Globe and Mail – Report on Business
February 2, 2009

Jiri Maly and Carol Deacon

Canadian companies were once among the most innovative in the world, but this leadership position has been fading for some time.

We’ve been slipping on a variety of areas, including R&D spending as a share of earnings, the number of patents per capita, and revenue from new products. Even before the current recession took hold, Canada’s rate of innovation had significantly eroded relative to other countries. Now, amid the global economic crisis, recapturing our innovative spirit seems to have further receded as a priority.

Nevertheless, spurring innovation – especially focused on developing high-value-added products that appeal to international markets – is the surest way for Canada to renew its global economic competitiveness, according to a recent report, “Breaking away from the pack: Enhancing Canada’s global competitiveness,” by McKinsey & Co. Canada.

Although Canada has the building blocks for a competitive economy, including a talented work force and a wealth of natural resources, we have failed as a country to invest sufficiently in developing and commercializing innovative products. Public policy can provide the foundation for a competitive economy, but driving innovation will require leadership by Canadian executives themselves.

Three factors must be aligned if companies are to promote innovation effectively, according to research by our colleagues Joanna Barsh, Marla Capozzi, and Jonathan Davidson. Corporate leadership must make innovation a top priority, create a culture of entrepreneurialism, and foster an idea-driven workplace that encourages the generation and sharing of new ideas.

Leaders must show their commitment to innovation in their everyday mindsets and actions. They must actively encourage innovators through public recognition, by spending time with their companies’ creative thinkers and, to the extent possible, protect funding for high-potential R&D programs.

Leaders must also show support for those taking calculated, prudent risks, even if these risks ultimately don’t pay off. As veteran Silicon Valley executive Bill Campbell, chairman of software maker Intuit Inc., recently said in an interview with the McKinsey Quarterly: “What you have to do is really accept failure. If you’re unwilling to say that out of five or six things you’ll try, two or three are going to fail, then you had better not do it.”

For the innovative spirit to fully take hold, companies also must have a culture of experimentation built into their institutional DNA, with a sense of pride and excitement about new ideas. Part of that challenge involves carefully deploying your talent – new ideas are most likely to emerge when a company brings together people with diverse backgrounds, points of view and experiences. There must also be an active culture of entrepreneurialism that is ready to quickly commercialize breakthrough ideas.

One example of ways to encourage the cross-fertilization of ideas across organizational lines and national boundaries is the use of collaboration and mobility initiatives. Canon Inc. drives product innovation through such programs as strategic training and job rotation programs, direct transfers of development teams from R&D to production, and extensive networking with key suppliers and external centres of excellence. High-potential executives are thus exposed to new markets and gain a new sense of the global competition, enriching the insights they bring back to their original business units.

Finally, the workplace environment should motivate talented thinkers and actively encourage them to share ideas, data and insights through internal and external networks. The innovative spirit must be guided by fact-based company research to give innovators a deeper understanding of what new products and services the marketplace demands. In particular, managers should encourage an “innovation subculture” in their teams that remains connected to the company’s go-to-market processes.

One example of ways to enliven new thinking is the recently launched “employee swap” program between the consumer products giant Procter & Gamble Co. and the search engine powerhouse Google Inc. Short-term exchanges help both organizations break out of their familiar habits and look at the market afresh: P&G’s executives can get a glimpse of a less-structured style of R&D, while Google’s innovators can look at the discipline that comes with a more methodical approach.

Innovation requires leadership from the top, inspiration throughout the organization and a corporate culture that welcomes the disruptions that new ideas can inflict on outdated mindsets. Keeping innovators inspired and agile, while still attuned to marketplace demands, is critical to a company’s resilience in a downturn. For Canadian companies, however, that marketplace must extend beyond our borders to assure their competitiveness in today’s global economy.

Government policies can encourage greater R&D spending, but it is up to Canada’s corporate leaders to re-ignite the entrepreneurial spirit within their companies, and lead the country back into the world’s top ranks of innovation, competitiveness and prosperity.

Jiri Maly is a principal and Carol Deacon is associate principal in McKinsey & Co.’s Toronto office


Reference: Globe and Mail