The Eye For Innovation

Innovation and Ad-versity

Every day seems to bring another alarming and depressing headline about the economic health in the U.S.  Even innovation, the best antidote for economic doldrums seems to take a back seat these days.  At least in media reports.  Instead we read of marketing gimmicks such as a $25 gas credit on hotel bills.  Certainly no industry is in more dire need of innovation that the airline industry.  So what do we get?  An “innovative” announcement from Delta that it will generate additional revenue from ads on boarding passes that are printed on-line.  Several other airlines say they will follow Delta’s lead.  One spokesman gushed:  “We are eager because we expect to make a nice profit while delighting customers.”  (I didn’t make that up  -  it’s a quote!).  Hello?  We are going to be “delighted” by ads as we suffer air travels interminable waits?  Waits that result from lack of innovation in security screening, baggage handling, flight scheduling and a myriad other poorly designed and executed airline processes?  And that is not even to mention air traffic control that is not only an archaic system, but causes fuel guzzling.  There is a vast ocean of innovation opportunity in air travel.  Spare us the advertizing. 

Prophet of Innovation - Joseph Schumpeter and Creative Destruction

For anyone seriously interested in innovation, and in particular anyone who has the responsibility of building an innovative enterprise, this magnificent book by Thomas K. McGraw is a must read.  The book was published just last year by Harvard University Press (The Balknap Press).

 

The book is a product of intensive research and is written with almost a novelist’s touch.  Schumpeter has gained ever-increasing prominence and influence in economic thinking and public policy over the past quarter century or more, but this book is more than a history of the development of his influence on business and government thinking.  It goes to some lengths, as did Schumpeter himself, to deal with the weaknesses of capitalism and the difficulties of maintaining in a business or in a country steady flow of innovation that is the root of economic growth.

 

As anyone knows from reading The Eye for Innovation, I have a decided distrust of economics as a foundation for studying and practicing strategic thinking and strategy.  McGraw captures the hub of this problem:  “Today, in the twenty-first century, many economists add entrepreneurship to the three factors of production as traditionally conceived:  land, labor and capital.  That addition owes a very great deal to Schumpeter’s own work.  But large numbers of analysts still downplay the idea.  Entrepreneurship is very difficult to measure, and virtually impossible to express mathematically.  It therefore does not easily fit into formal models.”  [emphasis added]

Leading Innovation - the Fifth Principle

In these postings, so far I have talked about four basic beliefs or “principles” that are key to effective executive management and leadership:  reward, knowing and believing why you’re in the game; development of a management style based on your personal strengths and weaknesses; understanding the true nature of the executive challenge; understanding and acting in accordance with the multi-faceted responsibility of executive leadership.

Style, challenge, and responsibility concerns you in the context of your environment, your shareholders, your customers, your employees and your community.  This fifth principle, as did the first principle, centers on just you and the personal resources you bring to the leadership task.  That task is physically, emotionally and mentally demanding.  Poor husbandry of those personal resources will ultimately result in failure.

Timeframes in leadership tend to be extended.  Even in today’s hyper-kinetic business environments, the results of missed opportunity due to lack of energy and vigorous thought are seldom immediately apparent.  A true sense of urgency is not possible for people who are debilitated, mentally dull or emotionally unstable.

Above all the executive task of strong leadership requires broad perspective and sound judgment.  Perspective is the key ingredient of sound judgment.  How do we get perspective?  From experiencing life.  So broad perspective demands experiences, as many experiences as you can cram into a day.  There are no shortcuts.  Reading is, however, a shortcut of sorts.  It is simply a way to share the experiences of others and is highly leveraged in this crucial matter of gaining perspective.  Even here, however, there is a caveat:  always try to learn from what you read, but don’t necessarily believe what you read.

In today’s world there is another powerful potential to gaining insight and perspective.  That is the internet, and in particular the use of computer simulation and communication via the internet.  Computer simulation is well-established as a means to give airplane pilots experience in a wide variety of conditions.  And yet management simulation is shallow at best and a waste of time and money at worst.  But there is hope.  One small ray of hope was described in Philip Dvorak’s “Theory and Practice” article in the 3/31/2008 Wall Street Journal.  The article was headlined:  “Simulation Shows What it is Like to be the Boss.”  It describes a management simulation exercise developed by BTS Group AB of Sweden for NetApp, Inc., a $3 billion company in the data management world.

What BTS did is customize a typical management game exercise using data and information gained from an in depth analysis of Net App itself.

Management games are fairly standard in management training such as MBA programs.  Even so the time-cost vs. perspective gained from such exercises is questionable.  Also, so-called customized executive education has grown rapidly in popularity in recent years (“customized” in the sense of a particular company for executives of that company).  BTS Group’s innovation is to combine those two things.  Net App seems to be pleased with the result.  Tom Georgens, Net App COO, is quoted in the Journal article as being “initially skeptical but changed his mind after seeing managers’ enthusiasm as they traded anecdotes from work to help solve problems in the simulation.” 

There is a long way yet to go.  I’ll know we are getting closer when someone uses simulation to improve the performance review process which is notoriously bad and often counter-productive.  Performance reviews remind me of a neophyte golfer believing that all that is required to break par on his first round is to have the latest in club technology and hit one bucket of balls on the practice tee.  Management simulations in their current primitive state are at about that level.  But perhaps NetApp and BTS have taken one small step forward.

Cardiologic

It’s always stimulating to be with budding entrepreneurs, and once again I had the opportunity to be with a team of engineers at Duke University who are addressing yet another healthcare problem of the developing world.  The team members are graduate engineering students at the Pratt School of Engineering at Duke.  The team leader is Shawn Campbell, (email  -- shawncampbell4@gmail.com). 

Shawn and his team did some research and discovered that in spite of all the high profile killers, such as HIV, that the primary cause of death stems from heart related issues and that monitoring devices are very scarce, not surprisingly because of costs.  So they decided to do something about that.  The result is the SmartRate Monitor about which you can read more in the enclosed excerpt.  The target is $30.  Here’s wishing Shawn and Cardiologic a rapid growth rate in the quest to better monitor heart rates!

Click on this image:

Leading Innovation - the Fourth Principle - Responsibility

For the leader in business this fourth principle  -  Responsibility  -  is in practice quite complex.  But all too often this principle is simply taken to mean that the executive leader, and management generally, has but one responsibility (frequently termed as one purpose) and that is to create shareholder value.  The debate then devolves around reconciling that responsibility with the interests of employees, customers and communities.

When it comes to leading innovation and in particular realizing the economic value of innovation, all these things come together in a very focused way.  Innovation means finding a way to meet some need in a novel way.  So the leader whose task it is not only to either personally fashion that solution or to nurture the team that will do so, is by the very nature of the process focused on the people whose need will be better served (the “customer”) and the team that will make it happen (the “employees”).  The leader is by definition an entrepreneur and the reward of successful entrepreneurship is economic return.  The remaining responsibility, that to the community, is a matter of assuring that the innovation is used ethically and is “resource friendly,” e.g. environmentally acceptable .  So this fourth principle is the most natural one of all for the leader of innovation.  That does not mean it is easy.

What’s interesting is why this straightforward proposition becomes so warped and entangled when applied to large or mature enterprises.  At the root of that problem is the failure to understand the difference between creating value and realizing value.  At the innovating and entrepreneurial stage of things these two concepts are fused into one and it is a fact of economic existence that one must “create” value (wealth) before one can “realize” value (wealth).

With larger and more mature enterprises the two concepts diverge.  “Creating value” or “creating wealth” means building competitively advantaged businesses and, over time, generate superior financial performance.  Creating wealth is a relatively long-term process.  “Realizing wealth” means to rearrange, or broker a portfolio of businesses or properties so that the underlying values become more immediately evident.  In the case of publicly-owned companies, this leads to a higher stock price.  Realizing wealth is a relatively short-term process.

Clearly a business and its managers have the responsibility to both create wealth and realize wealth for its stockholders.  And I assure you that while realizing wealth primarily involves analysis and paper, creating wealth is much tougher and is impossible, as the entrepreneur instinctively knows, without an intense focus on customers and employees.  Furthermore social change can just as surely threaten business as can technological change or change in its financial health.  Remember Strategic Space!

The challenge to the manager is to correctly sense and appraise the environment and its changes and establish strategies to both create wealth and realize wealth.  Without exception, change will present market opportunity.  The degree of health of the organization in its multiple dimensions  -  stockholders, employees, customer base and community relations  -  determines its ability to grasp those opportunities.

Leading Innovation - The Third Principle - “Challenge” (cont’d-3)

            Awareness
            Intense Motivation
            Highly Skilled People
            A Supportive Infrastructure

Infrastructure is the framework within which people work.  Infrastructure is the framework that an enterprise establishes to carry out its task of meeting a need in a competitively superior way.  That framework comprises values, human resource polices including compensation and benefits, and governance.  Of these “values” are probably most fundamental.  Human resource policies are a direct derivative of those values and governance is the guiding force that determines how values are translated into day-to-day action.

Human resource policies, compensation and benefits are the subject of much research, expatriation (and consultant income), and have an infinity of variations.  But the root of effective HR policy is based on one value:  a belief in the individual, the concept of individual accountability, individual innovation and a collective concern for individual well-being.  Minnesota Senator Norm Coleman summed this up the other day with these straightforward words:  “We can debate policies and issues, but what counts is what we do for the individuals who are our constituency.”

What about governance?  Governance is an increasingly hot topic in this first decade of the 21st century.  This has been heightened by flagrant examples of corporate malfeasance and fraud.  And to add fuel to the fire, executive compensation seems to be out of control.  This naturally has led to a focus on the oversight aspect of governance to the extent that “governance” has become almost synonymous with “oversight” with preventing corporate misbehavior.

It is important, however, that in all this sound on fury we remember the most basic function of governance and that is to assure the continuing ability of the enterprise to fulfill its role to meet economic need.  Careful monitoring is clearly necessary to assure that those needs are being met in a transparently ethical manner.  However, that is only a necessary governance function.  It is by no means sufficient to the task of assuring long term corporate and/or stockholder success.  Only governance that results in constant and continuing innovation can possibly assure that the enterprise, be it individual, company or nation, meets the challenge of meeting the needs of the people  -  customers or citizens.  And only by doing so does a company continue to earn the right to exist.

It is the governing  body, the company’s board of directors, that sets the policy and allocates resources to that end.  In my book The Eye for Innovation I discuss this at some length. 

I welcome any comments and examples from you, the readers of this note, as to what you think is working well in the governance arena to help assure the innovation health of companies.

Leading Innovation - The Third Principle - “Challenge” (cont’d-2)

            Awareness
            Intense Motivation
            Highly Skilled People
            A Supportive Infrastructure

Skills  -  whether in basketball or business it is obvious that winners attract winners.  So recruiting of highly skilled people is clearly easier for teams that have a consistent record of winning.  But it is not that simple.  In pro sports there is a laudable attempt to level the playing field by the order of the annual draft.  Even so as time goes by teams with the right track record tend to come out on top.  Still win – loss records and  championships are not enough to ensure a “dynasty.”  Coaches do matter, and it is there to see in the performance of coaches such as Mike Krzyzewski, Roy Williams, Lute Olson, Bob Knight and other top flight colleagues.

The difference is the dedication of coaches (and leaders) to maximize the performance of each individual.  I talked about that with Curt Giles an outstanding member of the fabulous 1980 USA Olympic hockey team and coach of the Edina, Minnesota’s hockey team  --  a perennial powerhouse:  “Coach, what is the hardest thing you have to teach,” I asked.  “Consistency,” he replied.  “Consistency comes from an attitude and a willingness to work hard.”  Practice.

And just so it is with innovation.  You learn innovation from practice.  You may draw inspiration from talks and charts, but you learn by doing.  Not many business leaders or business organizations provide the opportunity for, much less the insistence on, practicing innovation.

Innovators, like athletes, have varying degrees of innate skills at finding ways to meet new challenges, to find novel solutions to the situations they face.  And that skill improves with each success they have at solving problems before them, at meeting challenges and seeing the possibilities of opportunities that arise.

Some of that is luck.  I am a great believer in luck.  But luck seems to come most often in the path of those who practice, practice, practice.  The task of the leader is to give people, each individual, the opportunity, and to be adamant in their pursuit of solutions to that opportunity.  The four ways  -  I call them the four “Ps”  -  are practice, such as Total Quality Management teams, seizing the possibility of turning necessity into opportunity, gaining perspective by working on problems outside their main endeavors and gaining perspective, especially through collaborative projects.

The leader can have no greater thrill than seeing people capitalize on and improve their skills by making the improbably become reality.  And like the 1980 USA Olympic hockey team, achieve the improbable.

Motivation - an Addendum

Yesterday after posting my blub on “motivation” I was leafing through some of the publications that seem to accumulate around here and came across a back issue of “Leader to Leader”(number 44, Spring ’07).  The title of one of the articles, “Leadership starts with you,” naturally caught my eye.  It is an article by Ray Davis, the CEO of Umpqua Holdings, the parent company of South Umpqua State Bank in Oregon.  Ray and his bank have been featured in numerous publications including Fast Company and on CNBC.  He notes that the articles sometimes characterize the company as “quirky” or “cool” as they describe how it broke away from the competitive pack and embarked on 12 years of continuous growth  -  from $140 million in assets to more than $7 billion.  Among Ray’s comments is this gem:   “Umpqua is significant: it matters in the lives of the people who work here, in the lives of our customers, and in our communities. …. That is what matters to me, not size.”  Those words neatly capture the essence of what I was trying to say in that blog pasting yesterday.

Leading Innovation - The Third Principle - “Challenge” (cont’d)

          Awareness
          Intense Motivation
          Highly Skilled People
          A Supportive Infrastructure

Motivation  -  if any aspect of executive leadership is overworked and overhyped it is motivation.  We all have either observed highly motivated organizations, or if very fortunate, have experienced the exhilaration of being a part of a highly motivated group.

There are two quite different sorts of things that affect motivation.  It is helpful to think of them as intrinsic and extrinsic influences that motivate people.  Extrinsic factors are such things as incentive compensation, and elements of the environment in which we work.  In general extrinsic factors motivate people to go beyond merely “getting by,” to perform beyond normal expectations.  In short extrinsic motivational factors have to do with performance.

That is an important part of organization design and management practice.   But what I’m concerned with in this series of notes is innovation and the characteristics of highly innovative organizations.  So what is it that motivates people to innovate?  What motivates us to look for novel ways to meet some need?  Certainly external circumstances are a part of the answer.  The need for alternatives to fossil fuels as an energy source so as to improve economic sustainability has created a burst of innovation.  For example, in my blog “New Plus Ultra” (2/20/08) I talked about capacitor innovation.

The lead article in the “Business” section of the March 1st Economist features three executives  -  Shai Agassi (SAP), Elan Musk (Pay Pal), Vinod Khosta (venture capital) for whom the challenge and excitement of “green technology,” and in particular electric powered vehicles, is a powerful motivation to move from the world of information technology to “greener” pastures.

In The Eye for Innovation I tell the story of Hilda Pridgeon for whom the external circumstances of her life  -- her husband developed early-age onset of Alzheimers -- motivated her to start a support group for similarly afflicted families, an innovation that finally led to the formation of  the National Alzheimers Association.

So external circumstances, happenstance if you will, can provide powerful motivation to innovate.  But what we’re talking about here is executive leadership: what managers and executives can do to motivate, to stimulate, to awaken innovation in their organizations.  Surely there is something beyond just sitting around and waiting for cataclysmic change to motivate novel improvements in how we live, play and work.

Leadership in motivating innovation means first and foremost instilling in people an intense belief that the product or service they are delivering is important to human welfare.  Moreover, it means making every task meaningful to that purpose.

That was true for Control Data when it began its quest for the world’s most power computers in 1957.  It was true for Michael Dell in proving the effectiveness of direct marketing for personal computers.  Clearly it has been true for the people working at Google.  I find it equally true on a much smaller scale in companies such as Les LaMotte’s Xtra Lite Display Systems here in Minneapolis, and in the small hand of people teaching and guiding would be entrepreneurs at Dakota County Technical College under the leadership of Christine Pigsley, and in an amazing little company founded and run by Julie Hellwich called Smart Women.  In all of these situations, with products or services ranging from the mundane to those at the leading edge of technology, there is a leader who has great energy  and radiates enthusiasm for and belief in what they do.  More than that, they radiate a belief that what they do makes a difference for their customers and for the community in which they live.

So motivation, the inseparable companion of awareness, starts “at home”  -  with oneself.  There are many ways that an executive can help generate an environment of innovation.  Eliminating the fear of failure as discussed in chapter four of The Eye for Innovation is one of the most important.  But all that begins with an intense belief in oneself and a deep seated conviction that your organization can and will make a difference.

Integrity

The study and practice of science increases our knowledge and it is knowledge and know-how (technology) that are the foundation of innovation.  Innovation has provided the wherewithal not just to cope with an ever expanding number of people, but even to improve if somewhat unequally the economic well-being of that population.

I have been for many years a great fan of Richard P. Feynman.  Dick Feynman was not only a Noble Laureate, an outstanding teacher, but also a person of insatiable curiosity.  He had an incredible array of experiences, many of which are related in his book Surely You’re Joking Mr. Feynman.  One of the many insightful observations made in that book is that integrity is the essence of science.  In scientific experiments, he says, integrity demands that potential errors arising from approximations be fully and precisely reported so that others who want to verify or challenge or improve the theory behind the experiment may do so.  Only in that way can theories be tested and refined.  Contrast that with what passes for scientific “truth” in much of the advertizing for pharmaceuticals. 

Theories can only be tested by experiments – the test of reality.  But this “reality” is in turn a matter of being able to measure things to see if they fit the theory.  A simple example is  gravity.  We all learned that acceleration due to gravity on earth is a constant.  This “constant” has been continually refined for some 200 hundred years.  Similarly the value of “big G,” the gravitational force between any two objects is currently accurate to about one part in 10,000.  But using new measurement technology based on atom interferometry this can be refined and made more precise.  The ultra precision of atoms interferometry, resulting from the tiny wave lengths of atoms, opens up a host of applications such as improving exploration for minerals, detecting underground bunkers, more precise navigation than is possible with GPS just to name a few.

Science is the continual search to improve what we think of as the truth.  Measurement allows us to test theories and improve (or disprove) them.  Integrity is the framework for that never-ending truth.  In socio-economics we have a long way to go to even come close the paradigm that guides science.