HR as a driver for

organizational
innovation
A unique opportunity
 Foreword

2 | KPMG HR Transformation HR as a driver for organizational innovation

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Becoming a key
strategicpartner
It is widely accepted among business leaders developed cultures where innovation is seen inspire employees to innovate and to
that innovation is vital to both competitive as everyones responsibility. As an objective shareideas (even if the ideas fail).
advantage and long-term success. In fact this that employees at all levels and in all roles
Finally, HRs role in organizational design
year, business leaders cited innovation as one strive to achieve on a day-to-day basis.
provides huge potential for enabling
of the top three global challenges they faced.1
Meanwhile, many of these companies innovation. Specifically, organizational
And for most companies, the ability to also have at the core of their cultures an design can be used to facilitate easier
innovate is the single most important acceptance of the need to experiment and exchange of employees ideas across
predictor of future growth.2 It is hardly understand that, with this, comes the risk boundaries and functions.
surprising that investment decisions now of failure. Their people see honest failure
These are just three examples of
tend to be tied closely to how focused simply as a learning experience.
HR levers that provide the function with a
companies are on transformational
In addition, the studies show that winning unique opportunity to be a key driver of the
innovation.
companies recognize the part played by innovation agenda, delivering sustainable
So, when it comes to innovation, what do internal and external networks and have, in competitive advantage, and becoming a
successful corporate innovators have in a bid to facilitate collaboration, taken every true strategic partner. In doing so, HR can
common? opportunity to connect their people. take its place alongside other mission-
critical functions such as finance and IT and,
Contrary to popular perception, success Culture, it seems, is key to sustainable ultimately, make the people agenda more
does not appear to be determined by innovation. important to business leaders than the
a companys R&D budget. Research balance sheet and P&L statement.
has consistently shown that there is HRs big opportunity
no statistically significant relationship
between financial performance and All this is great news for HR, which above Time to step up
innovation.3 all other functions is perfectly placed to
HR, however, must rise to this challenge.
develop and sustain the kind of cultural
This paper, from KPMGs Global HR
Nor does technology appear to play the most transformation required if a company is to
Transformation Center of Excellence,
important role. achieve its innovation objectives.
provides practitioners and advisors of
Instead, studies strongly show that the That is because HR is fortunate enough HR with guidance on bringing about the
most successful corporate innovation to be responsible for many of the levers cultural change needed to build innovation
strategies are the ones that predominantly required to bring about this transformation. into the way people at all levels think and
focus on people and human capital. These work every day.
include finding, engaging and incentivizing For example, performance management
key talent for innovation, creating a can serve as a valuable tool in the creation of
culture of innovation by promoting and a sustainable culture of innovation as HR
rewarding entrepreneurship and risk taking managers can ensure innovation features
and developing innovation skills for all prominently within a companys objective
employees. setting and appraisal processes.

Reward, meanwhile, can be used to

Culture is king reinforce the importance of innovation
activity and outcomes while recognition
One overriding theme emerges from Robert Bolton
schemes can be used to encourage and Co-leader
studies of successful innovation strategies:
winning companies first and foremost have Global HR Transformation
Centerof Excellence

1
Conference Board, CEO Challenge. 2013
2
Economist Intelligence Unit: Fertile Ground: Cultivating a talent for innovation. February 2009
3
The Global Innovation 1000: How the top innovators keep winning. Booz & company, 2010
HR as a driver for organizational innovation KPMG HR Transformation | 3

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 2013 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
 Contents
Why innovation matters 6

The innovation dynamic 8

Conclusion: HRs unique opportunity 16

About People & Change 18

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Why innovation
matters
Research shows that most business Innovation: failure and For example, under Steve Jobs, Apple had a
leaders now view innovation as vital to very controlled and centralized approach to
their companys long-term success and success product development. By contrast, 3M has
competitive advantage.4 Across the corporate world, traditional developed a more dispersed approach. Yet
approaches to innovation have either failed both companies are successful innovators.
And with innovation identified as the single Essentially, there is no value in setting out to
most important predictor of the future for or have simply been rendered redundant by
results that are sporadic at best. copy another companys methodology.
most companies, investment decisions now
tend to be tied closely to how focused a Specifically, some businesses have Instead, we believe, you should develop an
company is on transformational, as opposed focused on hiring creative people and approach to innovation that is right for your
to incremental, innovation.5 setting them free to introduce innovation. unique set of circumstances.

The C-suites growing focus on innovation Others have relied only on luck, simply So, when it comes to innovation, what do
is largely due to executive-level hoping for the best or taken ad hoc and Apple, 3M and other successful innovators
acknowledgement that the days of being unstructured approaches to innovation. have in common?
able to take growth for granted are over. Others still have attempted to kick-start the
process through a one-off set of creativity First, it is not about how much is spent on
Corporate leaders know they can no longer exercises or perhaps a big bang-style R&D. An annual innovation study has shown
expect established markets to simply keep internal communications campaign only repeatedly that there is no statistically
on delivering, year after year. Now, they are to fail to build capacity to innovate on a significant relationship between financial
looking for that growth from new markets, sustainable basis. performance and innovation spending.6
products and services.
Many other businesses, meanwhile, attempt Nor does technology play the most
Organizational innovation is critical to to do an Apple and replicate another important role.
making this happen. organizations successful strategy. However,
Instead, the research strongly indicates that
this approach is also highly likely to fail if
the most successful corporate innovation
only because innovation looks very different
strategies are the ones that predominantly
from one company to the next.
focus on people and human capital issues.

4
Economist Intelligence Unit: Fertile Ground: Cultivating a talent for innovation. February 2009
5
Economist Intelligence Unit: Fertile Ground: Cultivating a talent for innovation. February 2009
6
The Global Innovation 1000: How the top innovators keep winning, Booz & Company, 2010

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These strategies include: Finally, many of these companies had
engaging in strategic alliances with recognized the part played by internal
customers, suppliers, and other business and external networks and had, in a bid
partners to facilitate collaboration and the clash
and contrast of different perspectives,
finding, engaging and incentivizing key taken every opportunity to connect their
talent for the purposes of innovation people, including moving them out of
functionalsilos.
promoting and rewarding
entrepreneurship and risk taking From Pixar to Proctor & Gamble, from Tata
to Toyota, Apple and Google, culture it
developing innovation skills for all
seems is the key to innovation.
employees.7
But how do these companies build
The one common theme to emerge from
cultures where every employee sees
among these successful strategies is that
innovation as part of their job? What steps
the companies had developed or were
have they taken to create a culture of
developing cultures where innovation was
creativity? Where corporate values include
seen as everyones responsibility and as an
collaboration and an acceptance of failure
objective that employees at all levels and in
as simply a learning opportunity?
all roles strived to achieve on a day-to-day and
business-as-usual basis. What are the pre-requisites for building this
brave new world?
In addition, many of these companies had
at the core of their cultures an acceptance
of the need to experiment. They understood
there was a risk of failure but viewed honest
failure as a learning opportunity.

7
The Conference Board CEO Challenge, 2013

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 The innovation
dynamic

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 KPMGs Global HR Transformation Center Other key questions:
of Excellence has identified 11 key factors How integrated is innovation in the
common to established innovators. corporate strategy?

The Center did this by: Do top team members possess the
Reviewing characteristics common to capabilities to manage risk and convert
organizations with a successful track creativity into value?
record of innovation
Structure: connectivity of
Reviewing academic research into
innovative organizations networks
Combining findings from these reviews Collaboration, both internally and with
to create an initial list of organizational external stakeholders, is also a key
capabilities prerequisite for innovation.

Trialling an innovation dynamic With this in mind, companies need

questionnaire then using the results toconsider how well their employees are
to conduct a factor analysis that helped well-networked.
refine the list of key factors.
Are they connected to colleagues and,
Each factor relates to either a companys for example, external advisors in a way
structure, processes or its culture. that allows them to access other peoples
expertise and insights?
Taken together, these factors make it easy
to see where a company needs to improve Other key questions:
when it comes to developing a culture of Are employees encouraged to
continuous and widespread innovation. proactively build and manage their
internal and external networks?
Structure: room at the top
What opportunities are there for
Anyone looking to unleash innovation on employees to gain exposure to and
a sustainable basis should start by asking buildrelationships with external
themselves how much personal involvement partnerssuch as suppliers and
does the top team have in the sponsorship advisors?
and coordination of the companys
innovation activities. Structure: employee
In other words, to what extent do leaders discretion
back the innovation agenda and show long-
Creativity tends to occur when
term commitment to the development of the
employees feel safe and positive.
workforces innovation capabilities?
Yet research suggests that only
For most companies, creating a culture of
47 percent of employees are allowed to
creativity requires a sustained and well-
take controlled risks, and that only
planned change management program. And,
52 percent report that their manager is
at least initially, every successful instance of
good at listening to newideas.
change management begins with backing
and buy-in from the C-suite.

HR as a driver for organizational innovation KPMG HR Transformation | 9

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 With this in mind, it is important to ask to scan the horizons? Are they expected to
how much discretionary space there is for look around corners for the next big thing?
employees to display initiative and how much Overall, what processes are in place to
flexibility there is when it comes to working identify emerging trends in technology and
practices and job design. Is the corporate the market place?
culture more tell and do or coach and
Other key questions:
solve?
How alert are employees to the strategies
Other key questions: and tactics of current and emerging
Is work organized around narrowly competitors?
defined job descriptions, or looser
What links does the organization have
roleprofiles?
with trend-spotting gurus, futurologists,
Do employees have the time, space, think tanks and others at the edge of
tools and resources to make an innovative innovation?
contribution?
Processes: nuts-and-bolts
Process: 24/7 radar screen obsession
It is also necessary to consider how much
Does the organization actually have a process
time people at all levels think about what is
for innovating? Has anyone defined and
coming next and what is on the horizon.
communicated an innovation methodology?
For example, how much time does the top
A basic methodology remains vital, if only
team spend discussing the companys long-
so employees with a good idea know what
term future? Are employees encouraged
needs to happen to take it forward.

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 For example, fashion retailer Nordstrom Other key questions:
uses an innovation lab to accelerate idea Does the organizational culture support
generation, testing and development. And cross-functional and cross-regional
chemical company Dow has developed working?
a talent allocation framework to assess
individual innovation skills and to ensure the What use is made of social media
right composition of skills exist in a project and crowdsourcing to draw on wider
team at different stages of the innovation.8 experience and wisdom?

Specifically, what processes does Does the physical infrastructure (buildings,

the organization have in place for idea layout, facilities) facilitate collaboration?
generation, and for idea evaluation
againstaset criteria. Processes: courageous
Other key questions:
conversations
Do innovation processes exist? Still with processes, anyone seeking to build
a culture of innovation within a company
What training and development is
needs to ask themselves if employees
provided to employees in relation to
interact in a way that is open and honest?
theseprocesses?
Or closed and defensive?
How often are these processes
Other key questions:
reviewedand updated?
Does the top team speak directly about
the business challenges faced by the
Processes: spanning
organization?
boundaries
How are performance reviews conducted?
Within the organization, is work organized With authenticity? Or do managers simply
within discrete functional units or is go through the motions and tick the box?
it delivered through cross-functional
collaboration? How porous are the Who enjoys promotion? Employees who
boundaries between your companys speak the honest truth or those who opt
different roles, functions, and geographies? for an easy life?
And how well do different business
areas cooperate as part of an overall
organizationaleffort?

8
Corporate Executive Board, CHRO Quarterly, Q3, 2012

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 Culture: current world is Culture: okay to fail
not enough For unsuccessful attempts at innovation,
is there a culture of blame and penalties
Moving to the third and final category of
within a company or are individuals/teams
culture, it is necessary to ask how driven
rewarded? What processes are in place to
employees are to take the company
review mistakes and capture and share the
from good to great. To do what it takes to
learning?
sustain success.
To build a sustainable culture of everyday
Other key questions:
innovation, the organization also needs to
Are individuals and teams encouraged to
look at its history of failure and success
leave their comfort zones?
when it comes to bringing ideas to life
Are stretch goals established to and ask why this has been the case.
reflect business ambition and how do
Other key questions:
these compare with the aspirations of
What is the organizations philosophy
established and new competitors?
and approach to risk management?

Culture: diversity gains What has been the track record of

organizational success and failure in
Another key factor displayed by
innovation? Why?
established corporate innovators are top
teams featuring diverse backgrounds,
perspectives and mindsets.
Culture: everyones job
Finally, time needs to be spent on
In other words, does the organization
considering whether or not innovation is
manage diversity in a mature way?
seen as the preserve of specific teams
Does the leadership value and embrace
or functions or if it is instead built into
difference? Does it appreciate diversity of
expectations for all employees.
thought and culture?
And if there is a specific innovation
Other key questions:
team, how well does it interact with the
Do different bio-demographic and
remainder of the workforce?
cultural groups view the organization as
inclusive? Other key questions:
How prominent is innovation in
What processes are in place to
organizational briefings and updates?
ensure the proactive recruitment of
difference? How well are innovators supported by
their colleagues and managers when it
Does the induction and socialization
comes to workloads and deadlines?
process encourage employees to bring
their unique personalities to work? How are employee innovations
highlighted and celebrated internally?

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The Chief Human Resource Officer
must be a key player in the companys
ability to innovate and outpace the
competition.
Managing Talent for Innovation
and the HR Function of the Future,
Heidrick, 2009

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14 | KPMG HR Transformation HR as a driver for organizational innovation

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 Key HR drivers for
organizational innovation

Set out below are a number of activities HR practitioners can undertake to embed innovation in their
organizations DNA.

Performance Consistently convey the correct signals about innovation expectations to every
management employee within the company

Reinforce the importance of innovation activity and outcomes through the use
Reward and of recognition schemes that encourage and inspire employees to share and
recognition develop ideas even if the ideas might fail

Talent management Ensure all employees understand the unique skills and behaviors required to
forindividuals successfully innovate in their organization

Talent management Break down internal silos and promote idea sharing by building career
for teams development frameworks which encourage resource sharing

Talent management Develop leaders to continually horizon scan and adopt a mindset of
for leadership dissatisfaction with the status quo

Identifying critical Identify which roles disproportionately drive innovation value, develop the
roles people filling these roles and ensure full competence in innovation processes

Architect the organization (structures, processes, roles, capabilities, etc.) to

Organizational support the innovation strategy, accelerating the idea lifecycle by minimizing
design boundaries and promoting collaboration

Internal Leverage technology to encourage cross organization networking and

communication collaboration

Change Facilitate the implementation of new working practices that drive innovation
management

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Conclusion:
HRs unique opportunity
There is considerable evidence that HR continues to experience
a credibility issue and that it is perceived to lack demonstrable
strategicimpact.

This does not, however, have to be the case.

On the contrary, the C-suites current and probably permanent

eagerness to develop a culture of continuous innovation leaves
HR facing a unique opportunity and a clear and simple choice.

HR directors can either continue to pursue arguably generic

models and best practices in the hope that this way of
working will deliver their leaderships desires.

Or HR can use its unchallenged ownership of a diverse

range of key levers, to uniquely configure processes and
practices and deliver a best fit (rather than best practice)
approach to innovation and to subsequently hardwire
into their organizations DNA the ability to generate
breakthrough innovation on a continuous basis.

In the medium to long term, only one of these

options is likely to position HR as a strategic
partner that adds significant and tangible value.

One of these options will see HR survive and

thrive as an indispensible value creator.

The other is likely to see it wither away.

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 About People & Change

18 | KPMG HR Transformation HR as a driver for organizational innovation

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 KPMGs People & Change teams focus on
executing the people agenda on large-scale,
complex, transformational change programs,
and transforming the Human Resources
function through the use of technology,
analytics and performance improvement.

KPMGs network of firms offer a broad range of services:

Behavioral Change Management accelerating and making sustainable the

successful implementation of change by developing strategies that deal with the
impact on people created by changes to strategy, structure, processes and technology.

Talent Development developing strategies that can be implemented by identifying

and developing the human capital within an organization.

Organization Design & Development creating organization designs that can deliver
the capabilities and performance required by the clients strategic intent.

HR Function Optimization creating an HR function by developing leading delivery

models for the implementation of the broader Human Capital strategy.

Workforce Optimization includes the workforce analytics required to achieve

optimization of employee cost, capacity, capability, connections and compliance. KPMG
professionals can offer further insight by helping develop strategic and operational
workforce planning solutions.

Technology Enablement includes developing information technology strategies

and roadmap, business case and ROI analysis, technology vendor assessment and
implementation, and the facilitation of business performance through the use of
information and analytics.

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Contact us

Robert Bolton Patricia Molino Nishchae Suri

KPMG in the UK KPMG in Brazil KPMG in India
T: +44 20 73118347 T: +55 11 21833183 T: +91 12 43074888
E: [email protected] E: [email protected] E: [email protected]

Laura Croucher Peter Outridge Paulette Welsing

KPMG in Canada KPMG in Australia KPMG in the US
T: +1 416 777 3417 T: +61 29 335 8692 T: +1 212 872 7635
E: [email protected] E: [email protected] E: [email protected]

Nhlamu Dlomu Claudia Saran Mark Williamson

KPMG in South Africa KPMG in the US KPMG in the UK
T: +27 82 7190224 T: +1 312 665 3088 T: +44 020 7311 8693
E: [email protected] E: [email protected] E: [email protected]

Michael Geke Mark Spears

KPMG in Germany KPMG in the UK
T: +49 21 1475 7500 T: +44 20 73114753
E: [email protected] E: [email protected]

kpmg.com
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member firms.

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Publication name: HR as a driver for organizational innovation

Publication number: 130293

Publication date: June 2013