- with innovation leaders identified
novation and corporate strategy are some of the complexities related to
closely intertwined. “The CIO comes this kind of practice. One leader
up with the strategy, along with a stated that with regard to innovation
person who works on corporate strategy, working in a matrix orga-
strategy in the company. The CIO nization is difficult. “The company
suggests the strategy to the innova- has to guarantee that everybody
tion board and the CEO, and upon shares the strategy. Because of the
approval it is deployed throughout need to have a global view of the
the organization.” Other interviewees company, they realized they needed
explain how top-downmeets bottom- full involvement of people who take
up development and how the process decisions in the company.”
evolves after the strategy has been
defined: “Innovation strategy is cre- In our experience traditional strategy
ated by a combination of top-down development no longer suffices in the
and bottom-up. Corporate strategy pursuit of sustainable growth under
is top-down, but some innovations high uncertainty. We believe that
are adapted to local markets and are business circumstances that are radi-
bottom-up.” And “At an abstract level cally new or rapidly changing ask for
the innovation strategy is defined a new way of strategy development
at the top but the way to the end is focused on people. There is a need
pretty much not defined, the people to move strategy development to the
have the freedom to orga-nize them- outer peripheries of the company in
selves to get the results they want.” order to capture all those individual
insights from managers and employ-
Looking at the results for how the in- ees relevant for defining the right
novation strategy is communicated innovation strategy. In section 1.3
within organizations we find that most Constraints we found that not hav-
respondents (44 percent) communi- ing a well-articulated and/or com-
cate the innovation strategy widely municated innovation strategy is the
inside the organization, 19 percent biggest constraint for achieving one’s
communicate it widely inside and innovation targets. However, devel-
outside the organization, and 15 oping an innovation strategy will
percent communicate it widely inside only get you half way. It is the way
the organization and use it as a daily in which you incorporate an under-
guideline for innovation. Thus 78 standing of the external environment
percent of respondents say their in- in your strategy development process
novation strategy is communicated that will really set you apart from
widely inside the organization, pro- your competition when it comes to
viding employees with a direction on innovation.
how to act in the context of innovation.
14

17. 3 Innovation governance
One of the main implica- Given the strategic importance (exhibit 8). Looking a bit deeper we
tions from our previous companies allocate to innovation it find that 45 percent of respondents
is remarkable that few companies do not have a formal organizational
innovation leader versus have organized innovation in the structure for innovation, and an
laggard study was the mature fashion it deserves. In our equal percentage of respondents do
need to match the impor- last innovation leadership study we not have a well-defined governance
tance of innovation with already concluded that many in- structure for managing innovation.
novation bottlenecks can be solved Forty percent have no clear roles and
the degree of formal gov- by establishing a formal innovation responsibilities for innovation. With
ernance allocated to it. governance structure that deals with such a limited organizational design
This year we asked survey issues such as internal alignment, for innovation it is almost a matter of
respondents to agree or prioritization, funding, and the luck whether or not successful new
balancing of long- and short-term ob- products and services will be devel-
disagree with statements jectives. Many innovation executives oped and brought to market at these
regarding organizational see it as the role of the innovation companies.
structure, decision-mak- function to optimize these processes
ing, their KPI system, and and governance. With respect to the organizational
structure of innovation we see that
organizational alignment. Although we have seen some positive companies organize innovation in
signals that companies acknowledge various places across the organiza-
this need and are acting accordingly tion. Depending on the type of inno-
- such as the advent of a formally ac- vation (e.g. product/service, process,
countable executive for innovation - business model) and its nature (e.g.
still much needs to be done in the incremental, radical, short-term,
area of innovation governance. We long-term), companies choose to
asked respondents a wide array of organize it in different places. This
questions regarding various aspects can be within sectors, business units
that help to govern the innovation or centrally, within corporate func-
process. The overall tendency is neg- tions such as R&D, marketing, or IT,
ative. Survey respondents see plenty but also within the strategy depart-
of room for improvement when it ment or in a separate innovation
comes to effective governance of the office. Often it is a combination of
innovation process. Across the board the aforementioned leading to an in-
our innovation ‘leader’ group of crease in complexity and a decrease
analysis agrees more with the state- in the effectiveness of the innovation
ments on formal innovation govern- function.
ance than the innovation ‘laggards’.
This correlation between having a In our conversations with innovation
formalized innovation governance leaders about their organizational
and the reported innovation success structure for innovation, they men-
rate suggests that there is much to tioned the following. An executive
gain by improving the formal mech- said: “I hope that one thing has
anisms for managing innovation. become clear, that in a big company
like ours there are many layers of
3.1 Organizational structure organization also in the sectors and
the business units. Crossing those
Only 30 percent of respondents layers for an idea or something like
agree they have an effective orga- that is sometimes very difficult.
nizational structure for innovation This huge organization is just
Footer Right; Document Title Akkurat BoldInnovation governance
3 6.5pt; maximum 1 line 15

18. and allocate time and funding to
Exhibit 8: Organizational structure innovation projects (49 percent).
Respondents are most happy with
% of respondents,¹ n = 227 their process for stage gating and the
How strongly do you agree or disagree with the following statements making of go/no-go decisions (45
regarding your organizational structure for innovation? percent agreeing versus 35 percent
We have an effective organizational
disagreeing with this statement).
structure for innovation 9 36 21 23 7
Zooming in on the process to priori-
tize and allocate time and funding
We have a formal organizational
to innovation projects interviewees
15 30 15 25 12
structure for innovation highlight some recurring issues.
We have a well defined governance structure Concerning the allocation of time
12 33 19 24 11
to manage innovation in our organization they mention that ‘the business’ is
We have clearly defined roles and often completely occupied with their
9 31 24 25 9
responsibilities with regard to innovation daily operations. Therefore innova-
tive topics often have to wait until
Strongly disagree Disagree Neither disagree, nor agree Agree Strongly agree
the daily business has given more
¹Respondents who answered ‘Not applicable’ are not shown. room to engage on these topics. And
the more radical these topics are, the
less likely they are to get the atten-
impairing innovation to grow very for what they’re able to accomplish tion they need and perhaps deserve.
fast.” Another executive explains but also giving them the freedom to
why they chose to set up a central do it their way. The officer linked Also funding of innovation projects
innovation office: “The whole idea this to innovation leadership and remains a problem, especially when
of trying to find new areas where we culture - both informal mechanisms the benefits are not expected in the
potentially can develop new business for managing innovation - which will short run. “Of course it’s not easy
for our company, calls for a more be addressed extensively in the next when you are faced with the old
focused approach. That’s the reason two chapters: “The key is for them thinking or let’s say business plan
why we installed, 5-6 years ago, the to believe you when you say that thinking, where they’re very opera-
Innovation Center. Which actually you are truly giving accountability tive, focusing on the next year. When
is a separate unit, and basically what and freedom. The point is that they it comes to looking for opportunities
we try and do there is develop what have to feel empowered and trusted to save money, then these projects
we call emerging business areas.” to do this kind of thing and to feel are very often challenged. It’s easier
Additionally he mentions that having comfortable stepping out and that to stop projects or initiatives which
one centralized innovation center they are going be protected if they are not bringing output in the next
helps to exchange expertise and a step out.” year but maybe in 5-10 years, it’s
standard way of working, as well as more difficult to justify this…” Or as
to get much more synergy. 3.2 Decision-making another innovation leader summa-
rizes it: “Our biggest problem is just
Yet another innovation officer com- When it comes to the decision-mak- getting the consistency of funding for
ments on the need to clearly define ing process for innovation (exhibit long-term projects.”
roles and responsibilities with regard 9) we see a slightly more positive
to innovation. “So what we’re try- picture. However, still a large per- Some of the innovation leaders we
ing to do is build both people and centage of respondents (39 percent) interviewed advocate an approach
structural capability to let people say they do not have an effective where there is a differentiation with-
be broader and see broader.” In that decision-making process for innova- in the prioritization process in order
context the company is trying to tion. This is largely due to not having to tackle some of its deficiencies.
make the scientists more accountable a well defined process to prioritize “There are certain things that have to
16

19. be sequestered, because if you hold
these up to the conventional tools for Exhibit 9: Decision-making process
prioritization, you’d kill these proj-
ects before they get started. These are % of respondents,¹ n = 227
sort of in a protected environment. How strongly do you agree or disagree with the following statements
And what we do here is, we have regarding your decision-making process for innovation?
what we call a new business board
of half a dozen of the top-top people, We have an effective decision-making
process to manage innovation 8 31 26 25 8
and they make calls on this, separate
from their actual job.”
We have a formal decision-making process 10 29 15 30 14
3.3 KPI system for managing innovation
We have a well defined process to prioritize, and
8 33 20 26 11
Exhibit 10 illustrates the sentiment allocate time and funding to, innovation projects
with respect to the KPI system for We have a clearly defined process for stage
9 26 18 30 15
innovation. A stunning 54 percent gating, and making go/no-go decisions
of survey participants indicate that
Strongly disagree Disagree Neither disagree, nor agree Agree Strongly agree
they do not have a formal KPI system
for promoting innovation. Only ¹Respondents who answered ‘Not applicable’ are not shown.
21 percent of innovation leaders and
managers that answered this ques-
tion agree they have an effective KPI
system for innovation. Of all the gov-
ernance levers, the KPI system is the
least developed one when it comes to
innovation.
Innovation leaders and managers
struggle to define an effective KPI
system to promote innovation. One
interviewee indicates the difficulty -
and perceived limitations - of select-
Exhibit 10: KPI system
ing appropriate indicators for innova-
tion: ”How do you track innovation? % of respondents,¹ n = 227
There’s only a limited set of things How strongly do you agree or disagree with the following statements
you can do. The number of partners regarding your KPI system for innovation?
you have, the number of projects
We have an effective KPI system to promote
you have, the amount of spend you innovation 15 41 21 17 4
have, the innovation sales you have,
the number of patents you have
issued, in any given business this We have a formal KPI system for promoting 15 39 14 24 6
is pretty much the type of thing.” innovation
Another interviewee addresses the We have well defined targets and scope for
11 34 17 29 7
fact that across the board executives innovation
have difficulties with getting their We have a clearly defined performance
13 39 20 19 7
head around the definition of targets measurement and rewarding of innovation
success
for innovation. “We help the board
Strongly disagree Disagree Neither disagree, nor agree Agree Strongly agree
with setting performance objectives
around innovation, like the innova- ¹Respondents who answered ‘Not applicable’ are not shown.
tion percentage of sales.”
Footer Right; Document Title Akkurat BoldInnovation governance
3 6.5pt; maximum 1 line 17

20. that we want to have as a big bet.
Exhibit 11: Organizational alignment Where we give our top scientists the
opportunity to lead, not only as an
% of respondents,¹ n = 227 individual project but leading this as
How strongly do you agree or disagree with the following statements a field, and creating projects across
regarding your organizational alignment of innovation? the company, across category.” He
explains how this serves as a tool to
We have an effective organizational alignment
of innovation efforts
9 36 27 19 5 increase the breadth of focus within
the organization of innovation, result-
ing in people running around and
We have a formal organizational alignment talking about these projects. It being
9 35 21 24 7
mechanism for our innovation efforts “a way to bring innovation as a topic
We have a well defined process for alignment of to a higher level in the company on a
8 32 19 30 7
our innovation efforts with corporate strategy more regular basis.”
We have clearly defined how to align innovation
8 37 22 25 4
efforts across the organization and utilize In sum, innovation governance - as a
internal capabilities
formal mechanism for managing in-
Strongly disagree Disagree Neither disagree, nor agree Agree Strongly agree
novation - offers a great opportunity
¹Respondents who answered ‘Not applicable’ are not shown. to innovation executives aspiring
to improve their innovation success
rate. It is still largely underdeveloped
3.4 Organizational alignment their innovation efforts across the with respect to all four aspects of it
organization. One leader explains we surveyed in this study: organi-
Finally, we were interested in the that they have created a list of the zational structure, decision-making
extent to which companies have top 50 innovation projects across the process, KPI system, and organiza-
succeeded in aligning the innovation organization which they continu- tional alignment. Innovation ‘leaders’
efforts across their organizations (see ously support, boost, and monitor have already adopted innovation
exhibit 11). Again, a rather negative in order to increase their chance of governance as a good practice for
picture emerges. Less than a quarter success. In addition they organize managing innovation - it is up to
(24 percent) of the respondents alignment events as an interven- others to follow in their footsteps.
believes they have an effective orga- tion tool to make sure that they stay
nizational alignment of innovation aligned with respect to their innova-
efforts. The innovation executives tion ambitions. Another innovation
we surveyed are most positive about executive says they use their innova-
the alignment of innovation efforts tion council - with representatives
with corporate strategy (37 percent from all business groups - as a formal
agreeing versus 40 percent disagree- mechanism for the organizational
ing with this statement). But the lack alignment of innovation efforts.
of a formal organizational alignment Within this council they discuss
mechanism for innovation, and an portfolio choices as well as how to
unclear view of how internal capa- improve innovativeness throughout
bilities can be utilized to align inno- the company.
vation efforts, seems to negatively
influence the successful alignment Sometimes, all it takes is a bit of
of innovation efforts across the creativity and the right positioning
organization. in order to increase alignment of
innovation within the organization.
We got some insights into how in- As one interviewee comments: “We
novation leaders attempt to align created a lexicon for a big project
18

21. 4 Innovation leadership
As an important informal By their very nature organizations Exhibit 12 shows that the innovation
mechanism for managing seek stability and predictability and leader group of analysis is dominated
will tend not to spontaneously drive by small firms (less than €500m in
innovation, innovation innovation that destabilizes. This annual revenues). The correlation
leadership has been re- means that real disruptive innova- between company size and reported
searched extensively for tion has to be driven by the leader- innovation success rate suggests that
this study. We asked our ship. This is true even where bottom- it is much easier to drive innovation
up systems may be implemented in in small organizations. Large orga-
respondents about who attempts to democratize innovation. nizations create so much distance
leads innovation in their Our survey further suggests that the between the executives and those
organizations; what they CEO must be seen to be driving the that are tasked to innovate that a
think motivates senior strategy for innovation though others disconnect exists between them. The
in the leadership team may take on issue of the status level of innovation
executives to be involved that responsibility. One innovation is seen differently from a leader to
in innovation leadership; officer we interviewed described the laggard perspective. If one considers
and what motivates em- responsibility this way, “The strategy that most of the leaders are small
ployees to be involved in we have is to influence people who firms it is clear that one has a better
have to make things happen, who chance of creating a culture of inno-
innovation. do not report directly to me. So as a vation in a smaller organizational
leader you have to develop political unit. In order to achieve that, leader-
skills, and influence skills, because ship in large organizations needs to
you have to motivate people to move develop skills that tap into the belief
towards this direction.” system of employees.
Exhibit 12: Innovation success rate and company size
% of respondents, n = 260 % of respondents, n = 201
Could you please estimate your organization’s What are your company’s annual revenues?
innovation success rate? Less than €500m More than €500m
73
65
38 37 57
51
49
43
35
18 27
7
Less than 25% 25-50% 50-75% Over 75% Less than 25% 25-50% 50-75% Over 75%
Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line
4 Innovation leadership 19

22. 4.1 Executive motivation of driving their own motivation;
however acting in a responsible and
Starting from the simple premise accountable way - or as one inter-
that it is the responsibility of execu- viewee termed it “doing the right
tives to create and develop innova- thing” - is not exactly inspirational.
tion ecosystems which they shape In addition, in the comparison of
through determining KPIs, structure executive and employee motivations
and incentives, the link between (see exhibits 13 and 14) executives
low executive motivation and poorly have extrinsic transactional drives
articulated KPIs is self-evident. Our whereas employees are driven by
survey demonstrates that driving in- high transformation intrinsic drives
novation is seen largely as a duty for such the excitement of innovation,
many executives. Interviews suggest the team focus and the need to help
that inspirational leadership motiva- the organization. Our survey results
tion is fairly rare. From our in-depth seem to suggest that this softer ele-
interviews with CIOs as well as from ment of motivational drive eludes
survey respondents a picture emerges: executives, except in exceptional
when asked who actually drives in- organizations. There is a suggestion
novation the reality is that quite here that were executive motiva-
often it is driven by all sorts of tions of a high intrinsic nature, KPIs,
managers and often all at the same strategy and ecosystem could be better
time thereby making responsibility articulated. One can only assume that
and accountability more difficult. in the prevailing economic conditions
Executives are left in a position the constant focusing on bottom line
Exhibit 13: Executive motivation for innovation
% of respondents,¹ n = 241
What do you think motivates senior executives to be Innovation success rate
involved in innovation leadership? Less than 25% 25-50% 50-75% Over 75%
46
Accountability for realizing growth 40
46 +19%
51
65
15
Intrinsic creative motivation 11
15 19
18
17
Feel responsible for advancing 28
22
innovation in the organization 23
12
15
Innovation is considered 17
14
a high status area 7
6
¹Respondents who answered ‘Other’ are not shown.
20

23. results and cut-backs has led to a to achieve something.” In contrast we that were never really integrated” are
fairly uninspiring leadership. Those did not find that executives perceive hard because absent are “those net-
tasked with enabling innovation in these motivators to be of importance. works of relationships, you’ve kind
the organization invariably find them- Many executives who we interview of got everybody in their bunker,
selves having to develop a culture will insist that low rates of success peering out, thinking, if I work with
of innovation, which is discussed are due to a lack of a ‘culture of inno- another business unit, it’ll just mean
in more detail in the next chapter. vation’ failing to see the link between resources will flow to them and not
motivation, drive of employees, to me.” More than anything else this
4.2 Employee motivation and perceived culture. Successful quote captures the contrast in many
companies feature differently in large organizations of a pervading
The disconnect between leadership our interviews where we found the culture where distance, self-interest
and employees couldn’t be more leadership has a broader interpreta- and disconnect overwhelm any moti-
clearly demonstrated than in the tion of employee motivation. As one vation for innovation.
difference between executive and interviewee put it, “If you have an
employee motivation. Employees ethical, high-trust type of organiza-
believe innovation to be exciting (91 tion, it generally also means that
percent), aimed at improving things you have people who want to do
(89 percent) and better delivered in the right thing and do it well. If you
teams formed apart from the usual simply recognize them and acknowl-
workplace (87 percent). In our inter- edge them for having done that,
views we found that ‘self motivation’ that gets you 75 percent of the way
was perceived as important: “very there.” Low-trust organizations or
important for innovation is a relent- highly-fragmented ones that are “an
less self-motivation, relentless drive agglomeration of many acquisitions
Exhibit 14: Employee motivation for innovation
% of respondents,¹ n = 241
How strongly do you agree or disagree with the following statements with respect to what motivates employees
Strongly agree / agree Disagree / strongly disagree
Innovation is considered to be exciting work 91 4
Desire to improve things 89 5
Like being part of a team or
87 5
taskforce for something new
An opportunity for self-realization 75 7
Like being pulled out of everyday 53 17
Interesting travel and conferences 26 35
¹Respondents who answered ‘Neither disagree, nor agree’ or ‘Not applicable’ are not shown.
Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line
4 Innovation leadership 21

24. 22

25. 5 Innovation culture
Managing innovation Speaking with interviewees, we got for a culture of innovation said
requires having both for- a refined understanding of how in- no, the company has quite a good
novation culture is thought about in culture of innovation, it is hungry for
mal and informal mecha- organizations, and how it is chang- innovation and very agile in terms
nisms in place. Like lead- ing. While we heard some interesting of change. Another company was
ership, culture is a ‘soft’ remarks on how national culture characterized as historically always
element of organizational can figure in innovation - such as a having an innovation culture and an
country’s culturally putting a pre- innovation entity, with the fact that
change. We asked survey mium on creative ideas and things it still makes a lot of money out of
respondents whether that deliver ordinary experiences in innovation that probably took place
they themselves had been a more creative way - here we focus ten years ago functioning as a key
tasked with building a cul- on corporate culture, which research motivator that works well.
has shown to trump national culture
ture of innovation; what a when it comes to radical innovation. Some contrasted previous experiences
culture of innovation con- at companies that had an innovation
sisted of in their minds; Our discussion of innovation culture culture to their current company,
and where an innovation ranged from start-ups characterized where there is not an evident innova-
as not yet having an innovation cul- tion culture and people are not as
culture comes from in their ture as compared against a company enthusiastic about coming up with
organization. like Google, whose culture was de- ideas and driving them, but where
scribed as “spilling out of the doors, there’s a passion for other things, such
you can see it everywhere with these as championing and advocating for
Google bikes that everybody rides customer needs, that really motivates
all over the place”, to established people. Another interviewee spoke
technology companies that are trying of a lack of a traditional culture of
to change their innovation culture to innovation in the company, where
become more customer-focused. Like the people who gravitate there are
technology, IT was seen as needing not necessarily the entrepreneurs,
to get the right innovation culture, but who are motivated by the notion
and not just technology gadgetry. of benefiting the world, which was
characterized as a higher order than
“Innovation culture is always an issue just a culture of innovation. This was
when doing projects with customers”, characterized as strengthening the
an interview respondent said, “because whole execution within the company
culture is the basis for everything because even when doing regular
one does in an organization, so it’s work, the people are constantly look-
not only the innovation culture but ing for this bigger picture. Another
also the organizational culture which interviewee spoke of trust and ethics,
plays a role there.” The distinction saying that without those an orga-
made by interviewees between or- nization won’t get much innovation.
ganizational culture and innovation These were seen as enabling a free
culture, as well as among different flow of information between the
types of innovation cultures, was lower levels and middle and senior
instructive in understanding how management and a situation where
culture was thought about and expe- people are comfortable.
rienced in relation to innovation.
All of this served to clarify what
Some interviewees, when asked if people saw as an innovation culture,
they personally have to do something a traditional innovation culture, a
Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line
5 Innovation culture 23