Indicators of Change

October 9, 2019

Kris Oestergaard is co-founder and Chief Learning and Innovation Officer, at SingularityU Nordic. He is author, Transforming Legacy Organizations: Turn Your Established Business into an Innovation Champion to Win the Future. He is also a speaker, facilitator, researcher, and expert on innovation in legacy organisations, corporate cultures, and exponential organisations.

The organizational immune system can be compared to the immune system in humans—both, basically, work towards resisting external threats. However, speaking of the former, should it be so rigid that it prohibits all ideas, irrespective of whether they good or bad? In such a case, it becomes more of a hindrance to progress than a protective measure.

“We cannot innovate because our people are too risk averse”, says middle management. “It’s middle management: They don’t want change”, says top management. “Our CEO is set in her old ways”, say the employees. You have heard it all before. And yes, human resistance to change is a real thing. As humans we have different risk profiles. Some like to bungy jump, some prefer watching Netflix on the couch. We humans also have inborn biases such as the status quo bias, which means that we would rather not loose than win. This means that any bigger journey needs to be pretty compelling to get most of us excited about it. And we also have capability deficits. In fact a recent global study with 2,000 managers showed that 76 percent of them believed they do not have the capabilities inhouse that they need to move into the future. So all of this is real and creates human resistance to change. But human resistance to change is not the most important barrier for innovation. Far more important than the individual resistance to change—what you could also call the individual immune system—is the organizational immune system.

The organizational immune systems consist of an organization’s KPIs (key performance indicators) and reward systems, its legacy structures, processes, and tools as well as its investors’ and shareholders’ demands on returns.

The reason that the organizational immune system is far more important is because if you put it up against the individual immune system, former will always win. It is far more powerful than any individual, even the CEO. Thus, if you want to increase your chances of success with the transformation and innovation initiatives that you, as a responsible leader, have initiated, then you need to change the system. Here are three key actions you should take to become the ‘innovation champion’ of the future and the reasons why they are massively important.

A global MIT study of more than 3,000 managers found that only 26 percent believed that their KPIs were aligned with their organization’s strategies. It is also a classic problem that in IT’s KPIs are designed to increase efficiency and cost savings whereas sales’ and marketing’s KPIs are designed to improve customization and customer value and thus, that KPIs across divisions are misaligned. In other words, KPIs are a mess. Therefore, you need to analyze your organizational, divisional, and departmental KPIs to identify a) if they are aligned with strategy and b) if divisional and departmental KPIs are supportive of each other in order to c) ensure that every person in the organization is working towards the same goals.

Organizational KPIs should be designed to play the transformative long game by defining targets that set culture,impact mindset, and through that, create results.

Organizational KPIs typically take the deceptive shortcut, ie a target is defined, for eg, we want to increase sales, and the KPI is then directly set to measure that particular target. This is, however, not the smartest way to use KPIs for motivation and strengthening of innovation culture. Instead, organizational KPIs should be designed to play the transformative long game by defining targets that set culture, impact mindset, and through that, create results. This also means that KPIs should be much more qualitative than they typically are. Companies that have begun to understand this are, for instance, the world’s leading water pump manufacturer Grundfos, which sets KPIs such as collaboration and commitment to the project; Google, which evaluates its employees on thought leadership; and Microsoft, which used to have the most cutthroat numbers culture, that has begun measuring openness towards sharing knowledge and finding new ways to create results. Consider which qualitative KPIs would be motivational for people in your organization to collaborate and innovate more powerfully together, and it will increase your potential for increasing sales, revenues, and bottom lines by strengthening your innovation culture.

Human resistance to change is a real thing that can inhibit innovation. But, in reality, human beings are remarkably adaptive to change, if they have right circumstances to change under.

“That is a great idea, why don’t you run it by legal?” You can almost hear how that suggestion just took what might be a great idea and killed it, can’t you? Maybe you should run it by legal (and no offence to legal; they are just doing their jobs). But maybe the idea shouldn’t be run by legal. That depends on the type of innovation that you are trying to create. If you are moving beyond traditional optimizing innovations and need to challenge existing business models, then you also have to consider putting fewer restraints on your innovation projects. Of course, legal will eventually be involved, but in order to allow people to explore their true innovation potentials you often have to remove barriers, such as legacy structures, processes, and tools for as long as possible.

Yes, human resistance to change is a real thing that can inhibit innovation. But, in reality, human beings are remarkably adaptable to change, if they have the right circumstances to change under. That is why it is far more important to understand the organizational immune system that your people operate under than it is to point fingers and accuse them of not wanting change. If the incentives structures and work processes are correctly aligned then you remove the biggest innovation obstacles and set your people free to become the innovation champions of the future.