Time for Some Innovation

Stephen DeAngelis

December 09, 2010

Edmund S. Phelps, 2006 Nobel laureate in Economics and the director of the Center on Capitalism and Society at Columbia University, decries the fact that “in established businesses, short-termism has become rampant. Executives avoid farsighted projects, no matter how promising, out of a concern that lower short-term profits will cause share prices to drop.” [“The Economy Needs a Bit of Ingenuity,” New York Times, 6 August 2010]. Phelps continues:

“Timid and complacent, our big companies are showing the same tendencies that turned traditional utilities into dinosaurs. … Many of the factors that have long driven American innovation have dried up. Droves of investors, disappointed by their returns, have abandoned the venture capital firms of Silicon Valley. At pharmaceutical companies, computer-driven research is making fewer discoveries than intuitive chemists once did. We cannot simply assume that, when the recession ends, American dynamism will snap back in place.”

Phelps’ recommendation is that businesses get busy innovating. He concludes:

“Sustained business investment … rests on innovation. Business cannot wait for discoveries in science or the rare successes in state-run labs. Without cutting-edge products and business methods, rates of return on a great many investments will sag. Furthermore, innovation creates jobs across the economy, for entrepreneurs, marketers and buyers. State-led technology projects do not. … One reform would be to create a First National Bank of Innovation — a state-sponsored network of merchant banks that invest in and lend to innovative projects. Another would be to improve corporate governance by tying executives’ compensation to long-term performance rather than one-year profits, and by linking fund managers’ pay to skill in picking stocks, not in marketing their funds. Exempting start-ups from corporate income tax for a time would also help.”

Although the new Congress might consider exempting start-ups from corporate income tax (few make much money their first few years in business anyway), good luck trying to get “a state-sponsored network of merchant banks” program through Congress. Jeneanne Rae, a co-founder and president of Peer Insight and one of BusinessWeek‘s 2005 “Leaders of the Year,” asserts that “innovation is about more than lip service. It requires genuine commitment to corporate change.” [“Innovation’s Dirty Little Secret,” Bloomberg BusinessWeek, 21 June 2010]. She continues:

“The fact is, the days when innovation was focused primarily on technological breakthroughs and new product development are gone. Fast-paced environmental shifts require constant change in systems, people, and processes. Organizational flexibility and agility are now critical capabilities for any corporation trying to lead. So any executive looking to innovate needs to invest significantly in a way to support the change needed to make that revenue become a reality.”

I don’t think Rae and Phelps are necessarily talking at cross-purposes, even though Phelps does seem to focus on technology. Both of them insist that commitment to innovation is lacking in many business leaders. G. Michael Maddock, chief executive officer, and Raphael Louis Vitón, president of Maddock Douglas, an innovation consultancy that helps clients invent, brand, and launch new products, services, and business models, agree with Rae and Phelps that commitment means more than talk [“The CEO’s Innovation Nightmare,” Bloomberg BusinessWeek, 13 September 2010]. They note that many a CEO has announced that change is in the air and declared that innovation is going to define his or her company’s future only to have something unfortunate to happen. “Nothing. Nothing happens. Nothing at all.” They continue:

“Why? Blame it on the inevitable outcome when a bull meets a grizzly bear—and a bunch of its friends—in the woods. … In the world of investments, there are bears, and there are bulls. The bears say things are going to get worse, and the bulls optimistically and aggressively place bets that not only won’t that be the case but also everything is going to get better. (‘We can reinvent our industry.’) In the world of corporate innovation, the CEO is often a bull who makes the unfortunate mistake of surrounding himself or herself with bears. We love bullish CEOs, but we’re pretty sick of working with bears. They tend to nod a lot in meetings and then passive aggressively do everything in their power to keep any significant change from happening. To the CEO’s face, they say the truly needed innovation effort is, in fact, truly needed. When the CEO is out of sight, they whisper to everyone in the senior ranks that things are just fine as they are. (We all here on the executive level have jobs, don’t we?) It is incredible how many companies are run by bulls who surround themselves with bears, and ‘surround’ is the right word. The pure-of-heart CEO is hopelessly outnumbered. And so nothing happens. For fans of innovation, this is like a football owner who promises the Super Bowl but spends no money on free agency. Eventually the fans—the stockholders, the partners, the employees—give up. They stop believing. They find another team.”

Maddock and Vitón confess that they “are truly hopeless optimists,” which means they believe that the bulls can win. As optimists, they provide a “few tips that will absolutely make your corporate life better—and more fulfilling.” Their first tip: Hire the right people.

“Recruit believers. Henry Ford said, ‘If you believe you can or believe you can’t, you’re right.’ If you have people on your staff who don’t really believe change is possible or that the old way is good enough, for God’s sake, release them to find a more fulfilling destiny. If you don’t have the guts to do it, then please stop saying you are going to change the world. Because your people simply won’t let it happen, and you are going to look like a fool.”

One caution here: There is a difference between hiring true believers who are motivated to make change work and sycophants who are good at saying “yes,” but not good at following through. Sycophants are not bears; but they aren’t bulls either. I’ve read before that if you really want change to happen, then you had better convince the middle managers and get them on your side. Maddock’s and Vitón’s next suggestion falls along those same lines.

“Hire objective senior managers. This is a nice way of saying you should bring in leaders from outside your industry. Albert Einstein said, ‘One should not expect to solve a problem with the same level of intelligence that caused it.’ Einstein was really smart (about management, as it turns out). If you have people leading your research, marketing, and strategy group with a combined 40 years of industry experience, they are about to help you break your promise to your shareholders. Said differently, they are rolling their eyes at you. ‘You don’t get it,’ they are saying behind your back. They know the rules. They know what’s possible. They know what can and can’t be done. They can and will bend the data to prove their points. Meanwhile, a competitive team with a combined zero years of industry experience is about to reinvent your industry. These people are going to deliver on the promise you made to Wall Street. You must go find those really smart, really capable, really courageous risk-takers and offer them jobs. They will get it done. They will help you keep your promise. They believe. Most of your current team does not.”

Readers of this blog know that I’m a supporter of cross-discipline collaboration. I believe that getting a fresh perspective on a challenge is generally a good idea. I’m not sure that I would simply fire everyone with experience and bring in an entirely new team with zero experience. There are numerous examples of mavericks in business — people with experience but who long to see things changed. The mavericks are every bit as valuable as the newcomers. Good followers are also valuable. Not everyone needs to be a leader — nor does everyone need to be a bull or bear. I do agree that if you find an obstructionist bear, you need to get rid of him or her. Next Maddock and Vitón turn to the subject of risk.

“Promote failure. Entrepreneurs understand that each small failure brings them closer to the solution. So find ways to demand lots of baby-step failures that promote learning and create a culture of action. This will get you to the finish line and keep fear of failure from locking up your innovation engine.”

You’re probably thinking that promoting failure is a bad idea. I agree. There is a difference between promoting failure and tolerating it. Almost every creativity guru you will find will tell you that you cannot be innovative if you have a fear of failure; but deliberately promoting failure is a bit much. Maddock and Vitón do make a good point about failure in their next suggestion:

“Fail forward. Get into the habit of creating many experiments and celebrating the learning. For example: ‘In this experiment we learned that people did not understand our offer.’ ‘In this experiment we learned we were charging too much.’ And ‘in this experiment we learned that the button had to be in a different place.’ Each ‘failure’ is actually a success, because the team has learned something important and has moved one more step closer toward getting it right.”

I agree with them. Failing forward is common sense. If you are not learning from your failures … well … you’re going to fail! Maddock and Vitón next turn to the environment in which innovation takes place. They continue:

“Control the framing. Every company has its own language when it comes to the innovation process. Many times this language has been linked to past projects. For example, the last team that created a ‘working prototype’ may have overinvested in the experience and created unrealistic expectations for your team. That’s why we encourage you to invent your own innovation language. For example, calling something a ‘feedback concept’ may be better than calling it a working prototype. If you control the language, you control the expectations.”

I believe that an innovative environment requires more than simply controlling the language. To me “controlling the framing” means creating a culture of innovation. Language is certainly a part of that cultural framework, but only a small part. Culture also involves processes, how people interact, and even the space in which most innovation takes place. Maddock and Vitón conclude with one final suggestion:

Quit. If you find yourself so afraid, so burned-out, so cynical that you can’t believe a big idea is about to happen, it is time to move on to the next challenge. You have the smarts, the experience, the skills to become an amazing change agent in another industry. Go find it. Your new peers will be amazed at how you can see things that they can’t and have the solutions that have eluded them.”

Truly innovative people have restive spirits. They embrace change rather than fear it. Even while they are helping solve one challenge, they are looking for the next challenge to tackle. I believe that Maddock and Vitón are simply encouraging the “bulls” to be true to themselves. It’s much easier to be a bull in a small organization than in a large one, which is why so many bulls are entrepreneurs. A bull that can be successful in a large organization is a rare breed of bull indeed; which might explain why Phelps, Rae, Maddock and Vitón are not finding many innovative leaders as they scan the business landscape.