Innovative Companies Demand Innovative Leaders

Here is an excerpt from an article written by Jeff Dyer, Hal Gregersen, and Clayton Christensen for the Harvard Business Review blog. To read the complete article, check out the wealth of free resources, and sign up for a subscription to HBR email alerts, please click here.

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Forbes recently published our list of the world’s most innovative companies in which we ranked companies based upon their innovation premium. But why do some companies have a high innovation premium while others do not? During our study we learned that a leader’s everyday actions are one of the most powerful signals to their team and organization that innovation truly matters.

Dozens of senior executives at large organizations revealed to us in interviews that in most cases they did not feel personally responsible for coming up with innovations. They felt only a responsibility to “facilitate the process,” to make sure someone else in the company was doing it. But in the world’s most innovative companies, senior executives like Jeff Bezos (Amazon), Marc Benioff (salesforce.com), and A.G. Lafley (Procter & Gamble) did not just delegate innovation; they kept their own hands deep in the innovation process.

Leaders at companies with high innovation premiums, in fact, landed at about the 88th percentile on our Innovator’s DNA assessment, which measures the five skills of disruptive innovators: questioning, observing, networking, experimenting, and associational thinking. CEOs of average companies, in comparison, scored at about the 68th percentile. Because disruptive leaders excelled at the Innovator’s DNA skills, they valued the same skills in other people. So much so that others within the organization felt that reaching top executive positions required personal innovation capability. This expectation helped foster an innovation focus throughout the company.

Apple’s performance under Steve Jobs powerfully illustrates that point. During Jobs’ first tenure at Apple from 1980–1985, he was personally involved in innovation and helped the company reach an innovation premium of 37%. Jobs, in fact, got key ideas for the Macintosh computer (mouse and GUI) during his visit to Xerox PARC. He recalled “being shown a rudimentary graphical user interface. It was incomplete, some of it wasn’t even right, but the germ of the idea was there. Within ten minutes, it was so obvious that every computer would work this way someday.” Jobs was so impressed that he took his entire programming team on a tour of PARC and returned to Apple hell-bent on developing a personal computer that both incorporated and improved upon the technologies he and his team saw. Jobs assembled a team of brilliant engineers, gave them the needed resources, and infused the Macintosh team with a vision of what was possible. That’s what an innovative leader does.

In stark contrast, the executive team at Xerox lacked the discovery skills necessary to exploit technologies developed in their own company. As PARC scientist Larry Tesler observed, “After an hour looking at demos [Jobs and Apple's programmers] understood our technology and what it meant more than any Xerox executive understood after years of showing it to them.” Jobs agreed with Tesler. “Basically they were copier heads that just had no clue about a computer or what it could do. And so they just grabbed defeat from the greatest victory in the computer industry. Xerox could have owned the entire computer industry today.” No wonder Tesler left PARC and joined Apple. Innovators want to work with other innovators.

Not surprisingly, during Jobs’ hiatus from 1985–1998, Apple’s innovation premium plummeted to an average of about 30%. Apple quit innovating and investors lost confidence in its ability to innovate and grow. When Jobs returned and restructured his senior management team with more discovery-driven capacity, Apple’s innovation engine ignited again. It took a few years to get things back on track, but from 2005–2009 Apple’s innovation premium jumped to 52%.

Similarly, Procter & Gamble performed well as an innovative company — 23% average innovation premium from 1985–2000 — before A.G. Lafley became CEO. But Lafley’s focus boosted P&G’s innovation capability, and during his tenure from 2001–2009 he delivered on average a 35% innovation premium. Lafley’s successor, Bob McDonald, carries on this innovation tradition, posting in 2011 a 33% premium and landing at the number 24 spot on our ranking of the most innovative companies. Lafley, McDonald, and other innovative leaders we studied, consciously set the example by modeling innovation behaviors to help make them matter to others.

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.

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Dyer, Gregersen, & Christensen

 

Jeffrey Dyer is the Horace Beesley Professor of Strategy at the Marriott School, Brigham Young University; Hal Gregersen is a professor of leadership at INSEAD; Clayton Christensen is the Robert and Jane Cizik Professor of Business Administration at Harvard Business School and the architect of and the world’s foremost authority on disruptive innovation. They are the co-authors of the The Innovator’s DNA.

 

Judgment: A book review by Bob Morris

Judgment: How Winning Leaders Make Great Calls
Noel M. Tichy and Warren G. Bennis
Portfolio/Penguin Group (2007)

Why a great leader “is the Copernican pivot at the center of the decision-making process”

This is the first book on which Noel Tichy and Warren Bennis have collaborated. Separately, each has already authored or co-authored several of the most influential business books, including Tichy’s The Cycle of Leadership: How Great Leaders Teach Their Companies to Win and The Leadership Engine as well as Bennis’ Geeks & Geezers (later reissued as Leadership for a Lifetime) and On Becoming A Leader: The Leadership Classic.

In the first chapter, Tichy and Bennis assert that what really matters “is not how many calls a leader gets right, or even what percentage of calls a leader gets right. Rather it is important how many of the important ones he or she gets right.” They go on to suggest that effective leaders “not only make better calls, but they are able to discern the really important ones and get a higher percentage of them right. They are better at a whole process that runs from seeing the need for a call, to framing issues, to figuring out what is critical, to mobilizing and energizing the troops.”

Of special interest to me are the different perspectives on the decision making process preferred by a number of exemplary CEOs who include Brad Anderson (Best Buy), Steve Bennett (Intuit), A.G. Lafley (Procter & Gamble), James McNerney (Boeing), and David Novak (Yum! Brands). For example, Immelt’s “Boom, I make the decision” comes after he has obtained all the input needed. “There is a moment when, based on his view of time horizon for the judgment and sufficiency of input and involvement, the leader makes the call.”

According to Tichy and Bennis, there is a framework of three “critical domains” within which all decisions are made. Judgments about people are the most difficult, and most critical; the others involve strategy and crisis. They stress that good judgment calls are a process, not an event. Each begins when a leader recognizes a need and frames the decision to be made, with the process continuing through execution and adjustment. They also stress the importance of possessing sufficient self-knowledge because making a right call “isn’t a solo performance; support teams are vital.” I appreciate the fact that Tichy and Bennis employ a framework of their own when presenting the material concerning the “framework of leadership judgment.” Specifically, they anchor several exemplary, real-world decisions in terms of their storyline and then their preparation, judgment, execution, and evaluation phases.

For example, Tichy and Bennis provide this excerpt from CEO Magazine in which A.G. Lafley explains the storyline for the future success of P&G, one that created the stage to make critical judgments:

“Everything begins here with our purpose. It’s very simple. We provide branded products that improve everyday lives. The values of the company are integrity, trust, ownership, leadership, passion for service and winning…Then we turn to strategy which is choices. Our whole focus has been to grow and profit from the core – and that means core businesses, core capabilities, core technologies…Then (the other piece of this) is selecting, developing, training, teaching, and coaching the leadership team. They are the leadership engine…It’s one team with one purpose and one dream and one set of strategic choices.”

Many of those who read this book will especially appreciate a substantial value-added benefit: the “Handbook for Leadership Judgment” that follows the concluding chapter. In it, Chris DeRose and Tichy provide what I view as an operations manual that will enable a reader to apply what she or he has learned in ways and to an extent that are appropriate to achieving her or his own organization’s specific objectives. DeRose and Tichy make an important distinction between judgment and decision making. “Much of the academic literature and popular notions of decision making culminate in a single moment when the leader makes a decision. In this handbook, we focus on judgment as a process that unfolds over time.”

Noel Tichy and Warren Bennis have provided a brilliant explanation of how winning leaders make great calls and suggest that the greatest among them also help others to do so. (It is worth noting that Immelt spends approximately 25% of his time helping to develop leadership skills in GE’s middle managers.) Although their book will be of interest and value to C-level executives, I think it will also be of substantial benefit, especially to others now preparing for a business career or who have only recently embarked on one. It is imperative for them to understand as soon as possible that the process of making “great calls” requires a parallel, on-going process of increasing knowledge about one’s self, one’s social network, one’s organization, and finally, about the context within which each “call” is made.

The framework that Tichy and Bennis provide gives structure to the process of knowledge acquisition and evaluation; they also suggest a frame-of-reference within which to consider various options when making a decision. As the dozens of real-world examples they citer clearly indicate, all decisions have consequences. Obviously, the more difficult a decision is, the more serious its consequences can be…and usually are. The great leader possesses the judgment to make the “right call.” That is why she or he “is the Copernican pivot at the center of the decision-making process.”

Book Review: SuperCorp

SuperCorp: How Vanguard Companies Create Innovation, Profits, Growth, and Social Good
Rosabeth Moss Kanter
Crown Business (2009)

Becoming a “SuperCorp” (however defined), especially in the current economy, is an admirable achievement but does not necessarily ensure a permanent position. The vanguard companies Kanter examines in this book include Banco Real, CEMEX, IBM, ICICI Bank, Omron, Procter & Gamble, Publicis Groupe, and Shirshan Bank. All of them have been literally “in the forefront of an action, an example of change to come” in terms of both social purpose and profitable enterprise, not either/or. To a much greater extend than ever before, Kanter provides within her lively narrative reader-friendly check lists that facilitate, indeed expedite frequent review of key points later. For example:

• Four general forces to which vanguard companies respond (Pages 46-47)
• Six advantages created with strategic use of values and principles (58-60)
• Five advantages when social purpose is at the forefront (111-113)
• Nine tenets of innovation initiatives that make a difference (211-212)
• Seven guidelines that summarize vanguard practices (231-232)
• “Ten Things That Anyone Can Do to Be in a Vanguard” (259-260)
• Five characteristics of vanguard leadership (261-262)

Unlike most other business books whose authors heavily rely on lists of hollow bullet points, Kanter’s checklists include detailed annotations. However different they may be in most other respects, all of the CEOs of vanguard companies she discusses in this book – Fabio Barbosa (Banco Real), Lorenzo Zambrano (CEMEX), Sam Palmisano (IBM), K.V. Kamath (ICICI Bank), Hisao Sakuta (Omron), A.G. Lafley (Procter & Gamble), and Maurice Lévy (Publicis Groupe) — possess highly-developed skills for establishing and nourishing relationships within and (especially) beyond their organization. Their effectiveness is explained by ability to see things in context and understand complex interactions between and among many variables. They have a bias for action and are results-driven when seeking solutions for their own organization as well as for the clients it is privileged to serve. They have what Daniel Goleman correctly describes as “emotional intelligence”: exceptional self-awareness (of weaknesses as well as strengths), empathy, respect for individuality and principled dissent, and a sincere delight in others’ achievements. They are also values-driven, take very seriously their fiduciary responsibilities as a steward of resources, and recognize, indeed embrace a higher calling than merely making money.

In vanguard companies, Kanter points out that competences and capabilities such as these are by no means limited only to CEOs or to executives at the C-level. On the contrary, they can – and should – be developed in everyone throughout the enterprise, at all levels and in all areas. She concedes that the vanguard model “turns organizations upside down and inside out. They become less hierarchical and more driven by flexible networks. They become more open and transparent to the outside world while bringing society and its needs inside. As an ideal and an aspiration, the vanguard model attempts to reconcile contradictions: to be big but human, efficient but innovative, respecting individual differences while seeking common ground, global in thinking but concerned about local communities.”

Given what Kanter characterizes as the “inexorable march of global change,” organizations really have no choice but to adopt and then adapt the vanguard business model. The bad news is that that process will be immensely complicated and very, very difficult to complete. The good news is that it can be done, as the exemplary companies in this book clearly indicate. For these and other reasons, I think that SuperCorp is the most valuable book that Kanter has written thus far.