Innovation is a hot topic in the United States, especially now as we search for ways of igniting our economic engines.  From business publications to the main stream press, legions of voices are elevating the attention brought to the subject.   

Based upon the research, it’s clear that innovation is a requirement of healthy, vibrant, growing economies and businesses.  The challenge, however, is how to create an environment that allows it to thrive.   

The fact is that innovation creates mixed feelings.  Looking back, the great innovators are heroic. We put their faces on magazine covers, write books about them, and build statues in their honor.  We salute the visionaries of yesteryear because they stood fast in the face of naysayers and adversity and courageously marched forward to make their dreams real.  Innovators change the world. 

But in the present, what do we do with these unique individuals?  We brand them as irritating malcontents.  They are the reckless idealists who simply won’t be quiet and play by the rules.  They are not team players.  They don’t show much corporate promise because even when all is well with the status quo, they are tinkering with the system.  They are never defined as high potential.

How many of you would hire Thomas Edison or Bill Gates or Steven Jobs or Fred Smith?   Not until Joseph Juran and Edwards Deming created success in the upstart, post war nation of Japan did their ideas catch on back home.  And before Walt Disney created the world’s first media conglomerate, he faced rejection from the Hollywood mainstream that thought Mickey Mouse would never appeal to the public. 

What’s interesting, however, is that no matter how we marginalize innovators, they keep reappearing.  They are persistent, resilient, and unfazed, if not motivated, by those who count them out. 

That’s not just a warning.  It’s an expression of gratitude that should be a strong call to action. 

More than ever, we need innovators to reappear in our businesses, our schools and our nation.  For years, the United States was the world’s dominant innovator.  But as we begin the second decade of the 21^st Century, we can no longer rest on our laurels.  Here are a few facts: 

• Research by the Information Technology and Innovation Foundation reported that out of the 40 countries and regions it examined, the U.S. ranked dead last in innovation.
• In 2009, patents issued to American applicants dropped by 2.3 percent. Those granted to foreign-based applicants increased by over 6 percent.
• The WEF ranks the United States third for corporate invest­ments in R&D when relying on its opinion survey, but in comparing 37 nations in corporate R&D spending as a percent of GDP, the United States ranks fifth2 and ranks even worse, 17th, in terms of growth in corporate R&D investment.
• Until 1979, around 50 percent of all research and development funds were provided by the federal government. That number has fallen to 27 percent. And, during the 1990s, the bottom fell out of U.S. funding for applied science, dropping by 40 percent.
• The United States is ranked 29th of 34 in percent growth of scientific researchers in the last decade.
• United States falls behind in several relevant indicators such as:  11th in broadband leadership, 36^th in corporate tax, 32^nd in foreign direct investment (FDI), 32^nd in trade balance, 9^th in higher education, and 5^th in productivi­ty.
• The United States no longer ranks first in venture capi­tal as a share of GDP, but fifth among 37 nations.
• America once led the world in high school graduation rates. We are now ranked 18th out of 24 industrialized countries.
• And the percentage of 15-year-olds performing at the highest levels of math is among the lowest. South Korea, Belgium and the Czech Republic, among others, have at least five times the number the U.S. does.
• Over the past decade, lit­eracy among college graduates has actually declined.  In fact, among recent graduates of four-year colleges, just 34, 38 and 40 percent were proficient in prose, doc­ument, and quantitative literacy, respectively.

We need to get serious about innovation.  There is no doubt that it’s a critical item for our national agenda, but there is much to be done at the ground level, too.  We need to create work environments that allow innovators to thrive.  In part, that’s about recognizing the Joy of Failure.  More importantly, it’s about some simple, yet powerful, changes we can make in the way we manage and engage the people in our organizations.

More on this in my next post . . .

MacArthur Foundation “genius grant” winner, Sendhil Mullainathan, uses behavioral economics to show us that convincing people to change behavior is about much more than giving people data and information.  His work examining the topic of persuasion has made a remarkable impact examining some critical social challenges in India and around the world.

In the corporate sector we, too, think that once we identify the technical solution, the rest will fall into place.  But as Sendhil recommends, that’s when we need to “go the last mile” to solve the human problem if we want to make a lasting impact.

When organizations undertake change, they put most of their effort–the first 99 miles–into the “science” connected to the change.  In outsourcing, for example, just think of the resources burned in the technical and financial analysis, vendor selection and due diligence phases.  How much of that time is spent analyzing, preparing for and managing the human component?  At best, very little. Yet, if you examine the reasons why those change initiatives struggle, it’s virtually ALL about the human component.  The same holds true for mergers, process improvement efforts, restructuring, and even less complex forms of change.

The technical component is important and is often the very reason why we are making the change.  But by investing incrementally more of our time, attention and resources in the human component, we have a remarkable opportunity to make a world of difference in our initiatives.

It’s been fascinating to watch the attempts at U.S. healthcare reform over the last year and beyond.  The change management requirements for this monumental effort make multi-process, enterprise outsourcing implementations look like a piece of cake!

Ross Douthat’s column in Sunday’s New York Times presents an insightful summary of the challenge, highlighting the complex web of special interests—“stakeholders” to a change manager.  He refers to the analysis of Jonathan Rauch, author of “Government’s End:  Why Washington Stopped Working,” and nails the heart of the problem:

“. . . sweeping reforms are difficult because we’re all special interests, in one sense or another.  We all benefit from something (or many things) the government does, and so we all have an incentive to resist dramatic changes to the way Washington spends money.”

Big Pharma, Big Insurance, senior citizens who receive Medicare, hospitals, patients and doctors in states with big healthcare expenditures, upper income taxpayers, and unions.  No matter what our political views, chances are that we all fall into at least one of these stakeholder groups.

And just like in any large scale change, when you have that many factions invested in the status quo, guess what?  You get lots of resistance, conflict, and ultimately, project failure.

It’s not that rapid, large-scale change is impossible.  It just requires a massive sense of urgency to align multiple factions around a common objective.  That’s why the fear of bankruptcy and job loss are such great motivators for quick, radical change.

Without a high sense of urgency, however, experienced change leaders know that it takes vision, discipline and patience to gradually align stakeholder groups around a common objective and a process for achieving it.  That’s a tall order for any leader who has to shepherd change in a 2, 4 or 6 year time frame and balance those demands with getting reelected.

What’s the answer?

It’s a well-known lesson learned by those who have implemented complex change:  Practice lowercase “t” transformation, not upper case “T” transformation.

In other words, make big change to small things and small changes to big things.

Massive Transformation (upper case “T”) initiatives are difficult to pull off.  That’s why in BPO, for example, the name of the game is increasingly single-process outsourcing instead of massive functional outsourcing.

A smaller, more measured approach helps manage the stakeholder issues that can derail a change effort.  It’s easier to align a few stakeholder groups around a single change than an entire organization around multiple changes.  The approach doesn’t transform in one big swoop, but you make forward progress.  And with vision, discipline and patience, broader change can be made over the longer term.

Let’s keep our fingers crossed that healthcare reform really happens sometime soon.  I think we all agree that it is needed.  No matter whether the current imperfect plan passes or fails, however, let’s be prepared to come back to the table and keep tackling this issue small step by small step.

In the US alone, the industry has grown to an estimated $500 billion and has become a standard option for organization service delivery strategy.  Especially now that world economies are beginning their slow path to recovery, organizations are renewing their intentions to explore outsourcing capability not only to manage costs, but to bring higher levels of quality and innovation.

Any organization considering outsourcing, however, should be aware of the following sobering statistics before signing on the dotted line.

• A study conducted by Dun & Bradstreet reported that 25 percent of all outsourcing “fails completely” and more than 50% of all outsourcing deals do not deliver “any substantive benefit at all.”
• As stated in the article, numerous surveys indicate that anywhere from 17% to 53% of customers have not realized business value / return on investment from offshore outsourcing. (CIO, 2008)
• 58% of organizations surveyed could not confirm that outsourcing had clearly improved financial performance. (KPMG, 2008)
• 90% of customer organizations didn’t accurately understand the opportunity costs of the selection process and 79% of such organizations couldn’t accurately identify the internal financial cost of the sourcing selection process. (KPMG, 2008)

Will we listen to the results of these outsourcing efforts and apply the lessons learned?

Or will well-intentioned, but single-minded executives continue to be so blinded by the promise of delivering heroic cost reductions that they fail to manage well-established outsourcing challenges such as business transformation, governance and change management?

For much of the past two decades, outsourcing was shaped by large companies negotiating complex, multi-party contracts as a last resort to affect a financial turnaround.  Cost reduction has been the primary, if not only, motivation for inking these deals and until recently, buyers thought of them as one-time events and not part of ongoing strategy.  As a result, organizations did little to develop the operating competence required to integrate and sustain the capability over the longer term.

This point was highlighted in a conversation I had recently with a vice president of technology for a global financial services firm.  “We have been so focused on taking out cost that we’ve lost sight of outsourcing as anything other than a short-term financial transaction.  It’s been a huge mistake not to focus on how it would impact our business.  The aftermath has created extraordinary pain that is difficult to measure financially because those of us who remain somehow find a way to pick up the pieces.”

This pain has led experienced buyers to realize that some degree of transformation is necessary in every outsourcing implementation.  In addition, if outsourcing is going to deliver higher levels of quality and innovation, broader transformation is essential.

Spread the word.  Let’s make sure in the coming decade we avoid repeating history and shift to a more comprehensive implementation model that more effectively manages the transition and transforms the infrastructure required to create outsourcing success.