Editor's note: This is Part 2 in IndustryWeek 's two-part conversation with business strategist and author Gary Hamel. To read Part 1, click here.
In today's hypercompetitive, web-enabled global economy, Gary Hamel believes that most companies have figured out that "the difference between being irrelevant and being relevant is going to be innovation."
But despite all the lip service that companies pay to innovation in their mission and value statements, Hamel sees few firms actually managing innovation "as a companywide priority."
When CEOs call in Hamel to help with their firms' innovation strategies, Hamel typically visits front-line workers and asks three questions to "separate the rhetoric from the reality."
- "How have you been trained as a business innovator? Has the company made an investment in your innovation skills?" Contrary to what many companies believe, innovation is a teachable skill. "That doesn't mean that every person is going to have a game-changing idea everyday," Hamel says. "But you can dramatically increase the odds that innovation actually happens at organizations."
- "If you have an idea, how much bureaucracy do you have to go through to get a few hundred or a few thousand dollars and a bit of time to actually start to experiment with that idea?" Many firms might not like the answers from their workers. "In a lot of organizations, you find that front-line people have no clue where you really go with an idea," Hamel says. "They certainly don't know how to get the experimental capital. They often have to fight their idea up the chain of command through executives and supervisors who are mostly interested in simply making this quarter's numbers."
- "Does anybody care whether you innovate? Is innovation measured? Does the unit you operate in have clear innovation goals? Does innovation influence your compensation?" This set of questions aims to get at the heart of whether innovation really matters at an organization, harkening to the continuous-improvement mantra, "What gets measured gets done."
"When you ask people these questions, what you typically find is, 'No I haven't been trained,' 'No, I have no idea where I'd really go to get time and capital to experiment with an idea,' and, 'No one seems to particularly care whether I innovate or not,'" Hamel says. "So I think there's a lot of work to be done here. Because you're either innovating or you join the race to the bottom, where the whole game is just to access the world's lowest factor cost.
"That's a battle that U.S. companies are not going to win."
Innovation-Friendly Management Processes
Still, Hamel believes that U.S. firms "can win the battle for innovation."
In his book "What Matters Now: How to Win in a World of Relentless Change, Ferocious Competition and Unstoppable Innovation," Hamel points to Whirlpool Corp. (IW 500/59) as an example of how it can -- and should -- be done.
"Over the past 10 years, the Benton Harbor, Mich., appliance maker has recrafted all of its management processes to serve the cause of innovation," Hamel writes. "The payoff: an innovation pipeline whose value has increased from close to zero to more than $4 billion over the past seven years."
Just as Whirlpool "pulled up the plumbing" to become an innovation-focused company, Hamel contends that companies "have to re-engineer [their] management processes so they're much friendlier to innovation."
While that might seem like an overwhelming task, he insists that it doesn't have to be a "grand top-down redesign."
"The way we get there is we start with these simple principles," Hamel tells IndustryWeek. "And we say, 'What would it mean to have an organization that was radically transparent, that was deeply meritocratic, that distributed the responsibility for setting strategy and setting direction, that gave every single employee the ability to compete for access to experimental capital?'
"So you start with those goals and say, 'All right, those are a set of principles. Now where would we start if we wanted to instantiate those in our management systems and practices?'"
You might start by conducting "a series of small-scale experiments," Hamel says.
Let's say you wanted to try a peer-based compensation system, similar to W.L. Gore & Associates, which is famous for its "radical management model," Hamel notes. (The Newark, Del.-based maker of Gore-Tex is a "team-based, flat lattice organization" in which "there are no traditional organizational charts, no chains of command, nor predetermined channels of communication," according to its website.)
If you're a manufacturing company with 1,000 employees, Hamel suggests choosing a half-dozen existing work groups of between 10 and 30 employees and asking each employee to complete evaluations of their work-group peers.
For the evaluations, the employees should rank their peers based on "the amount of value that [the evaluators] think they created last year for the enterprise."
"And when we talk about value, it's a few simple things," Hamel explains. "It means, 'Did they deliver great financial results? Did they build deep customer loyalty?' Did they mentor and develop associates and employees around them? Were they deeply respectful of our values?'
"It's literally four or five simple things and, 'Here's a list of 15 or 20 names. I want you to rank them from 1 to 20 based on how you think they did against those criteria. Who really, really made a difference over the last year for this company and who didn't?'"
Starting with a few pockets of the overall employee population, the experiment enables management to test several "hypotheses," Hamel adds.
- Is there consensus on which employees are the outstanding performers? "If there's no agreement whatsoever," Hamel asserts, "we probably have the wrong criteria or the wrong process."
- "Do people appreciate the chance to recognize excellence and to rank their colleagues? Do they appreciate the fact they even get to rank people who are currently supervisors and bosses?"
- "Did we discover some amazing contributors that perhaps we hadn't expected?"
The point: "There's a way of experimenting step-by-step into this rather than doing a wholesale change," Hamel says.
"The first year I run it on only a part of the organization. I don't tie it to any compensation at all, because that suddenly raises the stakes," Hamel explains. "I just say, 'We just want to start to understand who our hidden champions are' and so on, and then as I start to validate and test those hypotheses, maybe I do it as a companywide thing for a year.
"And then rather than using that as the only mechanism for setting compensation, maybe I just set up a small bonus fund and say, 'Next year, everybody has their base salary, but we're going to allocate this bonus fund based on this peer-review process."
'Off You Go'
The larger point is that reconstructing your management system starts with adopting a new set of principles.
"The principle is, 'Wherever you are in this company, you can run a management experiment,'" Hamel says. "You don't have to ask anybody's permission.
"You need some very clear hypotheses. You need volunteers, so you have to make this fun and you have to explain why this might be cool and what we're going to learn.
"You need something that is going to take you no more than 30 days to get a result. It has to be done within the envelope of the permissions you are easily able to secure -- we don't want anything that's going to require you three months to run this up the flagpole.
"You need a budget that is going to be measured in a few hundred or a few thousand [dollars] -- but nothing more than that -- to get this thing done
"So you basically time-bound and risk-bound the experiment and say, 'Off you go.'"