In a earlier blog I had discussed “Innovation Influencers” and how each influencers holds a critical piece of the puzzle required to unlock innovation. At the center of this puzzle is the CEO of the company. CEO should take personal interest in innovation and cultivate the right culture within the company.
HBR article on “The Ambidextrous CEO” analyzes this topic well and here are some of the reasons why it is important for the CEO to support innovation.
- Innovation drives long-term growth: Stable companies have a good understanding of their traditional growth rate based on market dynamics. Company shareholders know the traditional growth rate and expect companies to do better year over year. Without innovation, companies cannot meet shareholders’ ever growing demand for growth. Hence, CEO’s rely on innovation to build the future growth engines that would help them meet their future growth obligations.
- Future is more uncertain with innovation than with core products: Issues with core products, revenue expectations, margin expectations and overall performance is estimated relatively well with core products. But innovation potential is very uncertain and usually a wild guess. And who better to guide/support the team dealing with this uncertainty than the most visionary person in the room, i.e. the CEO.
- Traditional business metrics do not apply to innovation: Given many innovation projects start out with no or modest revenue numbers, business metrics like contribution margin, revenue per FTE etc cannot be applied to innovation projects. These metrics make innovation projects look bad and ignore future potential of the projects. When executives try to measure innovation using the same scale as core business, CEO needs to step up and support innovation to give it a chance to survive.
- Left to mid-level managers, innovation will suffer: Budget decisions, staffing decisions, marketing and sales support decisions, and many more such decisions are usually made in support of core products. This is because mid-level managers are trying to make decisions in their best interests and in supporting their products. Given that innovation products are not the responsibility of majority of the mid-level managers, they tend to starve innovation projects. This is where CEO needs to step in and assign right resources for innovation projects to make sure that innovation thrives at the organization.
- Innovative companies enjoy higher multiples and generate more shareholder value: Typically companies that innovate and generate higher growth rates get better multiple for their earnings. This in turn generates better shareholder return, which is the primary job of the CEO.
Companies where innovation is actively supported by the CEO, strive at innovation and generate better shareholder value