Innovation, Risk and Throughput

Innovation is vital for business growth, and is a necessary activity of almost every organization these days. However, organizations often engage in activities which actually stifle innovation, because they don't understand the impact of innovation on their management practices.

Consider a company which has a heavy emphasis on high quality and high throughput in its production processes. Managers and employees are rewarded on their ability to produce, and produce with high quality. Now suppose that these same employees are asked to adopt an innovative but unproven procedure, which if it works will dramatically boost productivity. There is a problem though, the procedure is untried, it may fail, and even if it works there will be mistakes made. Now if compensation is based on throughput and quality only, then there will be strong resistance to adopting the new procedure. There may be the appearance of compliance, but in fact the same old processes will be used in order to get the expected throughput. The innovation will have been tried and found wanting, with no measurable positive results. Obviously however, the innovation was not tried, and now their is a false belief that this particular practice does not work for this company. This is a surprisingly common result.

This is a situation where the risk of failure is placed on the employees, rather than the company, where it belongs. The problem is that companies fail to alter their measurement systems to reflect the fact that innovation has costs. These costs should not be borne by the employees, but by the company.

To resolve this situation, it is necessary to alter standards to reflect the activity, effort and process, rather than the outcomes, and reward employees accordingly. At the same time, other groups will need to understand why standards differ from group to group. This is sometimes hard for organizations to do, especially if the culture of quality and throughput is ingrained in the organization's DNA.

To conclude, management innovation is often a prerequisite for product or process innovation. This is often forgotten in the rush to adopt the latest, greatest ideas.