If you look at leaders of organizations ranging from global companies to scrappy startups, you’ll find the attitudes toward the Innovation Mandate vary across a wide spectrum.
Most leaders quickly “get it.” They either initiate an organization-wide culture of innovation or they expand and strengthen the one they’ve got.
A few others—not many, but enough to notice—raise the objection that much of what they see as “innovation” is in fact quite useless, costly, and provides no real benefit or return on investment. They say that, while engaging in innovation makes some leaders and their employees feel good, it doesn’t pay the bills.
It may surprise you to hear our response: “You’re absolutely right!”
Of course, there are two important qualifications.
First, make no mistake: in today’s relentlessly competitive economy, your organization needs to innovate, and not just to get ahead but to keep up. Failing to innovate doesn’t mean that you can comfortably tread water, keep your market share, and glide toward a cushy retirement at age sixty-two. Failing to innovate means the waves of change will batter your company and eventually swamp it. Failing to innovate means you will gradually sink lower and lower until you’re under water.
Then, we all can agree with their point to this extent: innovation must be smart. It must be focused on tangible results that either boost profits or reduce costs. It can’t be just an ego-boosting effort designed to position the organization as an innovator or make the CEO feel self-important when he or she goes to an industry conference.
Innovation must serve a real purpose. We all know the famous saying attributed to Ralph Waldo Emerson, “Build a better mousetrap and the world will beat a path to your door.” Unfortunately, it’s dead wrong. There have been thousands of better mousetraps launched to the marketplace that have failed miserably. But if they were better, then why did they fail? This is an important point: they failed because they weren’t relevant. The good old-fashioned hunk of wood with a spring that whacks the pesky rodent is proven, cheap, and maybe perfect. If you spend time and money trying to innovate a new solution when the existing solution is as good as it gets, you’re probably spinning your wheels.
As we saw earlier in the book, one of the rules of innovation is this: Just because you can do something new doesn’t mean you have to. Every new idea needs to be evaluated with a critical eye toward its real-life utility. This requires that your culture of innovation has a structure and a goal, and isn’t just a freewheeling atmosphere where time and energy are wasted on ideas that should never have gotten into your innovation pipeline.
Your Innovation Mandate needs to be smart. Here are the two key identifiers that will tell you if your culture of innovation is smart or stupid. And, no, they don’t make a catchy acronym. We tried to think of one, but it just wasn’t meant to be.
Smart Innovation = Customer-Focused + Sustained
1. Customer-Focused
For an innovation to have value, it needs to contribute to your organization fulfilling its mission to your customers. If it doesn’t, it’s either irrelevant or a source of waste. And remember—your customers are the judge of value, not you.
Sometimes it’s not immediately apparent if an innovation succeeds in adding value from the customer’s point of view. Marketing can sometimes make a difference. For example, in 1998, Proctor & Gamble introduced a breakthrough air-freshening product named Febreze. Based on the chemical compound hydroxypropyl beta-cyclodextrin, the spray was highly effective in removing unpleasant odors from the air. Company leaders thought they had a winning product that would disrupt the air freshener market. Thinking logically, they advertised Febreze to consumers they assumed needed it most: people who smoked or had multiple pets. But after spending millions of dollars, they were perplexed when the product barely moved from the shelves. The miracle deodorizer appeared to have no value to the consumer!
Persistent research revealed a surprising fact based on the principle of operant conditioning.
This is the idea that a person’s behavior is influenced by its expected consequence, and that people strive to do things that make them feel rewarded. But P&G researchers discovered that consumers who lived in smelly houses were so desensitized they often didn’t realize it. They had no interest in making their houses smell good.
Desperately looking for answers, company researchers found a few consumers who regularly bought the failing product. They wanted to know why these people bought it. They found one woman who used it regularly, and she let a P&G marketing guy follow her around her house as she cleaned. Her spotless house had no problems with odors, but after cleaning she sprayed Febreze anyway, saying it felt “like a little minicelebration when I’m done with a room.”
The P&G marketers realized the woman was using Febreze at the end of her cleaning ritual as a reward and a testament to a job well done. For her, that was the value of the product. It was her personal validation that she kept a clean house, not a tool to deodorize a smelly house.
In the summer of 1998, P&G increased the perfume content and reworked the ad campaign to show it being used the way the woman had, with fresh breezes blowing through open windows. Febreze became a pleasant treat, not a reminder that your home smells bad.
Within two months, sales doubled, and a year later reached $230 million. In 2011, The Wall Street Journal reported that Febreze had become the twenty-fourth P&G brand to reach $1 billion in annual sales.1
2. Sustained
While a major product or service breakthrough, like the rollout of a new personal electronics gadget, will make splashy headlines, it’s steady, daily incremental innovations—often made by frontline employees—that give an organization the sustained growth it needs.
Sustained innovation comes from developing a collective sense of purpose. This comes from unleashing the creativity of people throughout your organization, teaching them how to recognize unconventional opportunities, and supporting their efforts with time and money as necessary.
The commitment to establishing the right workplace conditions for innovation needs to come from the top, both literally, in terms of leader support, and figuratively, in terms of the mission statement of the organization.
One of the worst things you can do—and unfortunately I’ve seen this all too often—is isolate innovation in an “innovation center” or “idea lab” that’s open to a chosen few. This is bad for two reasons:
1. It separates innovation from the fabric of the organization, and identifies it as an exalted or secretive activity that has no direct relevance to the day-to-day operations of the company. Nothing could be further from the truth! There’s no reason why the daily innovations that your employees make, either spontaneously or as the result of dedicated efforts, should be overlooked because they’re not a product of your “innovation center.”
2. It sends the message to everyone who’s not included in the “innovation center” that it’s not their job to innovate, and it’s something that other people are responsible for, and therefore they shouldn’t seize upon innovations when they appear. And remember—you’re looking not just for planned innovations but for those amazing moments of spontaneous creativity that can represent the first spark of a breakthrough.
BEWARE OF “POTEMKIN VILLAGE” INNOVATION PROGRAMS
You’ve probably heard the term “Potemkin village.” It’s any construction, real or figurative, built solely to deceive others into thinking that a situation is better than it really is. The term comes from a fake portable village built to impress the Russian empress Catherine II during her journey to Crimea in 1787. While the façades of the houses were pretty and freshly painted, behind them stood only rotting shacks.
As you build your innovation pipeline, be sure it’s serving the mission of the organization and poised to deliver real results. Otherwise you may have nothing more than an expensive Potemkin village.
Too many companies have shoddy programs that don’t help the organization and often lead to frustration and a rejection of genuine progress. There are four chief offenders.
1. The Shark Tank Syndrome
Shark Tank is a fascinating and educational program, but it has nothing to do with building a consistent and profitable culture of innovation that you need in your company.
The Shark Tank Syndrome appears when an organization has an annual event, during which they assemble all their smart people and tell them to compete for recognition. The activity is fun, interesting, and very internally brandable. Unfortunately, it’s pointless and counterproductive. Innovation is not a single splashy event, keynote presentation, or cheerleading session. To achieve measurable results, real innovation requires a sustained commitment over a long period of time. Yes, your innovation initiative can include “events,” but without the life-support system your innovation initiative is a counterfeit.
To ensure a sustained commitment to profitable innovation, you need to:
1. Establish a clear direction. Your organization needs a well-defined mission and your employees need to have a sense of purpose and engagement. Your organizational transformation to become an innovation leader needs to have guidelines and goals.
2. Maintain open communications. Innovation thrives in an atmosphere of trust and collaboration. Open your office and encourage cross-functional interaction. Don’t obscure the effort by having meetings behind closed doors or burying new ideas in nonfunctional committees.
3. Make it easy. Bureaucracy slows down innovation. When Jack Welch was reengineering General Electric he said, “My goal is to get the small company’s soul and small company’s speed inside our big company.” Stay agile! Keep the barriers for suggestions low. Surveys have shown that official employee suggestion forms that are three pages long result in zero suggestions. Remember, in the initial brainstorming phase of any project, quantity equals quality.2
4. Create a culture of ownership. To encourage sustained involvement, make sure each employee knows how his or her work affects company performance.
5. Offer recognition and rewards. Give credit where credit is due—don’t steal from your own employees! However, skip the cash rewards. Research shows that offering cash bonuses for new ideas is a terrible way to incentivize innovation. Instead, rely upon personal pride and a desire to make a valued contribution.
6. Accept and learn from failure. As Thomas Edison said, “Many of life’s failures are people who did not realize how close they were to success when they gave up.” Each failure is a valuable lesson that brings you one step closer to a breakthrough.
2. The No Resources Syndrome
As the adage suggests, you need to spend money to make money. Sustained innovation is no exception. Not only do you need to spend money, you also need to commit people, and you need to have a place, a plan, and all of the necessary resources to make it work. Launching an innovation initiative knowing that you are not going to commit the necessary resources is a perfect example of a Potemkin village innovation program.
It’s not just a matter of spending cash; allocating resources often means allowing your people to try new ideas. The 3M Corporation has a long history of being an innovation leader, with a tradition of allowing its scientists to spend 15 percent of their time on whatever projects they choose. Over and over again, it has paid off in significant innovations.3
In 2004, Google founders Larry Page and Sergey Brin wrote in their IPO letter: “We encourage our employees, in addition to their regular projects, to spend 20 percent of their time working on what they think will most benefit Google. This empowers them to be more creative and innovative. Many of our significant advances have happened in this manner.” The policy has since been modified—but Google remains highly innovative.4
3. The Bait-and-Switch Syndrome
Organizations love to manage risk, money, people, facilities, and virtually everything else. In many ways innovation doesn’t tend to live well in captivity and therefore needs to be treated differently. After auditing dozens of innovation programs that failed, our team discovered that they were not actually innovation initiatives at all; more than a few were nothing more than a cost-saving initiative for the company. It’s usually counterproductive to tell employees to stop wasting money, so they built out the cost-cutting program while disguising it as an “innovation initiative.” The net result is, not only was it a counterfeit innovation initiative, it’s not even a successful waste-saving initiative!
It’s not uncommon to find organizations using the terms innovation and initiative to disguise some other strategic agenda. This is extremely unfortunate because innovation can do a great job of helping organizations achieve far better returns on all aspects of strategy.
4. The No Goals, No Measurement Syndrome
Innovation is an incredibly powerful instrument, but as with all tools it needs to have a specific job to do, with a system of measurements to determine when goals are achieved. Putting a bunch of people in a room and talking about innovation and throwing concepts up on the whiteboard looks very exciting, but it’s not going to produce results. Innovation is the servant of the people in the enterprise, and its job is to deliver measurable results on missions that matter.
A number of key performance indicators (KPIs) can be used for measuring innovation performance.
Many companies use the “innovation sales rate” (ISR). It’s defined in various ways, but most often is a measure of the percentage of total sales that represent sales of new products.
At Gillette, 40 percent of the company’s sales every four years must come from entirely new products.5
At 3M, 30 percent of sales must come from products less than four years old.6
Another KPI can be how many ideas per month you’re receiving from your employees. If you’re not getting very many, you need to analyze why. Are your employees disengaged and not interested in innovation? Do they have ideas that aren’t being collected? Are their ideas being allowed to wither and die because an innovation committee doesn’t meet very often and has a backlog?
Your system of measurement needs to include three areas: (1) ideas that have entered the pipeline and are under consideration; (2) ideas that are in process or development; and (3) new earnings and revenue contributed by the innovation pipeline.
Innovation results are not always easy to measure. An innovation pipeline is a system, and the cultivation of innovation breakthroughs requires the entire organization to work as a team. Every relevant stakeholder should be rewarded for both building a pipeline (for future sales) and harvesting from the pipeline (realized sales).
WHOLE FOODS: INNOVATION IN MANAGEMENT
The retail grocery industry is the last place you’d expect to see innovation, right? In most supermarket chains, it’s all about selling commodities, chronic labor troubles, and razor-thin margins. Too often, the shopping experience is synonymous with long lines, bad lighting, rubbery or tainted produce, and surly cashiers.
In more ways than one, Whole Foods has broken the mold.
Founded in 1978 by twenty-five-year-old college dropout John Mackey and twenty-one-year-old Rene Lawson Hardy, the Austin, Texas, chain has become the largest natural foods grocer in the United States with more than three hundred stores in the United States, Canada, and the United Kingdom. Success fostered takeover interest, and in June 2017 the company was bought by Amazon.com in a $13.7 billion deal.
Even under the ownership of Amazon, it’s the management structure and company culture that make Whole Foods the supermarket innovation leader. In contrast to the typical hierarchical pyramid structure of bosses, managers, and employees, Whole Foods stores are operated by employee teams organized along functional areas such as cashiers, prepared foods, bakery, grocery, fruits and vegetables, and meat and seafood. Most teams have between six and one hundred members, with the larger teams subdivided into a variety of sub-teams. The team structure is retained within the larger corporate organization: the team leaders in each store form a team; store leaders in each region form a team; and the company’s six regional presidents form a team. This interlocking team structure continues all the way up to the executive team at the highest level of the company.
The teams, which are committed to business objectives and the values and mission of the company, have significant responsibilities and work as independent units with much decision-making power. For example, while store leaders screen job candidates and then recommend them for a role on a specific team, the team itself has the ultimate authority on whether to accept the new hire—in fact, after thirty days, the team votes on whether to keep the new person or let them go.
Innovation is encouraged at all levels. As CEO Mackey said, “Any organization that depends on a few geniuses at the top and outside consultants, regardless of how brilliant they are, is at a competitive disadvantage to businesses that more fully utilize all of their intellectual capital and decentralized knowledge.” And, “There is no more powerful source of creative energy in the world than a turned-on, empowered human being.”7
At Whole Foods, trust is the cornerstone to effective teamwork, and trust is built on transparency. In 1986, just six years after he co-founded the company, Mackey introduced a policy of open salaries, whereby any employee can look up the salary of any other employee, including the executive team. Mackey explained to Business Insider that he got tired of fending off questions about his own salary, and then he just took it one step further. His initial goal was to help employees understand why some people were paid more than others. He believes that instead of leaving employees to wonder why their teammates are getting paid more than them—and to stew over it—the company should be willing to explain why some people are paid more than others. To an inquiry from an employee, Mackey would respond, “If you accomplish what this person has accomplished, I’ll pay you that, too.”8
In addition, Whole Foods caps its executive salaries at nineteen times the average pay. It’s not a new idea; this is what the average executive-worker pay gap was throughout the 1960s to 1980s. Around 1990 it suddenly shot upward. According to a 2017 report on CEO pay from the Economic Policy Institute, in 2016 chief executives at the 350 largest US companies made $15.6 million on average—271 times what the typical worker earned.9
What can you learn from Whole Foods? You can learn that innovation is not confined to just new inventions or new products. Innovation can—and should—happen at any level of your organization. It can be a management philosophy, or a marketing approach, or a new way to schedule your employees. At the end of the day, it’s all about saying, “How can we do this better?”