How open to social innovation are you?

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Coming from an IT background I did a lot of research into evolutionary algorithms at university as a means of selecting the best strategy by fighting variations off against each other to see which succeeds.  In the commercial world however the norm very much appear to be of a senior executive making a big bet on a single strategy, with their tenure rising or falling based upon the success of that bet.

Pretty much every management bible of the last few decades has presented good leadership as a two pronged approach.  The first prong being exceptional execution, the second prong being exceptional innovation, or as James March famously called it, exploration vs exploitation.  However companies are generally much better at the exploitation part than they are at the exploration part.  This isn't through any lack of intent on behalf of managers.  Our recent research into innovation showed that nearly 80% of managers regarded innovation as very important.  Whilst this is very encouraging I can't help but feel that the evidence doesn't really support this view.  It's far from uncommon for managers to take a rose tinted view of things.  For instance one study of around 1 million students found that over 70% of them rated themselves as above average leaders, with just 2% below average.  And I can't help but feel that innovation falls into a similar trap.  After all, a quick look at the history of companies reveals how the leading companies of a century ago either drop out of the upper echelons or underperform the leading performers.  Companies such as GE that have maintained their success and outperformed the market over a long period of time are the exception rather than the rule.

How can you improve innovation?

Creating a truely adaptive company is hard work but there are a number of steps you can take to improve the flexibility of your thinking and the way you work.

1. Encourage thinking and candor throughout your company.  Thinking creatively is not easy.  Research shows that we tend to think within certain mental models that have developed over time.  This explains why younger people tend to be able to think more creatively because these mental models are still forming.  It's generally not a problem adding to these mental models, but changing them is another matter entirely.  This is due to four main reasons:
   1.  Overoptimism about the current position, and therefore a lack of urgency about change
   2. A natural bias towards loss aversion
   3. People tend to get stuck in their ways
   4. Rigid managerial styles are often favoured over flexible ones

   It's no good the people at the top 'getting it' but no one else, nor the converse of those at the coal face appreciating the need to innovate but being held back by the dinosaurs at the top.  The whole company has to believe and adopt an innovative philosophy that is clearly communicated to all and densely integrated into the goals of the company.

2. Give people time. The key to being an adaptive company is to try various strategies.  Research has shown that markets are exceptionally good at innovating, and companies exceptionally good at executing, but if you're the boss then this is scant consolation.  So the best way to innovate is give people the time and money to explore different strategies. 
3. Creat the right environment. To encourage adaptive behaviour managers need to reward it.  The flipside is that rigid behaviour is encouraged, maybe even rewarded in a certain environment, but when that environment changes, as these things always do, then your company is institutionalised and change becomes nearly impossible.  Research suggests that rigid thinking companies tend to do well during the good economic times when execution is often the winning strategy, but they then suffer terribly during the bad economic times when they cry out for the innovative minds that their culture has driven out.  It underpins the importance of hiring a strong mix of people, young and old, explorers and exucutioners.

How does your company innovate?  Are you well stocked with innovators to deal with the recession?