Gary Hamel says companies should be more romantic. They need a vision of what an organisation can become - with the help of its people. Business must adopt and adapt the Silicon Valley approach to innovation. Resilient companies have workers purposefully schooled in the art of innovation.

Twenty-five years ago companies began to realise they should use their employees' problem-solving talents, rather than destroying all discretionary decision-making. So why not do the same with the imagination of employees? Why not let Hamel do for innovation what W. Edwards Deming, the American who convinced the Japanese to enlist the support of workers, did for total quality management, efficiency and process? Hamel is adamant that good ideas - innovation - flow not from the top and the hero CEO but from anywhere in the organisation. "Why did it take so long for companies to figure this out?" he asks - "this" being the awareness you can get a positive return on investment by unleashing the problem-solving ability of employees. "For a great part of the Industrial Revolution the belief we had was that the way you drove productivity and efficiency was to steadily reduce the discretionary decision-making power of first-line employees, that you gave them lock-step procedures, that it was the expert who came in and figured out new ways of doing things and you wrote out the manual and people followed it."

It was a radical departure when Deming and others came along and said management should teach firstlevel employees about statistical process control and so on. Now, Hamel says, organisations face something equally challenging: how to make business innovation "an everywhere, all-the-time capability, not something that is done in some kind of innovation ghetto".

The new rules of the game

People were left less curious, less interested in new ideas. But while it is fine for companies to try to get over the "hangover" of the past decade, the world does not stand still. For incumbents, the challenge is to make sure they are the ones writing the new rules of the game. That means new management practices founded on new management principles: "There's no doubt the modern industrial organisation is the second-greatest thing that humankind has invented [the greatest being constitutional democracy], but we are also at a point of time where features of large-scale industrial organisations need to be reinvented."

Hamel says that medium- to large-scale organisations have been very good at optimising their core business model. "There is a set of principles that has been baked into every organisation of any size in the developed world:
replication;
hierarchy (as you went up the chain of command people had more discretionary authority);
specialisation (where you grouped together people who had similar skills), and so on.
This "organisational DNA" is fine, but as change accelerates some of these things can have increasingly toxic effects. The desire to get rid of variety leads to a mistrust of experimentation. Hierarchy can lead to arrogance. Specialisation can lead to a loss of new skills.

Innovation is not anarchy, Hamel says, but companies need to be bold - and romantic. They need an idea of what an organisation can be. At the core is the people thing. Over the past decade managers have systematically undermined any deep sense of employee affiliation, he argues. Companies complain that employees think of themselves as independent, yet it is management that created that distance. On one hand it says people are its most important resource, on the other its sends out the message that people are expendable. "We are never going to go back to jobs for life or an entitlement culture, but we have to pay more attention to investing in people and giving them the possibility to grow and innovate, and tie them emotionally to the organisation," Hamel says.

"I don't think you can justify a situation in which the average CEO makes 400 or 500 times [that of] a first-line employee. It reinforces the notion that change starts at the top, and of course that the CEO should be this great visionary. It is almost an insult to employees to see that kind of a gap, and it sends the wrong message." But getting employees to innovate is not solely about financial reward: "What people really care about is acknowledgement, and what really drives them is peer recognition - one of the most underrated currencies in most organisations." "I think that if we are going to create new management practices we need new management principles, and we are not going to find those by benchmarking studies of the same old, same old," he says. "Every company I know has been working to reengineer their business processes, logistical offerings, customer support. But they have given almost no attention to reinventing their management processes. Yet if you look at what gets in the way of resilience, it is the way we do capital budgets, strategic planning, product development, training and hiring."

Gary Hamel says there are five key strategies:
z Increase the ratio of employees who think of themselves as innovators
z Increase the ratio of radical innovation to incremental innovation.
z Increase the ratio of externally sourced innovation to internally sourced innovation.
z Raise the ratio of learning over investment.
z Raise the ratio of long-term commitment and remain consistent in your goals.

Source: AFR Boss, here.