Innovation is top of mind for most C-suite executives and directors of companies, and both have every reason to prioritize innovation as part of the company’s strategy. According to a study by Credit Suisse, the average lifespan of a S&P 500 company is now less than 20 years compared to 60 years in the 1950s. Additionally, Mercer’s 2019 Talent Trends Survey found that 73 percent of executives predict significant industry disruption in the next three years, up sharply from 26 percent in 2018.  In many industries, continued innovation is critical to a company’s ability to survive and thrive.

In the recent past, having a dedicated, centralized innovation team seemed like the obvious answer to this corporate imperative, and companies made the move to create such teams—the number of corporate innovation centers has grown from over 300 to 580 from 2015 to 2017.  Unfortunately, the success of these innovation centers has been mixed. Centers that tend to lag in performance usually have unclear strategic goals, suboptimal set-up, and vaguely defined success metrics.  

Developing a culture of innovation requires commitment from the top, starting with the CEO. The company’s CEO needs to define what innovation means to the firm, be its biggest advocate, and get the entire leadership team’s buy-in and support—including the backing of the board. Boards should make sure that the innovation strategy is forward looking with a balance of incremental and disruptive goals. Once the vision is defined, leaders need to infuse innovation into the company’s DNA by cultivating an open-minded and intellectually curious culture that is ready for change.

To truly embrace a culture that is open and prone to innovation, CEOs are also looking to their chief human resources officers (CHROs) to help lead this cultural change and drive innovation.   

The CHRO as Innovation Catalyst

The role of the CHRO has evolved, and it has never been more critical for the board to focus on this role’s ability to drive a culture of innovation throughout the organization. To enable innovation at scale, having a sound people strategy is equally important as having the right infrastructure, processes, and tools. 

When considering the CHRO’s role in setting the framework to build a
workforce that drives innovation, the board should consider how the CHRO is
leveraging the following four building blocks. 

Talent identification

The most important building block for the
CHRO’s talent strategy is identifying the right people. One could argue that
innovation is an innate skill, and not a skill that is developed. In reality,
the answer is, “it depends.” The company’s definition of innovation drives the
types of talent needed, whether the talent can be developed from within, and if
recruitment from outside needs to happen. People also have varying degrees of
innovative talent. Organizations may have a limited number of innovation
whizzes available to create transformative ideas, but many are capable of
developing incremental innovations to improve existing solutions or modernize core
businesses with the right training, support, and tools.  The board and management need to think beyond
traditional approaches to identify the right talent and teams to lead
innovation initiatives. Depending on the level of disruption required, the
board and management may need to urge the CHRO to consider external talent such
as seasoned entrepreneurs to get an injection of fresh ideas. The CHRO should
keep a close pulse on innovation talent across the firm, meet with innovation
teams on a regular basis, and report back to the CEO and board to ensure the
firm has a strong pipeline of talent suited for innovation.  

Diversity and inclusion

It is no secret that diversity drives
innovation. Diversity in this context extends beyond gender, race, and ethnicity,
and includes experiences, expertise, perspectives, and even working styles.  Individuals with differing thoughts can
result in dissent and conflict, but this should be viewed as the gateway towards
developing breakthrough ideas. Inclusion must come hand-in-hand with diversity.
One can only maximize the potential of a diverse team when each individual’s
differences are respected and valued. In addition, a diverse and inclusive
workforce ensures that the innovations created are reflective of the
organization’s diverse customer base. The board should embrace and work with
the CEO and CHRO to measure how diversity and inclusion impacts innovation and
the company’s people strategy on an ongoing basis.          

Performance
management

Since innovation development processes are
agile in nature, workforce performance management and metrics should align with
“test and learn” principles. The “test and learn” approach ensures that
projects can fail fast and pivot as needed. To encourage such behavior,
performance management also needs to allow continuous and open feedback to
enable individuals to adapt according to project needs. The board and CEO can
make this feedback loop a priority by measuring how the CHRO structures
performance reviews at the firm.   Disruptive innovation initiatives require a
longer time horizon to realize their potential and impact. As such, these
initiatives should not be measured on a quarterly basis. Setting key milestones
that could be an early indicator of success will help boards monitor progress. Although
driving revenue, profit, and return on investment growth are the ultimate goals
of innovation, non-financial metrics are not to be ignored and are arguably
equally important. These metrics include, but not limited to, enhanced company
brand, increased ability to attract top talent, improved customer satisfaction,
speed to decision making and execution, ability to break down silos, the number
of ideas in the pipeline, and increased digital presence and digitization
across the firm.       

Learning
and development

In this rapidly changing environment, it is
critical for all employees to be on top of key trends and develop new skills—the
board included. Besides formal training courses, entrepreneurs and start-ups
are excellent channels for corporate “intrapreneur” learning. Including
exposure to these resources as part of a corporate people strategy could yield
measurable benefits that the board could use to assess efficacy of the program.
As an example, Mercer piloted a learning program with NewCampus, a startup that
invites entrepreneurs around the world to share their expertise and experiences
with Mercer colleagues. This type of alternative learning is a great source of
inspiration for new ideas. For companies with dedicated innovation centers,
having rotational programs will enable organizations to build stronger
innovation muscle, share what has been learned, and develop skills with broader
employee populations to achieve greater impact. 
 

For
CHROs to drive innovation, they need to innovate and reimagine the HR function
they lead. The CHRO and his or her team at entrepreneurial companies are more
progressive in their thinking, willing to experiment, and thrive on setting new
industry standards. If companies believe that their people are the ultimate
sustainable competitive advantage—the power for creating innovations for the
firm—the CHRO and that person’s entire team should be the key to unlocking human
capital potential at the firm. The board and CEO need to empower the CHRO to
experiment, and that could be as simple as trying out new technologies and
policies. The time to do so is now. 

Patty Sung is a senior principal
and innovation leader in Mercer’s Global Digital Innovation Hub.