by Michael Schrage

Create the Right Environment to Foster Innovation

Nov 15, 20056 mins

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.

By contrast, process is about consistent and rigorous methodologies that reliably turn selected inputs into desired, measurable and measured deliverables that the organization genuinely values. Process is about continually looking for ways to subtract wasteful time, energy and investment while adding new value. Process stresses recognition-and-reward systems where leadership is measured by the ability to make that process more reliable, agile, robust and cost-effective. Healthy innovation processes invite aspiring innovators to attach some discipline and rigor to their wilder ideas. Think GE’s Six Sigma initiatives—sure, there were teething pains in the beginning but the new metrics and mind-sets it fostered yielded enormously productive changes. The (relative) lack of arbitrariness and politics in a healthy innovation process make it something that invites participation and contribution. Not surprisingly, good innovation processes enable good innovation environments.

Whether you agree or disagree with these distinctions, the clear consensus from the panel was that one of the most important strategic allocations CIOs can make is defining what people, process and environmental investments they’ll need for innovation. Yes, balance is nice. But a well-designed innovation process attracts and inspires people as surely as does an open and challenging innovation environment.

While people remain the vital ingredient, the fact remains that CIOs do have serious choices to make about whether they’ll get a better return on their innovation investments from creating better environments or better processes. While this isn’t an either/or proposition, CIOs need to ask themselves whether they prefer to be “branded” by their colleagues and employees—not to mention their CEOs—as successful creators of innovation environments or as reliable leaders of innovation processes.

Why is this so important? Because CIOs, whether they like it or not, have to recognize that their innovation processes and their innovation environments need to dovetail with innovation environments and processes throughout other parts of their organizations. If you’re an innovation process CIO and your CMO is a brand-driven, innovation environments kind of leader, you’ve got a compatibility problem. Similarly, if you’re running an innovation environment shop where everybody’s an innovator and your VP of sales is Ms. Sales Force Process Excellence, good luck on implementing that channel management rollout.

While it’s true that virtually all organizations of size have their own little innovation process pockets and microclimates, the truth is that CIOs have a special responsibility to strategically rethink how best to blend process-defined and environment-shaped innovation enterprisewide. Precisely because IT organizations enable innovation throughout the enterprise, the supply chain and the customer, CIOs have to devote special care in determining whether process or environment offers the better organizing principle for innovation initiatives.

Listening to the CIO 100 panel, it was absolutely clear to me that these are precisely the questions these leaders are wrestling with. They know they need to be more innovative; they know their IT shops need to be more innovative; and they know their companies need to be more innovative. Indeed, they’re looking for innovative people to hire and train. But there’s no doubt that they’re paying extra special attention to whether it’s better environments or better processes that will tap the innovative best in their own people—and in people enterprisewide. Innovatively balancing process and environment for cost-effective innovation is at the core of real CIO leadership.