At the CIO 100 Conference in August, a panel on innovation produced some provocative glimpses into how a few of the nation’s most IT-intensive enterprises—including Capital One, Circuit City and 1-800-Flowers—actually (re)organized themselves to create new value.

The panelists—all top-notch CIOs—were remarkably candid about the challenges they are facing as they push their companies to convert technical capacity into business capability. Circuit City, for example, set up select teams of innovation champions from operations but discovered that its people struggled to balance their everyday responsibilities with their new innovation missions. 1-800-Flowers found that small, quick and dirty rapid-prototyping teams could open up vast new market opportunities faster, better and far cheaper than expected. Capital One achieved some good results by rotating high-potential managers from business units into IT leadership positions.

Each CIO acknowledged that traditional notions of accountability required tweaks when enterprises genuinely commit themselves to innovation—not just operational excellence—as a medium for growth. These CIOs, for instance, talked about how they installed new reward incentives and had to be more creative about managing the risk associated with trying something new. They had to make special dispensations for failed experiments.

When the time came for questions from the floor, I couldn’t resist the urge to focus the wide-ranging conversation on some fundamental principles. So I asked: Where do you think you get the best return from your innovation investments? From the people you hire? From the innovation processes you put in place? Or from the innovation environment you seek to create?

Think these CIOs gave the oh-so-politically correct answer of "people"? Sorry; not a one. The split winners were process and environment. Why? Because as one of the panelists put it, "Even if you hire the right people—and we think we do—they need to be in an environment that encourages them to be innovative in ways we can use."

The CIO who championed process put it another way: "We like the consistency and discipline that good process provides. Innovation should be a business process."

Environment vs. Process; Take Your Pick

These are distinctions with a difference. Environments are not unlike the weather; they create climates where informal collaboration and spontaneous interactions are warm and encouraging or chilly to the point of being frigid. Environments stress recognition-and-reward systems where leadership by example is the norm and the organization provides resources that ostensibly reinforce the values it claims to aspire to. For example, organizations that celebrate teamwork and collaboration have open office plans with open and inviting meeting rooms along with water coolers and coffee carts that have nearby lounge chairs and whiteboards. Healthy innovation environments might feature "show and tell" brown bag lunches where project team leaders present early-stage prototypes to interested people from around the organization in search of constructive feedback and useful criticism. Oh, yes: The Boss—the CIO, CMO, CFO or even the CEO—occasionally stops by to see what’s going on and communicate support.