Creating an Innovation-Driven Organization: Thoughts on How HR Can Contribute

1. Creating an Innovation-Driven Organization:Thoughts on How HR Can Contribute 7th October, 2011

2. Why become an innovation-driven company? • A discipline of innovation is emerging today because: • Operational excellence is no longer enough: every good business has it • Methods and tools are emerging that vastly improve innovation success rates • Design—used effectively—is now an imperative for competitiveness • Companies need new insights to achieve growth

3. Innovation isn’t just new products and services… 1. Business model how the enterprise makes money 5. Product performancebasic features, performance and functionality 6. Product systemextended system that surrounds an offering 2. Networkingenterprise’s structure/value chain 7. Servicehow you service your customers Offering Delivery Process. Finance Channel Brand Customer experience Business model Networking Product performance Product system Service Enabling process Core process 8. Channelhow you connect your offerings to your customers 3. Enabling processassembled capabilities 9. Brandhow you express your offering’s benefit to customers 4. Core processproprietary processes that add value 10. Customer experiencehow you create an overall experience for customers

4. … and so an “innovation capability” isn’t just a design shop or lab A capability is the desired performance of an integrated set of activities, processes, and assets. Capability building is the process of motivating, enabling and doing the changes needed to install a self-sustaining capability. A well-defined capability is… 1 2 3 Measurable Meaningful Actionable

5. Companies build capabilities through their own unique blend of organizational components… The desired performance of the capability Desired performance Delivered by Activities and deliverables Process Physical assets, systems, organizational structure, roles,governance and decision rights, interfaces Structures / Systems Focusing on the right blend of components leads to sustainable and enduring capability development Individual functional and leadership competencies, specific interactions within and between teams Competencies Data, knowledge and information systems, ideas, methods, tools and frameworks Tools

6. … And so successful innovation-driven companies can take many forms Stance Towards Innovation Opportunistic Visionary Benevolent Dictator One Service Bureau Greenhouse Level of Participation in Innovation Few Free Market Collaboration Broker Many

7. Is the HR function well-positioned to lead or enable the development of innovation capabilities? Desired performance Competencies Process Tools Structures / Systems HR

8. HR can contribute at all stages of the capability-development journey… 0. Define 1. Diagnose 2. Design 3. Deploy • Build awareness of innovation among key constituents • Set objectives, scope and governance of the initiative • Define hypothesis of the firm’s Innovation Ambition and core capabilities required • Define stakeholder engagement approach • Define most relevant benchmark / best practices • Conduct diagnostic of current innovation capabilities • Conduct in-depth interviews with senior stakeholders • Conduct rapid cycle audit of benchmark / best practices • Identify & agree the biggest gaps to close • Review findings with governing body (Leadership Team, Steering Committee) • Develop key design elements of innovation capabilities, to include: • Strategy and Leadership • People • Structure • Design change management plan appropriate to your firm’s unique needs and context • Pilot designs and adjust • Craft plan and deploy resources against: • Selected structural option • Processes • Competency building / Orientation workshops • Supporting tools • Engage critical groups and individuals to support transformation process

9. … from Definition… You can help your Leadership Team define its Innovation Ambitions, and more pertinently, understand the implications of its Innovation Ambition for the organization MARKET TRANSFORMATIONAL New business models and capabilities Develop new customers and partners ADJACENTExtend and expand via Platforms Enter new markets, segments COREImprovements on core offerings and capabilities Serve existing customers and partners Enhance current offer, assets, capabilities Construct new business models Extend offer and capabilities OFFER

10. … to Diagnosis… In partnership with your innovation specialists, you can run diagnostics to assess organizational readiness for an innovation capability PROCESS COMPETENCIES OUTCOMES • How is innovation performed? • Where are the biggest pain points in the innovation process? • How does your company generate insights to stimulate the process? • What specialist skills are present in your company? • Do leaders support innovation? Do they know how? • Are teams equipped to innovate? • What innovations are in the pipeline? • Are there obvious gaps in what is being produced? • What metrics are used to measure success? CULTURE STRUCTURES / SYSTEMS TOOLS • What incentives are in place to encourage innovation? • What tools and methods exist to guide innovation? • Does Knowledge Management support the process? • What assets / systems exist to support innovation? • How is innovation decision-making governed? • What type of structures exist to drive innovation across functions? • What is the attitude of your company to innovation? • Does it have an innovative culture? • What are the barriers to making your company more innovative?

11. … to Design… The diagnostic will inform how you, your OD team and your innovation specialists adjust organizational components to design an innovation capability that will drive cultural change • Attempts to change an organization by changing just one of the components nearly always fail — the reinforcing nature of the current system overwhelms any single change • Effective change comes from simultaneously changing people‘s behavior andformal elements • The combination of changes in formal mechanisms and individual behaviors give rise to changes in culture over time PROCESS STRUCTURES / SYSTEMS CULTURE COMPETENCIES TOOLS

12. … and finally to Deployment The cadence and activities of deployment will depend on the degree of change involved Change in Activities major • 2. New Job • Bounded investment in: • Retraining programs • New systems to support new activities • 4. Revolution • Significant investment in: • Creating alignment • Building organizational capabilities and individual competencies • Possibly, new hires • The extent of change is defined by asking two fundamental questions: • Will I be doing something different? • Will I be doing it with new people? Change in Relationships & Connections minor major • Refinement • Minimal investment in: • Communication of key changes • Rudimentary supporting systems • 3. New Group • Bounded investment in: • Forging new connections • Simulations of new interactions minor

13. Above all, HR leaders should contribute to the Dialog, with your Leadership Team, within HR and with the ultimate driver of innovation – your workforce

14. Back up

15. Innovation Topics The following topics make up a thorough introduction for Leadership Teams • What is Innovation: Introduction to Innovation • Leading Innovation: Understanding the difference between managing a function or process and leading innovation • Challenges to Innovation: Identifying and overcoming the greatest barriers to innovation • Insight development: Introduction to discovery techniques • Creativity tools: Review of various individual and team tools to boost creativity in the organization • Leaders of change: Encouraging innovation • Additional innovation behaviours: Mapping and building leadership skills around the specific competencies associated with leaders of innovation

16. Managing the Deployment A Program Management Office should work closely with implementation teams to define and coordinate different activities Agree detailed implementation plan Program Management Office Design PMO PMO to coordinate roll out of innovation capability Periodic reviews Design Communication Plan Stakeholder Engagement Develop communications materials Quarterly updates Quarterly updates Quarterly updates Develop role profiles Organizational Change Consult with works councils Roll out new organization structure Training Training Design Train the Trainer Executive Training Coaching Broad training Advanced training Pilots Design Pilots Pilot 3 Pilot 1 Review Pilot 2 Review

17. Defining Your HR Strategy A comprehensive HR strategy must address key questions about how HR will support the business, starting with the primary role HR needs to play in your organization • What is our vision for the HR function? • What role do we need to play in the organization? Goals and Aspirations

18. Potential HR Models Two key factors tend to be significantly influential in determining the overall HR model for an organization – the rate of organic growth of a company, and the current level of Human Asset performance: ILLUSTRATIVE “Scale Up” For example, Google “Redesign” Generally rare as a model; tends to occur when mature sectors / industries “reignite” Hyper-growth “Lift Our Game” For example, Boston Beer several years ago “Gain Efficiencies” For example, P&G Projected Near-Term Organic Growth Rate* Steady Growth “Harvest or Turnaround” Tends to involve significant human asset reduction / restructuring Decline Low Medium High Current Human Asset Performance Level* *Note that this is a conceptual framework, and that in reality there is a spectrum with respect to both of these factors

19. Defining Your HR Strategy A comprehensive HR strategy must address key questions about how HR will support the business, starting with the primary goal of the function • What offerings should HR provide and at what service levels? • How should we measure our performance? Service and Performance Goals and Aspirations

20. Defining Your HR Strategy A comprehensive HR strategy must address key questions about how HR will support the business, starting with the primary goal of the function • What value do HR services create and what are the total costs of providing them? • How do we realize the next generation savings? Economics Service and Performance Goals and Aspirations

21. Understanding Your Portfolio of HR Practices HR practices can be viewed as a portfolio of distinct and different assets, falling into one of four asset classes. This perspective can help clarify your HR strategy, enabling clearer choices in configuring the HR organization. Winning in a competitive marketplace Mitigating risk across multiple fronts Reducing costs and improving productivity Transactions that keep the business running Value Creation Investments ROHR = StrategyEnablers RiskMitigators EfficiencyEnhancers BasicServices Examples • Benefits Administration • HR Information Systems • Learning Management Systems • Recruiting Administration Examples • Compliance Training • Labor relations • Disability / Insurance Policies • Contingency and Continuity Planning Examples • Employee portal / self-service administration • Vendor Management • Temp / Flex Labor Contracts • Distance learning • Work/life balance initiatives Examples • Organizational Strategy • Transformation Management • Talent Management • Executive Compensation design • Strategic Training

22. Defining Your HR Strategy A comprehensive HR strategy must address key questions about how HR will support the business, starting with the primary goal of the function Economics Service and Performance Operating Model Goals and Aspirations • What should we outsource? Centralize? Decentralize? • Should we create shared service centers?

23. Selecting the Right Operating Model(s) • Resources aligned and fully dedicated to the LOB Dedicated Support Unit 1 Locally Led • Resources aligned and dedicated to the LOB but connected together through formal mechanisms (e.g., communities of practice) Networked Support Unit 2 Center of Expertise 3 • Resources aligned centrally, but deployed to specific LOB activity as appropriate Centrally Led • Resources aligned centrally and shared across LOBs Center of Scale 4 • Resources aligned to one LOB but shared with other LOBs through formal mechanisms (e.g., service level agreement) Market-Based Support Unit 5 Out-sourced Outsourced Support Unit 6 • Resources partially or totally outsourced

24. Defining Your HR Strategy A comprehensive HR strategy must address key questions about how HR will support the business, starting with the primary goal of the function Economics Service and Performance Operating Model Goals and Aspirations Skills and Capabilities • Do we have the right people in place? • Are we attracting and retaining top talent?

25. Defining Your HR Strategy • What is our vision for the HR function? • What role do we play in the organization? • What are the total costs of providing HR services and what value do they create? • How do we realize the next generation savings? • What offerings should HR provide and at what service levels? • How should we measure our performance? Economics Service and Performance Operating Model Goals and Aspirations Skills and Capabilities • Do we have the right people in place? • Are we attracting and retaining top talent? • What should we outsource? Centralize? Decentralize? • Should we create shared service centers?