Risks and rewards part of innovation

To be more competitive and grow, Canadian companies need to take more risks – and HR can help, according to 4 CEOs we talked to across the country
|Canadian HR Reporter|Last Updated: 05/17/2013

Nolan Watson, president and CEO, Sandstorm

The Vancouver-based company and its subsidiary Premier Royalty have about 30 employees

In 2004, Nolan Watson was a 25-year-old CFO at Silver Wheaton. He and mining entrepreneur Ian Telfer were involved in executing a new finance business model called silver streaming, in which an upfront cash payment is exchanged for the right to purchase a mining company’s silver production at a certain predetermined price.

That innovative approach saw Silver Wheaton become a $10-billion market cap company in just eight years, says Watson, now president and CEO of Sandstorm in Vancouver, which provides financing to mining companies and, along with its subsidiary Premier Royalty, has 30 employees.

“That was a very successful example (of innovation) in our industry,” he says.

But companies that aren’t innovative enough die, says Watson.

“Anytime, and this is a law of economics of business, anytime there’s someone returning an above-normal profit for the risk that they’re taking on, it attracts competition and that competition is relentless and it comes from all sources and the people that have the best business model and the best people and the best innovation survive. And the ones that are mediocre end up going by the wayside,” he says.

“If you’re not innovating, then it’s just a matter of time before you fail.”

For every Apple, there are 1,000 people who tried to make an Apple and failed, he says.

“People underestimate how hard it is to have a lasting, successful business and innovation is not something that is easy to do well. There are lots of people who try to innovate and they do so with bad ideas and poor execution and they fail. So it’s tough to do. There are a lot of people who try to innovate — they just don’t have the raw skills to do it well.”

For example, in the mining industry, people trying to innovate have to be world experts on mining, finance and business — otherwise their ideas will be ill-conceived and probably not successful, says Watson, who says he is often pitched ideas on how to innovate or iterate Sandstorm’s business model by people who lack the fundamentals.

At Sandstorm, innovation is involved from a business model perspective, he says.

“We are always trying to figure out what is the best niche to deploy our business model in, who are the best customers to do it with, what is the best way to structure the business arrangements that we have, what is the best way to structure ourselves internally to effectively go after that target market, and so on and so forth. So we do quite a bit of innovation, including with the structure of contracts we have.”

Finding the balance

And when it comes to balancing risk and reward, the challenge isn’t normally with the reward, says Watson.

“Usually the problem lies in not understanding the risk that you’re taking on and allowing the company or an organization to take on systemic risk when they do try that innovation. So the key is isolating the risk and mitigating it.”

For example, if a company is developing a new business model, it should be tried out in a limited area. If it doesn’t work, the company should find out why and take the steps needed to solve the problem — and then roll it out in a broader way, he says. Too often, people roll out their ideas to the entire company and these don’t work, and then the company has to go into damage control mode and try to find a solution.

“That’s a bad innovation process,” says Watson. “You see it with HR policies, client policies, with iterated business models. I’ve seen it many, many different times and I’ve just made sure that whenever we’re iterating something at Sandstorm, we’re doing it in a limited way and we can test people’s reactions to it before we roll it out in a broader sense.”

It’s the leader who has to make sure an organization is innovative and ensure that innovation is executed well.

“A failure of either of those two things could be the end of the company. So leadership is key or the organization will not continue,” he says.

And HR plays a role in finding the right people who can be innovative and have the fundamental skills to deal with innovation.

“If HR gets their job wrong, you can have a CEO of a company pushing innovation all they want but all they’re going to get from their people is poor-quality ideas and poor-quality execution,” says Watson.

“It starts with recruitment and it starts with hiring people with high emotional intelligence. If you can conform teams where each individual team member has high emotional intelligence, they tend to function a lot better together as a team when working through various ideas.”

Maura Davies, president and CEO, Saskatoon Health Region

The 13,000-employee organization provides a range of services across 97 communities

The Saskatoon Health Region has plenty on its plate these days as it has adopted a health-care management system around the “lean” system and Toyota production system — based on the philosophy of the complete elimination of all waste and pursuit of the most efficient methods.

“It’s an experiment on a pretty big scale and certainly this methodology has proven to be effective in other organizations and other industries, but not at the scale and scope of what’s been done in Saskatchewan,” says Maura Davies, president and CEO.

“My organization was essentially the lead on that in terms of early adoption and as we’re applying those new tools and methods and engaging… staff and patients and families, we’re changing a lot, and even small things are, by their nature, often disruptive when we’re doing it differently.”

The 13,000-employee organization is committed to continuous improvement, she says.

“The way we improve is being innovative and testing new ideas, taking the wisdom of our staff and our patients, and looking at ways to make the patient experience better,” says Davies.

“We are constantly striving to improve the health of our community, the quality of our care, the value that taxpayers get for the money invested in our organization, and the work experience of our teams.”

Innovation has to be a strategic priority, she says. If an employer is not prepared to take risks, learn from others and improve, it’s actually losing ground.

And while a publicly funded organization such as Saskatoon Health Region is not worried about loss of market share, it is concerned about improving care and services, she says.

“We see every day the harm that is done to our patients, we see the waste in our system, and I think there’s a moral responsibility to go after those defects that waste, and to demonstrate that we are learning and improving — and being innovative in how we do that.”

With the new management system, part of the investment is building capacity, so the association has a target of certifying more than 800 senior leaders to be lean leaders, says Davies.

Every executive member in every health region across the province is also in certification training.

“That is an investment in us as leaders so that we will be involved in innovative work, actively involved in improvement, and it is dramatically changing our jobs and how we spend our time. It is quite astonishing, actually.”

Front-line managers are also important because that is where the real work gets done, the point of care and service, and they truly are engaging staff in very different ways, says Davies.

For example, managers are being asked to have short huddles with staff every day in front of a “visibility wall” that has key performance metrics, and they problem-solve and look for ideas from staff.

“They actually generate most of the innovative ideas that are going to make our care better,” she says.

Often, employers are not innovative because there’s a natural inclination to do things the way they’ve always been done.

“In health care, in particular, many of the ways we’ve done (things) have been tested over a long period of time, and people are comfortable with it, they feel confident in doing things that way, and change is hard. We see that even when we are trying to make small changes,” says Davies.

“Because we’re a publicly funded organization and we’re facing a $25-million deficit that we need to make go away, we are actually digging deeper into innovative ideas as to how we can maintain and still improve services, but spend less money.”

Sue Paish, CEO, LifeLabs, Toronto and Vancouver

The medical laboratory services company has about 4,000 employees across Canada

To Sue Paish, CEO of LifeLabs, a medical laboratory services company, innovation is comprised of three elements.

“It’s new ways of doing what we already do, it’s solutions to unanswered questions — so we’ve got questions out there but we don’t have the answers to them or the solutions to the problem… and… most importantly, innovation is identifying and answering the questions that we’ve yet to ask,” she says.

Innovation is critical to any company.

“The whole way in which we approach health care and health-care delivery in Canada — in fact, the world — must transform. So if we aren’t innovating, if we did what we did three or four years ago in exactly the same way… we will not exist as an organization,” says Paish.

“The pace of change and breadth and depth of change in health care is moving at a rate that demands innovation as table stakes. And if you’re not innovating, you’re not existing in this sector.”

But Paish says she is very aware of the important dynamics at play at LifeLabs, with a very loyal workforce committed to the higher calling of saving lives.

“We’ve got a lot of people here with institutional memory and a degree of loyalty to a higher calling, such that when someone like me or any other member of the executive comes in and says… ‘Let’s transform what we do,’ we have to be incredibly cognizant every second of every day that that can never be interpreted, nor can it have the effect of eroding our higher calling… because when one comes with a transformation or innovation mindset, there is sometimes a reading in the audience that we’re going to throw the baby out with the bathwater. And we absolutely cannot do that. So that’s one element I am acutely aware of.”

Since health care is not a sector that has regularly seen innovation, it’s critical to balance the risk and rewards, says Paish, who divides her time between Vancouver and Toronto.

“We never take a risk on patient safety. We never take a risk on quality. We might run pilot projects to see if we can do something better in a quality context or implement something that improves safety for patients or employees, but those have to be tested and piloted a lot.”

As part of its drive for innovation, LifeLabs has focused on showing its people that it’s OK to take risks — and it’s actually essential in certain contexts. It’s also focused on innovation not being something to do to employees, but something to do with employees, says Paish.

“Innovation has to be embedded into this organization as part of our daily diet… and we can’t look to each other for innovation — we have to look in the mirror to innovate.”

As part of that, LifeLabs has a program called rapid continuous improvement process (RCIP) that encourages employees to not only be part of innovation, but own it.

“Basically, what we’ve said to our employees across the organization is if you see something or you’re thinking of something that we could do better, speak up and we’ll do it — and we’ve had astonishing results here.”

As an example, couriers are delivering hundreds of packages to a LifeLabs lab on a daily basis, in a very tight time frame, so employees suggested ways the workflow could be improved, and the company built new conveyors and new seating.

“It completely changed both the efficiency and the work environment, but what made it very special is employees owned it,” says Paish.

“(RCIPs) are transforming how we do business… in a way that also transforms our culture.”

On a larger scale, LifeLabs, which has about 4,000 employees, has been innovative in the electronic delivery of health information, in real time, both to doctors and patients in British Columbia, so test results are available that much more quickly.

“We’ve undone that logjam and we’ve empowered patients so they can get the test results themselves. That’s groundbreaking in health-care delivery in Canada and it’s only in British Columbia,” says Paish, adding the company hopes to have this spread across the country.

“That’s one that’s incredibly transformational in terms of what we do and making it better for our end consumer, which is our patients.”

Byron Osing, chair and CEO, Calgary Scientific

The 80-employee company creates transformative technology for the medical industry and beyond

Calgary Scientific recently issued an organizational assessment survey to its 80 employees. Based on innovation, the questionnaire took about two hours to complete and delved into areas such as communication, rewards, empowerment and mechanisms.

Innovation is the foundation upon which Calgary Scientific is built, says Byron Osing, chair and CEO. The company was constructed specifically to take significant and calculated risks and to break down existing technology barriers.

“We’re not here to necessarily play it safe, to make incremental progress,” he says. “But when you take big swings for the fences, a lot of times you miss the ball, so you have to have that stomach or organizational culture and expectation of everybody involved built around a willingness to take those risks and be known as an innovator.”

Leaders play big role

Leadership also has to reinforce a consistent message — one leader can’t be saying something or acting differently than another.

“Then the company sees that misalignment in management and they don’t feel comfortable taking the lead and doing that,” says Osing.

“We’re not here to take the safe track on all things, were here to continuously break barriers and make promises we can deliver on that other people can’t, so it really does come from top-down in a lot of ways. But it also comes as a bottom-up. I mean, if you’re not hiring people who want to be innovative and creative, then you can do all you want from the top-down — it’s not going to get adhered to or adopted.”

At regular weekly meetings with employees, Osing reinforces the idea of breaking barriers and taking chances.

“In this company, you will never be punished for taking a calculated, smart risk and failing. All we expect is you get back up and try again.”

HR can play a key role in innovation by really sitting down and looking at the organizational decision-making structures, rewards and compensation structures. Calgary Scientific’s rewards are based on people taking risks and being successful, he says.

“That culture is reinforced every time we get the opportunity.”

A lot of CEOs say their companies are doing very different things and they emphasize that innovation is a strategic prerogative — and yet those same companies do the same old thing, again and again every year, and change by incremental, baby steps, says Osing.

“A lot of that too has to do with your corporate decision-making structure — the more levels of management you get in a company, and the more committees you have, really completely stifles anything that the CEO wants to do anyway,” he says.

“That’s the problem when you get into corporate structures — it kills your innovativeness or your ability to actually act on those corporate strategic prerogatives to innovate.”

Being Canadian a problem

Part of the problem is being Canadian, as people have less of a risk-taking or entrepreneurial propensity, says Osing.

“Some of it’s got to do with reward structure; some of it’s got to do with our culture. As Canadians, we’re just a little bit more conservative. But, frankly, we get whacked for that all the time in the competitiveness studies that are done — Canadian organizations can never gain on the competitiveness scale, they continually lose, so there’s a desperate need for innovation at the corporate level here in Canada,” he says.

“Canadian companies need to be more flexible, more risk-taking, more innovative if we’re going to keep up with the rest of the world because we do business globally. And when you start to see what’s going on in the rest of the world, how fast they can react and things get done, Canada really needs to sharpen its pencil up and get a little bit smarter on how we do things in general.”

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