In our work with companies, we have observed significant changes in the attitudes that leadership has towards innovation. Leaders now value innovation as the most important driver of growth. But even with leadership having understood the importance of innovation, there is still a need to ensure that companies create the right culture for innovation to thrive.
An innovation culture is seen most explicitly in the behaviours of employees (e.g. experimentation) and the results these behaviours produce (e.g. new revenues). However, employee behaviours are driven by the enablers and blockers that exist within a company’s structures and processes (e.g. the right incentives). From our point of view there are three main enablers of innovation within companies:
- Leadership Support: Leaders invest a substantial amount of their time into innovation, provide clear strategic guidance for innovation and invest resources in the exploration of new growth opportunities.
- Organizational Design: Innovation has legitimacy and power and powerful positions on the organizational chart, there is a dedicated incentive system for innovation and clear policies that guide the collaboration between innovation teams and the core business.
- Innovation Practice: Innovators use the right tools to pursue ideas based on evidence from experiments, risk and uncertainty are systematically measured and reduced and there is a focus on developing people’s innovation skills.
In this article, we will use Bayer’s Catalyst Fund as a case study of how companies can develop the right culture to drive innovation. We worked with Bayer for three years to help drive their innovation funnel. Bayer’s Corporate Innovation Team consisted of Henning Trill – Head of Corporate Innovation, Julia Hitzbleck – Head of Life Hub Berlin, Ouelid Ouyeder – Senior Program Lead for Entrepreneurship and Peng Zhong – Senior Program Lead for Entrepreneurship. Their Catalyst Fund was run like a venture fund but the investments were made in internal teams.
One of the key lessons we teach leaders is that they cannot pick the winning ideas themselves on day one. The best way to find good ideas is to make multiple small bets in many teams and only increase investment in ideas that are showing traction and progress.
Over the duration of the program, the Catalyst Fund received over 400 proposals from which they invested in 74 projects. The initial investment into each project was €10,000 so the teams could start testing their idea. After four months the teams convened to present their evidence to senior business leaders.
We helped to train these senior leaders on how to make decisions based on evidence and not how much they liked the idea. 72 projects from the initial 74 investments made it to the pitch day. Of these, 29 projects were selected for a second round of funding. The average funding that was granted at this next stage was €90,000.
Of the projects that got further funding, 17 have successfully shown feasibility and viability in a pilot and have been continued by the business with a further investment of €100,000 to €300,000. Five of these projects have now launched into the market.
Bayer is a really good example of how companies can use portfolio management to drive innovation. However, to make this work, you need leadership support in terms of protected resources and their active participation in investment decision making.
A key part of driving the right innovation culture is ensuring that there is some collaboration between innovation teams and key functions. It is not possible for innovation teams to succeed on their own. Scaling innovative products necessitates the involvement of colleagues from functions such as sales, marketing, finance, procurement, legal and compliance. Having clear policies of how innovation teams can collaborate with these key functions is an important part of a company’s innovation culture.
At Bayer, the Catalyst Fund team has shared how they worked closely with their colleagues from the legal department to create a framework that streamlines processes in business model development for innovation teams. According to Ouelid Ouyeder, they co-created with their legal and data privacy colleagues a framework that supported teams to run their projects in line with data privacy. This approach was applied on the internal crowdsourcing platform as part of the larger innovation ecosystem at Bayer.
Creating such a process means that innovation teams don’t have to negotiate with the legal department afresh every time they are running projects. This saves time and costs. This is the power of having great organizational design around innovation.
The final piece of Bayer’s innovation culture was practice. All teams that took part in the Catalyst Fund got training and coaching support from Strategyzer and other colleagues. We held design workshops, where the teams learned how to design value propositions and business models; and also how to extract, prioritize and test hypotheses using business experiments.
In exchange for the investment they got from leadership, the teams were expected to go out and test their ideas until they generated evidence that the opportunity they are working on is real and that the solution they have in mind was desired by the potential users or customers. While they were testing their ideas, they were supported by Strategyzer coaches who helped them design the right experiments, collect data and analyze it for insights.
Ideas are not enough
What our work with Bayer illustrates is that having ideas is not enough. In fact, this is not the biggest challenge that companies have. Their employees have plenty of ideas that could help the company grow. What really matters is whether the company has the right culture to move those ideas from conception to profitable business models. This is where companies need world class levels of leadership support, organizational design and innovation practice. To assess your own company's innovation culture, you can use our Innovation Culture Assessment.