Here is a brief excerpt from an article co-authored by Jay Rao and Joseph Weintraub for The MIT Sloan Management Review. To read the complete article, check out others, obtain subscription information, and sign up for email alerts, please click here.
Image courtesy of Flickr user reway2007.
* * *
Today’s executives want their companies to be more innovative. They consume stacks of books and articles and attend conventions and courses on innovation, hoping to discover the elixir of success. They are impressed by the ability of comparatively young companies such as Google and Facebook to create and market breakthrough products and services. And they marvel at how some older companies — Apple, IBM, Procter & Gamble, 3M and General Electric, to name a few — reinvent themselves again and again. And they wonder, “How do these great companies do it?”
After studying innovation among 759 companies based in 17 major markets, researchers Gerard J. Tellis, Jaideep C. Prabhu and Rajesh K. Chandy found that corporate culture was a much more important driver of radical innovation than labor, capital, government or national culture. [Note: 1. G.J. Tellis, J.C. Prabhu and R.K. Chandy, “Radical Innovation Across Nations: The Preeminence of Corporate Culture,” Journal of Marketing 73, no. 1 (January 2009): 3-23.] But for executives, that conclusion raises two more questions: First, what is an innovative corporate culture? And second, if you don’t have an innovative culture, is there any way you can build one? This article addresses both questions by offering a simple model of the key elements of an innovative culture, as well as a practical 360-degree assessment tool that managers can use to assess how conducive their organization’s culture is to innovation — and to see specific areas where their culture might be more encouraging to it.
Six Building Blocks of an Innovative Culture
An innovative culture rests on a foundation of six building blocks: resources, processes, values, behavior, climate and success. These building blocks are dynamically linked. For example, the values of the enterprise have an impact on people’s behaviors, on the climate of the workplace and on how success is defined and measured. Our culture of innovation model builds upon dozens of studies by numerous authors.
When it comes to fostering innovation, enterprises have generally given substantial attention to resources, processes and the measurement of success — the more easily measured, tools-oriented innovation building blocks. But companies have often given much less attention to the harder-to-measure, people-oriented determinants of innovative culture — values, behaviors and climate. Not surprisingly, most companies have also done a better job of managing resources, processes and measurement of innovation success than they have the more people-oriented innovation building blocks. As many managers have discovered, anything that involves peoples’ values and behaviors and the climate of the workplace is more intangible and difficult to handle. As one CEO put it, “The soft stuff is the hard stuff.” Yet these difficult “people issues” have the greatest power to shape the culture of innovation and create a sustained competitive advantage.
[Here's the first of the six that Rao and Weintraub discuss.]
Values drive priorities and decisions, which are reflected in how a company spends its time and money. Truly innovative enterprises spend generously on being entrepreneurial, promoting creativity and encouraging continuous learning. The values of a company are less what the leaders say or what they write in the annual reports than what they do and invest in. Values manifest themselves in how people behave and spend, more than in how they speak.
* * *
To read the complete article, please click here.
Jay Rao is Professor, Strategy & Innovation, at Babson College. He earned a B.Engg. degree at Indian Institute of Technology( Chennai, India), an M.S. at the University of Kentucky, and a Ph.D. at University of California, Los Angeles. Joseph Weintraub is the Founder and Faculty Director of the Babson Coaching for Leadership and Teamwork Program. He earned a B.S. at the University of Pittsburgh and M.A. and Ph.D. degrees at Bowling Green State University
Daly is the Liddell Professor of Communication and TCB Professor of Management at The University of Texas at Austin. While at the university, he has won every major Daly is the Liddell Professor of Communication and TCB Professor of Management at The University of Texas at Austin. While at the university, he has won every major award given on campus for undergraduate teaching. John has been the president of the National Communication Association, and served on the Board of Directors of both the International Customer Service Association and the International Communication Association. He is one of fewer than 70 scholars in the world who is a Fellow of the International Communication Association. Fellows are recognized for their major scholarly contributions.
He has published numerous research articles in scholarly periodicals and produced eight books. John’s latest book is Advocacy: Championing Ideas and Influencing Others. His work has also appeared in any number of popular outlets including Wall Street Journal, Washington Post, Investor’s Business Daily, and New York Times. He has also worked with many organizations on topics related to communication, advocacy and leadership. These include such major firms as Morgan Stanley, Goldman Sachs, Merck, Pfizer, USAA, Union Pacific, Kraft, Apple, IBM, Shell, ExxonMobil, Texas Instruments, 3M and Dell. In addition, he worked at the White House some years ago.
Here is an excerpt from my interview of him. To read the complete interview, please click here.
* * *
Morris: Before discussing Advocacy, a few general questions. First, who has had the greatest influence on your personal growth? How so?
Daly: Honestly, my wife. She is far wiser than anyone else I know.
Morris: The greatest impact on your professional development? How so?
Daly: My students who ask brilliant questions on a regular basis.
Morris: Years ago, was there a turning point (if not an epiphany) that set you on the career course you continue to follow? Please explain.
Daly: In terms of my work on advocacy, the turning point was when I was working with a company and one brilliant employee complained he didn’t get the credit he deserved for his ideas. He was right. This prompted me to start exploring what it takes for people, like this scientist, to get their ideas adopted.
Morris: To what extent has your formal education been invaluable to what you have accomplished in life thus far?
Daly: All of it has mattered. I was at different stages of personal growth at different points in my career. My undergraduate years were lots of fun and thanks to some splendid faculty I pursued graduate school. And graduate school offered me brilliant mentors and the opportunity to do what I like the most—research and teach.
Morris: What do you know now about business world that you wish you knew when you when to work full-time for the first time? Why?
Daly: The politics are very real. It isn’t your accomplishment that matter alone; it is your ability to market those accomplishments that often make the real difference. There is a politics to ideas.
Morris: Of all the films that you have seen, which – in your opinion – best dramatizes important business principles? Please explain.
Daly: An old movie — Twelve o’Clock High comes to mind…it is about leadership, teamwork, delegation.
Morris: From which non-business book have you learned the most valuable lessons about business? Please explain.
Daly: Two answers For general knowledge — biographies; for my interest in advocacy — Machiavelli’s The Prince.
* * *
To read the complete interview, please click here.
John cordially invites you to check out the resources at these websites:
His faculty page.
Communication Studies page.
McCombs School of Business page.
John’s Amazon page.
Here is an excerpt from an article written by Dave Logan for CBS MoneyWatch, the CBS Interactive Business Network. To read the complete article, check out an abundance of valuable resources, and obtain a free subscription to one or more of the website’s newsletters, please click here.
* * *
(MoneyWatch) Innovation is great fun to study, filled with inspiring stories — 3M’s invention of Post-it note glue, Xerox’s development of the graphic user interface or the many stories about Steve Jobs’ last few years at Apple. Equally interesting is the fact that most approaches to innovation backfire, resulting in the entrepreneurial spirit being broken by people who are trying to make it flourish.
Innovation cannot be managed — a lesson China, and most big companies — need to learn. It can, however, be led, and here are [two of] four ways to do just that:
1. Focus on the immediate need, not the long-term problem. Airbnb connects people looking for places to stay to those with floor space, rooms and entire apartments or houses to rent. The company had its first major success in Denver during the Democratic National Conference, when then-Senator Obama received his party’s nomination. More people wanted to be in Denver than Denver had hotel rooms. The stories of Obama supporters opening their homes to other supporters, and Airbnb’s role in making the connections, made international news. After that initial success, web traffic and listings dropped to near zero. Soon after, the company needed cash — immediately. They focused on what they knew — how to get stories in the international press, and also Obama supporters. Airbnb deviated from its core business and introduced Obama O’s cereal, which carried the subtitle “hope in every bowl.” They also introduced Cap’n McCains (“a maverick in every bite”), although Obama O’s was a bigger hit. After printing up boxes and securing cereal, they sent sample boxes to reporters, and the story went global. Orders surged – getting the company the cash it needed. Notice that Airbnb focused on the immediate problem — getting cash – not the long-term problem of not enough business for its core operations.
2. Highlight scarcity. Many people think — erroneously — that innovation results from blue-sky thinking, or people having a lot of free time. The truth is that necessity is the mother of invention, and also of innovation. Said differently, scarcity drives innovation, according to numerous studies. The problem is that many companies wait too long before admitting there’s a problem, not giving innovation enough time to offer solutions. Airbnb illustrates this point — the founders focused on the lack of cash (the scarce resource), and did so in time to do something about it (barely). When caught in time, people will often respond to scarce resources by combining their creativity. Scarce viewers force advertisers to find new ways to reach people, just as wars increase technological innovation, especially on the side facing a disadvantage. The scarcities inherent in sending people the moon famously drove NASA and its contractors to create many technological breakthroughs.
* * *
To read the complete article, please click here.
“Making innovation work quickly is the subject of my personal blog, where you can also download a segment from a course on innovation, based on content from my course in the USC Executive MBA program.”
Dave Logan is a USC faculty member, management consultant, and the best-selling author of four books including Tribal Leadership and The Three Laws of Performance. He is also Senior Partner of CultureSync, a management consulting firm, which he co-founded in 1997.
Note: I recently re-read this book and found the information and insights more valuable now than they were when I first read it seven years ago. It should also be noted that Amazon sells a paperbound edition for only $12.99. If that isn’t a great bargain, I don’t know what is.
From “acorns” of ideas to “oak trees” of business success
Ross and Holland provide mini-profiles of 100 quite different companies, some of which were later sold before they became dominant in their respective industries, others that continue to thrive under the leadership of their founders or second-generation successors. What these remarkable companies share in common (other than their great success) is that each is based on an insight with regard to how to solve a problem. Here’s an example of such an insight that resulted, not in one great company but in a product that transformed an entire industry. George de Mestral was irritated by the fact that burrs stuck to his clothes and to his dog’s fur on their walks in the Alps. He examined the burrs and saw the possibility of binding two materials reversibly in a simple fashion. He devised a hook-and-loop fastener in 1945 and later patented the device, naming it “Velcro” after the French words velours and crochet meaning “velvet hook.”
With all due respect to such insights, however, Ross and Holland repeatedly remind the reader that coming up with a “great idea” is only the first stage of what is almost always a very long and especially difficult journey. Few who embark on that journey eventually complete it. In this context, I am reminded of Thomas Edison’s observation “Vision without execution is hallucination.” Also of Darrell Royal’s suggestion that “potential” means “you ain’t done it yet.”
Here are six mini-commentaries, each of which includes a brief excerpt or two from the narrative.
Baby Einstein: Dissatisfied with videos, books, and other baby products then on the market (in 1997), Julie Aigner-Clark began making a homemade video for her infant daughter Aspen. The result was the “Baby Einstein Language Nursery” and it attracted so much attention so quickly that in the first year, sales were about $100,000 and she added other videos (e.g. Baby Bach, Baby Mozart, Baby Van Gogh, and Baby Shakespeare). By the time she and her husband Bill sold the company to Disney, sales exceeded $20-million. The Disney resources (especially marketing, promotion, and distribution) drove sales to more than $165-million in 2003. There are now 70 Baby Einstein products available. “That’s always where we hoped the brand would go but didn’t have the ability to take it.” Aigner-Clark continued as a consultant to Disney insists that she is happy with the sale.
Calloway Golf: The Big Bertha driver is probably its most famous product, certainly the one that accelerated its most rapid and most profitable period of growth. Working with his chief club designer, Dick Helmstretter, Ely Calloway developed a BB-3 prototype and tested it on a driving range and as he recalls, “neither of us could do anything but hit it great. We just sort of looked at each other and said, `”Wow, we’ll never be able to make enough.’” Calloway renamed it “Big Bertha” after a large howitzer used by the German Army during World War One. Pro golfers as well as hackers soon found that they could hit drives with it longer and straighter than with any other club. Two years before his death in 1999, Calloway explained, “Up until 1991, what was wrong with drivers is that everyone hated them. The driver was the least favored club in the bag, or the most feared. They bought them but they did not like them. Big Bertha changed the attitude of the masses from one of fear about the driver to one of affection.”
Liquid Paper: Betty Nesmith Graham was a single mother who returned to the workplace to support herself and her young son. She immediately encountered difficulties with the recently introduced electric typewriter. Making only one mistake required that an entire page be retyped and she was constantly making mistakes. Then she decided to experiment with a white, water-based tempera paint. Using a thin paintbrush, she easily corrected her mistakes. She called this liquid “Mistake Out” and began to give and then sell small bottles of it to other secretaries. By 1957, she was selling about 100 bottles a month. The next year, she renamed it “Liquid Paper.” Graham retired from the company in 1975 and died in 1980 at age 56, just six months after selling her corporation to Gillette for $47.5-million. Liquid Paper is now owned by Newell Rubbermaid.
Dyson: James Dyson built 5,127 vacuum cleaner prototypes before he got one to work properly. His was hardly an “overnight sensation” and, in fact, most of the 100 business successes that Ross and Holland examine in abbreviated accounts were achieved after several years of very hard work despite repeated failure and rejection. Dyson offers an excellent case in point.
Super Soaker: In 1982, while an employee at NASA’s Jet Propulsion Laboratory in 1982, Lonnie Johnston was working on an environmentally friendly heat pump that ran on water. He decided to attach a homemade high-pressure nozzle to the sink in the bathroom “and was startled when it fired a blast of water across the room. His first thought was, ” Gee, that would make a great water pistol.” He began to experiment with a series of prototypes (e.g. a soda bottle, plexiglass, lengths of PVC tubing, and a bicycle pump), confident that his idea had commercial possibilities. He filed a patent for “Pneumatic Water Gun” that eight years later went into production as what we now know as the Super Soaker. In 1992, David Letterman included it on one of his “Top Ten Items on the Bush Yeltsin Summit Agenda”…number ten was “Sign arms pact limiting number of Super Soaker squirt guns.” Annual sales now exceed $1-billion.
3M: The Post-it Note story is probably the best known of all the stories that Ross and Holland recount in this volume. It certainly offers still another example of the equally familiar aphorism that necessity is the mother of invention. An employee of 3M, Art Fry was a member if his church’s choir and was frustrated by the fact that the slips of paper he used to mark hymns repeatedly fell out of his hymnal. What he needed was a sticky bookmark that did not harm paper. He knew of a new adhesive being developed by Spence Silver at 3M and realized that perhaps, just perhaps it could solve his problem. It did but only after five years of additional research and development. The Post-it Note was finally launched in1980 and was an instant success. There are now more than 1,000 varieties of it on the market and together, they generate hundreds of millions of dollars in annual sales. After a 40-year career at 3M, Fry retired. “If we discover something, we have a chance to stop and look at it. This is very important because lots of things are discovered and passed by because everybody’s too busy.”
These brief comments of mine by no means do full justice to the mini-profiles that Ross and Holland provide. However, I hope they encourage those who read this review to obtain a copy. Yes, it is highly informative but also consistently entertaining. I also highly recommend Daniel Gross’s Forbes Greatest Business Stories of All Time. Don’t let its publication date (1997) fool you. Once a great business story, always a great business story. There are 20 of them in this volume (including those briefly discussed and the paperbound edition only costs $13.06.
Rebecca Costa is a sociobiologist who offers a genetic explanation for current events, emerging trends and individual behavior. A thought-leader and provocative new voice in the mold of Thomas Friedman, Malcolm Gladwell and Jared Diamond, Costa examines “the big picture”– tracing everything from terrorism, crime on Wall Street, epidemic obesity and upheaval in the Middle East to evolutionary forces. Costa spent six years researching and writing The Watchman’s Rattle: Thinking Our Way Out of Extinction. In her book, she explains how the principles governing evolution cause and provide a solution for global gridlock. The success of Costa’s first book led to a weekly radio program in 2010 called Rattler Radio. In 2011 the program was renamed and syndicated as The Costa Report, currently one of the fastest growing radio programs on the Central Coast of California.
A former CEO and founder of one of the largest marketing firms in Silicon Valley (sold in 1997 to J. Walter Thompson), Costa developed an extensive track record of introducing new technologies. Her clients included industry giants such as Hewlett-Packard, Apple Computer, Oracle Corporation, Seibel Systems, 3M, Amdahl, and General Electric Corporation. Raised in Tokyo, Japan, Costa lived during the Vietnam conflict in Vientiane, Laos, where her father worked in covert CIA operations. She attributes her ability to see the “big picture” to her cross-cultural education and upbringing. She graduated from The University of California at Santa Barbara with a Bachelors Degree in Social Sciences.
Here is an excerpt from my interview of her. To read the complete interview, please click here.
* * *
Morris: Before discussing your brilliant book, The Watchman’s Rattle, a few general questions. First, who has had the great influence on your personal growth? How so?
Costa: I spent my formative years in Japan. My Japanese grandmother was a Zen Buddhist. Her reverence for nature had a huge impact on how I now view my place in the natural world.
Morris: The greatest impact on your professional development? How so?
Costa: In 1975, I picked up a copy of Edward Wilson’s watershed book, Sociobiology: The New Synthesis, and it changed my life. With enormous clarity and compassion, Wilson forged the connection between evolution and the behaviors or modern man.
Morris: Was there a turning point (if not an epiphany) years ago that set you on the career course you continue to follow? Please explain.
Costa: Like many college students, once I graduated from the University of California I returned home. At the time my parents were living in a suburb next to what would later become Silicon Valley. I found a job at a technology company and worked in Silicon Valley through the eighties and nineties when there was explosive growth. It was during this time that I began keeping notebooks. According to the founder of Intel, Robert Noyce, data densities would double every 18 months. But any evolutionary biologist knows that adaptation is very slow – sometimes occurring over millions of years. At some point, human progress would exceed the capabilities that humans had evolved to that point in time – and what then?
Morris: To what extent has your formal education proven invaluable to what you have accomplished in your life thus far?
Costa: It was the combination of my education as an evolutionary biologist and my experience with accelerating technology, while working in the heart of Silicon Valley, that caused me to become concerned about the future of humankind. I knew that the day would soon come where life would become too complex, too over-featured, too specialized for the man on the street to navigate competently, let alone the leaders of entire countries.
Morris: Let’s say that you are hosting a private dinner party and can invite any six people throughout human history as your guests. Who would they be and what would you be most interested to learn from each? Why?
Costa: That’s an easy one. Charles Darwin would be seated at the head of the table. 153 years ago he discovered the most important principles which govern all life on earth. And that includes us, whether we like it or not. Next to Darwin I would like to seat Ghandi, Richard Feynman, Hemmingway, Kant, and Edward Wilson. What? Only six? May I have that table extension please?
Morris: What do you know now that you wish you had known when you first entered the business world full-time?
Costa: That I am driven by fear. Fear of failing, fearing of being judged, fear of embarrassment, fear of being poor, fear of giving the wrong answer, fear of being unprepared or ignorant. I was successful in business, but it never did a thing to make me feel safe.
Morris: Opinions are divided (sometimes sharply divided) on the importance of charisma to effective leadership. What do you think?
Costa: The problem with charisma is that it’s just like trying to be funny. The worst thing a person can do is try to be funny. The same goes for charisma. Authenticity is the only charisma that works.
Morris: In recent years, there has been severe criticism of MBA programs, even those offered by the most prestigious business schools. In your opinion, which area is in greatest need of immediate improvement? What specifically do you suggest?
Costa: The MBA has come and gone and is no longer relevant. Teaching people how to solve problems – how to think their way out of a jam with speed and agility is the new talent executives need. That and computing skills.
* * *
As Jeremy Hope and Steve Player explain in Beyond Performance Measurement: Why, When, and How to use 40 Tools and Best Practices for Superior Business Performance, sustainability is not a passing fad. “Nor is it a public relations exercise. It offers a host of new opportunities to reduce waste, cut costs, and develop new and exciting products and services. But it means rethinking deeply ingrained management practices, such as the way firms set financial targets and budgets that collide with many principles of sustainability.”
The aim is to cut waste both within and beyond the organization and in a much wider ecosystem. That will require new thinking, obviously, but also new strategies, tactics, processes…and products. With all due respect to economic and operational incentives, I feel very strongly about the importance of “good citizenship.” It is no coincidence that the companies that are annually ranked among those that are most highly admired and the best to work for are also among those annually ranked among the most profitable and having the greatest cap value within their industry.
Here is what Jeremy Hope and Steve Player recommend.
Actions to Avoid
o Stop paying lip service and take sustainability seriously.
o Challenge economies-of-scale thinking.
o Be wary of short-term budgets and targets.
Actions to Take
1. Examine the evidence. (Check out exemplars such as Nokia, 3M, and Toyota.)
2. Embrace lean (or systems) thinking.
3. Measure what’s important.
4. Start measuring the triple bottom line (i.e. economic, environment, and social).
* * *
For a thorough discussion of sustainability and 39 other major business topics, I highly recommend Hope and Player’s aforementioned Beyond Performance Measurement, published by Harvard Review Press (February, 2012).
How to “take effective action to promote high levels of employee enablement and unleash the full potential of your people”
Extensive research in recent years by highly reputable firms such as Gallup, TowersWatson, and the Great Place to Work Institute® leaves little (if any) doubt that there is a direct correlation between positive or negative employee engagement and organizational success or failure. Seven years of research conducted by the Hay Group’s employee research division revealed what Mark Royal and Tom Agnew characterize in this book as “a significant, but often overlooked, threat to both employee engagement and individual and organizational success”: frustration. More specifically, “a highly engaged employee’s inability to succeed in a role due to organizational barriers or the bulk of her or his talents, skills, and abilities to the [given] job.”
Royal and Agnew have written a business narrative during which fictional characters address real-world issues. The co-authors (1) introduce the concept of workplace frustration, (2) differentiate employee engagement (helping employees to motivate themselves to succeed) from employee enablement (developing their ability to perform effectively), (3) explain the nature and potential impact of “tenure effect,” (4) introduce a systematic review of root causes of workplace frustration and identify “key aspects of the work environment that should be focus areas for managers in understanding current enablement levels within their teams,” (5) then shift their attention to strategies for minimizing workplace frustration, and in the final chapters, and (6) discuss the role of managers as “organizational change agents.”
What sets this book apart from other recently published books on the problems of employee engagement and how to solve them is its focus on employees who were once actively and productively engaged and have either become passively engaged (“mailing it in”) or actively disengaged and, in some instances, perhaps even hostile and toxic. During exit interviews of highly-valued employees before they depart to work elsewhere, they express frustration with working conditions (especially those who supervise them) that prevent them from personal growth and/or professional development.
These are among the subjects that Royal and Agnew examine:
o Why “top performers or potential high performers” leave
o Cross-industry concerns about supportiveness of work environment
o Why high levels of engagement do not necessarily result in peak performance
o A leader’s primary responsibilities
o A manager’s primary responsibilities
o How most admired companies use enablement in strategy execution
o “Realistic” job previews and onboarding
o Self-Assessment for Managers: to identify enablement opportunities
o What drives employee enablement
o Self Assessment for Managers: empowerment, provision of support resources, teamwork coordination
In 1924, then chairman and CEO of 3M, William L. McKnight, observed, “If you put fences around people, you get sheep. Give people the room they need.” Mark Royal and Tom Agnew agree, adding that employees also need leaders and managers who make performance expectations crystal, explain how each individual’s efforts help to achieve the strategic goals of the given enterprise, and provide support and encouragement that empower them, thereby enable them, to succeed.
Tom Stewart is Booz & Company’s Chief Marketing & Knowledge Officer. In a recent email update, he asks several intriguing questions: Are there CEOs anywhere in the world who want their companies to become less innovative? Is anyone calling on employees to do a better job of thinking inside the box? No—everyone’s in favor of innovation and creativity.
He goes on to note that ink and oratory aren’t enough. Nor is throwing money around. Booz & Company’s annual study of companies that invest the most in innovation reveals a surprising fact: Fewer than half say that their business strategy, innovation strategy, and corporate culture are aligned. Furthermore, the data reveals that the strategy-culture connection has a powerful multiplier effect, dramatically increasing the effectiveness of R&D spending. (Apple, named first for innovativeness by executives, ranks just 70th in R&D spending.)
As Stewart explains, The Innovation 1000 study, now in its seventh year, is recognized as the premier analysis of R&D investment globally. This year’s report shows what’s happened to spending levels, which companies and industries are investing the most, who’s investing most effectively—and why it is that some companies consistently get more from their R&D than others.
That theme—value for money—is much on the minds of executives everywhere. Please take a look at the three other articles I’ve listed below. One examines value-creation strategies honed by private equity firms that apply well to public and other private companies. The second, which we developed with Buddy Media, has brand-new findings about where social media marketing is adding value (and where it’s just making noise). The third looks at one of the knottiest problems in business and public policy: how to focus the healthcare industry on value, not just cost.
Here is an excerpt. To download a pdf of The Global Innovation 1000 (2011): Why Culture is Key, please click here.
* * *
Year after year, certain companies succeed in producing innovative new products and services, and in so doing generate superior financial results. As our annual Global Innovation 1000 study, now in its seventh year, has consistently demonstrated, the success of these companies is not a matter of how much these companies spend on research and development, but rather how they spend it. This year, we took under consideration two particular qualities — strategic alignment and a culture that supports innovation — that truly innovative companies have put in place that allow them to outperform the competition.
Every company among the Innovation 1000 follows one of three innovation strategies — need seeker, market reader, or technology driver. While no one or another of these strategies offers superior results, companies within each strategic category perform at very different levels. And, no matter a firm’s innovation strategy — culture is key to innovation success, and its impact on performance is measurable. Specifically, the 44 percent of companies who reported that their innovation strategies are clearly aligned with their business goals —and that their cultures strongly support those innovation goals — delivered 33 percent higher enterprise value growth and 17 percent higher profit growth on five-year measures than those lacking such tight alignment.
Booz & Company also asked innovation leaders participating in the survey to name the companies they considered to be the most innovative in the world. For the second year in a row, Apple led the top 10, followed by Google and 3M. This year, Facebook was named one of the world’s most innovative companies, entering the list at number 10. In a comparison of the firms voted the 10 most innovative versus the top 10 global R&D spenders, Booz & Company found that the most innovative firms outperformed the top 10 R&D spenders across three key financial metrics over a 5-year period – revenue growth, EBITDA as a percentage of revenue and market cap growth.
* * *
To download a pdf of The Global Innovation 1000 (2011): Why Culture is Key, please click here.
Thomas A. Stewart is the Chief Marketing and Knowledge Officer of Booz & Company, a global management consulting firm. Prior to joining Booz & Company, he was the editor and managing director of Harvard Business Review (HBR) from 2002-2008. Prior to joining HBR, he was editorial director of Business 2.0 and a member of the Board of Editors of Fortune magazine. In a series of Fortune articles, he pioneered the field of intellectual capital, which led to his 1997 book, Intellectual Capital: The New Wealth of Organizations. His second book, Wealth of Knowledge: Intellectual Capital and the Twenty-first Century Organization, reveals how today’s companies are applying the concept of intellectual capital in their operations to increase success in the marketplace.
Denning asserts, “the problems of today’s workplace are not the personal fault of the individual managers. They are largely the fault of the system they are implementing, which relentlessly constrains the capacity of people to contribute, limits the firm‘s productivity, and practically guarantees that clients will be dissatisfied. The mental model of management that these companies are pursuing, with interlocking attitudes and practices, methodically prevents any individual management fix from permanently taking hold.” Ironically and sadly, this is precisely the situation to which then chairman and CEO of 3M, William L. McKnight responded…86 years ago: “If you put fences around people, you get sheep. Give people the room they need.”
As Denning already knows and understands full well, the institutional constraints that must be eliminated comprise a system (i.e. the status quo) that current senior managers worked hard to establish and are certain to defend. Most change initiatives fail or fall far short of their goals because of resistance that is essentially cultural in nature. He advocates what he characterizes as “radical management,” based on seven principles. My own opinion is that none of these principles is “radical.” On the contrary, as studies conducted by several dozen highly reputable firms and research teams have revealed beyond any doubt, all organizations that achieve and then sustain superior performance have strategies (“hammers”) and tactics (“nails”) based on these principles.
Perhaps at least some senior managers now responsible for the system to which Denning refers (i.e. one that “relentlessly constrains the capacity of people to contribute, limits the firm‘s productivity, and practically guarantees that clients will be dissatisfied”) view the seven principles as “radical.” Hopefully, they will read this book and, more to the point, recognize what they must do to institutionalize the system Denning has devised.
Readers will especially appreciate the fact that Denning devotes a separate chapter to each of the seven principles, concluding each with a set of Practices. For #1, 9 of them; then for the others, #2 (7), #3 (15), #4 (14), #5 (13), #6 (10), and for #7 (10). In Chapter 4, he also includes four Tactics for introducing radical management into “even the most intractable high-end knowledge culture.” Readers will also appreciate Denning’s skillful use of real-world examples (e.g. World Bank, Easel Corporation, Curb Records, Enterprise Rent-a-Car, Ernst & Young, NUMMI, and Toyota) that illustrate one or more key points.