Innovation is the lifeblood of a company. As one of this issue's articles puts it, “The ongoing development of innovative solutions is as essential to business success as is the generation of new blood cells to the functioning of the human body.” The pace of business change continues to accelerate, and so pressure mounts for senior executives to innovate in terms of new products and services, new markets, corporate strategy, process efficiencies, and — in some cases — even the organization's fundamental business structure. This should come as a surprise to no one who is charged with managing performance. Still, many businesspeople consider innovation to be outside the realm of the finance department and business performance management (BPM) initiatives.

In successful companies, it's not. Innovation should not be not siloed in R&D or marketing; it should be a core component of the corporate culture. Companies that gain a competitive advantage by being agile foster innovation in everything from business strategy to process management to compensation practices. And that's where we begin this issue. It's a good idea for a company trying to instill a new strategic focus in its workforce to reconsider its compensation processes. That's a principal motivator of most employees, after all. Many organizations today use variable pay, pay for performance, or other compensation techniques to encourage an innovation mind-set on the part of their workers.

The trouble arises when compensation systems become complex and pay data becomes widely dispersed. A recent study by Ventana Research indicates that almost a third of companies store compensation data in four or more software systems. Another 51 percent store pay information in two or three systems. In addition, more than half of organizations use spreadsheets to save at least some of this data. Failure to centrally manage information on employee performance and rewards can result in both process inefficiencies and, according to the research findings, an inability to align the workforce with business strategy and organizational goals. In this month's lead feature, Ventana Research's Mark Smith examines why a holistic approach to compensation and employee performance management can have a big payoff for corporate performance managers and those pushing organizational innovation.

Our next two articles look at the role that a well-known process improvement methodology, Lean Six Sigma, can play in a company's innovation efforts. Typically, when a business combines Lean's process optimization with Six Sigma's approach to quality management, its aim is to cut costs. However, as IBM's Dave Lubowe and Amy Blitz explain, that view is shortsighted. The authors examine three companies that have achieved remarkable results by using a Lean Six Sigma initiative to power innovation in their business strategy as well as their development of new products and services.

Then Six Sigma expert Forrest Breyfogle explains the limitations of using Lean Six Sigma for innovation — and how to overcome them. In Breyfogle's experience, many companies that attempt to stimulate growth through a Lean Six Sigma project have trouble determining which innovations to undertake; after tackling a few projects that are “low-hanging fruit,” they lose direction for the initiative. Breyfogle introduces an alternative, regimented approach to choosing Lean Six Sigma projects, which he argues will lead organizations to more effective and consistent innovation.

For companies that are responding to the global business environment, and its innovation expectations, by implementing BPM processes or software, we asked BPM Partners' Craig Schiff to evaluate the market space and the pitfalls lurking within many performance management improvement efforts. Schiff's message: BPM buyer beware! These technologies and techniques offer great benefits, but only for those who approach them thoughtfully. Although many organizations have achieved great benefits through BPM software, there is no silver bullet that can guarantee an initiative's success. The closest thing to a silver bullet is to start the project with an understanding of best practices and lessons learned from previous deployments. So we've compiled in this issue our annual BPM Consulting Guide, a listing of firms that can share that kind of knowledge at various stages of the performance management improvement effort.

Finally, we spoke with Doug Brunton, the director of financial systems for a company that has improved both organizational alignment and agility through improved performance management practices. His story exemplifies how essential BPM processes and software can be in establishing a culture that successfully responds to change.

Meg Waters is editor in chief of BPM Magazine and of the monthly e-mail newsletter BPM Express. You can reach her at mwaters@penton.com.