Why are some companies able to create and sustain a high innovation premium while others don’t?
The answer is not complicated: People, process, and philosophies (what we call the 3Ps). They differentiate the best in class from the next in class when it comes to keeping innovation alive and delivering an innovation premium year after year.
On the people front, the behaviour of leaders matters—big time. In our initial study on disruptive innovators published with Clayton Christensen in The Innovator’s DNA, we found five “discovery skills” that distinguished innovators from non-innovators. Innovators ask provocative questions that challenge the status quo. They observe the world like anthropologists to detect new ways of doing things. They network with people who don’t look or think like them to gain radically different perspectives. They experiment to relentlessly test new ideas and try out new experiences. Finally, these behaviours trigger new associations which allow them to connect the unconnected, thereby producing disruptive ideas.
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As part of our research we developed an assessment to determine how much individuals engage these skills. We found that top management teams’ innovation skills make a serious difference. In fact, leaders of high innovation premium companies scored at the 88th percentile on our assessment of the five skills of disruptive innovators. By comparison, CEOs of average companies scored at only the 62nd percentile. Put differently, innovative leaders spent approximately 31 percent of their time actively engaged in innovation-centered activities compared to only 15 percent by leaders of less innovative companies. Doubling the time a senior leader personally invests in getting new ideas usually delivers significant returns.
Lessons From Leaders
For example, Fabrizio Freda, CEO of Estée Lauder (# 23 this year; #44 last year) excels at challenging the status quo by “playing the outsider”. He learned this lesson early in his career, as he moved from Procter & Gamble to Gucci and back to P&G again.
“The experience outside [P&G] gave me a lot more authority in challenging the status quo,” says Freda, “I stayed the challenger forever.” The trilingual (Italian, French, English) executive has lived throughout Italy — Naples, Rome and Florence — and in Germany, Switzerland and Belgium. During his time at Gucci, Freda oversaw international marketing and strategic planning. While at P&G, he worked in many divisions including cough and cold, laundry, health and beauty, and most recently, as president of global snacks. Freda is the quintessential observer—and as he observes he both watches and listens. After arriving at Estée Lauder, he spent six months on a “listening tour”, zigzagging across Lauder’s worldwide operations in 140 countries. “I strongly believe in the power of listening,” says Freda. Listening, he says, helps him connect the dots. “The way my thinking and creativity goes is listening, connecting and creating.”
S.D. Shibulal, co-founder and CEO of Infosys (#19 this year; #15 last) is both observer and experimenter. In his 30 years at Infosys, Shibulal says, “There is nothing that I have not done.” He was the first sales person, has done account management, launched its internet consulting practice, is a network expert, helped design and launch its first ecommerce application, and has been the head of both delivery and sales. To get a new perspective, Shibulal took a five-year sabbatical to work for another firm, Sun Microsystems. He’s also known as an experimenter and “gadget freak”. Shibulal has always been fascinated with taking things apart and putting them back together. When he buys the latest device, he never uses it as it is. He examines it, takes it apart and refits it to his needs, turning fad into art. Before PDAs were popular, he had assembled his own version with different parts from a RadioShack store. That’s why at Infosys, where geeks are a dime a dozen, he is revered as a “gizmo guru”.
The Process of Innovation
We’ve found that successful leaders not only personally understand how innovation happens but they try to imprint their behaviours as processes within their organisation.
Jeff Bezos (Amazon, #3) looks to surround himself with people at Amazon who are inventive. 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. Bezos is also a great experimenter (with multiple patents to his name) and claims that, “I encourage our employees to go down blind alleys and experiment. In fact, we have a group called Web Lab that is charged with constantly experimenting with the user interface on the website to figure out improvements for the customer experience.” The point is that leaders like Benioff [of salesforce.com] and Bezos don’t just do it themselves, they think about replicating themselves and their behaviours throughout their organisations.
In contrast, we’ve seen many innovators who don’t seem to care about coaching or building innovation skills in others. They are good at creative problem solving so why delegate it to others who aren’t as good at it? This can be a huge barrier to building an organisation with true innovation capability. So having innovative leaders is necessary but not sufficient for sustaining an innovation premium.
Apple’s performance under Steve Jobs, versus other leaders, powerfully illustrates the importance of innovative leadership. From 1980-1985 during Job’s initial tenure at Apple, the company’s innovation premium averaged 37 percent. Without Jobs, Apple’s premium dropped far below zero (an “Innovation Discount”) from 1985-1998. But with Job’s back at the helm Apple’s innovation premium eventually jumped to 50 percent. Job’s impact is undeniable. But what will happen now? Did Jobs sufficiently build innovation capability throughout Apple? Does Apple have sufficient innovation skills within the top management team and processes that encourage and support folks as they try to “think different” like Steve Jobs?
What we do know is that if the leaders of a company don’t “get” innovation, the organisation doesn’t stand a chance. The bottom line is that leaders of innovative companies consciously set the example by modeling innovation behaviours—and imprinting those behaviours within their organisation as processes. Their personal actions help to make innovation matter to others.
This article was originally published by Forbes. To read the full article go here.
Hal Gregersen is Senior Affiliate Professor of Leadership at INSEAD.