HR as a driver for organizational innovation 2013

June 2013

HR as a driver of organizational innovation

2© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

Introduction to innovation

■ This year, business leaders cited innovation as one of the top three global challenges they faced(a) and, in a recent survey, 83% of senior executives said innovation was vital to their long term success(b).

■ Against a backdrop of increasingly uncertain, competitive and changing global conditions, this result is telling. Innovation is clearly viewed as a critical driver of business success and long term competitive advantage.

■ The survey also revealed that the top innovation strategies predominantly focused on people and human capital issues, as opposed to technology. These strategies include:

– find, engage and incentivize key talent for innovation

– create a culture of innovation by promoting and rewarding entrepreneurship and risk taking

– develop innovation skills for all employees.

“Innovation is the single most important predictor of future growth.”Economist Intelligence Unit: 2009 (b)

Why does innovation matter

Note: (a) Conference Board CEO Challenge 2013

(b) EIU: Fertile Ground: Cultivating a talent for innovation. February 2009


Introduction to innovation ... contd.

“The biggest obstacle for innovation is the fact that the existing organization has to deal with the here and now – that’s their task – and they will see innovation as a threat.”Ben Verwaayen CEO, Alcatel-Lucent

Trends in innovation■ Investment decisions are tied closely to whether an organization has a focus

on incremental or transformational innovation.

■ Particularly in the current economic environment, organizations struggle with balancing demands for short term performance with longer term strategic gains.

■ Undoubtedly, the global economic downturn has resulted in many organizations focusing on short term deliverables however this has not necessarily positioned them well for recovery.


There is increasing awareness of innovation for competitive success, as well as recognition of the difficulties in exploiting its potential…

Classic responses, such as those listed below, have either failed or are no longer relevant:

Companies that make a long term commitment to research and innovation create a competitive edge over those that do not.Conference Board CEO Challenge 2012

hire creative people and set them free

serendipity to hope for the best

ad hoc unstructured approaches

attempt to ‘do an Apple’ and replicate another organization’s successful strategy

buy in innovation consultants to kick start the process through creativity exercises.


Successful innovators have an established culture of innovation supported by organizational execution…

There is no statistically significant relationship between financial performance and innovation spendingBooz & Co, Global Innovation 2010

A mindset that sets the expectation that focusing on innovation is how we operate

Constant attention to ‘the small things’ that reinforce a culture of innovation

Organizational capability to convert creativity into value, fully aligned with corporate strategy

Established networks – internal and external – to drive innovation


What does innovation mean for your organization?

In many organizations there is still a focus on incremental innovation. Research suggests that 80% of funded innovation initiatives are incremental. Corporate Executive Board Quarterly Q3 2012

Is strategic innovation possible?

Should we hope we get

lucky?

Can we continue to muddle on?

Who is driving innovation?

Where is the next

breakthrough going to come

from?

How do we currently support

innovation?


HR and the levers for innovation


HR is perfectly placed to develop and sustain the kind of cultural transformation required if a company is to achieve its innovation objectives...

Performance management

Relentlessly and consistently convey the correct signals about innovation to every employee within the company

Reward and recognition

Reinforce the importance of innovation activity and outcomes through the use of recognition schemes that encourage and inspire employees to innovate and to share ideas – even if the idea fails

Talent management for individuals

Ensure all employees understand clearly the skills and behaviours required to successfully innovate

Talent management for teams

Unleash innovation by joining a company together

Talent management for leadership

Adopt a 24/7 radar mindset, investing in training if necessary and 24/7 radar thinking as key criteria for recruiting and for performance management appraisals

Identifying critical roles

Identify which employees disproportionately drive value, develop these people to lead and fill your pipeline with other value drivers to replace them as they move up

Organizational design

Simple structure with only a few boundaries sparks innovation

Internal communication

Encourage networking across different parts of the organization and outside the organization. Employ technological tools capable of overcoming constraints caused by dispersed offices

Change management

Facilitate the introduction and implementation of new working practices that drive innovation


HR: What is your level of ambition?

■ Considers that innovation is best left alone

■ Eliminates policies and processes that constrain innovation

Do nothing1Minimalist2Moderate

3Proactive

4

■ Targets and enhances specific HR practices with high leverage for innovation, notably in recruitment, rewards and retention

■ Supports HR strategic planning to ensure HR priorities are consistent with strategy innovation imperatives

■ Advances leadership development and succession to embed innovation within leadership

■ Talent management acquires, develops, motivates and retains those who will make innovation happen

■ organizational effectiveness: facilitates organizational design and cultural change to ensure innovation is part of the organizational DNA


The KPMG HR innovation framework


What role does innovation playwithin our business strategy?

The KPMG HR innovation framework

Mapping out the specific focus of the innovation effort within

overall business strategy

Context: the business environment in which we operate

Priorities: the focus of our efforts

Philosophy: the way in which we tackle the innovation challenge

The ‘big 11’ factors that are helping or hindering the innovation enterprise

Profile to establish credibility

Priorities to:

Eliminate the blockages

Do the basics phenomenally well

Implement high impact practices

Support strategic change and renewal

Is HR well aligned to the innovation enterprise?

What is helping or hindering our innovation activity?

The innovation imperative The role of HR in innovationThe innovation dynamic

KPMG’s HR and innovation framework contains three key components:1. the innovation imperative which explores the specific focus of the innovation effort and what

the organization is trying to achieve through innovation

2. the innovation dynamic which determines what is helping or hindering the innovation agenda

3. the role of HR in innovation which explores how HR can use particular levers to reinforce and drive innovation

CultureProcessStructure

Room at the top

Connectivity of networks

Employee discretion

24/7 radar screen

Nuts and bolts obsession

Spanning boundaries

Courageous conversations

Current world is not enough

Diversity gains

OK to fail

Everyone’s job


The innovation imperative – key questions

■ What is the business environment in which we operate?■ How clear is the organization about current and emerging opportunities within the market place?■ What does customer feedback indicate about shifting expectations?■ How effective is competitor intelligence in identifying the strategies and tactics of established and new players?■ Are we in the innovative game, or lagging some way behind?

Context

■ How clear is the organization about its innovation focus?■ What are the key battle grounds for future competition? Directed in one area or across several arenas?■ Which of the following ‘value disciplines’ are the focus of innovative efforts?■ Product leadership.■ Operational excellence.■ Customer intimacy.

Priorities

■ Is innovation seen as fundamental to the organization and how it operates or a discrete activity within specific functions? Why?

■ How open versus closed is the organization’s approach to innovation?■ How ambitious is the organization in committing resources to move quickly to advance the innovation agenda?■ What are the opportunities and risks in making progress?

Philosophy

■ Percentage of airtime spent on innovation in top management briefings, meetings.■ Frequency of the innovation word in publicly available information (e.g. web site, corporate reports).■ Frequency of the innovation word in internal communication.■ Percentage of executive directors who have led a significant innovation.■ Innovation ratings from employee engagement surveys.

Snoopology metrics



■ Room at the top

■ Connectivity of networks

■ Employee discretion

■ 24/7 radar screen

■ Nuts and bolts obsession

■ Spanning boundaries

■ Courageous conversations

■ Current world is not enough

■ Diversity gains

■ OK to fail

■ Everyone’s job

The innovation dynamic – some key questions to ask

Room at the top Connectivity of networks


Employee discretion

Note: (a) Making innovation structures work: McKinsey Global Survey results McKinsey Quarterly, September 2012

■ How integrated is innovation in the corporate strategy?

■ Do top team members possess the capabilities to manage risk and convert creativity into value?

■ How much attention is given to the identification and management of innovative talent in succession reviews? How integrated is innovation in the corporate strategy?



■ How much attention is given to the identification and management of innovative talent in succession reviews?

■ Is work organized around narrowly defined job descriptions – or looser role profiles?

■ Do employees have the time and space, tools and resources to make an innovative contribution?



■ Room at the top








■ Diversity gains

■ OK to fail



Room at the top


Employee discretion













■ Room at the top








■ Diversity gains

■ OK to fail



Room at the top






Employee discretion








The innovation dynamic – some key questions to ask ... contd.

24/7 radar screen




■ Room at the top








■ Diversity gains

■ OK to fail



Nuts and bolts obsession

Spanning boundaries Courageous conversations

■ How alert are your people to the strategies and tactics of current and emerging competitors?

■ What links do you have with trend-spotting gurus, futurologists, think tanks

■ Do innovation processes exist?

■ What training and development is provided to employees in relation to these processes?

■ How often are these processes reviewed and updated?

■ Does the organizational culture support cross-functional and cross regional working? Or does the company’s political dynamic put up barriers?

■ What use is made of social media and crowdsourcing to draw on wider experience and wisdom?

■ Does the physical infrastructure (buildings, layout, facilities) facilitate ‘the bump in’ factor?




■ Room at the top








■ Diversity gains

■ OK to fail



Spanning boundaries Courageous conversations







24/7 radar screen



Nuts and bolts obsession ■ How alert are your people to the

strategies and tactics of current and emerging competitors?




24/7 radar screen Nuts and bolts obsession

Courageous conversations









■ Room at the top








■ Diversity gains

■ OK to fail



Spanning boundaries






24/7 radar screen Nuts and bolts obsession






■ Room at the top








■ Diversity gains

■ OK to fail



Courageous conversations ■ Does the organizational culture

support cross-functional and cross regional working? Or does the company’s political dynamic put up barriers?



Spanning boundaries





The innovation dynamic – some key questions to ask... contd.

Diversity gains OK to fail Everyone’s job

■ Are individuals and teams encouraged to leave their comfort zones?

■ Are stretch goals established to reflect business ambition and how do these compare with the aspirations of established and new competitors?

■ Does the induction and socialization process encourage employees to bring their unique personalities to work? Or park them at the door?

■ What is the organization’s philosophy and approach to risk management?

■ How prominent is innovation in organizational briefings and updates?

■ How well are innovators supported by their colleagues and managers when it comes to workloads and deadlines?

■ How are employee innovations highlighted and celebrated internally?

Culture


■ Diversity gains

■ OK to fail



Structure

■ Room at the top



Process





Current world is not enough ■ Does the top team speak

directly about the business challenges facing the organization?

■ How are performance reviews conducted? With authenticity? Or do managers simply go through the motions and tick the box?

■ Who enjoys promotion? Employees who speak the brutal truth or those who opt for an easy life?



OK to fail Everyone’s job





Culture


■ Diversity gains

■ OK to fail



Structure

■ Room at the top



Process









Diversity gains






Everyone’s job




Culture


■ Diversity gains

■ OK to fail



Structure

■ Room at the top



Process





OK to fail


Diversity gains










Culture


■ Diversity gains

■ OK to fail



Structure

■ Room at the top



Process





Current world is not enough

Diversity gains

■ Does the top team speak directly about the business challenges facing the organization?






Everyone’s job




OK to fail


Thank you

© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firmsof the KPMG network of independent firms are affiliated with KPMG International. KPMGInternational provides no client services.

The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

kpmg.com/socialmedia

http://kpmg.com/socialmedia

Education

HR as a driver for organizational innovation 2013