Every organisation has a theory of growth. It’s competitive advantage built on scale, efficiency, exploitation of known markets, cost control and incremental product improvement however is no longer fit for future. Across most sectors, this theory of growth is being up-ended.

By strengthening the innovation muscle of the organisation, companies can build a competitive advantage that is genuinely difficult for rivals to imitate. This is not done through performative innovation labs or hackathons but through deliberate and sustained practice, underpinned by leaders who model curiosity and intellectual humility.

There are four enabling dimensions discussed here - strategic dexterity, organisational design, leadership and policy alignment.

Across most sectors, theories of growth are being up-ended.

Technological disruption compresses product lifecycles. Geopolitical volatility reshapes supply chains and market access. Shifting customer expectations demand not just better products but entirely new forms of value. AI has become as much of an opportunity to simplify businesses as it is an existential threat to the survival of established business models. In this environment, organisations most at risk are not the smallest or the least resourced. Instead, they are the most successful, well-resourced industry incumbents with established brands finding that those very strengths that delivered past performance, are now impediments to future growth.

The response to these challenges is to build something harder to replicate - a genuinely innovative culture: the institutional capacity to generate, test, and scale new ideas continuously and with speed.

Like physical muscle, innovation capacity does not develop by accident. It requires deliberate, sustained effort across four interconnected dimensions: strategic dexterity, organisational design, leadership and policy alignment. When the organisation focuses on all four dimensions with intentional effort, it builds a compounding competitive advantage that is genuinely difficult for rivals to imitate.

We set out what that might look like in practice offering boards and executive teams a frank assessment of what enables the innovation muscle to grow, and the conditions that inhibit its growth.

FOUR CRITICAL DIMENSIONS

Building innovation capacity at scale and at speed is not a matter of launching performative initiatives such an innovation labs or hackathons that are not connected to real decision-making outcomes. It requires a more holistic systems driven approach across four dimensions:

1 Strategic dexterity — the degree to which company purpose and mission embody change, the extent to which its risk appetite genuinely accommodates the uncertainty that innovation requires and that a shared language of innovation reflected in everyday practice exists

2 Organisation design — the extent to which decision-making is decentralised, and whether the organisation is designed to create the headroom for exploration alongside execution and where space is protected from the challenges of BAU.

3 Leadership — The extent to which leaders are perceived as consistently ‘walking the talk’ in the decisions they make and actions they take, the subliminal messages their behaviours send, and whether they model the curiosity, intellectual humility, and tolerance for ambiguity that innovation requires.

4 Policy alignment — The extent to which policies associated with career advancement, performance management, reward, hiring, and learning are aligned with the aspirations for creating an innovation driven future

Across all four dimensions, every organisation has a mix of practices that either build the innovation muscle or impede its growth. The framework below makes those dynamics visible.

INNOVATION MUSCLE: WHAT ENABLES AND WHAT IMPEDES

Dimension 1: Strategic dexterity

✔ What Enables

Innovation an explicit component of company purpose and mission — not a separate priority
Psychological safety that allows strategy and or its manner of execution to be challenged
A shared language of innovation that people actually use in day-to-day work
Rituals that celebrate curiosity, learning, and experimentation as core to company’s market identity
Defined criteria for stopping projects — applied with discipline to free up resource and time

✘ What Impedes

Gap between espoused and practiced company values: espousing experimentation while rewarding conservatism and compliance

Innovation treated as a discrete function rather than an organisation-wide responsibility
Cynicism from repeated ‘innovation theatre’ not linked to any tangible decision outcomes
Groupthink that makes questioning of the strategy socially costly

Dimension 2: Organisation design

✔ What Enables

Decentralised decision-making with clear accountability at the team level
Protected time and resource ring-fenced from BAU pressures
Internal idea markets that give creative ideas a structured pathway forward
Organisational design that reduces distance between ideas and decisions, creating stage-gates as learning systems

✘ What Impedes

Centralised approval hierarchies and long chains of command between frontline insight and executive decision that slow momentum and crush ideas
Divisional and functional silos that prevent cross-fertilisation of ideas
Resource allocation processes that require certainty of return before any investment is made
Structures with no protected space for experimentation — BAU crowds out everything

Dimension 3: Leadership

✔ What Enables

Leaders who ‘walk the talk’ – gaps (where they exist) between expressed and espoused values spotted and swiftly addressed
Leaders publicly role model intellectual humility and comfort with uncertainty
Post-mortems of failed projects or near misses conducted to generate learning, not assign blame
Uncomfortable questions are openly acknowledged and rewarded and leaders prepared to change course on new evidence
Diversity of thinking is actively sought, not just demographically represented

✘ What Impedes

Behaviour that contradicts stated values, creating cynicism
Leaders treat humility as a sign of weakness and project misplaced confidence
Leaders who demand certainty before acting, foreclosing early-stage exploration
Blame cultures where failure — however instructive — is career-limiting
Performative innovation: hackathons and labs that connect to no real decision-making

Dimension 4: Policy Settings

✔ What Enables

Career advancement and promotion criteria explicitly rewards curiosity and experimentation
Performance management systems recognise collective creativity alongside individual genius
Learning agility used as a hiring and selection criterion at every level
Explicit rewards for cross-silo collaboration embedded in incentive structures

✘ What Impedes

Promotion and hiring practices that favour technical mastery over a growth mindset
Performance reviews that reward individual achievement over collaborative innovation
No formal mechanism to identify and dismantle bureaucracy or unnecessary complexity
DEI programmes promoted for reasons of fairness and equity rather than for the value that diversity of thinking brings

What enables and impedes these 4 dimensions, with illustrative examples that follow, in turn generates questions that boards should be asking.

BUILDING A MARKET DISTINCTIVE INNOVATION CAPACITY

Companies that adopt a piece-meal programmatic approach will not succeed. A number of successful companies have already shown us the way. It requires a coordinated change program initiated on several fronts to ensure real progress is made in creating a market distinctive capacity to innovate.

1. Decentralise decisions and create autonomous teams close to the ‘coalface’

Innovation does not thrive where all meaningful decisions flow upward. The innovation muscle is built by creating structures that push authority, accountability, and resource allocation closer to where the work is done. Spotify’s Squad and Tribe model — developed in Sweden and now widely studied globally — organised autonomous cross-functional teams around products rather than functions, distributing decision-making while maintaining strategic coherence. The result was an organisation capable of moving at startup speed inside a company of global scale.

Haier Group headquartered in China, now operating in 160 countries, and owns brands such as GE Appliances and Fisher &Paykel took decentralisation further. Its RenDanHeYi model broke the company into thousands of self-managing micro-enterprises, each with direct accountability to customers and full responsibility for their own P&L. It has become the operating logic of a company that has sustained innovation across appliances, technology, and healthcare for decades.

The ideas most likely to generate genuine breakthroughs are distributed throughout the organisation, not concentrated at the top. W.L. Gore — the American materials science company behind Gore-Tex — built its lattice organisational model on exactly this insight, eliminating traditional hierarchy to unlock the creative potential of every associate. There are no assigned titles, no chains of command, and no traditional managers. The result is a culture that has sustained innovation across decades and multiple industries.

2. Make failure safe, make learning visible and reward initiative

The single most important thing a leader can do to build the innovation muscle is to make it safe to fail in the service of learning. This is easy to espouse and hard to practise. The organisations that do it well tend to build it into formal systems rather than leaving it to individual leadership style. Truly innovative companies don’t just have annual or bi-annual town halls or CEO led “ask me any question” sessions. Nor do they rely on broad based employee engagement surveys. They know that ideas often hide in plain sight with the people closest to the work and to the customer.

Toyota’s kaizen philosophy, deeply embedded in Japanese manufacturing culture, operationalises this at scale. Any worker on the production line has both the authority and the responsibility to halt a production line to address a defect, quality issue or safety hazard. Permission to pull the ‘andon cord" is one of the most powerful symbols of psychological safety in the company embedded in operational practice rather than HR policy. Continuous improvement becomes the daily habit of everyone, not just the accountability for a senior team.

Pixar’s culture is designed to protect "ugly babies"—a reference to early, fragile ideas—through a unique, collaborative environment. They use "radical candor" to help peers improve work, expecting people to get comfortable with showing work-in-progress, despite all its flaws. This high trust culture is the "secret sauce" behind their extraordinary success in storytelling.

3. Create momentum by starting with the divisions most receptive to change

Large organisations rarely have a single monolithic culture often characterised by strong sub-cultures. Some divisions and teams — often reflecting the leadership style of those who run them — already have the conditions for innovation to flourish. A ‘show, don’t sell’ strategy identifies these pockets of readiness, makes them visible, and lets the evidence of their performance make the case. Proof of concept within the organisation is far more persuasive than any top-down mandate for change.

ING Bank began its full-scale agile transformation in 2015 not by imposing change company-wide but by piloting the model in its Amsterdam headquarters — restructuring one central unit into squads, tribes and chapters before any global rollout. The results in speed-to-market and employee engagement were visible and measurable, and they made the internal case for expansion far more effectively than any top-down mandate could have. It has since become one of the most widely cited examples of agile-at-scale in financial services.

LEGO's recovery from near-bankruptcy in the early 2000s began not with a sweeping cultural reset but by protecting and re-energising a small cluster of its most passionate designers, letting the results of that group restore credibility for the broader cultural shift.

4. Name the values-behaviour gap publicly and invite ideas to close the gap

Values alignment without behavioural change is theatre. Leaders who are willing to name the contradictions between what the organisation says it values and what it actually rewards are the ones who build genuine credibility for the change agenda. This is uncomfortable for many leaders because it may suggest disloyalty to the boss, the team, the company. However, it is a necessary step to build more authentic trusting conversations about who we tell ourselves we are and who we really are.

Patagonia has cultivated a culture based on intense environmental activism woven into every aspect of their business. Its mission ("we are in business to save the planet") attracts employees and customers who are deeply committed to these values, making the company an "un-company" that defies traditional marketing approaches. Its employees are encouraged to live an outdoor-centric, purposeful life, and customers feel they are supporting a cause rather than just buying gear. It has ridden economic cycles well through a steadfast focus on addressing the gap between what it says it stands for and what it actually does.

IKEA’s democratic design principle — that well-designed, functional objects should be accessible to everyone, not just the affluent — is an example of purpose and innovation strategy in complete alignment. Innovation at IKEA is not a separate function or a periodic initiative; it is the direct expression of the company’s founding mission. When purpose and innovation are this tightly coupled, the cultural case for exploration comes alive in every product decision, every supply chain negotiation, every hire.

5. Build intrapreneurship pathways into hiring and career advancement policies

Innovative cultures do not rely solely on hiring external talent or spinning out separate ventures. They build formal pathways for the people already inside the organisation to act entrepreneurially — with real resource, real accountability, and real upside.

Recruit Holdings in Japan — the parent company behind platforms including Indeed and Glassdoor — has long operated a ‘New Ring’ intrapreneurship programme that gives employees at every level a formal mechanism to propose, develop, and lead new business ventures from within. The programme has generated multiple businesses that have become significant revenue contributors. The policy signal it sends is unambiguous: entrepreneurial thinking is not reserved for founders. Its career development pathways and ‘learner’ focus ensures everyone has a chance to be a founder.

SAP in Germany has embedded design thinking methodology at scale through its AppHaus network — a series of innovation spaces across Europe and Asia where cross-functional teams are trained and evaluated using creative problem-solving methods. The innovation capability is not concentrated in a lab; it is distributed across the business through deliberate investment in how people learn to work.

6. Assess and develop for the growth mindset and learning agile behaviours

There are far too many companies that resist using psychometrics in strengthening their selection methodologies. While using these at lower levels of management, companies are less likely to use them with their senior leaders despite the impacts of getting an appointment wrong is much more costly. A senior leader who has mastered their interview presence tells you very little about their underlying strengths.

Carol Dweck’s distinction between fixed and growth mindset individuals has direct implications for how organisations select, develop, and promote leadership talent. Under its visionary CEO Satya Nadella, Microsoft has turned ‘growth mindset’ into an operating philosophy. It has shifted its culture from a ‘know it all’ to ‘learn it all’ approach – where curiosity and continuous learning are valued over innate brilliance. Behaviours such as active listening, vulnerability, and learning from mistakes, rather than pretending to know everything are actively rewarded and the model of shared accountability to drive collaboration has become a norm.

Those who believe ability is developable — who seek challenge, learn from failure, and treat uncertainty as an invitation rather than a threat — are essential attributes for an innovative culture. The growth mindset and one’s learning agility can now be reliably tested. Making learning agility an explicit criterion at every stage of the talent lifecycle is one of the highest-leverage policy interventions available.

QUESTIONS BOARDS SHOULD BE ASKING

Boards set the agenda for what leadership teams take seriously. A board that never asks about how innovative its culture is signals — however unintentionally — that it is a second-order concern. These questions can prompt an honest appraisal:

▸ How well does our risk appetite genuinely accommodate the uncertainty that innovation requires?

▸ When new opportunities emerge, how quickly do good ideas move from insight to action — and what slows us down?"

▸ Are the people closest to the customer and market empowered to act on what they observe and what is the evidence for this?

▸ How does the organisation design itself to include dedicated resource – time budget and mandate – for the exploration outside the core business?

▸ How do we ensure our career advancement, promotion and performance systems reward curiosity and growth mindset, or filtering them out over time?

▸ How will we pivot our DEI programmes so that their raison d’etre shifts from simply a fairness-equity focus to one about attracting genuinely different thinkers, contrarians and innovators?

▸ What mechanisms exist to surface ideas and concerns from every level of the organisation — and do those ideas connect to real resource allocation decisions?

▸ (Separate from a well-functioning whistleblower program) How will we ensure that people feel safe enough to voice unconventional or dissenting views — and does the evidence support that belief?

▸ How can learning agility and a growth mindset become explicit criteria in our hiring and succession decisions and how do we reliably assess for it?

▸ What specific rewards exist for cross-silo collaboration, and are they visible and meaningful?

▸ How do we identify and remove bureaucracy before it calcifies into a structural barrier to innovation?

▸ To what extent are we treating innovation as a whole-of-organisation capability, rather than the responsibility of a dedicated new business unit?

FINAL THOUGHTS

The organisations most at risk of being disrupted are rarely aware of it at the moment it matters most. Their metrics look healthy, their market positions feel secure, and their leadership teams are focused — rationally — on executing the current strategy well. The innovation muscle has simply never been developed, because it was never needed. Until it is.

The organisations investing in muscle strengthening now will ensure they are significantly harder to compete against in five years. The ones waiting for disruption to force the issue will find that the gap has already become impossible to close.

The innovation capacity of a company is rarely built through performative initiatives or a moment of inspired leadership. It is built through the sustained, deliberate cultivation of the strategic dexterity, delegated accountability, behavioural norms and policy alignment that make innovation the natural way of working — not the exception to it.

The next phase of growth will not come from piece-meal initiatives. It will come from the thoughtful building of the company’s capacity to continuously create what comes next.