Canada lags many of its peers in innovation performance. Several studies have found that our innovation problems stem largely from the weak innovation performance of Canadian businesses.1 Even so, some Canadian companies have become highly successful serial innovators. Since firms operate in the same context, face the same opportunities and challenges, and have similar resources and capacities, why are some firms great innovators while their peers remain underperformers? The role of management is critical.
Management is central to effective execution—managers develop business strategies; decide on R&D spending levels and priorities; hire, motivate, and manage employees; estimate and manage risks; communicate with financiers; and guide implementation and commercialization efforts.2 Managers who value and support innovation and who exhibit and exercise the right skills, attitudes, and behaviours, are crucial to innovation success.3 Yet, despite the importance of good management, few businesses know which specific management practices and behaviours promote innovation. Moreover, few businesses take steps to ensure that their innovation decision-making is adequately informed, structured, and free of biases and errors. How does the decision-making process work with respect to innovation management? How can it be improved?
This report looks at firm-level innovation through the lens of management decision-making. It examines the ways of thinking, questioning, and behaving that constitute managers’ decision-making patterns about innovation. It highlights decision-making techniques that firms could use to improve how they manage innovation processes. The report also presents a structured framework that highlights the questions managers should ask themselves and their teams in order to make better decisions.
Management capacity is associated with better firm-level innovation performance. Firms with proportionally more managers who are business-educated, and who adopt best management practices, outperform other firms on innovation. Canadian firms lag international competitors in the proportion of business-educated managers they employ, the adoption of best management practices, and overall innovation performance.
A key contribution of management to innovation performance is good decision-making. Managers must make decisions related to resources, organization, risk, culture, supply and manufacturing processes, quality assurance processes, sales, customer services, and other aspects of innovation and commercialization. Yet, these decisions are frequently made under conditions of risk and uncertainty. Managers must make context-dependent decisions, often without sufficient information, and they must take steps to become aware of and correct biases in their perspectives and thinking. Effective innovation management, then, is partly a matter of adopting mindsets, practices, and behaviours that can improve the quality of decision-making despite the inherent risks and uncertainties.
Improving Decision-Making: A Framework for Innovation Management Excellence
A review of innovation management and decision-making literature, and in-depth studies of the behaviour of innovative firms in Canada and internationally, revealed patterns in the decision-making processes of successful firms. To improve their decision-making, innovative firms took steps to:
- collect more and better information about markets and firm capabilities;
- accumulate and draw on their own or others’ experience;
- recognize and reduce bias and error in judgment.
Of course, it is impossible to achieve perfection in these elements—one never has complete information, limitless experience, or infallible judgment. Decision-makers always face uncertainty and risk. In this respect, innovation management is a mix of science and craft. But by taking steps to improve the foundations of decision-making, innovation managers can increase their odds of making good decisions and thus achieving good outcomes.
The report presents a framework that captures the ways of thinking, questioning, and behaving exhibited by effective managers to help other firms improve their own decision-making. The framework identifies key questions that decision-makers should ask themselves and others to improve awareness, draw on experience, and recognize and correct biases and errors in judgment—thereby putting them in a position to make better decisions.
Acquiring the Innovation Management Mindset
Innovation managers exhibit certain skills, attitudes, and behaviours that allow them to effectively gather and assess information, accumulate and draw on experience, and exercise sound judgment. But how do managers learn, acquire, or improve the skills needed to ask the right questions and make good decisions?
The key to acquiring the innovation management mindset is experience. Formal business education contributes to managerial effectiveness, but experience and experience-based learning are more important. This includes both quantity and quality of experience, as well as opportunities for reflection, and effective mentoring by experienced managers. Certainly, many of the innovation managers and decision-makers the Conference Board interviewed hold MBAs and other business degrees—and management education makes an important contribution to analytical and systematic thinking. But most had significant work experience before pursing formal business or management education and regarded experience as making a greater contribution to their decision-making abilities.
Strategies to Improve Innovation Management
Management is a key determinant of innovation success. Firms that are otherwise similar experience different innovation outcomes due to how well they manage their opportunities, resources, and activities. As long as many Canadian firms exhibit weak innovation management and decision-making, overall innovation performance is not likely to improve. We suggest firms and managers pursue four strategies to strengthen innovation management and decision-making effectiveness:
- Use this report’s Framework for Effective Innovation Management to pursue a more informed, systematic, and structured approach to decision-making that will improve innovation management and performance.
- Accumulate experience and draw on the lessons of that experience when considering options and making decisions.
- Develop and draw on external networks of experience, including financiers, other entrepreneurs and innovators, and subject matter experts.
- Pursue formal management education to learn how to ask better questions, gather information, and analyze experience—but only after accumulating a few years of actual managerial experience.