INCLUSION + INNOVATION

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1 INCLUSION + INNOVATION Leveraging Diversity of Thought to Generate Business Growth CHRO STRATEGIC IMPLICATIONS This publication is part of a suite of products on this issue. For additional resources visit: inclusion-and-innovation Innovation is hard. Can diversity and inclusion make it easier? It is now widely accepted that diverse groups generate more innovative ideas than homogeneous ones. But diversity alone is an empty suit without an culture one that values and actively encourages diversity of thought. New research from The Conference Board finds that it is really diversity of thought that contributes to better innovation outcomes, according to both diversity and inclusion (D&I) and innovation leaders. Views in these two functions differ, however, on how to get there. To understand the enablers and barriers to leveraging inclusion to capture new ideas, The Conference Board conducted a global survey of leaders responsible for either innovation or D&I. We interviewed experts and practitioners in both functions and gathered in-depth case studies about four companies: AT&T, Saint-Gobain Performance Plastics (SGPPL), DBS (formerly the Development Bank of Singapore), and Kaiser Permanente. For chief human resource officers (CHROs), this new research highlights the commonalities and disconnects between the D&I and innovation functions. It points to specific actions that executives, including the CHRO and the chief innovation officer, should take to make innovation an engine of growth. It describes how many of the functions within HR such as talent management, recognition and rewards, human capital analytics, training and development can support those efforts. R CHRO The Conference Board and the torch logo are registered trademarks of The Conference Board, Inc.

2 Highly innovative companies are more than are those with sporadic innovation Companies with continual, organization-wide innovation Somewhat 50 50% Highly N = 60 Companies with sporadic innovation 35 12% Highly Not very 54 Somewhat N = 26

3 Diversity of Thought Is the Spark That Ignites Innovation Among the key findings from The Conference Board research: Most companies have pockets of innovation rather than company-wide capabilities Less than one third (31 percent) of companies in our survey have continual, company-wide innovation, while the majority (51 percent) report that the ability to innovate is inconsistent across the organization. The remainder have sporadic innovation (13 percent) or very few innovations (4 percent). Inclusion and innovation are indeed correlated The most innovative companies in our survey those with a track record of continual innovation were more than four times as likely (50 percent) as those with sporadic innovation (12 percent) to describe their company as highly. Eight in ten survey respondents agreed that an organization s level of inclusion is strongly related to its ability to innovate and nearly two-thirds (63 percent) said that their organization values inclusion as an enabler of innovation. The number-one enabler of innovation is top leadership, according to both D&I and innovation leaders Executives at the most innovative companies are seen as highly effective at six behaviors: 1 Communicating publically the importance of inclusion in driving innovation; 2 Demonstrating commitment to inclusion; 3 Sponsoring initiatives related to inclusion; 4 Holding direct reports accountable to inclusion goals; 5 Acting as a role model to the rest of the organization for practices; and 6 Providing a strong vision for how inclusion contributes to innovation. The reverse was also true. In the absence of certain leadership behaviors, innovation floundered. CEOs at the least innovative companies were ineffective in three areas: providing a strong vision, publically communicating inclusion s importance in innovation, and sponsoring inclusion initiatives. There s no universal definition of inclusion D&I leaders and those who lead innovation differ in their beliefs about which kinds of diversity matter and what it means to be. The former group focuses on demographic differences such as race, gender, age, sexual orientation, and disability. The latter values diversity related to geography, function, technical knowledge and skills, and organizational level. While D&I leaders are most focused on maximizing diversity and inclusion within the organization (and sometimes the supplier base), innovation leaders often look outside to partnerships, innovation networks, and crowdsourced intelligence to generate diversity of thought. Democratizing innovation that is, making it part of everyone s job, rather than relegating innovation to specific teams or functions such as R&D is perhaps the ultimate version of inclusion, from the perspective of innovation leaders. chro Strategic Implications inclusion and innovation 3

4 D&I and innovation leaders share the same goal but differ on how to get there INNOVATION Inclusion is about race, ethnicity, gender, age, sexual orientation, dis/ability, etc. DIVERSITY OF THOUGHT Inclusion is about geography/location, functions, levels, expertise and skills, etc. Inclusion Drives Innovation Inclusion Drives Innovation Diversity & Inclusion Leaders Innovation Leaders

5 When people accept that their point of view is going to be heard, or that we re all in this together, that s when you get that breakthrough of diversity, says Tom Kinisky, president and CEO of Saint-Gobain Performance Plastics. If you don t do that first, putting diverse people in a room is not going to help you. Diversity of thought is what matters While innovation and D&I leaders define some words differently, they agree on the basic formula: diversity plus an culture produces diversity of thought. And diversity of thought is what ultimately produces innovation. Diversity of thought is where the magic happens, Kaiser Permanente s chief diversity office, Dr. Ronald Copeland, told The Conference Board. All of the research interviews support this idea, as does the literature on diversity, inclusion, and innovation. Diversity of thought is really at the core of innovation, says Tom Kinisky, CEO of SGPPL. When people accept that their point of view is going to be heard, or that we re all in this together that s when you get that breakthrough of diversity. If you don t do that first, putting diverse people in a room is not going to help you. Building bridges between innovation and D&I pays off D&I and innovation leaders are significantly more likely to collaborate at the most innovative companies than at less innovative ones. Their efforts to build an culture are also more aligned with their innovation goals. With greater alignment and collaboration comes stronger consensus between the two functions about the interplay of diversity, inclusion, and diversity of thought in producing innovation. Innovation doesn t happen by declaration from the top Companies need formal processes (including employee surveys, performance assessments, and rewards) and structures (such as global and cross-functional teams and collaborative technology and workspaces) to overcome common obstacles to innovation. They also need to equip leaders and employees with innovation skills and the self-awareness to overcome habits that stifle new ideas. Employee engagement increases with inclusion and democratization of innovation The majority (60 percent) of leaders agree that an culture leads to higher levels of employee engagement. SGPPL, for example, has seen employee engagement scores increase significantly since it instituted a growth strategy built on innovation. chro Strategic Implications inclusion and innovation 5

6 The CHRO s Role at the Nexus of Inclusion and Innovation Recognize the critical role of leadership Leaders must put innovation, and the inclusion that enables it, at the center of their business strategy. They need to commit resources to make innovation an enterprise-wide capability. And they have to consistently and visibly advocate for diversity of thought as a corporate value. While CHROs can t drive these efforts alone, they can lead the way in building a partnership with innovation leaders. At nearly one third of the companies surveyed, D&I and innovation leaders said they collaborated rarely or never. Roughly the same portion reported that their inclusion and innovation efforts are not aligned. There is clearly a big opportunity to strengthen the connection between people practices and innovation processes. Some companies are seizing it. One pharmaceutical company has gone so far as to put both D&I and innovation under the same leader to maximize these functions alignment and collaboration. At DBS, an HR executive served alongside the bank s CEO, its chief innovation officer, and a prominent venture capitalist to judge the results of a three-day hackathon where employees and start-ups competed to build prototypes for mobile apps to meet specific (and very real) business challenges. Everyone who wants to be an innovator can be at SGPPL, but it s not a mandate. Nevertheless, says president and CEO Tom Kinisky, when others see people learning new skills and attitudes, they want to come along. Broaden the conversation about diversity Include all the dimensions those that innovation leaders typically care about and those that D&I leaders champion. Focusing solely on demographic diversity can limit D&I s impact on innovation and lead others to view the function as a hindrance rather than an enabler. On the other hand, if innovation leaders fail to consider the impact of demographic differences or homogeneity they may undermine diversity of thought. Organizations should determine which factors contribute most to their ability to innovate: Do the same factors matter throughout the innovation process or do they differ according to the stage of that process? Do different kinds of innovation (product, processes, strategy, etc.) benefit from different sources of diversity? What kinds of diversity are we best or least effective at managing? Does the company have any data to support those conclusions? Equip employees at all levels to contribute to an workplace and companywide innovation Training, coaching, measurement, and accountability can help leaders overcome the natural tendency to reject ideas that don t jibe with their own and create an climate where individuals feel safe in speaking authentically. Employees, too, must build the skills and confidence to become innovators. Many companies, for example, provide self-assessments and training on topics such as unconscious bias and thinking styles. 6 chro Strategic Implications inclusion and innovation

7 Where the Most Innovative Companies Excel The most innovative companies in our survey were more effective than their less innovative peers at the following: Encouraging creativity and innovation as a corporate value or principle; Emphasizing inclusion as a corporate value or principle and communicating its strategic importance; Developing managers and leaders to promote idea-sharing in teams; Offering training to eliminate unconscious bias; Establishing systems for employees to submit their product/process ideas or suggestions; Creating a culture of innovation by encouraging entrepreneurship and risk taking; Ensuring innovation teams are demographically diverse and have diversity of thought; Hosting ideation sessions or idea bazaars; Encouraging external innovation networks; Adopting a user-centric design approach to innovation; Using proactive steps to prevent an atmosphere of suppression and fear; and Holding all employees accountable for helping to create an workplace. Supplement internal innovation resources with external ones Our research finds that the D&I function tends to focus on diversity and inclusion within the organization, while the innovation function may capitalize on external resources to complement internal ones. This is yet another reason for broadening the definition of diversity in the context of innovation. As contingent work and open innovation become more common, external talent may become a new component of the diversity mix. CHROs should consider: What kinds of skills does it take to manage open innovation effectively? Does our organizational culture enable or limit our ability to integrate external innovation resources? All four of the case-study companies have ratchetted up their ability to innovate through various forms of open innovation, including innovation networks, partnerships with agile start-ups, and crowdsourcing. These outside resources increase diversity of thought, but they don t obviate the need to build a culture that s receptive to new thinking. Leaders who reject divergent ideas from inside the organization may also spurn ideas from the outside. Track progress and hold leaders accountable Most of the companies featured in the report use employee surveys to understand their workforce and track leaders ability to create a speak-up culture. By combining human capital, business, sales, and other kinds of data, companies learn which factors contribute most to outcomes such as speed to market or new revenues, or whether specific kinds of innovation benefit from different kinds of diversity. chro Strategic Implications inclusion and innovation 7

8 CONNECT with our experts, your peers, and more thought leadership on this topic: Follow/join the conversation on Twitter #tcbinclusion OUR EXPERTS Mary B. Young, principal researcher, human capital, leads The Conference Board program of research on strategic workforce planning (SWP) and has been a major contributor to the company s research on human capital analytics and human capital risk. Mary.Young@conference-board.org Charles Mitchell, executive director, knowledge content & quality at The Conference Board, is responsible for the development of member-generated content and ensuring the objectivity, independence, accuracy, and business relevance of the organization s research. Chuck.Mitchell@conference-board.org LEARN MORE KEY BUSINESS ISSUES REPORTS, 2015 This collection includes a suite of research reports by function for various topics including: Closing talent gaps Building a high-performing organization Big data and human capital analytics For access to these collections please visit: keybusinessissues2015 For a preview of upcoming Key Business Issues research projects, visit: keybusinessissues2016 STATISTICS TEAM Henry M. Silvert, PhD Judit Torok Michelle Kan is associate director, knowledge organization at The Conference Board. She is responsible for coordinating the enterprise-wide Key Business Issue (KBI) process. Michelle.Kan@conference-board.org PUBLICATIONS Designing Global Businesses for Innovation and Growth Building the Foundation of an Innovative Culture: Human Capital s Role in Making It Happen How Much Does Your Company Really Invest in Innovation? Design-Centered Innovation: Observe, Learn, Innovate WEBCASTS Building a Culture of Innovation Human Capital Watch : Designing Global Businesses for Innovation & Growth New Partnership & People Models for Breakthrough Innovation THE CONFERENCE BOARD is a global, independent business membership and research association working in the public interest. Our mission is unique: to provide the world s leading organizations with the practical knowledge they need to improve their performance and better serve society. The Conference Board is a non-advocacy, not-for-profit entity, holding 501(c)(3) tax-exempt status in the USA. THE CONFERENCE BOARD, INC. ( ) AMERICAS (customer.service@conferenceboard.org ) ASIA (service.ap@conferenceboard.org ) EUROPE, MIDDLE EAST, AFRICA (brussels@conferenceboard.org ) THE CONFERENCE BOARD OF CANADA PUBLISHING TEAM Stephanie Cady, Peter Drubin, Kathleen Mercandetti R CHRO ISBN: The Conference Board, Inc. All rights reserved.