Developing a truly innovative culture requires specific policies and practices on the part of senior leaders. Robert Price, former CEO and chairman of Control Data Corporation, shares his perspective on how to ensure that creativity and innovation flourish in the v^orkplace.
Change: Innovation in the Corporate DNA Robert Price
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nnovation is the sine qua non of healthy growth for a company. Innovation involves change, and while everyone professes to love innovation, most people have to learn to love change. That only comes to people as they develop a characteristic that is best thought of as "awareness." Awareness involves a correlative ability to understand how various tools and concepts can be best brought to bear on the problem at hand. We think of people with this correlative ability as "intuitive." It is an ability to connect the seemingly disparate events in our lives. As Yogi Berra might have put it, "Unless you are looking for something, you usually won't find it." This characteristic of awareness can, like other traits or skills, be
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learned, and with practice, it can be honed to rewarding sharpness. Most of us will never design a supercomputer or figure out how to navigate space vehicles, but each of us can know the satisfaction of innovation, of devising a novel solution to the oft-felt dilemma, "There's gotta be a better way," Mostly we learn this skill through experience and practice. That's not surprising. What is surprising is how few organizations know how to challenge employees and give them the opportunity to learn and practice this skill. Of all managerial inanities none is more regrettable than to deprive people ofthe opportunity to learn and exercise caring curiosity—the single most important skill to corporate health and renewal.
The Four P's
Possibilities
Cultivation of awareness in the DNA of an organization involves four policies and practices: • Partnering— especially technological collaboration. • Possibilities—for turning necessity into opportunity. • Perspective—providing opportunity for people to broaden their problem-solving experience. • Practicing— innovation at all levels in the company through total quality management. No one of these alone will suffice; they work together to inculcate the alertness to the potential for change so integral to a culture of innovation.
Although this may seem obvious at a superficial level, like all innovation, it involves risk. Frequently the risk is more than market or financial risk. Internally, building a new business based on something that is necessary but could be purchased alternatively can cause a company to lose its focus. All these risks were there as Control Data, in its earliest days, was faced with a decision regarding magnetic tape transports and disk storage systems. These products were available externally, but they were either prohibitively expensive or inadequate performance-wise. An answer to that dilemma was to become a supplier to other competitors in the industry; that is how the original equipment manufacturer (OEM) peripherals' business became a reality. Being an OEM supplier to one's competitors is not a business to enter into lightly. It requires a finely turned understanding of exactly where —in which components of a total system — one derives competitive advantage. Control Data was able to navigate these difficult waters successfully and turned a necessity into a billion dollar business opportunity. Another example of turning necessity into opportunity involved Control Data's need to provide affordable health insurance to employees, which has been, and continues as a major financial challenge to businesses. Control Data addressed this issue at its most fundamental level by developing and implementing a comprehensive education program, called Staywell, to help employees understand that a healthier lifestyle could lead to a more enjoyable life and a reduction in medical expenses for themselves as well as the company. This was not just a fitness program but a much more holistic approach that encompassed diet, lifestyle, stress reduction, safe practices at home and while traveling, smoking-cessation assistance, and of course, exercise and physical fitness. The program was so successful that the decision was made to convert it into a profit center and offer it externally. Ultimately, the program was spun off into a separate company, Staywell Health Management. Often, new measures or policies are introduced into corporations, and the immediate, refiexive response is a groan: What must be done is viewed instantly as a burden. The attitude we created at Control Data was to look at everything anew and to make the best of the circumstances. Not everything in life can be controlled or avoided; however, we can control our outlook. In
Partnering
The need for strategic alliance with other firms arises from three basic needs: complementary capabilities, market access, and technology. A firm may meet those needs by means of in-house capabilities (this is the "make" option), by purchasing them in arms-length transactions (the "buy" option), or by partnering with other organizations to meet the need (the "collaborate" option). Complementary capabilities are those functions that are necessary to design and deliver a service or product but are not in and of themselves a source of competitive differentiation. They may include capabilities in manufacturing, administration, distribution, selling, and the financial function. A grower's cooperative organization is a common example of independent businesses (farmers) joining together to provide such complementary capabilities. Market access is frequently facilitated by means of strategic alliances such as joint ventures. In many countries they are not just desirable; they are mandatory. Technology development in today's world requires both a great deal of money and time. To do this solely by means of internal development or through acquisition is in many—in fact most —instances impractical. The answer is collaboration with others who also need some of the same technologies. There is a great benefit in such technological collaboration quite apart from sharing the development cost and risk. Having an awareness of how others, including competitors, use a given technology to meet their product and service goals —even when those goals are quite different from your own —is inherently eye opening. In short, it encourages innovation by stimulating awareness that there are new and different ways to view and solve problems.
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case after case, we demonstrated the tangible benefits of taking an unfortunate position and turning it into an advantage. Awareness must be practiced to become ingrained as a working characteristic of an organization. Perspective
Technological collaboration and turning necessity into business opportunity are in and of themselves perspective-broadening for the participants, but there are numerous other ways to foster broadened perspective. Many companies support participation in technical conferences and industry groups for this purpose. Although these approaches certainly are useful to some degree, they can become just a way of life all too easily. Even better than exposure to new ideas at association meetings, however, is active problem solving. A relatively common sort of problem solving in industry is the practice of establishing national or international standards. Standards often are established de facto by one supplier becoming dominant in the marketplace. A classic case of the de facto standard is the "QWERTY" keyboard. Many standards, however, are established only through the arduous efforts of people from companies across an industry. Although that can be, and often is, a frustrating experience, it is an interesting problem-solving process —a committee of disparate members convenes to agree on a single solution regarding emotionally charged issues. To say the least, that approach certainly generates perspective. Control Data participated in many standards-setting efforts that afforded key employees a chance to work out important industry issues. One of these was the collaborative venture STAndard Computer Komponents (STACK), which was established to help a group of smaller computer and telecommunications companies in Europe and the United States gain qualification and purchasing expertise and economies of scale regarding basic electronic components used in their products. Control Data also encouraged its rising managers to participate in boards of directors in both the for-profit and nonprofit arenas. Seeing management, employee, and technical problems in an environment outside the company is wonderfully enlightening. Companies that insulate themselves from the outside world eventually are overtaken by that world. Practice
A vast amount of information is available on total quality management (TQM), which, under the prodding
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and leadership of W. Edwards Deming, found its way into management practice globally. The thrust toward total quality resulted in such nationally accepted programs as the Baldrige National Quality Program, as well as comprehensive practices such as the Six Sigma program that Bob Galvin introduced at Motorola. TQM, however, is notably absent in the literature on innovation. This is unfortunate and reflects a mistakenly limited view of TQM, as well as the general mysticism that surrounds innovation. TQM tends to suffer from the incremental perspective that "continuous improvement" imposes. It suffers even more from the idea of minimizing variations from the norm or from the product specification. The result is that TQM is primarily associated with operational effectiveness and not with the creation of new things —new products and new services. Actually, TQM can serve as a training ground for innovative thinking. At Control Data, TQM was approached within a cohesive innovative culture. The basis for an enduring quality program is to reinforce the belief, "There's gotta be a better way!" and "I can be a part of the solution." Awareness is cultivated in many small ways. In some employees it will blossom into new products or new businesses, but it is a fact of life that all of us are surrounded by problems that can benefit from attention — if only we'd give it. Therefore, TQM, quite apart from its other benefits, can be a vehicle for training the mind to think in new ways and to recognize possibilities amid everyday experiences and observations. TQM also can be reduced to just a boring pain, the project-of-the-month from the corporate office. These are the programs to which no one commits because they are perceived as superficial attempts at change. TQM does not have to be that way, however; it can promote optimism and confidence. At the same time, TQM can instruct on the risks of innovation and the judicious acceptance of those risks, as well as on how to approach progressively more complex tasks and collaborations within and between organizations. When executives first started pushing TQM, William (Eitz) Eitzgerald was a skeptic. Eitz came to Control Data in 1967 to work in accounting, and by the early 1980s, he was head of finance for international operations. In 1985, Eitz was put in charge of Engineering Services (ES), the organization that kept customers' computers running. Einancially, the group appeared to be doing well, but when talking to managers and
About the Book Want to learn more about how to recognize the possibilities and manage the creative enterprise? Then check out Robert Price's book The Eye for Innovation.
Price draws on 40 years at the forefront of the computer industry to outline principles that generate and support innovation. The people of Control Data had a powerful belief that innovation was central to their success. Price argues that the creation of an innovative company demands a belief system chat embraces these seven principles: • Innovators are made, not born, • Strategy is a journey of sequential steps toward an objective. Each step involves innovation in some combination of process, product, and targeted market, • Strategy must co-evolve with technological change and the changing nature of the world it addresses, • Technology is the strategic manager's best friend, • Collaboration, especially technological collaboration, is a powerful strategic tool, • Crisis is inevitable. Crisis can result in chaos, but innovative leaders can use crises to galvanize people for positive change, • Public-private partnerships present important, but frequently overlooked, strategic possibilities. Using the story of the evolution of Control Data —its beginnings, growth, challenges, and visiting customers Fitz started seeing major financial and customer service problems that were hidden from view. Largely this anomaly was due to the high profit margins associated with the sale of spare parts. Business was changing though, ES had started a so-called third-party maintenance business that served customers of other companies' IT equipment. Margins were thinner, and the logistics of the spare parts system more complicated. In short, effective customer service became more difficult to achieve and much more visible, Fitz started studying TQM, After a seminar at Conway Quality, ES worked with the consultants at Conway to develop an approach to quality customer
transformations —Price illustrates each of the seven principles in action. At the center of the story are people. They include well-known innovators such as Seymour Cray, whose imagination pushed the computer to new heights; and less well-known but creative employees such as Hilda Pridgeon who marshaled personal energy and company resources to form the national Alzheimer's Association and then continued her dedicated service to Control Data, Price shows that innovators come with many different personalities but share important qualities. They know how to bring technologies and resources together to meet needs. They understand that trial and error are part of discovery. They have the courage and support to persevere in the face of failure. They are willing to take risks and to face uncertainty with confidence. Unlike business advice books that promise quick gains and easy formulas for success. The Eye for Innovation is a thoughtful discussion of the very foundations of creative enterprises. Its examples and principles will help forge solutions to high-profile corporate crises as well as to the types of problems encountered daily. Publisher: Yale Press ISBN Number: 030010877X Format/Length: Hardcover, 329 pages Price: $30,00 service. As so often happens through TQM, ES discovered that its measurement and incentives were focused internally rather than having a customer-focus, A simple example is the fact that customers were concerned with up time, not with the "parts utilization rates" that ES measured. Once ES changed its frame of reference, innovation soon followed. The result was new and better diagnostics software and many innovative ideas for improving the parts logistics so that field engineers had the right parts at the right time. The bottom line here is that the innovations spawned by TQM paid off with happier customers and employees, lower costs, greater efficiency, and higher profits.
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Conclusion An organization's board of directors, or senior executive group, plays a vital role in establishing a culture of innovation and change by means of the policies it adopts. Some examples of such policies are: • Innovation reviews. The board should conduct semiannual reviews of the need for innovation in the company and the opportunities for such innovation. This almost always entails greater risk and short-term costs. Only the board can exercise the balance of judgment needed to authorize such undertakings. Beyond increasing board understanding and having helpful discussions of innovative initiatives, these reviews send a clear message throughout the company. • Innovation funds. Another policy to foster innovations in new fields is to establish a fund outside the annual operating budget. It should be reserved for projects with a long period of development and uncertainty as to outcome. This innovation fund can be modest in size, possibly less than 1% of the company's total innovation expenditure. The CEO administers it and only the CEO and the board are responsible for how it is spent. Schumpterian Economics (based on the work of Joseph A. Schumpter, w^ho argued that entrepreneurs were daring spirits who created technical and financial innovations in the face of competition and falling profits and that it was these spurts of activity that generate economic growth) is a curious blend of certainty and uncertainty. The certainty is the ultimate disruption of the status quo. The uncertainty is how and when. Only the board can authorize the risk of exploring such unknowns. • Fostering individual innovation. Another possibility that lends importance to individual innovation is the
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concept of an Employee Entrepreneurial Advisory Office (EEAO). Any employee can approach the EEAO on a completely confidential basis with a business idea he/she wishes to undertake outside the company. The EEAO arranges preliminary free technical, marketing, and financial counseling with regard to that idea and the development of a business plan. If the idea involves company technology, affirmation is needed that there is no internal interest in its development. The EEAO may consist of only one person. A volunteer network of experts provides the counseling. The standard reaction to the EEAO is, "What? You're encouraging talented, innovative employees to leave the company?" The fact is, however, that such people who have a burning desire will leave anyway. As long as the company's intellectual property is protected, it is better to have them leave openly and with a positive relationship. Moreover, experience has shown that nine out of 10 of these would-be entrepreneurs decide to stay when faced with the reality of a start-up, especially financing, and come back to work more motivated than ever. The net effect of such policies is that employees are stimulated to think about and embrace change and to know the thrill of innovation, finding an answer to "There's gotta be a better way."
Robert M. Price is the former CEO of Control Data Corporation, one of the major computer companies in the world at the time of his tenure. He is also the author of The Eye for Innovation: Recognizing Possibilities and Managing the Creative Enterprise. You can learn more about Price at www.bobprice.net I or contact him by e-mail at Bobp@duke.edu.