Does Your Company Need a Chief Innovation Officer?

Stephen DeAngelis

July 28, 2011

Mark W. Johnson, Chairman and Co-Founder of Innosight, an innovation consulting and research firm, writes, “Ten years ago, you’d have been hard-pressed to find a chief innovation officer on any company’s leadership team. Today such leading companies as AMD, Citigroup, Coca Cola, DuPont, Humana, and Owens Corning each have one.” [“The Role of the Chief Innovation Officer,” Bloomberg Businessweek, 3 November 2010] Despite the fact that a few leading companies have such a position, many companies simply don’t believe they need to create such a position. Thomas D. Kuczmarski, founder and president of Kuczmarski & Associates, an innovation consultancy based in Chicago, wrote back in 2009, “I often debate with chief executives about the importance of hiring a chief innovation officer. They often don’t see the need. They argue that innovation is everybody’s job. Or they confuse it with research and development and say it already is being done.” [“Obama Needs a Secretary of Innovation,” Bloomberg BusinessWeek, 11 February 2009]. Kuczmarski continues:

“Innovation is a multidisciplinary and disciplined process that needs to be managed and led. If everybody is in charge, then nobody is, and little gets accomplished, if anything at all. Or worse … there is a lot of action based only on guesswork, not on a careful exploration of what really is needed. Now, in the midst of recession, companies need to innovate more than ever. Yet too many are choosing instead to hunker down, postpone investments in R&D, and avoid risk-taking until the market has stabilized. The companies that continue to build an innovation culture and make modest investments to keep the innovation pipeline full will be the ones that enjoy a big competitive advantage a few years from now.”

Johnson agrees that some companies continue to question the need for a chief innovation officer. He writes, “Organizations have been innovating as long as companies have existed. Why the new role now?” He claims the reasons are many but “three stand out.” They are:

“• First, the across-the-board digital revolution that began in the early 1980s intensified greatly in the dot-com era of the 1990s, during which the rate and scale of disruption brought about by innovation was massively accelerated. In 1958, the average length of time a company remained on the Standard & Poor’s 500-stock index was 57 years. By 1983 it had dropped to 30 years. In 2008, it was just 18.

“• Second, companies have increasingly come to understand the commercial potential of sustainability innovations to reinvigorate mature industries and create entirely new ones. GE’s commitment to ‘Ecomagination’ only begins to suggest how thoroughly sustainability has entered the commercial mainstream and raised innovation to a strategic imperative.

“• Third, we now have a much better understanding of the dynamics of innovation, as well as the scale of the threats and opportunities it presents, thanks to investigators and practitioners such as Clayton Christensen of Harvard Business School (a co-founder and board member of Innosight), whose seminal work on disruptive innovation has not only gained wide currency, but also been tested in numerous ventures. As a result, companies understand better how to manage innovation—and why they must do so at the highest levels of leadership.”

Having someone in your company whose job it is to make sense of the big picture is becoming more important. Professor Roberto Verganti, professor of management of innovation at Politecnico di Milano, claims, “There are so many opportunities, technologies and ideas, all of which are easily accessible. So, the key challenge for companies is not having the ideas, but making sense of them and having a vision. The companies that are most successful are the ones that understand the meaning behind the technology.” [“A new route from idea to reality,” by Philip Delves Broughton, Financial Times, 30 November 2010] Johnson insists that the CIO’s main function is to help a company understand the possibilities. He continues:

“Because the CIO position is relatively new, its precise contours are still emerging. While each company is different and the role of innovation will necessarily vary from company to company and industry to industry, there are three critical areas of innovation for which all top innovation executives should take responsibility: language, learning, and long-term structure.”

It probably doesn’t surprise you that the “long-term structure” of corporate innovation programs would be included in the chief innovation officer’s job description. The fact that language and learning were also included might have been more surprising. Johnson explains why these are important, beginning with the language. He writes:

“A common language that is used across the entire organization helps frame a company’s principles of innovation. The starting point for that shared language is a practical definition of innovation. The definition I favor depicts innovation as something new: a product, service, process, business model, or combination thereof that can be commercialized because it solves the problem of a ‘job to be done’ for the customer. Whatever language is used, it should distinguish between innovation in the core business and innovation that creates platforms for new-business creation. That distinction is critically important because the chief innovation officer’s raison d’etre is to lead new-business innovation that will ensure the company’s continued survival and growth.”

Johnson makes some very important points in that short paragraph. First, he makes the point that in order to be classified as an innovation, an idea must be something “that can be commercialized.” As I have noted before, the formula definition of innovation that I prefer is: innovation = new x valuable x realized. If any of those parts is missing (i.e., if any of those traits = 0) then you can rest assured whatever you’re discussing is not an innovation. Second, he pointed out that there is a difference between incremental innovation (i.e., “innovation in the core business”) and new or disruptive innovation (i.e., “new-business creation”). The main point, of course, is that to be most effective everyone in the company should be speaking the same language in order to avoid confusion. Not only can the chief information officer be the person that ensures a common language is used within the company, he can make sure that outsiders who provide information to the company use appropriate language as well. Broughton writes:

“Prof Verganti [asserts] companies must listen to ‘interpreters’ – individuals in­side and outside the company capable of un­derstanding cultural and social forces beyond the immediate world of technology. These are not traditional market researchers, but people from other industries and professions who look at what you are doing with fresh eyes.”

Johnson writes that “to be effective, this common language can’t be handed down. It must be hammered out with executives, managers, and subject-matter experts at all levels in workshops and strategy discussions, so there can be no mistaking what is meant when the subject of innovation is on the table.” That is why training becomes of the primary tasks of the chief innovation officer. Training, Johnson writes, is necessary so “that the company’s language of innovation and the principles it embodies are widely disseminated and practiced.” He continues:

“A shared language can help sort out the seemingly conflicting imperatives of operating (and innovating) in the core while also planting seeds for future growth. Innovation in the core business is often largely a matter of executing processes in a traditional team structure through the company’s traditional channels and partners. People working on that side of the house can expect their performance to be judged in traditional ways. New-business innovation, however, needs to be managed and measured in an entirely different way because it involves testing assumptions, adjusting when assumptions prove unwarranted, and changing course quickly and creatively as new knowledge is gained. That is uncomfortable territory for many people, unless they know that these distinctions—and dual management systems—are understood and underwritten at the highest levels of the company.”

In a number of past posts, I have stated my support for “what if” exercises. One of the valuable things that can result from such exercises is that corporate assumptions can be explicitly identified and tested. Johnson also believes that testing assumptions is critical. In addition, he believes that prototypes can be used to help test them. I’m also a fan of prototypes. Too often when you get a group of people around a table to discuss new ideas, the discussion can break down into name calling and personal attacks as people take sides for and against the idea. Put a prototype on the table and it becomes the focus of the discussion.

 

Johnson reports that “managing the learning process when innovating for new-business growth is the second critical area of responsibility for the chief innovation officer.” He explains:

“Core-business innovation proceeds largely on established knowledge about markets, customers, competition, and capabilities, which can be extended to bring something new to market at scale. New-business innovation proceeds in small-scale, controlled experiments conducted in a foothold market—a small geographic region or customer group that will serve as a low-cost laboratory. Top innovation officers need to keep such incubation efforts free of interference from the core business and allow the innovation team the autonomy to determine quickly if the idea is viable, needs to be modified, or should be abandoned. These demonstration projects, overseen by the chief innovation officer, are designed to convert assumptions into knowledge of what works and what doesn’t. For example, a prototype might help determine customers’ willingness to pay for a product or service, along with how they use it, their frequency of purchase, and their willingness to make certain trade-offs among features, price, and convenience. Such experiments might be supplemented with focus groups, secondary research, and the involvement of potential customers in the design of a product or a business. The knowledge that emerges can then be transferred across the company, which requires the chief innovation officer to work closely with the organization’s chief knowledge officer or the equivalent.”

A chief innovation officer should be given the authority to kill ideas and programs. Ending programs is not as easy as you might think. For more on this topic, read my post entitled Killing Ideas as Part of the Innovation Process. Johnson notes that a chief innovation officer needs a thick skin because the failure rate of new projects, which he calls “a critical learning metric, is likely to be high.” He estimates that only 10 percent of new ideas work out. Using a “test-and-learn approach,” Johnson believes a good chief innovation officer can increase that rate to around 30 percent. To read more on the topic of learning from failure, see my post entitled Learning from Failure.

 

Johnson concludes his article with a discussion of innovation structure. He writes:

“Long-term structure, the third critical area of a top innovation officer’s responsibility, translates the language of innovation and its focus on learning into a repeatable process, using structure to unlock creativity. With a budget, a clear charter, and distinct governance measures and milestones, new-business innovation moves from the ad hoc to the institutional. That structure depends not just on processes, but also on people. The top innovation officer has to cultivate the right talent—identifying people who can deal with ambiguity, learn from failure, and are comfortable working in an area where expectations and measures of success may differ sharply from those of the core business. That executive must make sure that the careers of these uniquely talented people won’t be tainted by the frequent failure associated with new-business innovation. A chief innovation officer who assembles and presides over innovators of all stripes with a common language and approach to learning—succeeding together in a structured environment of highly productive and appropriate rules and norms—will create a culture in which both the ongoing business and new growth can flourish.”

I agree with everything that Johnson says about the importance of fostering the right innovation structure and culture. Getting it right, however, is not a simple matter. A chief innovation officer needs to decide what innovation should be done in-house and what innovations should be adopted from elsewhere. Eric von Hippel, a professor of technological innovation at the MIT Sloan School of Management, told Broughton that a company should divide its re­search and innovation tasks “into those it can solve internally and those that can most effectively be solved outside.” Broughton continues:

“The ones that can be solved within are ‘dimension-of-merit’ im­provements such as better screen resolution, ergonomics or interface des­ign. Those that must be solved outside are those that involve new customer needs. … ‘Senior managers have to recognize that the innovation system has to be fundamentally reworked,’ says Prof von Hippel. ‘It’s not a matter of tweaking. There is a fundamental new paradigm out there.’ This new model was created by falling design and communication costs, which have en­abled more people to be part of the process. Prof von Hippel says managers need to venture out to the leading edges of their market and engage with users. He calls it ‘democratizing innovation’.”

Professor Andrew Hargadon, from the UC Davis Graduate School of Management, agrees with von Hippel that a combination of inside and outside innovation is required in today’s world. He told Broughton, that “rather than reorganizing existing assets to try to come up with a new vision … companies must have the vision and then assemble the assets needed from outside and inside in order to make it real.” By empowering someone to make sense of the big picture, companies can minimize the effects of business silos and turf wars that reduce effectiveness and stifle innovation. The larger the company, the greater the need for such a position.