Innovation Diagnostic

Professor Keith Sawyer makes a useful connection between innovation and learning when he writes, "What both innovation and learning have in common is adaptability and improvisationality."  He connects this idea with authors Joaquín Alegre and Ricardo Chiva from the Sloan Management Review.  They identified five core features of high organizational learning capability (OLC) companies: experimentation, risk taking, interaction with the external environment, dialogue, and participative decision making.  Keith has found that these five characteristics also hold true of organizations that use the power of collaboration to generate innovation.  He believes that organizations high in learning ability are more likely to be innovative organizations. 

I am inclined to agree.  The reality though for many organizations is that they may be missing one or more of these characteristics.  Yet they still must innovate to grow.  What would be truly useful is a rigorous innovation diagnostic based on these five characteristics.  This diagnostic could help a company identify where it is weak and where it needs to focus attention and resources.  Here is how it might work.

Experimentation:  The authors define this as the degree to which new ideas and suggestions are dealt with sympathetically by the organization.  Measure this in several ways: the budget dollars spent on designing and running experiements, the amount of new ideas generated, and the percentage of those ideas that challenge the established order as described by Alegre and Chiva.  My observation is that organizations see the value of experimenting more during the hard times than the good times.  Therefore, measuring this characteristic over time would be most useful.

Risk Taking:  Measure employees in terms of their tolerance for ambiguity using established testing methods.  Measure organizational risk-taking in terms of the internal rate of return of projects initiated and rejected.  My observation is that organizations take too little risk not because they cannot bear it from a portfolio point-of-view, but rather from an individual career risk point-of-view.  People, not organizations, are afraid to fail.  They play "not to lose."

Interaction with the External Environment:  The authors define this as the scope of relationships with factors that are beyond the direct control or influence of the organization and include competitors, the economic system, the social system, the monetary system and the political/legal system.  Measure this by the amount of money spent on direct contact with these entities.  Also measure the resources spent to collect information about them.  What is the net aggregage spend on issues external to the firm?  My observation is that firms tend to be very good at observing and monitoring the external world, but few are excellent at interacting with it.  That is the key to leveraging it for innovation.

Dialogue:  Dialogue is a way of spreading information and skills throughout an organization, and it helps create multiple viewpoints.  Measure both the speed, volume, and fidelity of information as it spreads through the firm.  Do this by taking a new issue as it emerges and systematically studying its diffusion.  Identify the information pathways, both formal and informal.  My observation is that firms are improving here.  They see the value in teaching employees how to 1. establish their internal network, then 2. use systematic persuasion principles to influence and change the firm.

Participative Decision Making:  This refers to the level of influence employees have in the decision- making process.  Measure employee satisfaction, motivation, and degree to which they feel involved and engaged.  The Q12 Assessment might be an effective measurement tool in this area.  My observation is that firms have gotten pretty good at this because it correlates to other success factors, not just innovation. 

Alegre and Chiva note that these five characteristics combine to create an excellent snapshot of an organization’s OLC. They suggest that an organization can use surveys and other internal metrics as a way of measuring its ability to learn and innovate. If an organization measures an improvement in its learning capability, it will very likely see a concurrent increase in innovation.