The Role of Leadership in Driving Innovation

Leaders are often regarded as the real parents or guardians of the company – what role can the leaders play in driving innovation within the company?
1. Clarify the purpose of innovation

Organizations innovate for various reasons. For many, the various types of innovation overlap and culminates in the same thing – an increase in revenue or a reduction in cost. There are, however, many ways to achieve these two priorities; Having the ability to distinguish the exact focus for innovation may help companies narrow
down their strategies and concentrate their efforts better.

An aspect that leaders of the company should be clear about is the types of innovation that the company will leverage – is it product, service, process, marketing or business model innovation? What processes would need to be put in place to institute these?

2. Quantify the impacts from innovation

Although most companies do not yet have the discipline of quantifying returns from innovation, it is important to start setting up the mindset and structure to do so. Companies that allocate funding and are focused on encouraging innovation-driven
activities within their firms, can expect to see more ideas and projects stem from their employees. Future investments into innovation will also be easily persuaded for approval if there is a track record of getting good returns from innovation.

Some of the returns that may be garnered by the company are:

  • Ability to enter new markets
  • Greater brand value
  • Deeper customer loyalty
  • Improved efficiency
  • Stronger employee engagement
  • Larger market share
  • Increased revenue
  • Higher share price
  • Lower costs or overheads

If  a company outlines its innovation journey and plan, and shares compelling and clear ‘stories on growth innovation,’ it can help players in the equity markets better understand and value innovation within the company. This in turn shall attract investments into the company.

3. Define the direction and scope of innovation

One of the significant challenges faced by companies is in clarifying the definition of innovation itself. In our experience, even with companies where innovation is part of the company mission or values, many employees actually had no clear understanding of their company’s official definition of innovation. We have   encountered many occasions where ‘innovation’ is understood as synonymous only with technology change or ‘something hi-tech’.

Therefore, those in disciplines not embroiled with R&D or the creation of technology, like HR or finance or marketing, felt they were excluded from the need to innovate. It should be made clear that the role to innovate encompasses everyone. Elucidate the roles each division can play. Each division could also have different focus areas for innovation. Have the expectations and strategies be crystal clear, and have defined innovation KPIs for each division Thus, all of the company’s employees can be fully tapped towards driving innovation.

4. Shape the risk appetite

The scale of innovation that the company wants to venture into should also be
determined. Would this be more skewed to incremental or radical innovation? What
would the portfolio look like?

Companies need to have both low and high risk projects, and it is up to the Board to ensure there is that balance – and not be skewed on being too safe or in taking too much of a gamble. Finding that balance is indeed a challenge especially when investment analysts often look at historical information indicators of share price or bottom line alone, which makes companies think twice, long and hard, before investing into innovation – even in opportunity areas that can pass the company’s minimum threshold of expected return on investment. Two key guiding questions for the Board to ask, which may be helpful when at this juncture are:

  • What is the cost of missed opportunities?
  • How much risk capital are we willing to put aside?

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