When an organization fails to innovate, the usual explanation is that its people are not creative enough. However, experience shows that, in most cases, the real problem is not the people, but the systems in which they work.
In the previous article, we introduced a central idea: innovation is neither an accident nor the spontaneous result of a few creative individuals. Innovation requires capabilities, leadership, culture, learning, and organizational systems that make it possible.
However, there is one question that few organizations examine deeply enough:
If we want innovation, are we evaluating and rewarding the behaviors that generate it?
Because talking about innovation is one thing. Managing it is something entirely different.
Many companies claim that they want innovation, creativity, continuous improvement, and disruptive thinking. Yet when we examine their performance evaluation systems, incentives, and recognition mechanisms, we often find a different reality: compliance, operational stability, and error reduction are rewarded, while experimentation, learning, and the creation of new solutions are rarely recognized.
The consequence is predictable: people direct their efforts toward what generates recognition and avoid what might negatively affect their evaluation.
People Respond to Systems
McKinsey, Galbraith, and other consulting firms have repeatedly emphasized the importance of organizational architecture. In virtually all of their frameworks, two elements consistently appear: systems and consequences.
Trying to change behavior through speeches alone is an illusion. Communication is necessary, but it is insufficient when organizational systems send a different message.
Expecting motivation alone to drive innovation is an oversimplification. In addition to developing innovation capabilities, organizations need to incorporate innovation into performance evaluations, compensation, and day-to-day management.
Peter Drucker stated it decades ago:
“What gets measured gets managed.”
If a company measures only:
- schedule compliance,
- operational efficiency,
- cost reduction,
- production volume,
It should not be surprised if people focus their efforts there.
The question is simple:
Where does innovation appear in the performance evaluation process?
To reinforce this idea, it is useful to revisit Dave Ulrich, who makes a provocative argument: achieving sustainable results depends more on the organization than on individual talent.
Research conducted by RBL Group and the University of Michigan shows that a significant portion of organizational results comes from organizational capabilities and the systems that enable people to work together, rather than from individual talent alone.
We may have extraordinary people, but the question remains:
What are we doing as an organization to strengthen innovation?
What are we doing through recruitment, training, evaluation, compensation, and the development of organizational culture?
If innovation is important to the future of the company, it should become an explicit competency and be managed accordingly.
An innovative organization is not defined by having a few highly creative people. It is defined by systems that enable many people to contribute ideas, test them, learn from them, and create value.
Fear of Failure: The Silent Enemy of Innovation
One of the greatest obstacles to innovation is fear.
Amy Edmondson has demonstrated that innovation and learning are deeply connected to psychological safety.
When people believe that any mistake will be punished, they avoid:
- experimenting,
- proposing ideas,
- questioning processes,
- taking reasonable risks.
Paradoxically, many organizations claim to want innovation while punishing the very behaviors required to produce it.
In our consulting experience, we have observed that people are extraordinarily sensitive to organizational messages. They quickly understand which behaviors are recognized and which ones create difficulties.
If new ideas are consistently questioned, ignored, or punished, innovation will eventually disappear, regardless of what corporate speeches may say.
Innovation requires exploration.
And exploration requires accepting a certain degree of uncertainty.
What Should We Encourage?
Promoting innovation does not simply mean counting how many ideas a person proposes.
An organization may generate hundreds of ideas and still create very little value.
The objective is not to produce ideas. The objective is to transform ideas into improvements for customers, processes, employees, and business results.
That is why it is more useful to identify behaviors that support innovation.
Continuous Learning
Do people continuously update their knowledge and explore new tools?
Today, we frequently talk about upskilling and reskilling, but it is worth asking whether they are truly part of everyday organizational practice or whether they have simply become fashionable buzzwords.
Innovative organizations continuously expand the way their people think.
Several years ago, tools such as the following became popular:
- Edward de Bono’s Six Thinking Hats.
- Analogies and lateral thinking.
- Simulation and prototyping.
- Statistical and management tools for problem analysis.
Today, these approaches are complemented by more structured methodologies such as:
Design Thinking
Popularized by IDEO and Tim Brown, Design Thinking begins with developing a deep understanding of the user before proposing solutions.
Its logic is straightforward:
- Empathize.
- Define.
- Ideate.
- Prototype.
- Test.
Its purpose is not simply to generate ideas, but to create useful solutions.
Lean Startup
Eric Ries proposes building quickly, measuring results, and learning.
Innovation stops being a massive, long-term project and becomes a series of small cycles of continuous learning.
Process Improvement
Do people suggest more efficient ways of doing their work?
The Japanese developed the concept of Kaizen, based on continuous improvement.
Not all innovation is disruptive.
Many organizations achieve extraordinary results through hundreds of small improvements implemented systematically over time.
Cross-Functional Collaboration
Do people share knowledge and build solutions with other areas of the organization?
Or do they continue reinforcing organizational silos?
Innovation rarely emerges from isolated perspectives.
Very often, it arises precisely from the integration of diverse knowledge and viewpoints.
One simple mechanism for getting started is to establish service agreements between departments, since they force people to think simultaneously from the perspective of both the service provider and the recipient.
Responsible Experimentation
Does the organization create opportunities to test new alternatives?
Innovation requires testing.
But testing requires structure.
This is where methodologies such as TRIZ come into play. TRIZ was developed by Genrich Altshuller, who identified common solution patterns across thousands of patents.
TRIZ is based on a powerful premise:
Innovative problems often share common principles of solution.
Value Creation
Finally, the most important question:
Do these initiatives create value?
Doing something differently is not enough.
Innovation should have a positive impact on:
- customers,
- processes,
- results,
- the employee experience,
- or the organization’s competitive capabilities.
Many people know how to perform their tasks.
Fewer know how to measure the value they create.
Compensation Also Communicates
Milkovich and Newman explain that compensation systems perform three fundamental functions:
- attract,
- retain,
- motivate.
From the perspective of innovation, we should add a fourth:
Shape behavior.
Incentives continuously communicate what an organization considers important.
If a company claims to value innovation but rewards only short-term results, it will probably achieve operational efficiency, but it is unlikely to achieve meaningful innovation.
“People are intelligent, and they pay close attention to which behaviors are recognized and which are not.”
Are We Focusing on the Artifacts or on the Content of the Work?
This is where a particularly interesting challenge emerges.
Many organizations invest significant resources in visible employee benefits such as:
- gyms,
- transportation,
- pets in the workplace,
- casual dress policies,
- special cafeterias.
All of these can be positive.
However, Teresa Amabile has shown that deeper satisfaction comes primarily from the content of the work itself.
People achieve high levels of motivation when they experience:
- progress,
- autonomy,
- meaningful challenges,
- opportunities to learn,
- and the ability to contribute.
Innovation is fueled more by the design of the work than by the artifacts surrounding it.
What Can an Organization Start Doing Tomorrow?
Some practical actions include:
- Incorporating innovation-related behaviors into performance evaluations.
- Publicly recognizing improvement initiatives.
- Creating spaces for experimentation and learning.
- Training people in innovation methodologies.
- Encouraging critical thinking.
- Introducing innovation indicators at the team level.
- Reviewing whether compensation systems encourage the creation of future value.
- Developing leaders who can manage mistakes as opportunities for learning.
It is also particularly valuable to apply humanistic principles such as those proposed by Peus and Frey:
- solve problems instead of looking for someone to blame,
- turn mistakes into learning opportunities,
- promote constructive conflict,
- encourage curiosity,
- facilitate creativity.
Conclusion
Innovation does not depend solely on people’s capabilities.
It also depends on the systems surrounding them.
Organizations innovate to the extent that their systems allow people to learn, experiment, and create value.
Therefore, if we truly want innovation, we should ask ourselves:
Are our performance evaluation and compensation systems promoting the behaviors that make innovation possible?
At Euro Business Coach, we help organizations design talent management systems that integrate competencies, performance, leadership, culture, and innovation, so that good ideas do not remain merely intentions but are transformed into sustainable results.
Because innovation is not simply about having good ideas.
Innovation is about building the conditions that allow those ideas to become value.
