In turbulent markets, innovation is necessary to maintain leadership. The generation of original and viable ideas requires two key components: knowledge of strategy and incentives that reward processes, not results.

Innovation has been one of the main topics in the world of organizations in recent years. Companies seek to do (not just think) things differently to stand out from increasingly intense competition. 

Much has been written about innovation. From a decision-making approach, we see that there are two key elements that deserve to be highlighted above the others. Because, after all, innovation processes are also decision-making processes.

Understanding the objective

Every decision has an objective. Sometimes it is defining the location of an industrial plant, hiring a manager from a pool of candidates, or entering a new market.

The same is true for innovation. No one innovates in a vacuum, but with a concrete objective. What are we looking for with innovation? Increase market share? Reduce costs? Only once the goal is clear can we look for ways to do things differently. The search for innovation without guidance usually ends up in empty suggestion boxes, or proposals that are irrelevant to the business. There are no innovative ideas per se. An idea is innovative in relation to a specific company and market.  

Therefore, in order to innovate, it is first necessary to know the company’s strategy and be able to think about why I want to innovate. In our company, do the people we expect innovation from know the strategy? Do they know what is being sought?

Reward the process, not the result 

Decisions are not evaluated by the result obtained. We know that we can achieve good results by chance, as well as disastrous results resulting from good decisions in which we were unlucky. To improve the quality of decisions, we must focus on the process and not only wait for good cards to be dealt to us.

As with a decision, the outcome of an innovation is inherently uncertain. And the more interesting the innovation, the greater the uncertainty may be. Therefore, if members of the organization are evaluated solely on their results, they will hardly take risks. And doing something different always involves taking risks.  

Ultimately, we will have an organization where no one tries anything new for fear of failure, when what we need is an organization that analyzes risks and chooses which bets to make knowing that some will fail. 

Innovation processes that recognize failures early on are more successful. Similarly, those that allow progressive risk taking to build confidence. 

The world is full of examples of partial failures that, luckily, had the incentives to keep taking risks. 

The Decca record label rejected them saying “Guitars are going out of style.” What would have happened to The Beatles if they hadn’t dared to go for more? And what would have happened to Walt Disney when he was fired from the newspaper because according to the director, “he lacked imagination and had no original ideas”?

In short, innovation has a large part related to decision making. In order to generate things that are different from what already exists in the market, it is necessary to propose it as an objective and move towards it with subsequent actions. In addition, employees must know that the organization trusts them, and that it will reward them for their effort and knowledge, not just for a result that is largely beyond their control. 

Instilling a culture where members of the organization know the strategy and where they do not fear failure are two important steps to moving towards an innovative organization.

Ernesto Weissmann
Partner at Tandem.
ew@tandemsd.com