MWorld Spring 2012 by AmericanManagementAssociation

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The Journal of the American Management Association

Volume 11, Number 1

Spring 2012

Clayton Christensen’s Answer to

Sustainable and Profitable GROWTH OTHER ARTICLES The Innovator’s DNA: The Five Skills of Disruptive Innovators An Eye to Creativity Building Great Companies in Unstable Times A Conversation with Former IKEA CEO Anders Dahlvig Clayton Christensen

Conquering the Rigidities That Stifle Corporate Growth Ending the Clash Between Management’s Desire for Control and Innovation The Power of Co-Creation Is It Time to “Skipp” School? Innovating from Within Dealing with Discontinuity Selling Your Innovative Idea Innovating Management

COMMENTARY

AMA SHIFT

FIRST PERSON

OUR VIEW

Building Critical Thinking Skills: Seeing the Big Picture

What Color Is Your Culture? How the Answer Improves Performance

Vijay Govindarajan Sees Future Growth in Reverse Innovation

Bridge from Creativity to Innovation: A Well-Trained Mind by Robert G. Smith

WARNING Shift ahead. ...are you ready? Business Perspectives That Matter to You amashift.org

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The Journal of the American Management Association

Volume 11, Number 1

S PRIN G 2012

CLAYTON CHRISTENSEN’S ANSWER TO SUSTAINABLE AND PROFITABLE GROWTH. Clayton Christensen cited how his discovery of the processes of disruptive technology and disruptive innovation made him 2011 top guru of the Thinkers’ 50 list. In an interview with AMA staff, Christensen explained how disruptive technology moves a product or a service up market, eventually displacing established competitors. The end product, he observed, is simplicity and affordability. PAGE 6

The Innovator’s DNA: Mastering the Five Skills of Disruptive Innovators. The authors share

Is It Time to “Skipp” School? Money is being

Customers as Best Source of Ideas. Innovating

Dealing with Discontinuity. Everyone from

an eight-year collaborative study they conducted with Clayton Christensen. By Jeff Dyer and Hal Gregersen.

Eye to Creativity. Geoff Vuleta, CEO of 12 An Fahrenheit 212, explains how his company marries strategic vision and commercial acumen.

Building Great Companies in Unstable 16 Times. Jim Collins and his colleague Morten Hansen share the significance of Collins’ and Hansen’s new book Great by Choice and the findings of their study of seven outstanding corporate performers.

Global Growth through Innovation: 42 20 ABuilding Conversation with Former IKEA CEO Anders Dahlvig. Learn the important economic and business

changes Dahlvig observed in the 10 years he headed up IKEA. Interview by David Summers.

the Rigidities That Stifle Corporate 23 Conquering Growth. Claudio Feser of McKinsey explains why individual and organizational rigidities thwart organizational and personal growth.

the Clash Between Management’s 25 Ending Desire for Control and Innovation. Seth Allcorn asks a critical question, “Can we be creative without losing control?” By Seth Allcorn.

Power of Co-Creation. Co-creation can be 28 The one of the most powerful tools available to a manager if he or she truly utilizes it. The solution rests in tapping into the insights and experience of team members. By Alex Charfen.

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spent in our educational system. Focus, instead, should be on retraining, re-skilling, or up-skilling our existing workforce. By Stephen R. Satterwhite. within a large corporation starts with the client—in particular, with establishing a client-centric culture. By Prabhat Vira. entrepreneurs to corporate CEOs must innovate new products and business models in response to marketdriven circumstances. By Mark W. Johnson.

Selling Your Innovative Idea. Get people behind a nascent idea. By Scott D. Anthony.

Innovating Management. Learn how to create an effective, efficient, enduring, and aligned institution? By Patricia A. McLagan.

2 FROM THE EDITOR The Source of Innovative Thinking 3 COMMENTARY Building Critical Thinking Skills: Seeing the Big Picture. Where do you begin? By Kevin Cope. 5 AMA SHIFT What Color Is Your Culture? How the Answer Improves Performance. By Adrian Gostick. 15 FIRST PERSON Vijay Govindarajan Sees Future Growth in Reverse Innovation. 48 OUR VIEW Bridge from Creativity to Innovation: A Well-Trained Mind. By Robert G. Smith. 1

FROM THE EDITOR

The Source of Innovative Thinking

MWorld The Journal of the American Management Association

The late Steve Jobs once said, “Innovation can distinguish between those who make it through hard times and those who don’t.” Jobs also suggested a means of success with his famous mantra, “Think different.” In this issue of MWorld, we have assembled some of the top thinkers on innovation and creativity. For one, there is our interview with Clay Christensen, who last year was named leading guru by top business reporters and is coauthor of The Innovator’s Dilemma. In the interview, Christensen explains the discovery of disruptive technology and disruptive innovation that will ensure creativity and grow and sustain a business. Jeff Dyer and Hal Gregersen worked with Christensen and coauthored The Innovator’s Dilemma. In their article, they identify five skills of disruptive innovation. An innovator is one who is both teacher and pupil. As Claudio Feser of McKinsey points out in his article on creating a culture of serial innovation, companies have to avoid rigidities—whether organizational or personal—to encourage continuous innovation. Jim Collins and Morten Hansen, coauthors of Great by Choice, discuss seven outstanding corporate performers. We think you will also find the interview with Anders Dahlvig, former president and CEO of IKEA, engrossing. Any discussion about innovation has to address the consequences of a clash between management’s desire for control and innovation. Seth Allcorn addresses this in his insightful article. Selling an idea is a part of innovation. Geoff Vuleta, CEO of Fahrenheit 212, explains that along with a strategic vision, you need commercial acumen—in other words, “Money & Magic.” Scott Anthony takes this further in his article, titled Selling Your Innovative Idea. Still another interview of interest is the one with Vijay Govindarajan on reverse innovation, which he believes will have the same impact as the Internet has had in the last 10 years. AMA has a number of seminars, webcasts, and webinars that deal specifically with innovation in the workplace, along with our daily platform, AMA Shift. I invite you to visit our website to sample the many innovation learning opportunities.

EDITOR

Florence M. Stone CREATIVE DIRECTOR

Seval Newton COPY EDITOR

Geoffrey Gneuhs GRAPHIC ARTIST

Tony Serio PRODUCTION MANAGER

Laura Grafeld

PUBLISHER

Robert Smith PUBLIC RELATIONS MANAGER

Roger Kelleher

Edward T. Reilly PRESIDENT & CEO

MWorld© (ISSN 1540-2991) is published quarterly by American Management Association International, 1601 Broadway, New York, NY 10019-7420, Spring 2012, Volume 11, Number 1. POSTMASTER: Send address changes to American Management Association, 600 AMA Way, Saranac Lake, NY 12983-5534. American Management Association is a nonprofit educational association chartered by the Board of Regents of the State of New York. MWorld is an independent forum for authoritative views on business and management issues. Submissions. We encourage submissions from prospective authors. For guidelines, write to The Editor, MWorld, 1601 Broadway, New York, NY 10019-7420 or email fstone@amanet.org. Unsolicited manuscripts will be returned only if accompanied by a selfaddressed, stamped envelope. Letters are encouraged. Mail: Letters, MWorld, 1601 Broadway, New York, NY 10019-7420; email: fstone@amanet.org. MWorld reserves the right to excerpt and edit letters. Names and addresses must accompany all submissions. Subscriptions. Executive and Individual Members of American Management Association receive MWorld as part of their annual dues, a nonrefundable $50 of which is allocated for the subscription to MWorld. Single copies are available at $25 plus shipping and handling. Requests should be sent to sgoldman@amanet.org Rights and permissions. ©2012, American Management Association. No part of this publication may be reproduced or transmitted in any form or by any means without written permission. Requests should be sent to Joe D’Amico, at jdamico@amanet.org Editorial Offices 1601 Broadway, New York, NY 10019-7420 Tel: 212-903-8075; Fax: 212-903-7948 Email: MWorld@amanet.org

Florence M. Stone Editor, MWorld 2

Opinions expressed by the editors, contributors or advertisers are not necessarily those of AMA. In addition, the appearance of advertisements, products or service information in MWorld, other than those of AMA itself, does not constitute endorsement by AMA.

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C O M M E N TA RY

Building Critical Thinking Skills: Seeing the Big Picture BY KEVIN COPE

Think of a small seed that can grow into a large tree: where does the mass of the tree, the wood, come from? A classic 1980s research study asked Harvard and MIT graduates this question on their graduation day (Private Universe Project, 1989). Dressed in their caps and gowns, the majority of students answered “the ground.” I would have probably given the same answer, or would have said something about soil, sunlight, and water. The correct response would have been “the air.” Students were also asked why it’s warmer in the summer and colder in the winter. Most students answered that in the summer we are closer to the sun and in the winter we are farther away (I would have given the same answer). Of course, it’s the earth’s tilt that creates the seasons, and the tilting does not move us closer to or farther away from the sun. The answers to these questions didn’t surprise me as much as it surprised me to know what I didn’t know. Similarly, when I started teaching business acumen to corporate clients, I thought our content would be most useful to frontline workers and supervisors who would appreciate learning more about their businesses and how they operate, how they compete, how they accomplish goals, and, most important, how they make money. I was surprised to discover a fairly large group of senior managers who struggle to understand how the moving parts of a company work together to make it successful and how financial metrics like profit margin, cash flow, and stock price reflect how well each of those moving parts is doing its job. Over the last 10 years our company, Acumen Learning, has tested over 80,000 employees working for some of the most recognizable companies in the world, and has found that 90% of them don’t understand important business measures; while those who do understand these business and financial concepts (typically C-level executives and the finance department) often have difficulty communicating their knowledge to stakeholders and employees with clarity, which affects the ability of leaders to align their team’s actions and strategy with corporate results. On the MWORLD SPRING 2012

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other hand, employees within these organizations are often unable to explain what they need Kevin Cope to do to improve the company’s money-making process, which can cause lack of engagement and a feeling of being disconnected. Below is a simple quiz from our Building Business Acumen course. These questions focus on the overall business, not the operations of your department or division. I suspect that you might be more familiar with some of the performance measures for your immediate team, but your senior management team wants the entire business to be profitable, not just a single unit. They want all employees to understand and better contribute to how the entire company makes money. Answer the following questions based on your company’s performance in the most recent fiscal year. And don’t look up the answers! 1. How much cash was on hand at year-end? 2. How much cash was generated from

operations? 3. What was the net income (net earnings, or net profit)? 4. What was the net profit (net income, or net earnings) margin? 5. What was the total revenue (or total sales)? 6. What was the inventory turnover (for retail and manufacturing firms)? 7. What was your return on assets? 8. By what percentage did total revenue (sales) grow or decline over the previous year? 9. By what percentage did net income (net earnings, or net profit) grow or decline over the previous year? 10. How do your results compare to your competition? Now check your answers against any of the financial reports you have on hand. How did you do? How 3

C O M M E N TA RY

Six Ideas For Building Business Acumen Here are six practical ideas to encourage and support your ongoing development and application of sound business acumen. 1. Commit the Time to Study and Research Set aside time for regular study and research. Your days are already full, crowded with professional and personal activities. Nevertheless, find opportunities to carve out the time to advance your credibility, your career, and your company. Whether you can spend an hour, a week or a half-hour daily, set aside time for study and preparation—regusupervisor how you can better achieve larly. Then put it to use! these targets so you know how your team, and your job function, fit in. 2. Talk with Key Company Managers Setting up these discussions need not Build relationships with key leaders and be complicated or overly formal; meet managers at your company. Start with people for lunch, or set brief appointyour boss or supervisor. Talk regularly with ments in their offices. peers or teammates in different departLet your reasons be known: you want ments who have specific expertise. Ask to become more knowledgeable in order questions that reveal your own research. to make more effective contributions. Share your helpful insights in return. Build relationships! Talk with your boss or supervisor about the big picture of your organization and how your team or department— and you personally—can have a more significant impact. Learn the key measures and “dashboard metrics” that your boss and your division’s or company’s senior management are focused on. Discuss with your

3. Be Proactive—Contribute and Follow Through Whenever an assignment or opportunity for action results from your study, discussions, or meetings, follow through and do it. Report back in a timely way to the appropriate parties so others will realize you have done it!

many questions did you get right? Do you even know where to get this information? Like the graduates of Harvard and MIT who assume they understand where a tree gets its mass and why summers are hotter than winters, those of us “in” business sometimes assume that we also “get” business, and yet on average people know the answer to fewer than two of these 10 questions. Because we don’t know what we don’t know, we make decisions and manage teams based on our assumptions, which is basically managing from the hip with little regard for the critical thinking that teaches us to question our assumptions and strive to see the big picture. Developing your critical thinking skills along with your business acumen helps you cut through the complexities of business, get a bird’s eye view, and understand your specialized role within your business. 4

4. Attend Industry Meetings and Make Outside Contacts If your company provides any occasion for you to attend industry conferences or major customer meetings, take the opportunity. Network with those you meet there. Read the literature available. Be involved. 5. Find a Mentor Ask a co-worker— maybe a peer or senior manager—to work with and mentor you. Your partner should be someone to whom you can make a commitment regarding your business acumen action plan and to whom you can be accountable. 6. Influence Management To influence senior management, you have to follow all of the above recommendations as you prepare yourself to present an idea or opportunity. Then, follow these four important suggestions—principles that have worked for thousands of employees across many industries and types of companies: • Listen to understand the person’s opinion. • Present your case and needs. • Link your message to what’s important to the leader. • Use ROI analysis to make a convincing case for a favorable recommendation.

If you’re serious about making a more meaningful contribution to your company, know the answers to these questions, and when you get what you think is a good idea, new strategy, or stroke of genius, don’t presume that the hair standing up on the back of your neck is evidence enough to move forward. Instead, discipline yourself to go through the process of conceptualizing, applying, analyzing, and evaluating how your idea, strategy, or genius will impact the answers to these questions. Develop this discipline and your peers will start to notice that you consistently make better and faster decisions that are helping your company achieve its objectives. MW Kevin Cope is president and CEO of Acumen Learning, a training company that teaches 5 Key Drivers model to some of the world’s most respected and successful organizations. American Management Association

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AMA SHIFT Reprinted from amashift.org

What Color Is Your Culture? How the Answer Improves Performance

BY ADRIAN GOSTICK

We’ve all experienced great corporate cultures first- were chatting about a potential hand. There is a tangible feeling about spending time hire McCormick had interviewed in an Apple Store, where employees are truly enabled in the U.K. Kopp’s first question to meet your needs, or phoning Zappos and sharing a was not about the woman’s backlaugh with an energized customer service agent, or ground or credentials; instead he having a cup of coffee at a really hip Starbucks. It is asked, “Is she a culture fit?” Adrian Gostick an atmosphere that engulfs you immediately and It was the perfect question, and lingers with you after you leave. one I rarely hear in corporate ranks. Obviously this When you walk into a great corporate culture, it woman’s CV was important, but if she didn’t live the smacks you in the face with its concreteness—and company’s Orange Values, experience told these two much of that comes from employee clarity of vision executives that she would not last long and certainly and values. This was something reinforced for me in wouldn’t thrive. spades just last week at the company meeting of At this company, part of Living Orange includes a digital marketing firm ExactTarget in Indianapolis. commitment to values such as “treating people well” My introduction to the company came in the and “pursuing goals as a team.” As such, at their conhotel elevator. I pulled my luggage on and encoun- ference, I picked up a great idea. Leaders gave out tered a group of friendly young Brits. They smiled, “Orange in Action” awards to the Sales, Services, and gave me an appraising glance, Marketing groups. But here’s the Business Perspectives That and asked, “Are you Orange?” twist: The Sales leaders gave out Matter to You Come again? employee recognition awards to This, I discovered, was a stanthe Marketing and Services ■ Daily Roundup: News story of the day from our editorial staff. dard greeting as 1,100 employees employees who supported them; ■ High Gear: Weekly insights into from around the world the Marketing leaders presented important issues, innovations and attempted to identify their own. awards to the Sales and Services new developments. ExactTarget is one of the world’s employees who best embraced ■ Leader Board: Monthly articles writfastest-growing private software their products; and so on. ten by noted thought leaders. companies—with dazzling 50% For the last 20 years, hardly a revenue increases per year—and week has gone by that my coauthey claim their key secret to thor Chester Elton and I haven’t success is not just their email, excitedly called the other to talk social media and mobile marketing solutions, but about a fascinating corporate culture we’ve stumbled their “Orange Culture.” upon—just like this one in Indianapolis. And a Chief Marketing Officer Tim Kopp told me, “We lesson I’d like to pass along is this: Whether you love the energy and vibrancy of Orange. In just one manage the smallest of teams or a multicontinent word we capture the essence of innovation, creativ- organization, you are the proud owner of a culture, ity, passion and entrepreneurial spirit that is the and it’s important to understand that the effectiveunique culture of ExactTarget.” ness of that culture will have a big impact on your This is not just marketing hyperbole; Orange performance. MW defines ExactTarget’s culture. And culture is core to the company’s defining DNA. As a case in point, I Adrian Gostick is author of the New York Times bestseller The was powering up my computer for an a/v check Carrot Principle. His new book All In: How the Best before my speech, and I couldn’t help but overhear a Managers Create a Culture of Belief and Drive Big Results conversation going on in front of me between Kopp will be published by Free Press, an imprint of Simon & Schuster, and ExactTarget cofounder Peter McCormick. They on April 3, 2012. Visit adriangostick.com to learn more. MWORLD SPRING 2012

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COVER STORY

Clayton Christensen’s Answer to

Sustainable

INTERVIEW CONDUCTED BY THE STAFF OF AMERICAN MANAGEMENT ASSOCIATION

Ten years ago, Professor Clayton Christensen wrote a book that transformed the way business looks at innovation. The book was titled The Clayton Christensen

Innovator’s Dilemma and rightfully had as its

subtitle The Revolutionary Book That Will Change the Way You Do Business. Recipient of the Global Business Book award for the best business book of the year (1997), this seminal book was followed by several popular business books, including Innovation DNA (2011), written by Christensen with Jeff Dyer and Hal Gregersen, who have contributed an article to this issue of MWorld (see page 8). Since then, Christensen has written three additional books with other coauthors, two offering groundbreaking theories about how to bring clarity to the muddled world of education and one that focused on how we can improve the health and health care of all. Last year, Christensen, who is the Kim B. Clark Professor of Business Administration at Harvard Business School, was named the top guru of the Thinkers’ 50 Guru list. Christensen’s writings have won a number of awards, including five McKinsey Awards for articles published in the Harvard Business Review. In 2000, Chirstensen founded Innosight, a consulting firm that uses his theories to help companies create new growth businesses. Christensen is also the founder of Innosight Institute, a nonprofit think tank whose goal is to apply his theories to societal problems like education and health care.

During the interview, Christensen explained that The Innovator’s Dilemma had its roots back in his first career as head of a company called Ceramics Process Systems Corporation, now CPS Holdings. “I was the business guy,” he said. “With me were several MIT professors to commercialize new products that they had developed at their labs at MIT. The company had become quite successful, but the competitors were all established major material science companies, like Alcoa, Hoechst, and Cabot Corporation.” So at age 40, Christensen put the number-two person in charge of the company and he did what he always had wanted to do— become a teacher. “I bailed out to become a doctoral student. I brought the same puzzle I had 6

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PHOTO: COURTESY OF HARVARD BUSINESS PUBLISHING

THE BUSINESS GUY

and Profitable GROWTH as head of my company with me—how could a little company beat the big ones? It just seemed that the answers were a little too simplistic. Then, as I thought more broadly, I realized the companies that are today widely admired as very successful in a decade or two would be in the middle of the pack and a while later would be at the bottom of the heap. Some very capable executives in some extraordinarily successful companies, using the best managerial techniques, have led their firms toward failure,” he’d noticed. “I had to ask, ‘Why is success so hard to sustain?’” From Christensen’s thinking evolved the concept of disruption, and particularly disruptive technology. “Disruptive technology,” he explained, “is an innovation that transforms a product that historically was so complicated and expensive that only people with a lot of money and a lot of skill had access to owning and using it. A disruptive technology transforms that into a product or a service that is so much more simple and affordable that a much larger population of people can now own it and use it,” he said. “It’s not a breakthrough. It isn’t different. This has specific meaning in my work, which is simplicity and affordability. “Disruptive innovation describes a process by which a product or service initially begins as a simple application and then moves up market, eventually displacing established competitors,” he continued. “An innovation that is disruptive allows a whole new group of consumers access to a product or service that was originally only accessible to those who could afford it. Characteristics of disruptive businesses, at least in their initial stages, can include: lower gross margins, smaller target markets, and simpler products and services that may not appear as attractive as existing solutions when compared against traditional performance metrics. Because companies tend to innovate faster than their customers’ lives change, most organizations eventually end up producing products or services that are too good, too expensive, and too inconvenient for many customers. By only pursuing sustaining innovations that perpetuate what historically helped them succeed, companies unwittingly open the door to disruptive innovations. “Technological change can be deployed in very different ways,” he went on. “The commercial application typically isn’t intrinsic to the technology itself. So, you can take the very same technology and deploy it in the market in what I call a sustaining innovation, making better MWORLD SPRING 2012

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products even better; or you could deploy it as a disruptive product, enabling people who couldn’t own it now to use it.” Christensen gave an example. “In today’s world,” he said, “there are a lot of people who are concerned about global warming and what we do with sources of green energy. And if you take solar electricity and try to deploy it in North America, Europe and east Asia, it competes against consumption already. There are already ways of getting electricity. And in order for us to use technology—the solar electricity—in these markets, it needs to be better than what is available, and available at comparable or lower cost. And we call that a sustaining innovation. “Disruptive innovation,” Christensen continued, “would take the very same technology and deploy it among the two billion people in Asia and Africa who don’t have access to traditional electricity. That would be disruptive. It competes against non-consumption. And in order for this new technology to take root, it just needs to be better than nothing.” FIGURE 6.2 Three Ways that Innovators Experiment

Experimenting Try Out New Experiences

Take Apart Products, Processes and Ideas

Test Ideas Through Pilots and Prototypes

Examples:

• Live in a different country

• Disassemble a product • Visually map out a process

• Build a prototype • Pilot a new process

• Work in multiple industries • Develop a new skill

Useful for generating new business ideas

Christensen is a major consultant sharing his findings over the past 10 years with corporate leaders. Early in his teaching career, he recognized the role of training in innovation. “The secret to disruptive innovation,” Christensen told us, “lies in giving the company a common language and a common way to frame a problem.”

Asked how one can determine if a customer segment is primed for a new offering, Christensen replied, “You need to go to the bottom of the market and look at the least Useful for generating Useful for generating new business ideas and testing new demanding of your customers or who used business ideas to see what works to be your customers and look at who’s not buying your product anymore and then ask yourself, ‘What are they buying?’ If you see that happening at the bottom of the market, then there’s a high probability that there is another competitor starting at the bottom of the market coming up at you, and that’s how you can tell that disruption is afoot.” • Deconstruct an idea

• Launch a new venture onto the market

Christensen was also asked by AMA’s editors how a company would know that it were capable of disruptive growth. “I would say I would judge a company as capable of disruptive growth if senior management is willing to create new business models,” he responded. “If they’re not willing to do so, then it doesn’t matter how you are in the technology or product realm.” As far as beating powerful competitors, Christensen suggested that “companies should look for situations where they can introduce disruptive innovations that harness asymmetries of motivation. In other words,” he reflected, “they should pick the fights that power competitors either cannot or will not contest. They can do this by either seeking out non-consumers who will welcome a simple product or by launching an attack on the low-end of an incumbent’s market among customers the incumbent is actually happy to lose.” For those CEOs who wondered what their role should be in all this, Christensen gave the press this answer: “CEOs might assume that these kinds of decisions about sustaining innovations, require their close careful attention. But they don’t—because processes are in place to make these decisions. CEOs need to get involved in disruptive and growth innovations, because companies’ processes aren’t designed to do what needs to get done.” MW 8

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The Innovator’s DNA

Mastering the Five Skills of Disruptive Innovators BY JEFF DYER AND HAL GREGERSEN

So what makes innovators, especially disruptive ones, different from the rest of us? Most of us believe this question has been answered. It’s a genetic endowment. Some people are right-brained, which allows them to be more intuitive and divergent thinkers. Either you have it or you don’t. But does research really support this idea? Our research confirms others’ work that creativity skills are not simply genetic traits endowed at birth, but that they can be developed. In fact, the most comprehensive study confirming this was done by a group of researchers who studied creative abilities in 117 pairs of identical and fraternal twins. Testing twins aged 15 to 22, they found that only about 30% of the performance of identical twins on a battery of 10 creativity tests could be attributed to genetics. Six other creativity studies of identical twins confirmed the same result: roughly 25% to 40% of what we do innovatively stems from genetics. That means that roughly two-thirds of our innovation skills still come through learning—from first understanding the skill, then practicing it, and ultimately gaining confidence in our capacity to create.

DISRUPTIVE INNOVATORS ACT DIFFERENTLY TO THINK DIFFERENTLY If innovators can be made and not just born, how then do they come up with great new ideas? Our answer emerged from an eight-year collaborative study in which we sought a richer understanding of disruptive innovators—who they are and the innovative companies they create. Our project’s primary purpose was to uncover the origins of innovative—and often disruptive— business ideas. We interviewed nearly 100 inventors of revolutionary products and services, as well as founders and CEOs of gamechanging companies built on innovative business ideas (such as eBay’s Pierre Omidyar, Amazon’s Jeff Bezos, and Salesforce.com’s Marc Benioff). We also surveyed about 500 innovators and compared them to roughly 5,000 executives. The results led us to five discovery skills that distinguish innovators from typical executives. MWORLD SPRING 2012

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First and foremost, innovators count on a cognitive skill that we call “associational thinking” or simply “associating.” Associating happens as the brain tries to synthesize and make sense of novel inputs. It helps innovators discover new directions by making connections across seemingly unrelated questions, problems, or ideas. Innovative breakthroughs often happen at the intersection of diverse disciplines and fields. Author Frans Johansson described this phenomenon as “the Medici effect,” referring to the creative explosion in Florence when the Medici family brought together creators from a wide range of disciplines: sculptors, scientists, poets, philosophers, painters, and architects. As these individuals connected, they created new ideas at the intersection of their respective fields, thereby spawning the Renaissance, one of the most innovative eras in history. Put simply, innovative thinkers connect fields, problems, or ideas that others find unrelated. The other four discovery skills trigger associational thinking by helping innovators increase their stock of building-block ideas from which innovative ideas spring. Specifically, innovators engage the following behavioral skills more frequently: Questioning. Innovators are consummate questioners who show a passion for inquiry. Their

queries frequently challenge the status quo. They love to ask, “If we tried this, what would happen?” Innovators ask questions to understand how things really are today, why they are that way, and how they might be changed or disrupted. Collectively, their questions provoke new insights, connections, possibilities, and directions. Observing. Innovators are also intense observers. They carefully watch the world around them—

including customers, products, services, technologies, and companies—and the observations help them gain insights and ideas for new ways of doing things. Networking. Innovators spend a lot of time and energy finding and testing ideas through a

diverse network of individuals who vary wildly in their backgrounds and perspectives. Rather than simply doing social networking or networking for resources, they actively search for new ideas by talking to people who may offer a radically different view of things. Experimenting. Finally, innovators are constantly trying out new experiences and piloting new ideas. Experimenters unceasingly explore the world intellectually and experientially, holding convictions at bay and testing hypotheses along the way. They visit new places, try new things, seek new information, and experiment to learn new things. They rapidly prototype to make things work.

Collectively, these discovery skills—the cognitive skill of associating and the behavioral skills of questioning, observing, networking, and experimenting—constitute what we call “The Innovator’s DNA,” or the code for generating innovative business ideas.

THE COURAGE TO INNOVATE Why do innovators question, observe, network, and experiment more than typical executives? As we examined what motivates them, we discovered two common themes. First, they actively desire to change the status quo. Second, they regularly take smart risks to make that change happen. Consider the consistency of language that innovators use to describe their motives. Steve Jobs wanted to “put a ding in the universe.” Google cofounder Larry Page has said he’s out to “change the world.” These innovators steer entirely clear of a common cognitive trap called the status quo bias—the tendency to prefer an existing state of affairs to alternative ones. Most of us simply accept the status quo. 10

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“…innovators rely on their ‘courage to innovate’—an active bias against the status quo and an unflinching willingness to take smart risks—to transform ideas into powerful impact.” How do innovators break the status quo? One way is to refuse to be dictated by other people’s schedules. Just glance at an innovative executive’s typical calendar and you will find a radically different schedule compared to less inventive executives. We found that innovative entrepreneurs (who are also CEOs) spend 50% more time on discovery activities (questioning, observing, experimenting, and networking) than CEOs with no innovation track record. That translated into spending almost one more day each week on discovery activities. Most innovative entrepreneurs we studied felt that mistakes are nothing to be ashamed of. In fact, they are an expected cost of doing business. “If the people running Amazon.com don’t make some significant mistakes,” Jeff Bezos told us, “then we won’t be doing a good job for our shareholders because we won’t be swinging for the fences.” In short, innovators rely on their “courage to innovate”—an active bias against the status quo and an unflinching willingness to take smart risks—to transform ideas into powerful impact. In summary, the DNA of innovators—or the code for generating innovative ideas—is expressed in the model shown in figure 1-1. See below.) The key skill for generating innovative FIGURE 1-1 ideas is the cognitive skill of The Innovator’s DNA model for generating innovative ideas associational thinking. The reason that some people generate more associations Behavioral skills Cognitive skills to Courage to than others is partly because their synthesize novel inputs innovate brains are just wired that way. But a Questioning more critical reason is that they more frequently engage in the behavioral Observing Challenging Innovative Associational the status quo skills of questioning, observing, business thinking idea networking, and experimenting. These Training risks Networking are the catalysts for associational thinking. Of course, the next question Experimenting is, why do some people engage these four skills more than others? The answer is that they have the courage to innovate. They are willing to embrace a mission for change and take risks to make change happen. As innovators actively engage in their discovery skills over a lifetime, they build discovery habits, and they become defined by them. They grow increasingly confident in their ability to discover what’s next, and they believe deeply that generating creative insights is their job. It is not something to delegate to someone else. As former Procter & Gamble CEO A. G. Lafley declared, “Innovation is the central job of every leader—business unit managers, functional leaders, and the CEO.” MW Jeff Dyer is the Horace Beesley Professor of Strategy at the Marriott School, Brigham Young University. Hal Gregersen is a professor of leadership at INSEAD. They are authors, with Clay Christensen, of The Innovator’s DNA: Mastering the Five Skills of Disruptive Innovators.

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An Eye to CREATIVITY Geoff Vuleta is the CEO at Fahrenheit 212, a privately held innovation consultancy built on a belief that disruptive innovation can only come from the intersection of the ripest business opportunities and the deepest consumer desires. “It is there where innovation success lies,” Vuleta told the editors of MWorld. Vuleta explained, “Fahrenheit 212 marries strategic vision and commercial acumen with creative inventiveness, in what we call Money & Magic. We’re about the kinds of ideas capable of creating new markets, and ideas of that caliber that can only be ignited by the collision of potent consumer insight and transformational commercial insight. Neither gets there without the other.”

Fahrenheit 212 brings to its clients a unique, performance-based business model in which over half of its remuneration is at risk, contingent on hitting mutually agreed-on commercial milestones. “This aligns objectives by ensuring that we only profit if our clients profit,” said Vuleta. Among his clients are Best Buy, Campbell’s, Citibank, Hershey, LG Electronics, Lowe’s, PepsiCo, Nestlé, Nutrisystem, Outback Steakhouse, Procter & Gamble, and Samsung Electronics. According to Vuleta, over 50 of the innovations his firm has developed are being or have been commercialized. Its success has certainly earned the firm acclaim: Businessweek referred to the company as a “white-hot idea factory” in January 2007, and in its 2008 Best and Brightest edition, Esquire described Fahrenheit 212 as “the epicenter of innovation.” In 2009, Fortune named Fahrenheit 212 “The Innovator’s Paradise,” and in 2010 Fast Company described the firm as “scorching the consultancy business.” Vuleta told us, “Fahrenheit 212 was born of two truths about the pursuit of growth through innovation, and the market gap that lies between them. The first is that there is no shareholder value in a brilliant growth strategy without tangible, compelling offerings to make money from it. The second is the converse: creative pipe-dreaming without commercial realties isn’t worth much more than an inspiring afternoon.” 12

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PHOTOS: SEAN FERRY, FAHRENHEIT 212 SENIOR PRODUCER

In the course of explaining how his firm does this, he also gave insights into how his company operates. “The company invents products,” he said, “but by products I mean it in the biggest sense of the word. It could be a product. It could be a service. It could be an experience. It could even be a new business. We invent those primarily for large companies and we help them take those new products to the marketplace.”

Geoff Vuleta (center) heads a Fahrenheit 212 Money & Magic idea development session with (clockwise) consultants Martin Williams, Michelle Jacobs and Leigh Myer.

He continued: “In outsourcing innovation, a company like Fahrenheit 212 hasn’t replaced the R&D department; it’s supplementing the R&D department.” Vuleta went on to explain that there are two types of innovation. “There is what the market would call renovation innovation, which is the bulk of all innovation efforts, representing 2, 3, or 4% of growth that is required of them each quarter, year in and year out. This represents the majority of innovation and the bulk of most companies’ R&D efforts. That’s the kind of innovation that we don’t do,” he said. “The second kind of innovation is best defined by anything that isn’t renovation. A number of terms are used for it—disruptive or transformational innovation being two such terms.” In general, however, he explained that this kind of innovation is doing something with which the company is unfamiliar and associated with large-scale growth. “It is very rare for us to be working on something that the company isn’t requiring or desiring for at least $150 million of new revenues over some defined period of time.”

PAIN POINTS Vuleta told us that many of the individuals who give his company jobs are members of the corporate strategy team or responsible for a balance sheet often the president of a corporate division or the company’s chief innovation officer, a title that he added didn’t exist five or six years ago. “A lot of organizations go to Fahrenheit 212 because it is simply easier for us to see the woods through the trees,” he said. When Fahrenheit 212 begins a project, the Money team sets out to uncover their client’s pain points—be they operational complexities, market dynamics, or resource constraints. At the same time, they have to understand quickly the pain points of their client’s customers or consumers, which is the role of Magic team. Success is found in the intersection of these. Solutions that solve for both the consumer and the company. Vuleta believes that large percentages of the failure rates associated with innovation are caused by a company’s obsession with solving for the consumer, with either too late or too little attention given to how the company could ever execute and profit from the solution.

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“…one of the traits of a good leader is being able to build loyalty and getting people to totally believe that something is possible.’ As far as recruitment, Vuleta admitted that he’s not good at it. “I’m just not wired in that particular way. I believe people too easily—if you say you’re good, I think you’re good. That’s the biggest fault I’ve got. I am an optimist. So I stopped doing the hiring.” But that isn’t to say that he isn’t instrumental in forming the process that ultimately identifies the candidates the firm hires. As Vuleta explained, “Fahrenheit 212 is organized into two areas, Money & Magic, and we hire candidates to be assigned to one of those two categories: the money side or the magic side.” Asked how, for example, he would recruit for the magic side, Vuleta explained how candidates are asked to reinvent themselves as a beverage. “If you are in a bottle, what are the defining characteristics or traits that you have? Next,” he said, “we ask the individual to bring that bottle alive as a drink. And show us the drink, and tell us why we’d buy the drink. It’s a brilliant exercise.” Candidates on the money side are similarly tested not only for their commercial strengths and financial modeling skills, but also for their own ability to be creative. Besides exercises like these, Vuleta noted how candidates are asked about their past to give the firm an idea of how they would Geoff Vuleta (center) reviews and strategizes product concepts with Head of perform in the future. He observed that Creative Development Faun Chapin (left) and Senior Designer Megan Paradise. “six or seven of the most important people at Fahrenheit today are nothing like they were when they were first hired. If you’re in the right place, doing things that challenge you and are in your zone, you can get performance out of people that they never thought they would ever get out of themselves.” He went on, “We’re looking for an inquisitive, restless mind and eclectic interests. And you’ve got to prove restlessness rather than say restlessness. Prove to us that restlessness in a breadth of ways. If you have narrow interests, you’re probably not going to be right for us.” How would Vuleta define his leadership style? Vuleta believes that “one of the traits of a good leader is being able to build loyalty and getting people to totally believe that something is possible. And I’ve always believed—and this is fundamental to leading a group of people—that everybody wants to be led. They want to know two things. They want to know what they should be doing and they want to know that what they are doing is important. And you must therefore set up an environment in which they totally trust that.” Organizationally, Vuleta brings his staff together and holds a planning meeting during which the group prepares a list of those activities that must be completed within 100 days. Consequently, at no point does anybody in the company not know what everyone else in the company is doing, what they’ve committed to, and what the company thinks is important. MW 14

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FIRST PERSON

Vijay Govindarajan Sees Future Growth in Reverse Innovation INTERVIEW BY FLORENCE STONE

Vijay Govindarajan is regarded as one of the world’s leading experts on strategy and innovation—in 2011, he was named third among leading thinkers—and has recently released a new book Reverse Innovation that may open new avenues to growth. Govindarajan is Earl C. Daum 1924 Professor of International Business, and the Founding Director of the Center for Global Leadership, at the Tuck School of Business at Dartmouth College. He coined the term “reverse innovation” to describe the process where innovation is developed, or likely to be used first, in the developing world, before spreading to the industrialized world. “Historically, multinational firms innovated in rich countries and sold their products in poor countries. Reverse innovation is exactly the opposite. It is about innovating in poor countries and bringing those products to rich countries,” Govindarajan told us. He continued, “It is perfectly logical to see why a poor man would want a rich man’s products. A rich man has a car; a poor man wants that car. A rich man has a cell phone; a poor man wants that cell phone. But it is not logical to see why a rich man would want a poor man’s product. That’s what reverse innovation is all about.”’ “Innovation capability helps a poor man. But how does it help a rich man?” he asked. As an example, he described the state of health care in the U.S. He said, “The main problem for health care is cost. It involves spending too much. Second is access—even after spending so much. Third is quality. Even after spending all this money, quality is not the best. But guess what?” he continued. “Cost, quality, and access are the three principles in which the health care industry will be born in the continent of Africa or the country of India. And when it is born there, those innovations will come and transform health care in the United HELPING A POOR MAN

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States. We are already seeing this,” he said. “There is a hospital in India that does heart bypass surgery for $2,000, which will probably cost over $50,000 in the United States. That’s not because of labor cost differences between India and the United States. That is really a breakthrough in innovation. The level of quality demanded in the U.S. may be greater but in time the technology will improve while the cost goes down.” Govindarajan elaborated, “It is evident that the driver of reverse innovation is the income gap that exists between emerging markets and the developed countries. There isn’t a way to design a product for the American mass market and then simply adapt it for the Chinese or Indian markets. Buyers in poor countries demand products on different price curves. So they demand ultra low costs at the same time they expect sufficiently good quality.” According to Govindarajan, reverse innovation isn’t just a nice way to boost revenue growth. He sees it, he said, “powering the future—not only poor countries but everywhere.” Govindarajan explains that U.S. multinationals have been focusing their innovation efforts on the demands of wealthy markets and then exporting their products around the world. But today they need to be just as good at doing the reverse; that is, they must innovate to solve the problems of the developing world and then bring the innovations home. To Govindarajan’s viewpoint, reverse innovation will be as significant for companies as rise of the Internet. He told us, “The change in focus about innovation from rich countries to poor ones is going to reshape fundamentally the world economy.” MW POWERING THE FUTURE

Building Great Companies Good to Great significantly impacted business thinking 10 years ago. Now, Jim Collins and his colleague Morten Hansen have released a new book that is equally groundbreaking. Their Great by Choice enumerates the principles for building an outstanding enterprise during unpredictable times. “Edgewise,” AMA’s podcast program, recently interviewed Collins and Hansen about the book and the study on which it is based. The study began with 20,400 companies and wound up with seven outstanding performers that demonstrated themselves to be more disciplined, more empirical, and more paranoid than more risk taking, visionary, and creative. Here are some of the questions asked of the two authors.

Did the research overturn any of your earlier research? Collins: Morten and I did not set out to confirm or not to confirm earlier research. We just let the data take us where it would. Along the way, though, we tested all the fundamental concepts from Built to Last to Good to Great and we found that those concepts still very much apply. The way I like to think of it is that each study is a black box. Inside that black box are the dynamics that really distinguish a truly great company from others. Each study is equivalent to punching a hole inside that black box and shining a light within. All the same principles are inside the black box but each study shows things that we weren’t able to see before. Hansen: Just to build on that, the lens that we brought to bear on this study was designed to show us how one becomes great in an environment that is full of uncertainty and chaos. We believe that the environment over the next 50 years will be that kind of environment.

Can you share some specific findings? Collins: I think it might be interesting to have each of us talk about some of our favorite new ideas or findings…Morten, what would you point to? Hansen: A big finding. I think, for both of us, is the role of luck. There are luck events, good or bad, that are happening as leaders navigate their companies’ industries. The best and average performers had the same amount of good-luck events and bad-luck events. So it couldn’t be luck itself that determined the winners in an industry. It had to be something else—it had to be

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in Unstable Times what the leaders did with the luck. For instance, the difference between Bill Gates and similarly advantaged people is not luck. Yes, Gates was lucky to be born at the right time, but many others had this luck. Gates did more with his luck, taking a confluence of lucky circumstances and creating a huge return on his luck. This is the important difference. Jim, I don’t know if you want to build on that because I know that was a big surprise to you as well. Collins: It was actually the most fascinating analysis that I’ve been associated with in nearly 25 years of this kind of research. For me, what’s really interesting about the luck analysis is that it provides another opportunity to be successful. When you are going through life, you have your plans and you have your approaches and you have your strategies. But when a luck event happens, you can ask yourself, “What do I need to do differently or more intensely right now to get something out of this luck event?” You have to have the muscle to recognize a luck event, and you have to have the muscle then to turn your attention to making the most out of the luck event.

Jim Collins

Morten Hansen

Jim, are we talking about the role of a leader and differences like a more disciplined leader, or a more empirical or a more paranoid one? [LAUGHTER] Collins: Yes, yes, and yes. [LAUGHTER] Hansen: We call it productive paranoia as a leadership trait. And by that I mean that you are hyper-vigilant about what’s going on around you and outside of your company. In terms of luck, you have to be hyper-vigilant so that you recognize the luck when it comes to you, both good and bad luck. You can’t just sit there and be worried about everything happening around you. You have to channel it into productive action.

Let me draw on three other leadership behaviors. If you draw a picture of a triangle, it forms a triad of behaviors, each behavior as a point in this triangle. One of those behaviors is fanatic discipline. One of those behaviors is empirical creativity. And one of those behaviors is productive paranoia, which Morten was just talking about. One of my favorite findings from the study is the 20-mile march, which is a manifestation of fanatic discipline. What you have is this idea that in a world that’s out of control, you have to find a way to exert self-control. And in a world that’s out of control or feels very uncertain, where you can feel frozen, where you feel like you can’t move forward because you don’t know MWORLD SPRING 2012

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JIM COLLINS PHOTO CREDIT: JUSTIN STEPHENS

Collins: Yes. In terms of the findings you were asking about, Morten picked up on the idea of luck.

what’s coming, you have to have something to focus on that allows you to keep making progress and to keep moving forward, that’s what we call the 20-mile march. All of our “10X” cases had a 20-mile-march philosophy where they would achieve certain objectives. Consider, for instance, you are going to try to walk from San Diego to Maine, how do you do that? You know that what you have to do is to cover 20 miles a day, 20 miles a day, and finally another 20 miles a day. You might think you can walk 50 miles one day in good weather and then zero miles in bad weather, but that’s not how you achieve outsized results. You do 20 miles a day, 20 miles a day, 20 miles a day. If you look at a company like Intel marching along by doubling the number of components on a semiconductor chip every 12 to 18 months, which was Moore’s Law, that was its 20-mile march. And it didn’t matter whether it was during an industry meltdown, a recession, or in boom times—always on the march, always taking that systematic 20-mile approach, year in and year out. That allowed them to have a point of focus and progress, of calm and clarity. Intel moved from memory chips to microprocessors, but the 20-mile march of Moore’s Law stayed in place. And that idea of the relentless march, the 20-mile march as a manifestation of fanatic discipline, has had a big impact on the way I think and operate personally.

What’s the role of innovation here? Hansen: One of the first companies that we analyzed was Southwest Airlines. And the way we do the research is that we first identified the amazing performers in chaotic industries, like the airline industry. Then we asked the question, “What airline was the perfect twin to Southwest way back in the 1960s, with the same opportunities, the same conditions, and yet did not become great like Southwest Airlines?” And here we have a fascinating pair because the company we picked is Pacific Southwest Airlines (PSA). Southwest Airlines is often considered as the inventor of the airline commuter model. It turns out that Southwest copied PSA; PSA was the inventor. PSA created that model down to the smallest detail, including the quick gate turn of 10 minutes. The people at Southwest flew to San Diego to meet with the PSA people so that they could copy it. So Southwest Airlines was not the inventor of the model. The question becomes, if they weren’t the most innovative, how come they won, and not PSA? Collins: What Morten and I found was that innovation is important but it’s not by itself enough to make a great company. And the way we think of it is that there’s a threshold level of innovation that you must achieve to be in the game in your industry. And in the case of biotechnology, for example, that threshold is really high because if you don’t have patentprotected scientific breakthroughs that lead to new categories of products, you can’t compete. You don’t even survive. So to even be in the game, you must have a high level of innovation. And in the case of airlines, it’s a relatively low threshold of innovation. The point being that once you are above the threshold of your industry, more innovation doesn’t make you great. What you have to do is to marry discipline to your creativity. So take a biotech company like Amgen. Its focus on discipline as an organization allowed it to say, “We’re 18

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going to be innovative enough. We’re going to have enough patents. We’re going to have enough breakthroughs. But then we’ll marry a lot of discipline to those to make the most out of them.” That is what Amgen did. We found in our research that how you innovate matters a great deal. You fire bullets, then cannonballs. It may seem as if there was a great visionary idea—that someone shot off a huge cannonball—but when you strip away the story, you discover that that’s not what really happened. Rather, they fired bullets. They fired low-cost, low-risk, low-distraction bullets. For example, look at products that Amgen has been developing, or Apple or Microsoft, you find that along the way they fired a lot of bullets to get something working, to prove that it would work, and only then did they fire a big cannonball.

Jim and Morten, your book talks about instability and change. Do you see this continuing? Hansen: Do you mean the level of uncertainty? Yes. Collins: Quite simply, yes. The natural state of human affairs, and the natural state of the world in which we operate, is uncertain and chaotic. MW Jim Collins is author or coauthor of six books that have sold in total more than 10 million copies worldwide, including Good to Great, Built to Last, and How the Mighty Fall. He operates a management laboratory in Boulder, CO, where he conducts research, teaches, and consults with executives from the corporate and social sectors. Morten T. Hansen is a management professor at the University of California, Berkeley (School of Information), and at INSEAD. Author of Collaboration, he is the recipient of the Administrative Science Quarterly Award for exceptional contributions to the field of organizational studies.

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Building Global Growth Through A Conversation with Former IKEA CEO Anders Dahlvig BY DAVID SUMMERS

Anders Dahlvig was president and CEO of innovative furniture design, production and retailing powerhouse IKEA from 1999 to 2009. In 2006 he received the U.S. Foreign Policy Association’s Global Social Responsibility Award, and in 2009 he earned the Oslo Business for Peace Award. Recently he was interviewed at AMA. In your 10 years as CEO, what were the most important or significant economic and business changes that you observed? Dahlvig: I think if I should pick one, it’s probably the globalization that had a huge impact not only on IKEA but retail and business in general. I think that over the last 10 years, I’ve noticed a big trend to go international for a lot of big companies, not just American companies. And when I was looking at the competition back in ’99 I figured I would see a lot of the big retailers go into different markets. And we would see a much harsher competition, meaning we would meet these competitors in more markets than we had previously been doing. And many certainly tried. I mean, we’ve seen Walmart trying to enter Europe, China. We’ve seen Home Depot, likewise, from the U.S. We’ve seen some big retailers in Europe such as Tesco, Carrefour, etc., moving to emerging markets. Tesco has just come to the U.S., and is trying to make it here. So that’s been a big trend in this direction. I think in retrospect, when I think about it now, I think it has been a bit of a failure, to my surprise, that over the last few years we’ve seen Carrefour stop their operations in Japan, in Thailand, in Indonesia…a lot of countries out there. We’ve seen Home Depot leave China. We’ve seen Walmart leave Germany. And the question, of course, is “why has this happened”? And I think many of them have underestimated what it takes, obviously, to go global. That’s why it happened. And there are a number of, I think, important things you need to master if you go global, and some of these have not done that. One is, and it’s also the reason why IKEA has been successful. IKEA today is in about 26 markets. irst of all, you have to have a unique prospect. When you enter a new market, you have to 20

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INNOVATION come up with something that doesn’t exist in this market, so you add something new. And I think some have underestimated this, especially when western retailers move in from, let’s say, Europe to the U.S. or vice versa. When a western retailer goes into emerging markets, it has some chance of being unique because what you usually find in these markets is very cheap, low quality at the bottom end, and then you have the extremely expensive stuff, being high-end brands imported from wherever. So the whole middle market is available. So you do stand a chance in an emerging market, but I think one reason European retailers have failed in this market is that there isn’t enough uniqueness in the offer compared to when they entered that market. So that’s one aspect. Then I think another aspect that is often underestimated is the values aspect, in that you bring your value set from your company to this new market, underestimating the differences, and therefore you encounter some problems in getting accepted in that market, both by the customers and the employees. A third one is that although I think most retailers would like to change their offer as little as possible when they move from one market to the next because of scale advantages, you want to have a small range. You want to have an efficient supply chain. Hopefully the customer will accept your range wherever you go, as it is. And this would work in the European setting, I think, when you move from Germany to France or something like that. That’s no big difference. But when you move into emerging markets, I think many companies, including IKEA, have been surprised and have not really researched enough how they need to adapt their offer for this new market. You don’t research it enough when you go there. When you start up, you notice it doesn’t work, and you have to start to adapt. And this process can take some time, and I think one of the negatives of many retailers is that if you have institutional ownership with quarterly earnings and short-term profits demands, there isn’t the patience to stick it out for a number of years before you become profitable. You need to be successful within a fairly short timeframe. And I think in the IKEA case, having a strong owner is a foundation but there’s a strong owner behind it, always having a very long-term perspective of everything we’ve done since 65 years ago. We can move into a country and say, “It doesn’t matter if we’re unprofitable for 10 years because you’re committed to the long haul.” MWORLD SPRING 2012

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“Competition doesn’t really keep me awake either, because so far, at least in my 26 years, I’ve seen very little innovation coming out of the home furnishing retail sector.” And the long haul for us is the next 50, 60 years. So no problem as long as we figure we will make it in the end, obviously.

That’s wild. So many companies in the U.S. just don’t have that longer-term horizon. Dahlvig: No. And it is a competitive disadvantage. That takes me to the ownership structure of a company. If you’re privately held or you have a strong owner, that to me is a big advantage in many cases, and this is one good example of this. And just to give you, before we move on, the last point on the reason for failure of globalization is that I think in order to go into emerging markets, you need to have a very profitable home base. There has to be something that finances this for a number of years. Especially when we move into a contraction of the economy like we have now, in 2008 and onwards, many of these retailers find it hard in their home markets. So they are starting to lose money or their profits are going down. The base is eroding. The patience of the shareholder is being reduced. And therefore a logical consequence of that is that you pull back, you close a few countries. It’s the quick way of reducing your cost base and improving the numbers.

As CEO of IKEA, what kept you up at night? Dahlvig: If I look at the environment of the company, IKEA is in a very stable business. You know, if I was in the telecom business, what would keep me up probably is the level of innovation and how it all changes very fast, and how can we be part of that and not be, you know, sidestepped. A chair has been a chair for 300 or 400 years, and most likely people will still need furniture for a long time. So they’re still going to need chairs and beds. Competition doesn’t really keep me awake either, because so far, at least in my 26 years, I’ve seen very little innovation coming out of the home furnishing retail sector. Most of the innovation that has happened has happened in IKEA. We have been the driver of it. And as a result of how much bigger and more successful we have been, IKEA is today a market leader in almost all markets. I think the threshold or barrier of entry or expansion for anyone else has increased, and it is very difficult, I think, to compete with IKEA today from a competition perspective. What does keep me awake is more IKEA itself. The prospect of that growth is a killer for us. So, and I often say this internally, that I think the biggest threat to IKEA is IKEA itself. I mean, we’re still in the first generation of owners, and we haven’t seen the transformation to the next generation yet. And what the effects of that will be, in terms of dilution or not, are the vision and values, and how that makes the company tick is, I think, at least a potential I’m not saying it will be, but it is a potential problem. It happens in many companies. MW Anders Dahlvig is a regular keynote speaker at international conferences such as GVI International Conference on Retailing, U.N. Global Compact Summit, IBL Swedish Environmental Research Institute, Greenpeace Annual Conference, ECR Europe, and World Retail Congress. He’s also the author of The IKEA Edge, published by McGraw-Hill.

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Conquering the Rigidities That Stifle Corporate Growth AN INTERVIEW WITH CLAUDIO FESER, BY FLORENCE STONE

Did you know that the lifecycle of the average business is only 15 years? From Texaco and General Foods to PanAm and Westinghouse, world-class companies consistently lose out, over time, to smaller, comparatively inexperienced but agile newcomers. According to Claudio Feser, a director at global management consulting firm McKinsey & Company, the problem is that as companies grow, they develop individual and organizational rigidities that prevent change. This is true especially in a rapidly evolving marketplaceâ&#x20AC;&#x201D;it spells disaster. Claudio Feser shared this fact, the nature of the rigidities that cause it, and what we can do about them, during an interview with MWorld. Feser based his findings on in-depth analysis of the latest advances in such fields as behavioral economics, psychology, neuroscience, organizational science, and anthropology. He also based his conclusions on his hands-on experience working with CEOs at major companies throughout the world. According to Feser, the individual rigidities that thwart organizations are: Imperfect and biased thinking. Human thinking is

imperfect and biased. Actually, individuals may develop biases that prevent them from recognizing changes in the marketplace. Lack of self-efficacy. Individuals may not develop the self-confidence and perseverance to d eal with the changing environment and therefore give up and get stuck. The challenge of change. Because of the structure and functioning of the human brain, changing behavior is hard, even if the need for change is understood and accepted.

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The organizational rigidities include: Dense organizational hierarchies and bureaucracies. Over time, firms may develop dense hierarchies and complex organizational structures that prevent them from adapting. Lack of purpose. Organizations may lose the sense of purpose that inspired them in their early

days and may fail to engage their members on a common purpose. As a consequence, the divergent interests of these members may slow down the process of adaptation. Culture that hinders change. Firms may develop strong cultures that hinder change and

adaptation. Ill-designed incentives. Poorly designed incentive schemes may cause people and organizational units to behave dysfunctionally. Existing capabilities that limit growth. Companies’ histories, assets, and existing capabilities

are the platforms for renewal, but they may also limit firms’ ability to innovate and adapt to a changing environment. What can your company do to overcome these sources of rigidity? The goal for companies is to become Serial Innovators—the title of Claudio Feser’s new book—and toward this they need to answer some key questions, he says. Among the questions that you should be asking are: ៑

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Does the organization have a sound mission statement, one that is altruistic? How is it conveyed and communicated to the employees? What are the visible commitments of the organization to its mission? Is the top team composed of individuals with diverse mental models, people with a strong belief in their own self-efficacy, and people whose purpose is aligned with that of the firm? Is the strategy of the organization, the plan for the years to come, conveyed in an engaging and positive manner? Are people energized by it? Is the organization designed for adaptability? Is the company organized in self-managed performance cells? Are performance and reward management systems designed to cultivate self-confidence in the company? Are both monetary and non-monetary rewards being used? Does the leadership development system build capabilities in leaders to cultivate self-confidence in the people they lead? What approaches exist in the organization to quickly scale up new capabilities? What alliances, partnerships, or licensing agreements could be done? How can the organization experiment by making, for example, venture investments, or by pursuing several smaller strategic moves in areas of potential interest? Does the company have a culture that fosters both the competing values of execution (getting things done) and challenge (continuously challenging ourselves and the way we do things)? MW

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Ending the Clash Between Managementâ&#x20AC;&#x2122;s Desire for Control and Innovation BY SETH ALLCORN

Continuous innovation is essential to keep products and services at the leading edge of change to remain competitive in the turbulent global market of ideas, products and services. This level of innovation is not a given. Companies large and small fail to meet the challenge. An important question that must be asked is whether executives, management structure, organizational culture and inevitability of bureaucracy stifle innovation, creativity and critical thinking? The underlying question is the clash between management control and the chaos resident in innovation. Can we be creative without losing control? This question leads to considering the messy side of the workplace. Human nature is an omnipresent factor that can create inspiring exceptional outcomes. It can also create oppressive organizational dynamics where unilateral control of anxiety by management becomes the undiscussable goal. The need to be in control often arises from deeply embedded personality issues. Fears of being humiliated or punished for failure as well as fears that employees are not doing the work assigned fuel over-control. The compulsive need to be in control can lead others to describe the CEO and top management as oppressive bullies who have all the ideas worth having. Everyone else must accept that they are only there to fulfill them. Creative risk taking is crushed out of existence. The public or behind-the-back humiliation and abuse of others who offer different perspectives sends a clear message. When this happens, it usually only MWORLD SPRING 2012

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“Does your organization have features that stifle innovation, creativity, and critical thinking?” happens once. The target and everyone who observes the public humiliation, backstabbing, undermining, diminishment, and abuse will thereafter fear that it will happen to them if they put forward a new idea, submit a contrary proposal, or assume a devil’s advocate role. Innovation, creativity and critical thinking become something to be avoided. Envy is a second common underlying dynamic that suppresses innovation, creativity, and critical thinking. Whereas top management is often over-controlling to avoid feelings of not being in control, employees throughout the organization may feel envious of others who have the better ideas, produce better results, and as a result receive better raises, commissions and promotions. They are the modern-day rate busters who represent a threat to others and even their bosses. Limiting these high-performing individuals often leads to the withholding of information and the manipulation of resources. Rather than celebrate their achievements that ultimately benefit all, they are perceived as a threat that must be dealt with. Bullying, backstabbing, sabotage, and maligning are so common within organizations as to be referred to as “office politics” and a way to get ahead. Striving for excellence, innovation, and change is gradually extinguished. The spirit of creativity is lost either to just giving up or finding a new job. In either case, the real outcome is the loss of company viability.

A PROTECTIVE FIREWALL Must a protective firewall be created between management and those who create and innovate? Tom Peters in his 1982 book In Search of Excellence advocated the creation of skunkworks, where creativity was openly embraced but separate from the rest of the organization. In the 21st century much the same can be accomplished within the parallel virtual workplace arising in networks of all forms, including social networks. The recent success of solving a difficult math problem using the internet is but one example of an absence of control causing a dynamic creative context where many new ideas were explored, challenged, and rearticulated by networked individuals and groups. Often heard is, as we begin the second decade of the 21st century, that innovation and entrepreneurship are essential as a response to the economic malaise of the great recession that threatens to linger for most of the decade. What are some steps that can be taken to avoid a second lost decade? Does your organization have features that stifle innovation, creativity, and critical thinking? Surfacing organizational dynamics driven by unacknowledged anxieties about losses of control that block and even extinguish innovation, creativity and critical thinking are essential. And since the CEO and top management may be part of the problem, the development of an organizational assessment by an outside group is also essential. Truth must be spoken and the expendable outsider is the best way to accomplish this, especially within organizations that contain undiscussable repressive control and domination by management. The use of an outside group experienced in developing organizational assessments relying on qualitative information acquired in interviews should be considered. Exceptional insights can 26

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be gained within a context where it is safe enough for all concerned to “tell it like it is” without fear of being punished. A 360-like approach conducted in conjunction with the organizational assessment can form a basis for creating change toward a management culture that fosters innovation. Inspection of lateral and vertical communications can yield insight into where a free flow of information and ideas is inhibited or entirely blocked by an executive or manager who seeks to control what people know of his or her area of responsibility.

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WOULD MOST OF YOUR EMPLOYEES AGREE WITH THESE STATEMENTS?

អ There is a free flow of ideas and communication that continually promotes innovation. អ Top management is open to exploring new ideas generated throughout the organization.

អ There are many examples of new ideas being Adjustments to individual behavior can be adopted that have improved production, facilitated by a psychologically informed coach products and services. who appreciates the at many times irrational features of individual and group behavior. CEOs, អ Excessive envy and interpersonal competition is not blocking creativity. senior executives and managers are faced continuously with stress. The question the អ Outside organizational assessments have been individual and coach must answer is how best to performed to reveal problem areas that inhibit respond to the anxiety that arises and avoid overcreativity and innovation. determined psychological defenses. Is unilateral អ Individuals and groups are often rewarded for control ever going to relieve the anxiety? What is their creative and innovative solutions that the most effective balance between maintaining improve products, services and organizational enough control to make quality products and performance. provide desirable cost-effective services and being creative? Most fundamentally the question is, how can the executive be coached into less defensive and destructive response to anxiety?

MAKING IT HAPPEN Perhaps the single biggest step that can be made is to strive to become a reflective practitioner. Executives who can achieve a reflective stance are much more likely to be able to maintain personal integrity when distressing, anxiety-evoking experience is encountered. Executives who can face one stressful situation after another without becoming over-anxious and personally disorganized are much less likely to retreat to long-established coping mechanisms to control their self-experience. The ability to cope successfully permits avoiding over-controlling, punishing, scapegoating responses that extinguish the innovation, creativity, and critical thinking that paradoxically contributes to solving the problem, thus reducing the stress. MW Seth Allcorn, PhD is an associate of the Center for the Study of Organizational Change (www.csoc.missouri.edu) at the Harry S. Truman School of Public Affairs, University of Missouri. He is the former vice president of a university and has held executive roles in four major academic health sciences centers. He has been an organizational consultant for 25 years, and has also authored a number of books, some of which are Death of the Spirit in the American Workplace, Workplace Superstars in Resistant Organizations and The Dynamic Workplace. For more information, contact sallcorn@csoc.missouri.edu

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The Power of Co-Creation You don’t have to drive every success in your business, and the reality is, you shouldn’t! BY ALEX CHARFEN

Imagine you are the manager of an online book retailer. Holiday orders are pouring in, and you are responsible for meeting the increased demand. You burn the midnight oil for several days; analyzing departmental metrics, running projections, and calculating the cost of paying your current staff overtime versus the cost of additional hires. When you present your plan to your team, all they hear is “overtime” and become resentful. Now imagine you apply the principle of co-creation instead. First, you explain the opportunity that lies in the holiday rush—not just opportunity for profit, but the opportunity to earn customers’ trust and loyalty—and then ask your team members for their ideas on handling the increased demand. One employee suggests some improvements to the inventory system so books can be located faster. Another suggests having boxes in several sizes pre-constructed to cut down on assembly time. With a few tweaks to the current process, you find your existing fulfillment team is able to manage the increased workload without the need for overtime or new hires. You may also find some creative suggestions that go beyond the original scope. One team member suggests inserting a coupon in each order to encourage repeat purchases, while another recommends a cheaper packing material that could save the company thousands of dollars each year. The best part? Because your employees have helped to co-create the new fulfillment process, they are personally vested in seeing it succeed.

BENEFITS OF CO-CREATION This is a simple example, but illustrates how co-creation can be one of the most powerful tools available to a manager. Why? Because good team-members will support what you ask them to do, but they will passionately support that which they co-create. Co-creation can be a great benefit to you as a manager. For example: 28

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1. You’ll increase productivity. No matter how capable or efficient you are, you can’t (and shouldn’t) do everything yourself. An efficient manager must be able to leverage the time, creativity and skills of his or her team members. Through the co-creation process, you can free up your own time while tapping into the insights and experience of your team members. 2. You’ll get a better outcome. The web-based encyclopedia Wikipedia is a perfect example of

the co-creation phenomenon. With over 100,000 regularly active contributors, Wikipedia has quickly become the most popular—and one of the most accurate—general reference works on the Internet. By including multiple and diverse perspectives in your own creation process, you’ll improve your end results. Insecure and inexperienced managers often believe they need to display their superior knowledge and skills to the people who work for them. Alternatively, effective managers recognize their own limitations and hire employees who compliment their strengths, and help compensate for their weaknesses. Employees who handle day-to-day operations are often able to offer surprising insights about what is and what isn’t working. By leveraging the collective insights of your team, you’ll enhance your end results, and show your team members that you appreciate and respect their contributions. 3. You’ll retain top talent. Team members involved in co-creation are allowed to tap into an

innately human resource—creativity—which makes their role more fulfilling than simply completing rote tasks. And studies repeatedly show that recognition and praise are greater workplace motivators than money. 4. You’ll show team members their “win.” Allowing your team members to co-create gives them valuable insight into the goals of an initiative. Instead of giving them a list of tasks to complete, you are asking them to help create the list, with the end result in mind.

USING CO-CREATION IN ANY BUSINESS RELATIONSHIP Co-creation is not limited to manager/employee interactions. In fact, it’s such a versatile tool, it can be used in virtually any type of relationship. I have found it to be incredibly valuable in my own business. In January 2008, at the height of the U.S. mortgage crisis, we launched the Certified Distressed Property Expert® Designation, a two-day course that teaches real estate agents a system for listing and closing short sales. I knew we had developed a product with huge sales potential, but we didn’t have the infrastructure in place to get it out to our target market—an estimated 1.3 million real estate agents in the United States. We reached out to the established real estate franchises, which were acutely aware of the need for their agents to adapt to the changing market if they were going to survive the downturn. In MWORLD SPRING 2012

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“…if the goal is to meet a projected increase in demand, make sure the creative process doesn’t veer off into a discussion about the company logo.” our first meeting with RE/MAX, instead of preparing a proposal, we sat down with a yellow legal pad and asked them what they were looking for in an educational partner. By allowing them to co-create an affiliate partnership agreement that was beneficial to both parties, we won their endorsement, setting us on a path to become the fastest-growing designation in the history of real estate. The next time you are asked to present a proposal to a potential client or affiliate partner, instead of dictating your own ideas, try approaching with a blank sheet of paper and an eager ear. Listening is one of the most powerful tools you can use in a business relationship, and crafting an agreement that’s co-created will ensure greater buy-in by both parties.

IMPLEMENTING CO-CREATION IN YOUR OWN COMPANY Now that you’re familiar with the power of co-creation, start finding ways to implement it into your current projects. Start by making a list of employees who will be impacted by any given initiative, and jot down a few questions you can ask to guide them through the co-creation process. Be sure to refrain from sharing your own ideas, attitudes and opinions, which can lead them to try to come up with suggestions they feel will please you, or be seen as “right.” I think you’ll be surprised by how positively your team members will respond to the opportunity, and how much their input will help to improve your end results. MW Alex Charfen is CEO of The Charfen Institute. A noted speaker and author, his most recent book is The Congruency Connection: Practical Tactics and Strategies for Aligning Your Work and Your Life to Ignite Your Passion. For more information, visit: www.alexcharfen.com

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Is It Time to “SKIPP” SCHOOL? BY STEPHEN R. SATTERWHITE

It’s November 17, 2011, and I’m sitting in the audience in the ballroom on the seventh floor of the New York Stock Exchange building, both the physical and symbolic seat of American capitalism. Today, I’m here with 150 CEOs from the Entrepreneurs’ Organization, or more commonly known as EO. We’re celebrating Global Entrepreneurship Week and the global board leaders of EO will be ringing the closing bell on the floor of the Exchange later today. But here in the ballroom this morning, we’re gathered to hear our keynote speaker, Matthew Kelly, author of one of my favorite books, The Dream Manager. Kelly’s mission in life is to help organizations like ours identify, hire, grow, and nurture the best and brightest employees. Yet, during his presentation, the discussion quickly turns to the challenge that all entrepreneurs in the room share: the fact that it’s getting harder and harder to find the people our organizations need in order to grow our businesses. He warns that because of the breakdown in our education system, and the attitudes of young Americans today, it’s only going to get worse. Just outside of the NYSE building this morning, there are thousands of protesters of the Occupy Wall Street movement marching down Wall Street—a group of disenfranchised, disappointed, and disillusioned Americans. Some of them are out of work. Some of them have lost their homes. And some are just here protesting; raging against the machine inside the building that, to them, is the symbol of what’s wrong right now in this economy: the imbalance of opportunities, success, and excess in America.

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“…there are an estimated three to five million jobs available and sitting unfilled because we do not have the workers with the proper skills and training to fill them.” This moment of irony on this fine November morning was not lost on me or my colleagues. Here, inside the NYSE, a group of entrepreneurs are gathered together to learn better, faster, and easier ways to find and train and pay the people we all desperately need to grow our businesses. We are talking about how to grow our businesses and create jobs, and yet we all agree that we are having a more and more difficult time than ever finding the right people. Conversely, just outside, but certainly within earshot, we hear the voices of thousands of angry Americans who desperately want to find good jobs that will provide not only a good living for themselves and their families, but jobs that can bring dignity and meaning to their lives. We know that many Americans can’t wait to get back to work. We want to hire them. But there’s a huge disconnect between the skills required to fill the available jobs today versus the skills and education that many American workers currently possess.

THREE MILLION JOBS (OR MORE) Though the numbers and projections vary some, there are an estimated three to five million jobs available and sitting unfilled because we do not have the workers with the proper skills and training to fill them. And that number is sure to grow. In fact, one study conducted by The McGraw-Hill Research Foundation predicts a shortfall of more than 35 million skilled and educated workers over the next 30 years in addition to the millions that are open and unfilled right now. Other research conducted by interested parties on all sides of the issue paints a similarly chilling portrait. I work in the data storage industry, one of the fastest-growing segments in the high-tech business. According to an annual study from IDC, the data storage world is doubling every two years, and will increase by a factor of 50 in the next decade. Yet the number of workers who can design, manage, and support these systems is growing by a factor of only 1.5. We’re just not keeping pace. These are the people my organization is looking for: highly skilled technical workers for data storage jobs in an industry that didn’t even exist just a few short years ago. If the definition of full employment is a 5% unemployment rate, then, here in the middle of The Great Recession, we in the data storage business are actually experiencing negative employment! My industry is a perfect, real-world example of what’s being labeled the skills gap. But it’s not just the high-tech industry. All across America, in just about every industry, and arguably all around the world, we have too many workers that lack the technical, professional and soft skills to get jobs in today’s market. And that’s got to change. Even though the McKinsey Global Institute predicts strong growth ahead in health care, business services, leisure and hospitality, construction, manufacturing, and retail, we will still face a sobering gap of millions of skilled workers to fill these jobs. So let’s bring the big picture into focus, break the workforce down further into high-skilled, middle-skilled, and low-skilled workers. 32

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On the one side of the spectrum, by 2020, roughly 34% of the workforce (about 56 million strong) will need a college or graduate degree to be hired and succeed in a high-skilled job. On the other side of the spectrum we find low-skilled workers, who make up some 38% of the workforce. These are the people who have been hit the hardest in the past few years—the individuals with little or no training and no college or university degree. Right now, there’s an over-abundance of low-skilled workers for the jobs available.

WHERE’S THE GAP? By 2014, 45% of the workforce will be low-skilled workers, yet only 22% of the current lowskilled jobs will still be available then. It’s the perfect storm: a growing population of unskilled workers chasing a shrinking job pool. The jobs that were lost in the last few years are not coming back to the levels needed to put lowskilled workers in jobs. We have to retrain, re-skill and up-skill these people to put them back to work. But the bad news can become the good news when we look to the middle. Job growth for middle-skilled workers paints a more optimistic picture on the one hand, and a significant challenge on the other. The Bureau of Labor Statistics (BLS) projects that by 2014, just a mere two years from now, almost half—approximately 45%—of all jobs will fall into the middleskilled category. At the same time, only 25% of the workforce will be qualified to successfully perform these jobs. That’s the most significant skills gap facing our country and the world today. The middle-skilled opportunities are there, but the world of prepared middle-skilled workers isn’t keeping up. What’s interesting is that many middle-skilled workers without a degree will out-earn those with college educations. This is certainly the case with high-tech workers in my industry. Yet, due to fast turnover and the short lifecycle of technology, middle-skilled workers will require frequent retraining and refresher courses throughout their careers.

WHO’S HIRING (OR TRYING TO)? So, what are these middle-skilled jobs, and where are they? First, they are jobs that require a high-school education but not necessarily a college degree. More specifically, these jobs require skills and training in a given specialty along with the business, professional, and soft skills that employers desperately need. These are some of the jobs that the BLS predicts will see the most growth over the next decade: Network Systems and Data Communications Analysis . . . . . . . . . . . . . 53% Home Health Aides . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50% Computer Software Engineers and Application. . . . . . . . . . . . . . . . . . . 34% Medical Assistants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33%

But these important support roles still require talented, trained, and skilled workers. However, does the typical four-year college degree prepare them to function in these roles? In other words, is there a better, faster way to retrain the 15 million workers out of work today to get them the skills they need and put them back to work now? I believe there is. MWORLD SPRING 2012

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SO WHAT DO WE DO? Many would suggest that more and bigger investments and changes in our educational system to adequately prepare students for their chosen fields is absolutely a long-term solution. But I would argue that we already invest billions of dollars in our education system year after year while the number of high-school graduates is getting smaller and literacy and math skills of graduates are getting worse. I propose that we focus our energy on retraining, re-skilling, or up-skilling our existing work force for the middle-skilled jobs that are available now. In fact, we’ve already had great success in training people in weeks and months, not years, when we focus on five vital success factors, or what I’ll call the SKIPP School: Skills: We can provide specific skills training conducted in an intense boot-camp style, followed by a period of apprenticeship. Unlike a traditional college or university, we can retrain and re-skill people in weeks or months on very specific jobs and expertise instead of two to four years of classroom theory. Plus we eliminate the subjects typically required by colleges and universities that have no relevancy to a specific job.

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Knowledge: Employers get frustrated when workers don’t have the requisite level of basic reading, writing and math to function productively in their jobs. ៑

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Interpersonal Communication: In order to be effective in any job, people have to be able to

speak the language. Whether it’s standing and delivering a presentation, writing a simple email to make or respond to a request, or communicating with colleagues and managers, we have to teach workers basic business communication skills so they can get, keep, and grow in a job. Professional Development: Many argue that workers today don’t understand the new world of work and the career paths available to them. So let’s provide people specific industry knowledge for them and give them guidance. ៑

Personal Development: As an employer, I need people who are well rounded and healthy in all areas of their life. So let’s train people to get a job, but let’s also train them to grow as people. That means mentally, physically, financially and spiritually. This is how we will put people back to work in months, not years. It will not only put people back to work, it will create the most employable, healthy and productive workforce in the world. I truly believe this because I see it working today—it’s not mere theory or another Utopian idea. ៑

The late and great Don Clifton, grandfather of Positive Psychology and coauthor of the perennial bestseller Now Discover Your Strengths, was fond of saying that everyone has talent and all of us can do at least one thing better than 10,000 other people. I believe that the solution to putting Americans back to work is available to us now, not years off like many would believe. MW Stephen Satterwhite is CEO of Entellligence IT, a fast-growing organization in the data storage industry. For more information, contact: steves@entelligence.com

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CUSTOMERS AS BEST SOURCE OF IDEAS BY PRABHAT VIRA

Innovating within a large corporate culture is rarely the stuff of legend. Aside from the spectacularly designed products and launches orchestrated by the larger-than-life Mr. Jobs of Apple, innovation in much of corporate America is not about the big thunderclap, but the slow build. And it can all begin with clients’ responses to prospective ideas. LIMITATIONS ON INNOVATION WITHIN A CORPORATION Expanding one’s attention beyond internal realities and constraints to focus on what competitors are doing is hardly a silver bullet. Unfortunately, in many instances, what forces a company to change is the fact that a competitor changed first. This can lead to an eternal loop of playing catch-up—following the leader instead of leading the pack. Banking is a prime example of “me too”-ism in the market. Innovations in corporate, retail, and investment banking are quickly copied by competitors. Failure to keep up with competitive developments, especially in the risk management arena, is a distinct disadvantage, so banks respond in kind. In this environment, yesterday’s innovation can quickly become today’s commodity.

LESSONS ON INNOVATING FROM WITHIN In thinking about how to innovate in a way that is meaningful to your company’s bottom line, and operationally acceptable, what is the best approach? How can groups within a larger, highly structured organization succeed in innovation? Is true innovation even possible in today’s environment? MWORLD SPRING 2012

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“Innovation has…become an important tool for survival, but it must be managed within a corporation in a very strategic way.” To answer the last question first, yes, innovation is not only possible in a corporate culture, but can work well within “the system.” Here are some lessons we have learned at RBS Citizens that have allowed us to introduce a whole new suite of products—highly popular and quickly adopted by clients—even in one of the most challenging environments banking has ever experienced.

ESTABLISHING THE CLIENT “FILTER” Innovating within a large corporation starts with the client—in particular, with establishing a client-centric culture. Instead of creating bells and whistles driven by a sudden internal brainstorm or by playing competitive catch-up, a company looks first to client needs and builds from there. At RBS Citizens, when we started to become disciplined about innovation in the commercial cash management business—looking to meld the possibilities of new technology with the needs of our clients in our 12-state footprint—we started with our clients. We hired a prominent research firm to interview many of our clients, asking them what we could improve in our cash management proposition. And we found, overwhelmingly, that our clients wanted tools to make cash management easier, more flexible, more accessible, and intuitive. They wanted to be untethered from their offices, and to be able to manage their corporate cash—pay bills, transfer funds, control costs and expenditures—and wanted to be able to do this securely, easily, quickly, and with total confidence. Their goal was to be able to manage their cash on the road, but without the risks, errors and costs associated with delegating this task. And, although mobile banking is something that we have all learned to use personally, on the corporate level there were almost no products available, anywhere, that delivered these capabilities. We determined that we wished to be the first in our footprint to provide our clients with these capabilities, and we began the process of designing a series of products to directly address their needs. Worth mentioning here is that in many B-to-B sectors—including corporate banking—it is important to strike a careful balance when talking about “innovation.” Yes, clients are looking for fresh thinking from their bankers, especially when it can reduce risk and free up cash to the company. But corporate treasurers and CFOs are also very conscious of being “sold” on something that’s new for newness’ sake. Our customers were not looking for overly creative or “original” products, but for solutions to address their actual pain points.

KEEPING IT PRACTICAL Once we heard from our clients, we then had to ascertain how we could work within the capabilities that already existed within the bank, as well as how to supplement them. This meant inspiring different operating groups, each with their own priorities, to work toward a common goal. 36

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Our path toward making this innovation real included some critical ingredients: ៑

Staying focused: We defined clearly what we wanted built, constantly keeping the client

filter. ៑

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Working within company parameters: We set realistic cost and time targets that would

keep the product on track and not spinning out of control. Building the right team: We established a multi-disciplined “deal team” with a clear leader. Remaining flexible: We had to be agile in the development of the product elements—once again by benchmarking progress through the client filter.

The result? A product called accessMOBILE, which became the first corporate mobile banking solution in our market. And, responding to customer demand, we developed additional accessMOBILE browser support for the iPhone and iPad—and soon to come for Blackberry and Android devices—meeting customers where they are in their personal technology. In fact, accessMOBILE has been so successful (with more than 5,500 downloads of the app, generating nearly a hundred log-ins a month even in the current Apple-only format), that we began an entire series of “access” products. AccessXCHANGE is an “any to any” file translation service that opens up our file-based services, such as integrated payables and receivables and account reconciliation, to smaller client companies that have less sophisticated in-house IT capabilities. These smaller-sized customers also wanted a better way to manage expenses, as they do not have the staff and technology levels that larger companies have instituted in recent years to control corporate expenses. So for them we created accessCARD Command, a program that helps finance staff at smaller companies—that may indeed be a staff of one— oversee purchases and set up limits and budgets that are automated. Customers are indeed the best source of new ideas—and keep innovation on track to deliver real value and deliver returns back to the company, which is essential to a cost-conscious corporation. Innovation has thus become an important tool for survival, but it must be managed within a corporation in a very strategic way. As certain corporate stakeholders either consciously or unconsciously resist innovation, innovative leaders within a company must vest these stakeholders in the additive nature of innovation, especially in customer retention. MW Prabhat Vira is Head of Global Transaction Services (GTS) Americas. He is responsible for delivering the full range of global and domestic transaction services capabilities (treasury management, payments, trade finance, merchant services and commercial cards) to clients across all segments of the commercial marketplace in the United States, Canada and Latin America. Vira also is a member of the GTS Executive Committee at RBS. Before becoming head of GTS Americas in August 2009, Vira was Head of GTS Solutions International, responsible for delivering cash solutions to GTS Americas’ Global Banking and Markets (GBM)/Large Corporate client segment across North America and Latin America, as well as managing Trade Finance sales and product efforts. Vira has an MBA from the University of Michigan at Ann Arbor, and an undergraduate degree in chemical engineering from BITS, India.

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Dealing with Discontinuity BY MARK W. JOHNSON

In the early 19th century, most people lit their homes with lamps that burned whale oil. In midcentury, as supplies were constricting and prices rising steeply, Canadian physician and geologist Abraham Gesner developed kerosene, a cleaner-burning alternative made from a plentiful resource—crude oil—and founded what became the modern petroleum industry. Whaling, a major world industry, virtually ceased. Then Edison threw a light switch, and the world changed again. No one wanted the foul smell and dangerous flame of kerosene lanterns in their homes when they could have clean and easy electric light. Demand for fossil fuels plummeted. Everyone from entrepreneurs to corporate CEOs must innovate new products and business models in response to market-driven circumstances. As the late economist Joseph Schumpeter once wrote: “Economic progress, in capitalist society, means turmoil.” But how you go about navigating such turmoil is the big challenge that business leaders face. First, leaders must recognize that discontinuity isn’t the exception but the rule, so they should always be on the lookout for the next big shift. The advent of the automobile jump-started the fossil fuel industry again. Plentiful and cheap carbon-based fuels went on to transform the way we live on the planet—how we travel, heat our homes, and build our cities. The oil industry flourished, the chemical industry evolved on its back, and automobile manufacturers emerged among the titans of the Manufacturing Age. But it didn’t last forever. Today, the 38

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ramifications of global warming threaten the automobile, utilities, and oil industries. The world seems to be on the cusp of a new energy paradigm, one with the potential to radically alter any number of industries as businesses struggle to adapt. These kinds of market shifts tend to emerge from identifiable and predictable trends that alter industry structures and redraw industry lines over time. But there clearly exist less predictable, more revolutionary forces with roots that lie outside the market. Examples range from the attacks of 9/11; the global push to address greenhouse gas emissions; Deng Xiaoping proclaiming, “To be rich is glorious” and unleashing the Chinese commercial dragon. These acute, episodic events can come with little warning (like a tsunami) or with leading indicators (like a cyclone), but they share two characteristics. First, they dramatically change the game, prompting the need for new customer value propositions and new business models for entire industries and sometimes whole economies. Second, their ramifications are extraordinarily difficult to predict. But like the shifts already discussed, tectonic industry change—when whole industries suffer an unforeseen shock, collapse, or form anew—opens up uncharted territory for companies between what was and what is to be, in what I call the “white space between.” Seizing those white spaces early is what provides companies with a competitive advantage that lasts for a generation. Myriad forces can contribute to tectonic industry change, and they can vary radically from one shock to the next. I will focus on three that directly create opportunities or imperatives for business model innovation: ៑

៑

Unpredictable or radical shifts in market demand (sweeping changes that go beyond the sort of predictable evolution of markets I’ve already described) Discontinuous shifts in technology (the development of revolutionary enabling technologies) Dramatic shifts in government policy targeted at the business environment.

Each of these forces can bring about sudden changes on their own, but they often work in concert to produce even more volatile discontinuities, each influencing and amplifying the effects of the others. Adaptation in the face of dislocation can help a company ride out the storm, but business model innovation can bring about renewal by creating a new business platform uniquely suited to the radically altered terrain. MWORLD SPRING 2012

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“Newly discovered enabling technologies can in fact sustain and expand existing markets, strengthening industry incumbents and their current models.” TRANSFORMATIVE MARKET SHIFTS A business must always be sensitive to changing market conditions, of course, but occasionally market demand shifts unexpectedly and far more fundamentally than can be reasonably predicted, certainly much more abruptly than the evolutionary shifts discussed. You might think the defense industry would have a lot of experience with cataclysmic events, and so it does. But that has not always translated into change in its business model. During the Cold War, the U.S. military valued large-scale, expensive, and complex weaponry that could deter an opponent with the threat of widespread destruction. Consequently, the U.S. military procurement process evolved to manage large-scale, expensive, and complex projects, and defense contractors logically built complementary business models: solution shops that specialized in relatively high-margin, low-volume offerings. When the Cold War ended, the industry evolved, but not radically. Throughout the 1990s, military operations were downsized, but the era of big, bloated project development and procurement continued. Then came the attacks of 9/11 and the subsequent wars in Afghanistan and Iraq. The nature of combat shifted dramatically, and with it, the marketplace of war. Suddenly, the military, the defense procurement system, and the contractors that served it had to change their ways of working. A centralized, command-and-control mindset had to yield to decentralization if soldiers were to get the information and versatile weaponry they needed. Delivering solutions for the new “job to be done” of equipping a mobile, fast, decentralized military requires the armed forces to adopt a new business model, one capable of developing and procuring good-enough solutions for the soldier in volume and in a manner more responsive to rapidly changing conditions on the ground.

CHINA AND INDIA Another tectonic shift in market demand, which has yet to fully play out, began when China and India opened their economies and brought billions of potential new consumers into the global market. The advent of microlending further fueled this explosive shift in demand, putting capital and disposable income into the hands of potential rural consumers and aspiring small-business owners and creating the opportunity to fulfill a host of “jobs to be done” for these new consumers. If these opportunities weren’t tempting enough, there are the related effects of the global financial meltdown of 2008 to consider as well, which substantially shrank consumer demand in Western markets, which have remained constricted ever since. As demand shifts from West to East, Western multinationals looking for growth must enter these developing markets with new insight and creativity and not expect that all they need to do is tweak their current business models to account for local differences. For example, China’s Goodbaby has mastered the trick of offering a vast selection of baby carriages, high chairs, playpens, and the like at the low end by making up for slim profit margins through the high volume that even niche markets in China can command. And 40

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already some emerging global companies are applying that and other lessons creatively to Western markets. Chinese appliance manufacturer Haier set up a kiosk in New York’s Times Square one hot summer’s day and sold 7,000 air conditioners in seven hours!

TECHNOLOGY-DRIVEN SHIFTS As my colleague Clayton Christensen first recognized, new technologies are not inherently disruptive. Newly discovered enabling technologies can in fact sustain and expand existing markets, strengthening industry incumbents and their current models. The Internet, for example, made it easier for discount broker Charles Schwab to deliver its nofrills, do-it-yourself discount brokerage service to customers who wanted to manage their own investments. Amazon.com emerged, at first as a niche book retailer and then one of the world’s largest sellers of everything. And new digital channels enhanced Merck-Medco’s existing mailorder pharmacy business model, greatly facilitating its fulfillment of pharmaceuticals to millions of customers every month. And, as we saw earlier, technologies can help companies transform existing markets or create new ones. But, of course, the technology that serves as one company’s opportunity is often another company’s—and often an entire industry’s—demise. Your job is to get on the right side of the next wave—and become the disruptor, not the disrupted. MW Mark W. Johnson is co-founder of the strategy and innovation consulting firm Innosight and the author of Seizing the White Space: Business Model Innovation for Growth and Renewal.

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Selling Your

INNOVATIVE

BY SCOTT D. ANTHONY

You’ve got it. An idea that has massive potential. Your confidence is sky high. After all, you have carefully studied the market. You have run the numbers, and everything checks out. There are risks, of course, but your extensive experience teaches you that you can manage them. Yet, management doesn’t get it. They listen politely enough as you go through your 30-page PowerPoint presentation and your detailed financial analysis. They only play with their iPad a few times (the optimist in you thinks they were taking notes; the realist knows they were checking their stock portfolio). But then comes the spirit-crusher: “Thanks for all of your hard work. But you know the organization has a lot on its plate right now. Let’s talk about this next quarter.” The proverbial pat on the head coupled with the passive aggressive dismissal. You trudge back to your cube. So what to do? Gnash your teeth and blame myopic management all you want, but the blame lies with you. You see, every great innovator is a great salesperson. They have to be—innovators have to cajole skeptical leaders to invest in their idea; they need to get managers to dedicate time to uncertain efforts: and of course they have to get customers to spend time or money on something new and different. Maybe you lack the flair of a Steve Jobs or Tony Robbins, but that doesn’t mean the task is hopeless. There are three simple ways to get people behind a nascent idea.

MAKE IT REAL Which do you find more compelling? A newspaper story describing the basic plot of a film, or a 60-second video? If a picture is worth a thousand words, a good 60-second video is worth a book. Break free of the droll PowerPoint. Create a simple video. Develop a mock magazine advertisement. Build a fake website. Heck, create a storyboard, a-six frame cartoon that shows how consumers will experience your idea. Are these solutions beyond your expertise? Go to eLance.com and find some low-cost help. Dorothea Koh used this approach to help her company—Medtronic— come up with a new way to teach diabetic consumers how to use the company’s insulin pump. Historically, a Medtronic representative would demonstrate how to insert the tube carrying vital insulin from the pump using a plastic mold that is about the size of a large hardcover book. The user would sit at a table and insert the tube into the mold. Of course, those actions only roughly approximated what the consumer would have to do to insert the tube. What if, Koh thought, 42

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IDEA Medtronic created a “wearable” model, so consumers got a better sense as to how to insert the tube? Instead of creating a detailed PowerPoint presentation, Koh spent all of five minutes and less than $1 to create a prototype. It involved Medtronic’s existing model and masking tape. Management embraced the idea, and Medtronic plans to roll it out in 2012.

PERSONALIZE THE PAIN An innovation has to solve a problem someone faces in his or her life; in other words, there has to be a job that the customer is struggling to get done. Have decision makers felt that pain? Facts and figures might connote pain in a clinical way, but stories sell it. Describe a real person, and his or her frustrations with current solutions. Avoid a dense PowerPoint page of 10 point font. Show pictures, shoot a video of a target customer experiencing obvious frustration when they use today’s incomplete solutions, or involve customers themselves in the presentation. There are tools that help with experiences. For example, researchers at the Massachusetts Institute of Technology have developed a system that allows people to experience what it is like to be an elderly consumer. Wearing the “Age Gain Now Empathy System,” or AGNES, gives developers empathy for the physical limitations facing elderly consumers.

PROVE IT Maybe management is skeptical for good reason. If you get the proverbial head-pat, ask management what it would need to see to get excited about the opportunity. Then go do it. Don’t say that you don’t have enough money. In today’s world a test is just a mouse click away. Use LinkedIn to network with an expert in the industry and ask him or her a question about a critical assumption. Run online surveys using SurveyMonkey.com. Tap into Amazon’s Mechanical Turk offering for a cost-effective way to perform mundane tasks. MW Scott D. Anthony is the Managing Director of Innosight Asia-Pacific and the author of The Little Black Book of Innovation (Harvard Business Press, 2012).

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INNOVATING Mana BY PATRICIA A. McLAGAN

How do we unleash human energy, creativity, and tenacity at work while also creating an effective, efficient, enduring, and aligned institution? This is a management problem with challenges for managers as well as for the people they lead. And it is a management problem that, the longer it is unaddressed, the more likely it is to create institutional crises. Organizations seem to be making progress in the “efficiency” arena. We can thank technology for some of this. The automation of routine work, data crunching, information storage, and data analytics takes massive costs out of the business. Unified communications, including Web 2.0, messaging, remote meetings, webinars, and telepresence make direct communication possible, often without administrative support or management mediation. Simultaneously, various tools of efficient organization design have matured and moved out of the fad stage: process reengineering, strategic planning, and supply chain management. Yet the gains, while impressive, leave executives with the same fundamental concerns: how do we successfully implement strategies and make desired changes (2/3 failure rate is what executives usually report when asked to describe their successes with change)? How do we ensure continuous alignment and response when conditions and targets shift? How do we know what is really going on so that we can take appropriate leadership action in a timely way? How do we get the best cross-boundary coordination and alignment? How do we ensure that important information isn’t lost in the email and information fog and clutter? Efficiency responses like those above are part of the answer, for they unleash people from the work that machines can do. They also help ensure that the inevitable bureaucracy of the organization adds rather than drains value (good processes do this, for example). But efficiency is not enough, and some efficiency mechanisms from the past should be abandoned (e.g., traditional punitive authoritarian methods) or significantly re-engineered (e.g., traditional individual performance appraisal and carrot-stick practices), for in today’s world they often have more negative than positive effects.

A WORD FROM EINSTEIN Today’s institutions are in jeopardy, largely because management practices and processes are not up to the task. Einstein’s observation, “The significant problems we have cannot be solved at the level of thinking that created them,” is very relevant. Mainstream management actions like planning, organizing, controlling, and motivating, as currently practiced, are suited to a 44

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gement world where product, career, and organization lifecycles were long and thus gave the illusion of stability. When “stability” is the norm, it makes sense to implement “plan then do then check,” to “cascade” goals down a hierarchical structure and check up on them quarterly, to see strategic plans as mechanisms for imposing the organization’s intentions and industry dominance on unwitting markets and customers. But, managing stability, while still a part of today’s management task, has been overshadowed by the challenge of leading and mining change. Change “management” has moved to the foreground because it is the best leadership orientation in a world where communication is continuous, there are few secrets, and customers may also be suppliers and competitors. Also, on their way to a customer, products, or services, or ideas meander or jet into and across many functional, organizational, and national boundaries. Products are continually tested, embellished, and morphed as they meet customer and worker-initiated creativities. Today’s collision of ideas and information is creating the potential for a kind of Cambrian evolutionary explosion around the world of work. The only thing holding real evolution of our institutions back is the lack of management processes suited to the new environment. Management practices that support stability—unless they are augmented by those that stimulate and nurture change— destroy the innovation, voluntary human alignment, and risk/failure/learning cycles that are vital for success.

ENTRENCHMENT IN THE OLD WAYS It’s ironic, but the very force (management) that must lead institutions in this complex and highly integrated socio-economic environment, seems to be the most entrenched in the old ways. This is probably not surprising. Innovations in any field often run headlong into the systems they are making obsolete. Clayton Christensen, in The Innovator’s Dilemma, describes how difficult it is to move into new paradigms. Whether shifting from mainframe computers to PCs, authoritarian political systems to democracies, oil-based to green energy, from definedbenefit to defined-contribution pensions, there is an entire system of mutually reinforcing factors that make it virtually impossible to implement the most obvious changes. This is true MWORLD SPRING 2012

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for management processes and practices. There is a complex lattice of consulting firms and models, accounting practices, executive compensation rubrics, university education programs, career management systems, precedent, organization norms and structures, and even follower expectations and dependencies that conspire to make it extremely difficult to implement new management methods. Also, along the way, the notion of “management” has been corrupted. Who wants to be a “manager”? Everyone wants to be a leader. And if everyone is a leader, what is the role of the leadership/management function in a business? Does the formal leader/manager have “megaleadership” responsibilities? Does everyone, by virtue of being a leader, equally influence the decision processes? In management systems where the organization chart is the power bible, how does one manage the increasing amount of work that is crossfunctional and cross-organizational? And in these management systems where the boss is often treated like a customer and is an extremely powerful adjudicator of others’ careers and rewards, how does appropriate diversity and self-management really emerge? Back to the“leader”/“manager” semantic, why do we bother to distinguish “leader” from “manager” when the role itself requires strategy and vision (leadership), execution and follow through (management), and even some dollop of bureaucratization (administration)? The semantic argument aside, organizations are a lot more efficient and cost effective today, thanks to improved work processes and technological and communication breakthroughs. That’s the good news. Also, the good news is that these efficiencies make it possible to engage people’s knowledge and creativity in new ways—for they are increasingly freed from routine and dangerous work. This is true for the work of management, too, for the dramatic breakthroughs in business information management and analytics, along with the new collaboration/communication technologies are making the traditional data gathering and processing and organization linking roles obsolete.

INNOVATIONS IN MANAGEMENT So what is the future for management? What innovations in management do we need in order to bring this important function from a lag to a lead position that will accelerate and help guide rather than slow down change? There are three critical aspects of the management revolution we so desperately need: continue to pursue elegance and efficiency in all operations, eliminate or significantly transform outdated management processes and mindsets, and embrace radically new ways of leading. Management practices, processes, and mindsets, while adapting to the needs of the 21st century, are still lagging behind the conditions that are shaping the world today. In the worst case scenario they not only lag, but are barriers to the innovation and full use of resources that the management function is supposed to accelerate. The reason for this is clear in many instances: some of the people in current leadership roles are either not suited to the new challenges or are reluctant to open up to the personal changes they require. Leaders are also slow to change—or resist it because they are generously being rewarded for practices that optimize the short term or that keep special interests entrenched. My upcoming book, The Leadership Inferno: Facing the Shadow Side of Power goes into more detail about these matters. 46

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THREE WAYS INNOVATING MANAGERS EXCEL—AND SOME WAYS THEY DO IT! 1. Continue to pursue efficiency in ways like these:

• Automate routine work (both mental and physical) • Mine information and knowledge using new tools • Optimize communication technology—wired, wireless, social • Re-engineer processes to eliminate waste and keep focus on the customer 2. Eliminate or significantly transform outdated management processes and mindsets, including…

• Authoritarian practices where higher levels mean domination, not greater stewardship, and that create atmospheres of distrust, defensiveness and withholding ideas and even “the truth” • Static planning and review that is not balanced by continual feedback, learning, and wise realignment • Individual performance management and job descriptions that focus only on boss-subordinate relationships

and not cross-group contributions or risk and innovation grounded in the good of the organization. • Closed planning and budgeting processes that don’t mine or engage the diffuse expertise of the organization and its networks 3. Embrace new ways of leading and managing, including…

• Actively support the best flow of initiatives even when they cross levels,, organizations and functions (most strategic work fits into this category)

• Use large team alignment processes. There are ways to engage large groups of people in value-adding ways regarding strategic matters without wasting time. • Focus collaboration and networking tools on mainstream business issues. These technologies are here to stay and have huge untapped potential • Be savvy in the tools, mindsets and methods of change management. It is about much more than managing resistance • Use more “visual” tools. Create environments where strategic priorities are a visual part of the work environment (including online). People absorb massive amounts of information visually. • Encourage and support better self-management. Most of what people do is accomplished out of sight of their manager. Organizations and their strategies rise and fall based on the quality, alignment, dedication, and self-direction of the people at work.

There is a lot of promise, however. Organizations are becoming much more efficient in their short-term use of resources. Many new leadership/management approaches have arisen and are showing results. It’s time to bring these into the mainstream, to question ongoing practices and eliminate those that don’t work or have negative effects, and to take seriously the dissatisfaction with leadership that has exploded in all sectors—public, private, political, religious. If leadership does not transform itself, then revolution will occur and do the job. Board, shareholders, citizens, and workers themselves will be more inclined to remove current leaders, perhaps simultaneously destroying the good practices, processes and institutions that have been built over time. At the turn of the century, the World Economic Forum identified…“the move toward professionalizing management (as) the single most widespread global development.” Since then there have been many very visible and troubling signs that there has not been enough progress in this important area. It’s time to act—and the buck stops with people in formal leadership positions right now, at this moment. MW Patricia A. McLagan is CEO of McLagan International, Inc. and of GoalStreams, LLC. She has received awards for her professional contributions and is author of many books and articles focused on improving leadership and management processes, including Change Is Everybody’s Business and the forthcoming The Leadership Inferno: Facing the Shadow Side of Power. www.mclaganint.com

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OUR VIEW

Bridge from Creativity to Innovation: A Well-Trained Mind Steve Jobs embodied innovation. In doing so, he put a treasure in our hands. However, he didn’t do this through creativity alone. Innovative business realities come to life in a well-trained mind—training in a set of knowable behaviors documented as core ingredients for producing innovative business outcomes. Aristotle codified this principle and established it as the bedrock of Western learning: train the mind as an athlete trains the body; with vigor, through proven teachers. I visualize AMA as a contemporary iteration of Aristotle’s Academy. Offering courses in critical thinking, creativity and innovation, leadership, strategic thinking, emotional intelligence and more, we provide training to good thinkers who become remarkable doers. Outcomes are not guaranteed. But if you trust the large body of research that states great innovation can be taught, you come to appreciate the leg-up that excellent training provides. Ultimately, great innovators must take risks. They have to put their skills, selfbelief, proof of concept, and business plan to the test. What we have found is that innovators are much better equipped to risk and succeed when they are confident in the training they have received. We all know that obstacles are constant in business. Without the proper training, creative people fold at the first sign of conflict. The welltrained mind is conditioned to walk step by step through the difficulties of wrestling an idea to market long after the rush of creative inspiration has passed. Steve Jobs started out making video games. When Atari went corporate, he started his own company: Apple. His first computer was built to play a better video game. When Apple went corporate and pushed him out, he took his money and built a place to train: Pixar. His outcome after many long years of effort: Toy Story. When Jobs returned to Apple, a well-trained mind, he brought with him the great boon: a toy for adults. Jobs trained for his return the way an athlete trains for Olympic gold…relentlessly. His triumph had nothing to do with luck—he was a full-grown man, not 23—and he refused to underestimate training the second time around. In this issue, Jeff Dyer and Hal Gregersen share research they undertook to discover the “Innovator’s DNA” model. In their study of 117 pairs of twins, they found that only 30% of creativity is inborn and 70% is learned. This does not surprise me. The AMA model is built upon this 70%. Good ideas light sparks in the heart. A welltrained mind transforms these sparks into the fire of sustainable business.

Robert G. Smith Senior Vice President Marketing & Membership American Management Association

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