8. Leading for Breakthrough Innovation

IF YOU ARE LEADING YOUR COMPANY toward becoming a change agent in the world, your attitude, culture, and systems all need to be attuned to that vision. A range of cultures and leadership styles support innovation, but they share the points described in table 8.1. Both soft foundations—culture and leadership—are delicate and need constant attention. Although cultures vary across companies and geographies, they all need to support risk taking and understand the role of innovation efforts. Trust in the leadership team—a fundamental aspect of every innovative organization—takes time; it develops over each decision and interaction, but it can quickly erode. Combining the operational excellence and incremental innovation needed for ongoing development with the breakthrough innovation key to future success requires leaders who possess unique characteristics.

Most managers and their organizations know how to execute. They have been doing it all their professional lives—targets are set, performance is monitored, courses of action get adjusted, and people are rewarded based on how well they perform against targets. Pursuing breakthrough innovation is different, though, and leaders must avoid letting the current strategy receive all attention and resources.

Table 8.1. Leadership as a foundation of strategic discoveries

Leaders of innovative organizations provide the vision and direction but rely on their people to find the future of the company. They have faith that their people will take calculated risks to learn fast and cheap, combine internal and external talent, and learn from failure. They are confident that the future will be successful even if they don’t know what that future will be, exactly. Strategic discoveries require leaders who trust that their people, rather than only themselves and top management, will find the next growth platform.

Innovative leaders also understand that participants from outside the organization are fundamental. Strategic discoveries require tapping into external networks. While some solutions to the myriad questions that putting together a new market raises will come from insiders, many others will originate with outsiders. Leaders need to provide these participants with the right incentives, engage them in each stage of the innovation process, and adapt the speed of a large company to execute with a startup’s intensity.

Who is capable of steering a ship whose crew is adept at both exploring new territory and exploiting old? Innovation-sensitive leaders play a number of roles, and they share numerous characteristics.¹

THE INNOVATION STRATEGIST

Helmut Panke, the ex-CEO of BMW, said, “My biggest challenge is saying ‘no’ to projects that are exciting, but don’t fit BMW’s strategy.”² While the number of possible sources of development is almost infinite, innovative leaders must both guide the direction of exploration and, in most cases, restrict it. At the same time, they need to encourage people to innovate by giving them time to work on pet projects, pushing them to think outside the box, and listening to their ideas. For strategy, focus is important.

What does focus mean? For Lou Gerstner at IBM, focusing meant executing on a few things well. “Too many companies give up on their base business,” said Gerstner. “Too many companies see their future in diversification: let’s just go buy another company, that’s the way to be successful. No, focus, pick something, and be very good at it.”³ For Steve Jobs, focus entailed “saying no to the hundred other good ideas that there are.”⁴ Focusing exploration means unambiguously identifying the things a company will not be doing, or the things it will stop doing. The innovation strategist must screen new ideas and make choices. Will this project make a big difference, today or tomorrow? What resources and capabilities are needed to be successful in that market? These are just a few of the questions that innovative leaders consider when choosing where to focus.

Innovation leaders also must have the courage to self-cannibalize—that is, to make their own business obsolete before others force obsolescence on them. Jeff Bezos, for example, willingly cannibalizes his companies. Amazon spent nearly $1 billion to acquire the shoe retailer Zappos in 2009, while its Amazon shoe site competed directly with Zappos. As an innovation strategist, the leader needs to recognize when it’s better to compete with yourself than with someone else.

THE INNOVATION SPONSOR

Innovative leaders play many roles, only one of which is the strategist who says “no” a thousand times for every “yes.” Focus doesn’t have to be negative, and sponsoring innovation within an organization can be a good way to explore while staying close to areas of exploitation.

Sure, innovation occasionally occurs despite unfavorable conditions and a lack of resources. But these exceptions should not lead us to forget the majority of projects that could have been successful but failed because they were underresourced. Conversely, overresourced projects may fail because teams lose the impression of urgency.

Sponsoring innovation doesn’t mean simply acting as a cheerleader. It does, however, require sustained support. Leaders should be in contact with teams regularly to maintain a sense of progress and continuity, but not so often that teams feel micromanaged. They also need to balance giving teams cover from the rest of the organization and facilitating collaboration with parts of the organization that possess resources the teams need. Organizations successfully pursuing innovation have leaders who send clear signals that failures resulting from well-designed innovation efforts will not be penalized.

Big questions for leaders often revolve around deciding whether to use an aggressive, play-to-win strategy or a more defensive, play-not-to-lose strategy:⁵ how much time, energy, and resources should be allocated to exploiting—that is, orchestrating, managing, monitoring, discussing, and executing over the next twelve months—and how much should be allocated to exploring? Maintaining this balance between exploring new ground and exploiting the old is an important part of overcoming the innovation paradox. While sponsoring innovation is one way to guide exploration and spark creativity, setting the stage so that creativity occurs more regularly is another tactic.

THE INNOVATION ARCHITECT

Leaders can be personally involved in the process of innovation. Such involvement is often to ensure that employee input is being considered, or to signal that they care deeply about a particular issue. Acting somewhat like an organizational architect, the leader ensures that key processes and capabilities are developed.

While processes that keep customers in the center of employee radar screens are important, innovative leaders should also be modeling the customer focus necessary to be competitive. Michael Dell, for example, goes out of his way to visit the chat rooms and user forums to hear complaints about his company, its products, and its services. He explains, “Some of it is just chatter—you tend to filter that out. But it’s so built into our system now, we actually have teams that monitor those sites routinely. It’s a whole new form of feedback. It’s not just noise to us.”⁶

Jeff Bezos takes customer complaints a step further, using them as vehicles with which to engage employees and identify problems. Nadia Shouraboura—until recently, a vice president in charge of technology for Amazon’s global supply chain and fulfillment operation—explained the rationale behind Bezos pointing out specific complaints to employees. “If one customer wrote to Jeff,” said Shouraboura, “there are others who didn’t. And Jeff wants to understand the screwup to make sure it gets fixed.”⁷

In addition, the innovation architect finds ways to free up resources for innovation, which means knowing where to spend and where to save. For example, Amazon takes a much more frugal tack than many Silicon Valley companies. Work accommodations are plain and Bezos for a long time made low shipping rates for consumers a priority.⁸ Rather than expending revenue on arguably unnecessary bells and whistles, Bezos chooses to pass on savings to Amazon customers—driving new business simply by using resources responsibly.

Regarding leadership’s role in making resources available to better pursue strategic discoveries, time is the most crucial of those resources. Listed here are some of the more effective ways for an innovation architect to ensure that employees have enough time for exploration.

Support Personal Discipline and Time Management

Time and energy are finite. One executive recently explained that he got his entire management team trained to wisely use these limited resources. With his own assistant acting as “process owner” to make sure good habits get maintained, this new approach has become standard practice in his division. Time-saving approaches even include little things, such as banning PowerPoint presentations in favor of six-page-maximum narratives sent in advance of meetings. Unfortunately, few organizations are active on this front, and much time and attention is needlessly wasted.

Keep Processes under control

Equipment, technology, systems, and processes that work painlessly should be a given, but oftentimes they are not. Many organizations waste time and energy compensating for things that should work but don’t. Managers too often complain about hours spent reconciling data, correcting errors, or working around systems.

Addressing this issue requires at least two conditions. First, a widespread process orientation involving a large proportion of management and staff should internalize the idea that most activities can be organized, managed, and in many cases measured as a process. Second, management and staff must accept that effective, efficient processes demand a degree of standardization—and, therefore, some sacrifice of freedom. Processes help bring order to what otherwise can be chaos.

Eliminate Non-Value-Adding Activities

Various non-value-adding activities in organizations are inherited from the past. They were likely appropriate responses to yesterday’s issues, but today many of these remnants leave people scratching their heads. The innovation architect’s drive to eliminate such activities must be relentless because customer needs, staff capabilities, and available technology tend to change faster than most organizations revise their processes.

Maximize Return on Time Invested

Support functions are often criticized for generating too much bureaucracy. While most companies do not set out to create bureaucracy, they often end up doing so. The difficulty of bureaucracy is that it starts with well-intentioned people doing exactly what they were hired to do but forgetting that their job is a means to an end, not an end in itself. When the process becomes important for its own sake, it generates unnecessary work. Most organizations would benefit from being more forceful regarding activities that can—and should—be stopped.

Create Effective and Efficient Decision-Making Processes

People in organizations are supposed to discuss their options, make a decision, and then execute. In reality, most discuss, decide … then discuss some more, decide (the same thing as the first time, or not) … and then they discuss again. One of our clients used to jokingly say, “We can only start really discussing something after a decision has been made.”

Of course, reexamining decisions that were made hastily or incorrectly is beneficial. When such revisiting becomes endemic, however, an organization loses its ability to follow through on decisions, which in turn delays execution and causes frustration. Because the process itself then creates an incentive not to engage early on, but rather to wait and disrupt later, the whole cycle can become self-fulfilling.

An innovation architect ensures that decision-making processes are efficient and effective, which goes a long way toward increasing everyone’s energy.

THE INNOVATION EVANGELIST

Organizations have a natural tendency to default toward exploitation and short-term focus. Leaders who strive for innovation should emphasize its importance and keep it on the agenda. Since the type and extent of innovation differ across groups of employees, the message needs to be adapted accordingly. Leaders must communicate clearly and strongly that innovation is key in going forward, presenting both sides of the need to change: the negative side (“If we don’t do this, bad things will happen”) and the positive (“If we do this, good things will happen”).

Explain the Consequences of Failure to Innovate

Several years ago, Andy Grove, the charismatic CEO of Intel during the 1980s and 1990s, argued that “only the paranoid survive.”⁹ This phrase has stuck, and many other successful leaders have used it to stress the imperative of remaining hypervigilant. More generally, leaders use four basic sources of vulnerability to emphasize the need to keep innovating.

The first, and most obvious, is competition in general. Andrew Higginson, Tesco’s finance and strategy director, explained, “We stay paranoid! We have to assume that they’re all out to get us, so we try to do a bit better than all of them.”¹⁰ Similarly, Tesco’s then–marketing director Tim Mason noted, “Tesco is obsessed with consumers and paranoid about competitors. We have these twin things going on all the time.”¹¹

Some organizations have successfully used a “villain”—a competitor that receives much attention and focus—in adversarial comments, sometimes with demonizing overtones. For example, when Dell was still a glorified startup, founder Michael Dell would fire up his employees by telling them that his daughter’s first words had been, “Daddy, kill IBM, kill Compaq, kill Gateway.”¹² Richard Branson’s relentless jabs at British Airways had a similar mobilizing effect on Virgin Atlantic employees.

Second, managers in organizations can tell stories of once successful organizations similar to theirs that subsequently failed. For example, senior managers have used the rise and fall of companies such as IBM, ABB, and Xerox to alert employees to the dangers of complacency. EMC’s then-CEO Michael Ruettgers once provided a good illustration of this tactic: “We occupy a building that Prime once leased. On the second floor, there’s a big auditorium. In the back of the auditorium, against a red velvet background, is a giant sign that says Prime Computer. When we moved into the building, the employees asked us to leave the sign up as a reminder of what could happen if EMC ever became complacent.”¹³ Highlighting global trends that could potentially threaten the business serves a similar purpose of warning about the dangers of failing to innovate.

A third source of vulnerability is the organization’s history—where did the organization come from, and how did it get to this point? A few years ago, for example, the city-state of Singapore reinforced the study of local history throughout its school system. Its purpose was to remind students that, while Singapore is prosperous today, this success is an extraordinary achievement that required decades of unswerving individual discipline, collective discipline, and drive—qualities the Singapore government expects younger generations to continue to display.

The fourth avenue for innovation evangelists is to examine the organization’s own vulnerabilities, highlighting sources of competitive advantage today and imagining what could wear them away. Lou Gerstner put it this way: “My view is you perpetuate success by continuing to run scared, not by looking back at what made you great, but looking forward at what is going to make you un-great, so that you are constantly focusing on the challenges that keep you humble, hungry, and nimble.”¹⁴

Focus on the Positive

Innovation requires both passion and energy. To sustain passion, leaders need to regularly remind people of the organization’s greater purpose. For example, when Apple was on the verge of collapse, Steve Jobs called a meeting to help his colleagues remember why they couldn’t let Apple fail. Jobs said, “What we’re about is not making boxes for people to get their job done. We believe that people with passion can change the world for the better.”¹⁵

When employees succeed, they need to be recognized. Michael Dell advocates, “Celebrate for a nanosecond, then move on.” Achievement at Dell is said to merit a short e-mail or a pat on the back, followed by a lengthy discussion of what could have been done better.¹⁶ The part of this quote that tends to be emphasized is the short length of the celebration, but in many organizations success doesn’t get celebrated even for a nanosecond! Leaders who strive for innovation must seize opportunities to laud progress in all its forms.

Ensure Momentum

In a study of hospitals that embarked on a continuous improvement journey, the hospitals that developed momentum by attacking easier-to-solve problems early on ended up significantly out-innovating hospitals that began by more systematically assessing various improvement possibilities.¹⁷ Crossing a task off the to-do list can go a long way toward keeping momentum.

The ability to play these four roles is a key determinant of how successfully leaders will stimulate innovation. Remember that playing these roles well requires time and attention. A great deal of leaders’ impact on organizations’ ability to innovate comes down to how they allocate time and resources. The other major determinant is the leader’s individual qualities.

PERSONAL CHARACTERISTICS OF INNOVATIVE LEADERS

No two leaders make the same strategic moves, and no two leaders think alike regarding the allocation of resources, incremental improvements, and pursuing breakthrough innovation. However, innovative leaders tend to share a handful of characteristics.

Passion

Sometimes it’s not enough to make a convincing argument. You need to show feeling. Motivation for innovation comes from people passionate about what they do. Passion is infectious, and when a leader shows passion, employees see it as a quality that can get things done, and get them places. A leader must have passion for improving things, for trying new things, and for being curious in general.

At the D5 Conference in 2007, Steve Jobs talked about the importance of passion. “People say you have to have a lot of passion for what you’re doing and it’s totally true. And the reason is because it’s so hard that if you don’t, any rational person would give up. It’s really hard. And you have to do it over a sustained period of time. So if you don’t love it, if you’re not having fun doing it, you don’t really love it, you’re going to give up. Oftentimes it’s the ones [who] were successful loved what they did, so they could persevere when it got really tough. And the ones that didn’t love it quit because they’re sane, right? Who would want to put up with this stuff if you don’t love it? So it’s a lot of hard work and it’s a lot of worrying constantly and if you don’t love it, you’re going to fail.”¹⁸

Courage to Take Risks, Tolerance of Uncertainty, and Long-Term Focus

Breakthrough innovation is complex. A leader possesses both a clear vision and a focus that removes inessential complications. Vision and simplicity lower the chances of taking unnecessary risks. Since a fundamental aspect of breakthrough innovation is managing risk, a leader’s attitude toward risk taking shapes the attitude throughout the company.

Another quality of innovative leaders is the ability to tolerate uncertainty and maintain a long-term focus. Like veteran pilots who know how to fly in dangerous conditions and land on most terrains, innovative leaders know how to keep their cool when the next move isn’t clear.

The plan for Google X, for example, is not traditional. Astro Teller, the director of Google X, says, “If there’s an enormous problem with the world, and we can convince ourselves that over some long but not unreasonable period of time we can make that problem go away, then we don’t need a business plan. We should be focused on making the world a better place, and once we do that, the money will come back and find us.”¹⁹

The differences between incremental and breakthrough innovation require leaders to apply different criteria to different projects. Yet they need to consistently communicate why varying criteria are used. Sometimes breakthroughs cannibalize existing businesses. In such cases, the organization’s power structure suffers significant shifts, and trust (or lack of trust) in the leader determines whether this change will become a power struggle that threatens the company. People who are displaced but have confidence in the organization understand they will be treated fairly.

The ability to deal with uncertainty in areas over which a person has less control does not mean that leaders are relaxed. On the contrary, a great number of innovative leaders have very high standards, are incredibly driven, and possess a rare intensity of focus.

Self-Confidence

Doing something different from the status quo involves the possibility that the new product, service, or process will fail. Leaders need to be prepared to take on risk, and to sell that risk to key stakeholders. General George S. Patton said, “Self-confidence is the surest way of obtaining what you want. If you know in your own heart you are going to be something, you will be it. Do not permit your mind to think otherwise. It is fatal.”²⁰ Leaders who strive for innovation face considerable obstacles that require strong self-confidence and belief in both their vision and their mission.

Steve Wozniak, the cofounder of Apple, explained, “First, you have to believe in yourself. Don’t waver. There will be people … who just think in black-and-white terms. … Don’t let these people bring you down. They only know what they’re exposed to. It’s a type of prejudice, actually, a type of prejudice that is absolutely against the spirit of innovation.”²¹ Self-confidence is one of the most crucial tools a leader can have in the face of uncertainty, risk, and competition.

Of course, the importance of self-confidence raises an important dilemma for innovative leaders. There is a fine line between being confident and arrogant, persistent and stubborn, hard-ofhearing and deaf. Leaders need to develop a “mute button” that allows them to silence negative feedback and maintain enthusiasm and energy. They also must remain able to turn off this mute button on occasion, to hear the feedback that can actually help them bring a project to fruition.

Innovative leaders play a number of roles in fostering an environment in which innovation thrives. Innovation strategists need to know when to say “no” and when to say “yes,” while innovation sponsors pick projects out of the crowd to undergo focused exploration. Innovation architects create processes that are favorable to an innovative climate, while innovation evangelists know when to scare and when to inspire. Innovative leaders share many qualities, though each has markedly individual legacies, priorities, visions, and skills.