Why do some companies succeed at innovation where others fail even when their levels of investment and commitment are the same? Contrary to accepted wisdom, many of the top 1000 global companies did not reduce their investment in innovation during the recession. Many, according to recent research by Booz & Company, even increased their spending. Yet while some were rewarded for their continuing faith in innovation – Apple, Twitter, Nissan and Groupon for example – others, such as those in the Pharmaceutical sector, saw their market value fall. Could the difference lie in a fear of failure? Moorhouse's Nick Whale investigates.

Early days

In a company's early days, innovation comes easily. The company is small and intimate enough for ideas to naturally surface, and the encouragement and management of innovation is in the hands of the entrepreneurial founders for whom the appraisal and selection of potentially winning ideas is second nature. These founders have a small, trusted team, and a semi-informal way of identifying and testing new ideas. However, most importantly, they are happy to accept a high degree of risk of failure (in return for a potentially high level of reward for success) and are willing to shoulder the blame if some ideas don't pan out as profitably as they hoped.

Informal becomes too formal

Then it all changes. Entrepreneurial success grows the company to a tipping point where it is too large for the original semi-informal approaches to work. Bureaucratic processes and controls start to appear. As successful growth continues there is often a sale to the financial market to fund further expansion and allow the founders to realise the value of their creation.

Risk averse cultures strangle innovation

The company then suffers a double blow. The founders leave the business, depriving it of its original driving, creative force and leadership, and are replaced by new shareholders who are more risk averse but still demand short-term, constant, high returns on their investment. The management team is now open to public scrutiny and subject to financial regulations designed to minimise risk and failure. Procedures are put in place to ensure that exposure to risk is carefully controlled. Suddenly innovation is a very risky business and a fear of failure sets in. A demanding set of criteria is created to evaluate potential investment in new ideas and prevent spend that doesn't quickly show a high return on investment. Inevitably, the result is an eventual decline in innovation. And what happens when organisations don't innovate? Ask AOL and Netscape. It wasn't so long ago that the former was acquiring Time Warner and the latter was the leading contender in the internet browser war. But somewhere along the way they strayed from the path of successful innovation – and their competitors took over.

Flexible approach is required

It's a bleak picture yet industry leaders still recognise how integral good innovation is to the ongoing business viability. Recent research by Boston Consulting Group suggests that 72% of leaders are looking to innovation to drive business growth and 61% are proposing to increase their levels of investment in innovation. So, what can they do to lose the fear factor, and ensure innovation is allowed to prosper in their business? The answer is to implement a flexible approach to managing innovation, one that captures the essence of the original entrepreneurial behaviours and culture while taking into account current risks and fears.

What are the key characteristics of such an approach?

A structured innovation management process

Successful entrepreneurs have a disciplined approach to innovation. This may seem to be a contradiction. Surely structure and process are the antithesis of the freewheeling entrepreneur? On the contrary, they constantly scan for new, unsatisfied needs, think about ways to address those needs, assess the ideas and then develop and deliver them. What they don't do is put in place complex procedures, management structures and decision rules that slow things down unnecessarily or prevent potentially winning ideas from reaching fruition. A flexible innovation approach in the corporate environment gets the right balance between process, structure and speed - and it does not attempt to force all ideas through the same type of process.

Multiple innovation pathways through the organisation

Entrepreneurs recognise there is no 'one size fits all' pipeline for managing innovation. They flex their innovation approach to suit different sizes and types of ideas. For example, an idea which needs to be rapidly tested, and will not have an adverse impact on the business, will not go through the same appraisal and approval steps as a multi-million pound 'game changing' idea that could present a major risk to the business. This can be replicated in the corporate environment through the establishment of different approval pathways for different levels of investment. This multiple pathway approach will be supported by effective risk appraisal and management.

An effective approach to risk assessment and management

Successful entrepreneurs understand risk and have a high tolerance for potential failure unlike most mature companies. In the corporate environment, many ideas are dismissed too early in their development lifecycle because of a perceived unacceptable level of risk based on a superficial appraisal. A robust risk assessment should be undertaken for each idea and mitigation plans developed to offset the risks. However, often the existing organisation structure itself presents the biggest generic risk to the execution of 'game changing' ideas. Companies need the ability to re-shape themselves to support truly innovative ideas.

The ability to rapidly re-configure a organisation

Entrepreneurs who innovate well routinely review and re-design their organisations around game-changing innovations to ensure they are embraced and encouraged, not stifled by the existing organisation. Established, mature companies are usually organised around their existing products and services. This makes it relatively easy to introduce incremental improvements because these are in the interests of the current stakeholders. A brand new 'big idea' can often be perceived as a threat. It will disrupt the existing natural order, compete for scarce resources and may even threaten the existence of older parts of the organisation. Outright resistance or, at best, indifference can block any attempt at step-change innovation. The ability to routinely re-structure around new products and services will address this - but it will only work if the organisation has the necessary level of resilience to withstand the constant changes…

A high level of organisational change resilience

In an entrepreneurial culture, innovation flourishes because the organisation attracts people who thrive under conditions of continual change. This same resilience has to be actively fostered in the established, mature organisation. The capacity and ability to embrace and manage change brought about by innovation needs to be highly developed. Change needs to be a way of life and all employees must be able to deal with a high level of constant ambiguity and apparent disruption – organisational resilience in the face of constant change underpins successful innovation and is an essential component to growth and market leadership.

Conclusion

Companies wishing to embrace a sustainable approach to innovation must go back to their roots and recapture the essence of their entrepreneurial founders' values and behaviours – particularly their philosophy about failure. Sir Richard Branson, arguably the UK's most successful entrepreneur, said on one of his blogs: “I suppose the secret to bouncing back is to be unafraid of failure. Setbacks are discouraging, but you should always try to channel that feeling into positive action”.

So, feel the fear – and do it anyway!