7 Habits of Highly Innovative Companies

Innovation is a top priority for almost any company

More and more companies start to realize they must adopt proven habits or best practices to infuse innovation culture into their DNA. But creating an innovation culture is more than just launching an innovation lab, hiring an Innovation Officer or establishing a new innovation team. Building a culture of innovation takes time, effort, and dedication to persistently develop healthy habits to accelerate innovation.

We looked at some of the most innovative companies that get things right and defined the habits that help them foster innovation. Let’s discuss each habit or best practice with inspiring examples.

1. Adapt or die

As the famous Darwin saying goes: “It is not the strongest of the species that survive, but the most adaptable”. Large corporations have taken steps towards being more agile and adapting to the rapid pace of digitization. Companies try to improve their long innovation processes and give more autonomy to employees. Building internal startups or closely cooperating with external ones count as a common adaptation mechanism of innovation leaders. Large corporations can promptly garner internal startups' advantages by supporting them through existing resources and customers.

Bezirk, a startup of an engineering team inside Bosch figured that retail IoT is a great market that needs personalization. Even though it took seven months for the founders to persuade Bosch leadership that their vision is doable, the startup developed software with machine learning and analytics integrated within the networks of the retailer and the IoT application.

Another big business, Daimler Financial Services, invested several million dollars to run a Startup Intelligence Center (SIC). The Center will foster cooperation with promising startups in the sector of digital mobility and financial services. In turn, startups will benefit from generous financial support for their pitched ideas and access to the global network of experts and customers of Daimler AG ( 40+ markets and a lot of industry knowledge and data).

2. Fail fast. Fail forward.

By experimenting, companies are giving themselves far more opportunities for wins. Products such as the Post-It note or Pacemaker were a result of a failed experiment. According to Jeff Bezos, the CEO of Amazon, failing a lot is okay because one or two “winners” can cover for hundreds and thousands of failures. Of course, failure can be damaging in daily business, but only letting room for risk can lead to disruptive innovation.

There are still some negative feelings and judgment behind the word failure. In startups, where experimentation is rooted in work culture, failing is often called “pivoting”. The term is based on the Lean Startup Model by Eric Ries. It is intended to make clear that start-ups pursue their corporate vision in a focused manner, but that triggers such as customer feedback, tests, or failed experiments sometimes require a drastic strategic change of the course.
Facebook created a work environment where employees are less afraid of making mistakes than losing a business opportunity. As one of their slogans says “The riskiest thing is to take no risks”.

Etsy follows another best practice; its employees are encouraged to share their mistakes and how they happened – in public emails or Wikis. As a result, Etsy employees are not blamed for their mistakes; rather, they publicly acknowledge their failures and help the whole company learn from them. Intuit took this approach even further by establishing a “failure award” across the company. This award is given to the team whose idea eventually failed but brought the business the most valuable takeaways.

It’s hard to believe now, but there have been years when Google Maps didn’t make any money to Google, as initially it started as an experiment. Innovative companies usually adopt the “20 percent rule”, which allows employees to dedicate 20% of their work time to projects that have nothing to do with their job description. Interestingly, Gmail, Google News, and AdSense evolved out of 20% of projects.

3. Grow tall. Stay slim.

Startups generate a lot of innovation that covers every aspect of a consumer’s life. Often, it’s due to the speed at which they can innovate and this has a lot to do with their size. There is no question that smaller teams are usually pegged as better teamwork performers. In other words: grow tall, stay slim! However, how large companies can create small teams successfully, that act like agile companies inside the large organization is still an open question. More teammates bring more communication, more organizational tasks, more confusion, and more things that slow down the working process.

With this challenge, the deceleration of workflows and increasing inefficiency, especially large companies are struggling. The Ringelmann effect explains the tendency for individual productivity to reduce as group size grows. A tug of war is the most common example of the Ringelmann effect. As more people join the team, the average performance reduces because each participant feels that their input is not crucial. In other words, bigger group settings imply less personal responsibility for each member. This tendency is present in teams of companies like Apple, Microsoft, or Amazon, and probably in your company as well.

You probably have heard of Jeff Bezos’ “two pizza rule” – one of the most common best practices in this field. The idea behind the concept is that every team needs to be small enough to be fed by two pizzas. By keeping team sizes small and dynamic, Amazon has developed a nimble tactic in everything they do, focused on two aims: efficiency and scalability.

4. Recognition is the new reward

Employee recognition, retention, and satisfaction are becoming increasingly popular, which is why well-thought-out employee reward schemes take on greater significance. To reward your high performers, just giving more money or some physical gift is so yesterday. The impact of such external random rewards is not likely to last long. As more millennials are becoming a part of the workforce, companies should take into account their preferences and survey their staff to find out the best way of rewarding it. Rewards for innovation could be a scheme of promotion, role expansions, or access to needed resources. Even if a badge or a bonus could be applicable to people in big corporations, that might not be the scenario for a startup environment. People who choose to join a startup are more likely to seek to be an integral part of the innovation community and are ambitious to get recognition.

In its innovation reward system, Shopify has found a middle course by blending well peer recognition and traditional rewards. Employees use Unicorn, a custom-built platform constructed as an online fantasy game with avatars and points. Based on the points received in Unicorn that employees can lend to each other for superior performance, the system formed a reward scheme – and, at the same time, strengthened cross-departmental collaboration and the reduction of internal silos. Haier, a Chinese multinational consumer electronics and home appliances company, started naming its products and services after the person who proposed the idea that ended up being developed. Financially, these rewards cost virtually almost nothing but definitely give the employee the responsibility and the opportunity to do something that stands out in such a large company.

5. Work space beyond the cubicle

Most offices that consist of rows and rows of cubicles offer limited space for physical interaction which in turn is so crucial to boost new ideas. Spontaneous meetings between colleagues from different departments bring up ideas and talent across companies. Spaces bring individuals together or keep them separated. For this very reason, Intel constructed a new space called Innovation Open Lab in Ireland to develop and smooth open research, ideation, and overall innovation in the company. In the lab, there is a large kitchen that has walls as whiteboards for people to improvise and come up with prototypes while having a chat and drinking coffee. Cisco went even one step further by creating a network of Cisco Innovation Centers, each one with its own specialization. The centers build an open workplace for customers, partners, startups, universities, and developer communities.

In Dublin, as part of a “New Ways of Working” plan, Vodafone invested €2.5 million to restructure its 11,000 sqm headquarters in Dublin; they got rid of office boxes, cubicles and meeting rooms, also anything that symbolizes power or hierarchy. They created more physical space for interaction, not only formal. When people come to work, they can sit wherever they prefer or find space. Even the CEO does not have a special pre-assigned desk.

Innovation spaces in companies are re-inventing the concept of flexibility as a response to the constantly changing needs of business, people, and innovation processes. Flexibility means being able to adapt all needed components in a given space, such as moveable walls, optimal furniture, supporting machinery, and other things, in a short period of time according to one’s own needs.

6. Listen and say yes

In 2016, Harvard Business Review conducted a survey of 3500 company employees from Canada, the UK, the U.S., Germany, and India. They found that even though most employees agree that it is everyone’s job to innovate, not many possess the needed resources to do so. There is an exclusive communication gap between leadership and non-management employees. While about 9 of 10 employees surely think that it’s also their responsibility to be involved in innovation, far fewer (about 6 of 10) actually do so. This picture applies for small as well as large companies. Usually, employees think that leadership does not stimulate them to go the extra mile or give them the chance to do so. When someone comes up with an idea, getting attention, money, staff, and support for implementation is a difficult story.

Back in the time when CEO Howard Schultz was worried that Starbucks was losing its way, he took time and went to every store manager from all over the world to listen to them in order to restructure the Starbucks experience. Audi won big time from its Audi Ideas Program. Within the scope of this program, the company accepted and applied about 15,000 suggestions for development from all of its employees in 2017. Due to this program, in Ingolstadt and Neckarsulm, the company had record savings of about €108.6 million in 2017 (23.4% more than the year before).

7. Innovate everywhere

Digitalization brings innovation management to a whole new level. Companies have already started linking innovation to data analytics to solve a variety of problems. In fact, BCG’s “The Most Innovative Companies 2018” report highlights that since 2014 digital innovation (especially with a focus on big data analytics, fast adoption of new technologies, mobile products and capabilities, and digital design) has grown greatly in importance. More than half of the interviewees stated that their companies use data analytics for a variety of purposes connected with innovation, including identifying new areas of exploration, getting input for idea generation, discovering trends, identifying strategic fields of action, and pursuing technology roadmaps.

Nevertheless, companies are still facing common challenges, such as how they can scan, monitor, and analyze the business environment effectively and spot new opportunities. For example, Cisco wanted to identify technology-related threats and opportunities ahead of the competition. With the help of ITONICS Technology Radar, the company was able to run effective technology scouting and management, from identification to selection, assessment, and dissemination. As Cisco’s Technology Radar evolved, the famous and award-winning Innovate Everywhere Challenge – a company-wide cross-functional innovation competition was designed. The challenge aimed to bring the most innovative employee projects to the forefront.

Summing it up

You may have noticed that each of these habits of highly innovative companies requires a willingness to experiment, effective employee collaboration, strong management dedication and vision, employee engagement, and recognition. Adopting those best practices won’t happen overnight. Integrating them and creating a sustainable innovation culture is not easy, but it’s well worth the effort.

Nowadays, innovation is a necessity for all companies and a continuous process that needs systematic refinement. To get started, follow these best practices and take a look at some success stories.