by Rod Collins, Innovation Sherpa at Salt Flats

In a recent survey of over 1,700 CEOs, IBM reported the need to innovate and collaborate as uppermost on the minds of business leaders in both the public and the private sectors. Three out of every four CEOs in the study identified collaboration as the most important trait that they are seeking in their employees, and, in the face of an increasingly complex world brought about by the sudden emergence of the technology revolution, many chief executives realize that they need to make significant changes if their organizations are to respond to market pressures to innovate. In short, the business survival strategy for a market landscape where technology now tops the list of external forces impacting organizations is a simple mantra: “Innovate and collaborate.”

However, what is simple is not necessarily easy. While chief executives recognize they need to dramatically improve their capacities for both innovation and collaboration, it appears that few of them know what to do to accelerate their performance in these two critical strategic competencies. This may explain why, in his analysis of a recent study by economists Robert Litan and Ian Hathaway, Richard Florida notes that a reduction in business dynamism has led to the troubling condition where “business deaths now exceed births.” Perhaps the reason developing an effective capacity for innovation and collaboration is so hard is that many, if not most, business leaders are unaware of the defining elements of these two competencies.

When people think of innovation, they usually think of inventions, such as the Apple iPhone, Google glasses, or Wikipedia. While these products are indeed the outcomes of innovation, they are not the essential ingredients that make these companies masters of managing change. Often, when business leaders decide innovation is an important strategic initiative, their first move is to set up a department, put somebody in charge, and hold that person accountable for coming up with ideas for innovative products. Unfortunately, these initiatives rarely produce real results.

Innovation is not a department. It is a way of thinking and acting that alters the fundamental DNA of a business and its management so that creativity—which Steve Jobs defined as the simple act of connecting things—becomes the core fabric of the enterprise.

The essential element of innovation is serendipity, which is the capacity to make unusual connections. These connections are the incubators for innovative product ideas. Serendipity is something that is more likely to happen when people from various disciplines exchange ideas than from isolated activity inside a bureaucratic department. People working in silos “doing their part” are far less likely to come up with the idea of combining your telephone and your music collection into one device than a collection of workers from multiple perspectives. That’s why, for example, Google provides free meals for its workers. While many laud the company for its progressive approach to employee perks, the real reason for Google’s free food is to enable opportunities for serendipitous encounters.

When we think of collaboration, what usually comes to mind is a picture of a highly cooperative and coordinated group who really enjoy working together. We tend to think that group collaboration is a primarily a reflection of individual willingness on the part of different people to support each other. With this understanding, many leaders feel the key to improving collaboration is to train individuals to be more cooperative and are surprised when their training investment yields far less than expected. While cooperation and coordination are indeed important elements of collaboration, neither is the essential element.  Jane McGonigal, in her insightful book Reality is Broken, defines collaboration as the intersection of three kinds of efforts: cooperation, coordination, and co-creation. Of the three the most important element is co-creation because when workers have the opportunity to co-create what they do, cooperation and coordination are likely to follow. The simple reality is without co-creation, collaboration is not possible.

The reason why, despite their best intentions, so many companies struggle with innovation and collaboration is that their organizations are usually top-down hierarchies, and thus, are not designed to cultivate these two competencies. In fact, they are designed to unwittingly squash both innovation and collaboration. The defining attribute of the top-down hierarchy is the chain of command, which means, in every traditionally organized company, there is an army of supervisors who tend to be heavily invested in the status quo and have the positional authority to kill good ideas and keep bad ideas alive. Serendipity doesn’t stand a chance against this army because new ideas tend to threaten the status quo. Top-down hierarchies, where the fundamental dynamic is “to do what you’re told” inside fragmented silos, are not places where co-creation is even remotely possible.

If CEOs are serious about improving their companies’ capacity for innovation and collaboration, they need to transform their organizations from top-down hierarchies to peer-to peer-networks and model themselves after companies, such as Google, Amazon, Whole Foods, Morning Star, and Zappos. The leaders of these companies understand that, if you want your organization to be highly competent at innovation and collaboration, you design your organization for serendipity and co-creation. That’s why they build peer-to peer networks rather than top-down hierarchies.

Rod Collins (@collinsrod) is the Innovation Sherpa at Salt Flats and the author of Wiki Management: A Revolutionary New Model for a Rapidly Changing and Collaborative World (AMACOM Books).