A young man we know recently made a career move some would find unthinkable. He left a software engineering job at Google to go to work for a little-known startup with few perks and no charisma to speak of. Among his reasons for making the switch was his sense that Google was becoming big and slow. Google's founders, Larry Page and Sergey Brin, would probably agree.
In April 2011, Page took over as CEO from Eric Schmidt who had been brought in to provide what the company called "adult supervision" as Google experienced explosive growth. But now the company is concerned about keeping its edge. In announcing the change, Schmidt said, "Larry, Sergey, and I have been talking for a long time about how best to simplify our management structure and speed up decision making."
There is nothing unusual about this. Google is experiencing a transformation cycle that affects all successful organizations from the biggest company to the smallest team. Described by George Land in his 1973 book Grow or Die, the cycle is a natural progression with three phases: 1) entrepreneurship, 2) growth and success, and 3) renewal, all of which are characterized by three very different approaches to solving problems - invention, improvement, and innovation. Unless a company renews itself through innovation after a period of success, it will die, according to Land's theory. The challenge, of course, is to innovate from a position of success before it is too late.
This fact of business life becomes reality for all successful companies sooner or later and has been highly visible during the recession. In an ordinary economy, most mature companies have to create organic growth of 4 percent to 6 percent every year to stay competitive, and for many that has not been possible. This may help explain why there has been so much emphasis on innovation lately. Even some of largest and most successful companies, including IBM, Apple, Microsoft, and Starbucks, have wrestled with the need for radical renewal to grow past their success.
IBM, which turned 100 in June 2011, provides valuable lessons in achieving longevity through innovation. In the 1990s, its mainframe business - the engine of its growth - was eclipsed by the low-cost technology of personal computing. Its recovery was built on the sale of software and services to organizations and governments, a transformation that called for innovative reuse of IBM's research capabilities and broad technical skills.
Microsoft is struggling to move beyond its dominant business in personal computer software, which despite moves into business database software and server operating systems still generates 80 percent of its operating profit. Microsoft's share price has been stagnant for years, and investors have suggested that CEO Steven Ballmer be replaced. Will the company renew itself, like IBM, by innovating around core strengths in technical skills?
Many people consider Apple the world's greatest product innovator. Two of Apple's early innovations - a commercially successful mouse and a graphical user interface for the personal computer - were among the most important advances in broad access to technology. Interestingly, Apple didn't invent the mouse or create the first graphical user interface. Its innovation was to make them commercially successful, something that Xerox, the company which did invent them, was never able to do.
Apple CEO Steve Jobs left the company in 1985, and for 10 years it lost its innovative edge. When Jobs returned to the company, he had this blunt assessment: "The company took a nap" for a decade. It forgot its first rule: to continuously build great products.
Jobs' challenge was to resurrect Apple's famous culture of product innovation. In a Business Week interview he described that culture as an intangible "gravitational force" that brings disparate ideas and technologies together to create great products. After Jobs' return, Apple went on to produce such now-essential tools as the iPod, iPad, and iPhone, plus complementary services, such as iTunes and the AppExchange, to drive their use. So powerful were these innovations that they transformed the way people purchase and listen to music, use their cell phones, and access the Internet.
As a result of successful product innovation, today Apple is the most valuable technology company in the United States. Over the last decade, Apple's market value has increased more than 100-fold to more than $300 billion - only ExxonMobile is worth more.
But even Apple, which saved itself once through innovation, will have to find new ways to prosper in the future. Analysts speculate it could rely increasingly on revenue from software and services such as online storage and syncing via iCloud.
Some companies reinvent themselves by going back to their origins. Consider Starbucks, which turned a common experience - having a cup of coffee - into a successful business on a global scale. In 1987, when Howard Schultz took over Starbucks, the company had 11 stores and 100 employees. Today the company has more than $10 billion in annual revenue and serves nearly 60 million visitors a week in 16,000 stores across 54 countries.
Schultz stepped away from his operational role as CEO in 2000 and took on the role of chairman. Without his day-to-day leadership, Starbucks began to lose its focus on the coffee experience and instead concentrated on growth, opening a multitude of stores, and introducing new products that didn't always resonate with customers. In 2008, Starbucks profits slipped more than 50 percent from the previous year. The market signaled its concern, valuing Starbucks at less than $9 per share, down from its high of nearly $40 per share in 2006.
Then in 2008, Schultz returned as CEO and began to take the company back to its roots, not by returning to old ways of operating but by changes that reinforced the coffee experience. He shut down 7,100 stores for a day of company-wide barista training. Customers saw a note on the door that said "We are taking time to perfect our espresso. Great espresso requires practice. That's why we're dedicating ourselves to honing our craft."
In addition, the company launched individualized neighborhood concept stores and introduced new brewing machines. These and other changes resulted in impressive financial results. In the fall of 2010, Starbucks posted its best financial performance in nearly 40 years.
These examples of extreme innovation are becoming more common as the business lifecycle accelerates. Innovation used to be measured by the number of patents a company filed, but now it is more likely to be measured by how much and how fast a company changes the way we consumers do things?such as renting movies (Netflix), buying music (iTunes), redefining communication (Twitter), or engaging with the retail experience (Groupon).
In the 1990s, innovation was about technology and control of quality and cost. Today, it's about taking corporate organizations built for efficiency and rewiring them for creativity and growth by scrapping convention and changing everything from products to strategy to business models. "Innovation does not have to have anything to do with technology, "says Vijay Govindarajan, a professor at Dartmouth College's Tuck School of Business and author of Ten Rules for Strategic Innovators: From Idea to Execution.
In fact, the Monitor Group, a management consulting group originated by Michael Porter at Harvard Business School, identifies four major categories of innovation:
From the Monitor Group's and others' research, it's clear that innovation is about more than new technologies and products. It is also about disruptive business models, more efficient processes, and better ways to reach customers.
Several big-picture factors have converged to create a unique innovation moment today.First, knowledge work now dominates most of the world's economies. Knowledge workers differentiate themselves from other kinds of workers not only through their breadth of knowledge, but their ability to understand context, to judge situations, and to deviate from established norms in order to create new, creative solutions. Knowledge workers are expected to innovate in small and big ways every day.
Second, research shows that innovation is a critical driver of organizational performance. The Institute for Corporate Productivity (i4cp) surveyed more than 600 corporate leaders and found that innovation and creativity were the most critical issues facing organizations. Their report concluded that innovation, if addressed effectively, was the factor most likely to boost organizational performance.
Third, we have access to powerful new social media tools that foster innovation. For example, instead of closely guarding access to product research and design information, many companies use social media to get product ideas from outside the organization.
Proctor & Gamble (P&G) is a prime example. The company had not changed its innovation strategy since 1985. R+D successes were flat. Competitors were lively, and the company's continued market dominance was in doubt. Something different had to be done. CEO A. G. Lafley decided to look at external sources for innovation.
The strategy, called "connect and develop," uses technology and networks to seek out new ideas for future products. Lafley made it a goal to acquire 50 percent of innovations from scientists and engineers outside the company. In a well-known example, P&G analyzed unmet customer needs among parents of babies, turned to its network of innovation sources, and came up with Pampers, the first mass-market replacement for cloth diapers.
In a more current example, the online company Innocentive crowdsources innovation for global companies by connecting seekers with solvers. Seekers have a complex problem - usually a scientific challenge - and solvers have expertise to apply to solving it. Here's how it works: A challenge posted by a seeker is reviewed by a global community of solvers, one of whom can submit proposed solutions. If the solution is selected, the solver receives a cash award.
Not just for the CEO
Despite the examples of Apple and Starbucks, innovation is not the work of the CEO alone. Although a leader sets the tone for a culture of innovation and the best CEOs lead innovation directly, it is individual employees who make it happen.
Professor Jeffrey H. Dyer, from Brigham Young University, and two colleagues who studied 3,000 executives over six years found that most executives did not take personal responsibility for driving strategic innovation - instead, they facilitated the process. The leaders of the most innovative companies don't delegate innovation; they lead it themselves. Dyer's findings appeared in the Harvard Business Review in 2009.
Leading innovation involves a distinct set of skills that are fundamentally connected to learning, and CEOs from the most innovative companies spend 50 percent more time on these activities than CEOs with no innovation track record.
What are these skills?
- Associating - Building a broad range of knowledge from which to draw new connections.
- Questioning - Asking why? Why not? And what if?
- Observing - Watching behavior closely, and having a keen eye.
- Experimenting - Trying new things, taking things apart, inviting new experiences, and taking risks.
- Networking - Meeting new people, and being exposed to new ideas.
These skills can be learned not just by top leaders, but by anyone in a position to lead innovation from anywhere on the org chart. This means that learning professionals have powerful roles to play in creating experiences and fostering environments where innovation thrives. More and more business and learning leaders are focusing on building the innovation capacity of employees at all levels. They recognize that for their organizations to thrive and grow, they must anticipate the future and build solutions for tomorrow's challenges - today.