The Secret of Innovative Companies: It Isn’t R&D
Innovation. It’s the lifeblood of our global economy and a strategic priority for virtually every CEO around the world. In fact, a recent IBM study of 1,500 CEOs identified creativity as the number-one “leadership competency” of the future. The power of innovative ideas to revolutionize industries and generate wealth is evident from history: Apple iPod outplays Sony Walkman, Starbucks’ beans and atmosphere drown traditional coffee shops, Skype uses a strategy of “free” to beat AT&T, and Southwest Airlines flies under the radar of American and Delta. In every case, these innovative companies produced compelling competitive advantages and tremendous wealth for pioneering a new path. Of course, the retrospective $1 million question is, how did they do it? And perhaps the prospective $1 billion question is, how might my company do it?
Innovation starts at the top…
The code for innovation is embedded in an organization’s people, processes and philosophies, or the “3Ps.” Innovative people think differently and act differently to generate creative ideas for new products, services, processes and businesses. The behavior of leaders matters – tremendously. In fact, innovative leaders weave a code for innovation deep into the world’s most innovative—and often most valuable—companies; they generate a tangible “Innovation Premium,” defined as the proportion of a company’s market value that cannot be accounted for from cash flows of its current products in its current markets. Or put another way, it’s the premium the stock market gives a company because investors expect it to launch new offerings and enter new markets that will generate even bigger income streams.
Yet, these model leaders are few. In interviews with dozens of senior executives of large organizations, we’ve found that in most cases they did not feel personally responsible for coming up with innovations. They only felt responsible to “facilitate the innovation process” and make sure someone in the company was doing it. But in the world’s most innovative companies, senior leaders like Jeff Bezos (Amazon), Marc Benioff (Salesforce.com), A.G. Lafley (Procter & Gamble) and the late Steve Jobs (Apple) didn’t just delegate innovation; their own hands were deep in the process. Put simply, they behaved innovatively.
To illustrate, Salesforce.com’s Benioff gets many new ideas by networking with young entrepreneurs, like Drew Houston, founder of DropBox, and Max Levchin, founder of Slide and an early PayPal executive. Benioff was personally involved in coming up with the idea for Chatter—social networking software for business that is a mix of Facebook and Twitter. Chatter helps folks in his company network better by helping them efficiently connect with others and see what work is being done and what ideas others are generating across the company. Chatter represents Benioff’s idea for how to help others be better networkers. Plus, every Salesforce employee (management and non-management alike) gets at least two days of innovation training each year to help them maximize their contributions to company-wide innovation processes like Chatter. Benioff’s skill as an innovator has helped Salesforce generate a high innovation premium, but if he doesn’t unleash the creative capacity of his employees through innovation processes Salesforce will be unable to sustain its high premium.
Innovation continues though all levels of the organization
By creating organizational processes that mirror their individual discovery behaviors, these leaders have built their personal innovator’s DNA into their organizations. They also understand the critical need to attract creative people if the company hopes to build a cadre of innovators at all levels. Clearly, if companies want innovative ideas from employees, they should screen for innovation potential in the hiring process. For example, at Virgin, Richard Branson has made innovation one of six key characteristics the company evaluates when screening new employees. To get hired at Virgin, you must demonstrate a “passion for new ideas,” you must “make your creativity apparent,” and show “a track record of thinking differently.” Virgin describes its people as “honest, cheeky, questioning, amusing, disruptive, intelligent and restless.”
Google also uses an innovative technique for finding qualified and creative job candidates called Google Code Jam, a problem-solving tournament where participants compete online to solve the same problems under the same time constraints. The prize for winning? $10,000 and a job offer from Google. In fact, the top 20 finalists receive job offers. Through use of the tournament, Google effectively screens twenty-one thousand worldwide applicants for jobs in a matter of days with a format that is almost entirely automated. The fact that winners of Code Jam have come from Russia, Poland and China shows Google is attracting global talent. While the early qualifying rounds largely test an individual’s speed in solving computer programming problems, the final challenge phase, conducted with the hundred finalists at Google’s headquarters, asks the participant to demonstrate more innovative thinking; each contestant attempts to crack the programming code of the other participants. This process has been very successful at helping Google find highly talented and creative programmers.
When the CEO asks all job candidates whether they’ve ever invented anything, it sends a powerful signal that invention is expected and valued.
Innovative organizations must embed a philosophy that innovation is expected from everyone – not just R&D. Amazon’s Bezos told us he asks all job candidates: “‘Tell me about something that you have invented.’ Their invention could be on a small scale—say, a new product feature or a process that improves the customer experience, or even a new way to load the dishwasher. But I want to know that they will try new things.” When the CEO asks all job candidates whether they’ve ever invented anything, it sends a powerful signal that invention is expected and valued. “I also look for people who believe they can change the world,” says Bezos. “If you believe the world can change, then it’s not a stretch to believe you can be a part of it.”
In rejecting the limiting belief that innovation is R&D’s job alone, leaders of highly innovative companies work hard to instill “innovation is everyone’s job” as a guiding organizational mission. When Jobs returned to Apple after a 12-year hiatus, he launched the “Think Different” advertising campaign. The ad paid tribute to a wide range of innovators saying, “Here’s to the crazy ones. The rebels. The trouble makers… the ones who see things differently. They’re not fond of rules. And they have no respect for the status quo… they change things. They push the human race forward.” The Emmy-winning campaign was hailed as one of the most innovative of all time. What most people don’t realize, though, is that the campaign targeted Apple employees as much as its customers. “The whole purpose of the ‘Think Different’ campaign was that people had forgotten what Apple stood for, including the employees,” said Jobs. To reestablish Apple’s innovativeness, he knew that every employee needed this message: “Our heroes are innovators. We stand for innovation. If you want to work at Apple, we expect you to innovate.”
Invest in innovation
Almost everywhere we go, we hear executives and professionals complain about having “no time” to innovate. Other leaders highlight factors such as short-term pressures from investors, talent deficiencies, the challenge of implementing innovation-friendly rewards structures, the still fuzzy nature of innovation, and in candid moments, their own discomfort with the different mental frames required to lead innovation. But in the end, innovation is an investment, in leadership and the team.
It’s time for leadership to step up. As the data suggests, top executives who value innovation need to point their fingers not at others but themselves. They must lead the innovation charge by understanding how innovation works, improving their own discovery skills, and sharpening their ability to foster the innovation of others. Moreover, they must actively populate their organizations with enough discovery-driven innovators to make innovation a team game that translates into tangible and sustainable innovation premiums.
Whether you’re working at the top of an organization or at the bottom as a technical specialist, eBay’s former CEO Meg Whitman advised everyone “to have the courage to plant acorns before you need oak trees.” Innovation is all about planting acorns (ideas) with less than complete confidence that each will grow into something meaningful. The alternative, however, is little or no growth when no acorns emerge as trees. By understanding and reinforcing the DNA of individual innovators within innovative organizations and teams, you too can find better ways to successfully nourish not just growth saplings but the real oak trees of future growth. If you take this innovation challenge to your company or team, it’s worth keeping in mind the final line from Apple’s original ‘Think Different’ campaign: “The people who are crazy enough to think they can change the world are the ones who do.” Just do it, now.
About the Authors
Jeff Dyer (PhD, UCLA) and Hal Gregersen (PhD, University of California, Irvine) are the co-creators of Innovator’s Accelerator, a revolutionary new digital program that teaches teams the innovation skills they need to transform organizations.
Jeff is also the Horace Beesley Professor of Strategy at both Brigham Young University and at the Wharton School, University of Pennsylvania. His book, “Collaborative Advantage,” won the Shingo Prize Research Award. Dyer’s research has been featured in publications such as Forbes, The Economist, Fortune, BusinessWeek and The Wall Street Journal. Dyer, a former manager at consultancy Bain & Company, regularly consults and speaks on innovation and strategy.
Hal is also the Abu Dhabi Commercial Bank Chaired Professor of Innovation and Leadership at INSEAD and founder of the 4.24 project, dedicated to rekindling the provocative power of asking the right questions in adults to ultimately cultivate and sharpen the curiosity of the world’s children. His trilogy of books, “The Innovator’s DNA,” “Leading Strategic Change” and “Global Explorers,” reflect a lifelong commitment to developing leaders who make a difference. He serves as a board member at Pharmascience and regularly delivers inspirational keynote speeches on innovation and change throughout the world.
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