Human Resources: Executive Summary: Creativity and Innovation

Once the exclusive province of R&D labs, innovation has become a corporate priority that touches every function and, indeed, every employee in an organization. In fact, external constituents such as customers, academia, the government and other firms are playing an increasing role in companies' creative processes, too.

CEOs are reflecting innovation in their corporate strategies, new product/service development, employee training, public relations communications, recognition programs and other internal and external endeavors, according to PricewaterhouseCoopers' (PwC) Trendsetter Barometer survey. Jay Mattie of PwC said, "The deep footprint of innovation in corporate strategy suggests that further impact can be expected elsewhere in the company."

Executives throughout the world agreed that responding to customer demands is and will remain the most important reason organizations pursue innovation, according to a comprehensive study by the American Management Association and the Human Resource Institute. The global survey generated 1,396 responses from executives in North America, Europe, Asia and other parts of the world. Targeting new customer segments, inviting customer interaction in product design and personalizing offerings based on customer preferences are all methods increasingly being used to innovate on the demand side.

But measuring the success of customer-based innovation initiatives is difficult. Only about half (48%) of fast-growing U.S. businesses have tried to link innovation to measures of success, according to PwC. Interviews with 355 CEOs revealed that of those who made the effort, the measures most commonly used included overall revenue growth, customer satisfaction, revenue growth from new products/services, productivity increases and earnings.

The most common barometers of innovation remain R&D spending and patent activity. Total R&D spending in the U.S. is expected to reach $320.7 billion in 2006, up from the $312.2 billion forecast for 2005 and the $301.5 billion spent in 2004, according to research from analysts Battelle in Columbus, OH, and R&D Magazine. When inflation is taken into account, though, that increase is rendered flat. Even the federal government's 5.9% increase for 2005 is driven primarily by the Department of Defense budget. Patent activity in 2004 shows IBM with top honors for private-sector firms for the 12th consecutive year, while the University of California remained the top U.S. patent-receiving university, according to preliminary data from the U.S. Patent and Trademark Office.

Most experts believe that, on the whole, the world is going through a period of fast-paced innovation that will become increasingly intense in coming decades, thanks to global competition and scientific advances. But there are skeptics, such as scholar Jonathan Huebner, who argue that we may be approaching the socioeconomic limits of such advances and, therefore, could experience a decline in the rate of innovation.

It's clear, however, that many corporations are trying to ramp up innovation. About 40% of surveyed firms have designated someone to fulfill the role of Chief Innovation Officer, though that responsibility often resides with other executives, according to the 2004 Conference Board study. Still, innovation is now looked at as everyone's job.

At Whirlpool, innovation is a core competency - one in which employees are expected to be trained and certified. Depending on job level, workers must attain either a basic or master level of proficiency. "All our HR systems - pay, spot awards, the long-term incentive plan, the balanced scorecard objectives - are 'hard wired' into Whirlpool's innovations strategy," said Dave Binkley, senior vice president of global human resources.

The HR function can serve in a number of important ways to create and sustain an innovative organization. Since people are the HR function's major product, mining their creative capability and putting their intellectual capital to work can build a company's value. HR can spearhead the company's innovation effort by providing knowledge-sharing opportunities and tools, coordinating companywide teams to guide ideas through the development process and taking a leadership role in shepherding creativity and innovation throughout the workplace.

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The Institute for Corporate Productivity (i4cp, inc.) improves corporate productivity through a combination of research, community, tools and technology focused on the management of human capital. With more than 100 leading organizations as members, including many of the best-known companies in the world, i4cp draws upon one of the industry’s largest and most-experienced research teams and Executives-in-Residence to produce more than 10,000 pages annually of rapid, reliable and respected research and analysis surrounding all facets of the management of people in organizations. Additionally, i4cp identifies and analyzes the upcoming major issues and future trends that are expected to influence workforce productivity and provides member clients with tools and technology to execute leading-edge strategies and "next" practices on these issues and trends. i4cp is a for-profit company with offices in St. Petersburg, Florida.