If you look at history, innovation doesn’t come just from giving people incentives; it comes from creating environments where their ideas can connect.
—STEVEN JOHNSON
“Innovation” is a term on the lips of many pundits these days. We hear it everywhere—in old and new media; in talk shows, podcasts, and panel discussions; at global summits and academic symposia; on broadcast news and social newsfeeds. Innovation represents the powerful engine of a fast-moving global economy, of people and cultures on the rise, of cutting-edge transformations that will improve lives and change our world for the better. It conveys positivity and optimism, the promise of a world that offers hope and possibility to billions rather than millions. We hear the “innovation” drumbeat in business, in science, in technology, in economics—from Silicon Valley executives, social entrepreneurs, and NGO leaders.
Could such ubiquity really be deserved? Well, consider this. University of Illinois economist Deirdre McCloskey credits this single human virtue as being largely responsible for what she calls “the Great Enrichment”—the exponential increase in societal wealth that has occurred over the past 250 years, in tandem with a dramatic fall in poverty rates.1 (In 1800, 85 percent of humanity lived on the equivalent of less than $2 a day. Today it’s less than 9 percent.2) After tens of thousands of years of grinding, relentless poverty (with only a few rare, brief exceptions), humanity has undergone massive economic growth and global trade, with billions of people lifted into the middle class, and some beyond that. There is much talk today about inequality and distribution of wealth, and these are important issues. But the larger question here is: How was so much wealth created in the first place? “Our riches did not come from piling brick on brick,” McCloskey claims, “or bachelor’s degree on bachelor’s degree, or bank balance on bank balance, but from piling idea on idea.”3 Ideas. Creativity. Resourcefulness. Imagination. Innovation. That is the real secret of our collective success. So how do innovative ideas result in a historically unprecedented upsurge in overall wealth? It comes down to a tacit agreement that would-be entrepreneurs make with society that allows breakthrough ideas to take root and thrive.
It goes something like this: Let me be entrepreneurial, let me innovate, let me create value, let me do it without too much interference from the government, let me disrupt established industries in the process, let me keep the profit from it, and, yes, I may (hopefully) get rich in the short run. Entrenched interests may temporarily suffer. Wealth will initially flow to me and to the capital invested in my idea. But as the “deal” plays itself out over time, and others rush in to capitalize on this new innovation, the benefits will start to expand rapidly. The innovation reaches more and more while becoming cheaper and cheaper. The benefits flow out, impacting and improving lives. Little by little, innovation after innovation, life improves, wealth is created, and society moves forward. In the long run, I and millions like me will help you prosper—meaning that we will help make all of us more prosperous—and immeasurably improve all of our lives in the process.
In some respects, “innovationism” would really be a better name for “capitalism.” In our opinion, capitalism is at its best when we deeply appreciate that it’s more about the application of human creativity than about the allocation of financial capital. That’s why the successful innovator, entrepreneur, and even executive needs to focus on creating value rather than simply creating profits. By “value” we simply mean the quality of product or service that encourages someone else to want to do business with you. Yes, value is tested in the marketplace, in the crucible of actual trade. But always remember that profits are downstream from created value, not the other way around.
The ability to innovate and create value for your fellow human beings (and sometimes for other secondary stakeholders, like animals or the environment) is a fundamental element of conscious leadership. Most of the world’s great companies started with some new, game-changing form of value creation. It can be dramatic and revolutionary—like the steam engine, electricity, or the internet. It can be unheralded but transformational, like better plumbing or the washing machine. It can be unexpected but timely, like Ray Kroc inventing a new way of selling hamburgers and franchising stores, or Whole Foods providing natural and organic food to a nation that hadn’t yet realized there was a massive new business opportunity in healthier eating. Fast-forward a few decades and those innovations have changed the entire food industry.
Innovation can take innumerable forms, but at its heart it’s about creating life-enhancing value and sharing it with others. In the magic of that exchange lives the DNA of our collective rise, and a fundamental engine of growth for our economy. Innovate and create value. In a continually evolving, dynamic environment, one must innovate or be left behind. To sit still is to be copied and then out-competed and eventually made irrelevant. Innovate and create value. It’s the impetus of the entrepreneur, the target of the venture investor, and the ongoing challenge for any established company, big or small. In Joseph Campbell’s formulation, it’s the “call to adventure” stage of the hero’s journey—an active, engaged, dynamic virtue that directly connects the conscious leader to the life-improving, wealth-generating core of Conscious Capitalism. Innovate and create value. Rinse. Repeat.
In case you’re feeling intimidated by such lofty pronouncements, and wondering if you have what it takes to continue this proud tradition, let us be clear: A conscious leader does not necessarily have to be a novelty-producing genius. Indeed, few leaders are ever going to personally have the creative chops of great innovators like Thomas Edison, Steve Jobs, Bill Gates, Jeff Bezos, or Elon Musk. We can certainly learn from their examples, and develop our own creative powers to their fullest extent, but for the conscious leader it is equally if not more important to ask: What can I do to help foster a creative spirit in the people around me? How can I create and nurture a culture of innovation? Can I recognize and support innovation when it occurs? And can I facilitate the process of turning a novel idea into genuine value that will be proven in the marketplace? Leaders have an outsize influence, and conscious leaders think carefully about how to use that influence to inculcate innovation and value creation in individuals, teams, and the organizational culture that connects them.
We often imagine that the path to innovation involves a heroic individual doing a deep dive into their own unique vision and emerging with some incredible novelty—a work of art, a piece of music, a revolutionary software product, or a genius solution to a tricky problem. Certainly, individual creativity is critical to innovation, but the iconic image of the lone creative genius may be oversold. In his book about the beginnings of the personal computing revolution, From Counterculture to Cyberculture, Stanford professor Fred Turner made the astute observation that “ideas live less in the minds of individuals than in the interactions of communities.”4 Innovation, creativity, and breakthrough ideas require more than networks of interacting neurons in our brains. They depend on interacting networks of actual people—engaging, refining, inventing, imagining, sharing, and building on one another’s work.
In fact, when you take a closer look at many of the real geniuses throughout history, you find that they have been inspired by, and part of, a highly creative culture, group, or “scene.” Musician Brian Eno coined the wonderful term “scenius” to describe this collective form of genius. Think of America’s Founding Fathers, the English Romantic poets of the early nineteenth century, Paris in the 1920s. Think of London’s rock-and-roll scene in the 1960s and ’70s, or Silicon Valley from the 1970s through today. Often one or a few brilliant individuals inspired those collectives, but there was something about the scene itself that took on a life of its own, supercharging the creative capacity of the individuals. Such scenes become hotbeds of innovation, and they play an important role in incubating new ideas—in art, philosophy, literature, politics, and business too. In fact, the most innovative companies manage to do just that: they build a creative scene that attracts and inspires talented people and original ideas. Edison himself, as many historians have pointed out, relied on a team of highly talented people—his “muckers” as they were called—to be the critical engine of his innovations. Innovation loves company, and Edison’s genius resided as much in his capacity to inspire and encourage other people’s commitment and creativity as it did in his solitary brilliance.
So how does a conscious leader not only encourage individual creativity, but build teams that have innovation infused into their DNA? How can we influence organizational culture to be more creative and dynamic? Here are some strategies for your consideration.
Create the right incentives. Humans are social creatures, constantly looking for feedback, affirmation, and cues from our social tribes. As a leader who is helping to set the tone of a business tribe, be aware of the “possibility field” that you are incentivizing and rewarding. Every statement (either explicit or implicit) about what is desirable, what is acceptable, which ideas are interesting, which suggestions are rewarded, which proposals are affirmed, which projects are funded, and which activities are compensated goes into building the cultural DNA. Is that culture full of optimism, free thought, and exploration? Is it notable for its rigor, work ethic, and discipline? Does it encourage experimentation and creativity or incentivize consistency and conformity? In general, cultures are not intrinsically good or bad, but they are distinct, and serve certain purposes. A conscious leader thinks carefully about the written and unwritten agreements that shape their organization’s “personality.”
In his classic song “Brownsville Girl,” Bob Dylan sings, “People don’t do what they believe in, they just do what’s most convenient, then they repent.”5 We hope things aren’t that bad in corporate America, but it is important for a leader to remember that when it comes to creating culture, it’s not about what you say you believe in; it’s about what you actually do—what you model as a leader and, most important, what you incentivize in the culture every day. There is nothing that will undermine your culture more than saying one thing and rewarding something else. Humans have evolved a highly developed sensitivity to hypocrisy in their social environments.
Incentives can be monetary, but they can also be much more than that. Sometimes just acknowledging the right person at the right time can have a greater impact than showering them with bonuses. One should never underestimate the power of authentic appreciation. If you genuinely reward creativity, new thinking, and innovative ideas, you’ll get more of the same over time. If you want a creative, innovative culture, make sure you build that DNA into your incentive system early and often.
Encourage healthy competition. At Whole Foods, one of the reasons our stores have kept pushing the edge in terms of the customer experience is that we allow a great deal of freedom to innovate at the regional and store levels. Each regional and store team brings new ideas to the table, building and improving on what has come before. A healthy competitive dynamic is born, with each team trying to outperform the others and come up with more innovative ideas. The best ones get replicated across the company, and the ones that don’t work fade away. I’ll give just one of many examples: the mochi bar you often see in our stores—that colorful collection of small ice cream balls encased in mochi (sweet Japanese rice dough)—has been a huge success. That started as the inspiration of team members at one particular location. It took off in that store, and its design was replicated all over the company.
That distributed autonomy inspires the creative spirit of our teams in a manner that never would happen if our corporate headquarters dictated the exact design of every new store. This practice has played a significant role in making our stores industry leaders in terms of design. Walk into most new conventional grocery stores today and you’ll see the Whole Foods influence—imitation being “the sincerest form of flattery.”
Competition, as seen in this example, is not antithetical to collaboration. Competition sometimes gets a bad name these days, with pundits decrying the dog-eat-dog culture of what business ethicist Ed Freeman calls “Cowboy Capitalism.” But competition doesn’t have to be cutthroat. There are very productive, positive forms of competition. Over the years Whole Foods has had many competitors. One of our fiercest rivalries has been with the national chain Trader Joe’s. For many years, Doug Rauch was their president, and he and I had gotten to know each other quite well. Trader Joe’s was always quick to adopt some of our innovations and had plenty of its own that we copied. But Doug, above all, was an honorable leader, and not only did his competitive drive make Whole Foods better, I think customers all over the nation benefited from the rivalry. Both companies benefited too. Doug retired in 2008, and over the past decade our competition has turned into cooperation, as Doug served for several years as CEO of the Conscious Capitalism organization. When honorable leaders compete, it’s not just the businesses that win.
Competition can be a healthy spur to innovation, internally and externally. Just look at what Peter Diamandis is doing with his X Prize Foundation. He’s using competition, with significant financial prizes for the winner, to incentivize innovation in areas that will offer great benefit to society. Since the first $10 million X Prize was announced, in 1996 (for the first nongovernmental organization to launch a reusable craft into space twice within two weeks—it was won in 2004), the X Prize Foundation has gone on to offer competitions in areas including health, technology, education, exploration, climate, and more.
Start a conspiracy. John Street, a Colorado technology entrepreneur who has built several successful companies by anticipating IT trends, has an interesting spin on the marriage of creativity and collaboration. He suggests that truly innovative organizations have a certain “conspiratorial element” to their culture. There is a sense that all the team members are in on a secret, an opportunity that the rest of the world doesn’t yet appreciate or see. The team or the company feels the sense of creativity and autonomy that comes from breaking the established rules, but the sharing of that “conspiracy” also forges an important bond. This appeals to the positive side of our tribal nature, the need for community, connection, and collaboration. And it adds to the sense of excitement and the feeling that everyone has a stake in the success of a shared mission.
How does Street accomplish this in his companies? Communication is key, he explains: today’s team members want context. You can’t start a conspiracy if people don’t feel in on it. They need to understand more than how; they need to know why. They need to understand the overall goals of the business and how they fit in. They work more effectively if they have a stake in the enterprise, and, while some of that is financial, it’s also social.
In the book Play Bigger, the authors echo this point when they point out that the most successful companies tend to be “category kings.”6 They define a new market category and have some sort of strong “point of view” on exactly how they are altering the market space for the better. Whole Foods has a point of view about healthy eating; it’s built into every store we create. Salesforce has a strong point of view about software. Airbnb has a strong point of view about travel and hospitality. In other words, conspiracies have a story that creates a shared emotional worldview, an internal set of touchpoints that bind a group together and inspire their work. It even defines a cultural membrane that identifies the tribe of those who are on the inside (and outside) of this exciting project. It’s for this reason that successful businesses with strong internal cultures are often described as “cultlike.” Of course, that can be taken too far, which is why this advice should be balanced with the kind of autonomy and creative freedom we described above. But when the “conspiracy” of a business is well established, when the “point of view” is strong and clear, and when the leader has been able to bring their team inside the emotional penumbra of that experience, it inspires a kind of directed innovation that can be very creative and powerful.
Embrace the edges. If you’re looking for innovation, you probably won’t find it at the heart of the establishment. Genuine evolution and novelty creation often happens on the borders, at the boundaries, in the in-between zones. It thrives in those places where different cultural patterns can mix and mingle, where established rules and conventions hold less sway, and where experimentation and invention can take place free of restrictive oversight. That is true for the evolution of life, culture, and business. There is a reason why one of the great American art forms, jazz music, was developed in New Orleans, a city of multiple intermixing cultures and musical styles. Urban environments have always played host to some of the most remarkable innovations in history as cultures, people, and ideas intersect and overlap in a creative and dynamic cauldron of engagement.
As sports fans, one of our favorite examples of “evolution at the edges” is the profound change in NBA basketball over the past several decades to an up-tempo, shoot-the-three, pace-and-space style of play. This innovation didn’t emerge fully formed in the heart of basketball orthodoxy, in the locker room of the L.A. Lakers, or on the practice courts of the Boston Celtics. It was first nurtured, cultivated, and developed in the Italian league, where coach Mike D’Antoni experimented with up-tempo styles, far from the center of the basketball universe. Eventually, it came across the pond with D’Antoni to the “seven seconds or less” Phoenix Suns, and finally found its full maturity in the success of teams like the Houston Rockets and the Golden State Warriors. Today, it’s become the defining style of the league.
The same principle explains why the peninsula south of San Francisco became such a center of innovation, beginning in the late sixties and early seventies. It was far enough removed from the more staid business institutions of the East Coast, less caught up in the existing traditions, customs, and social hierarchies of the American corporate establishment, but still well positioned to benefit from investment dollars and from Stanford and Berkeley’s intellectual capital. On the sunny southwest corner of the Bay, there was room to think more freely, experiment more openly, embrace new organizational attitudes, and reimagine business in a context of technology. Garages, basements, and dorm rooms became the birthplaces of HP, Intel, Google, Apple, and so many others. Almost five decades later, after trillions of dollars has flowed out of a few initial startups, Silicon Valley has become the biggest engine of economic wealth creation in history. The outsiders have become the establishment, the barbarians have stormed the gates and set up shop inside the castle.
Today, money, power, and status flow through the Bay Area like a gusher of never-ending cash. Happy millennials from top colleges stroll through futuristic campuses, stumble upon serendipity, enjoy abundant food courts, and play after-hours Ping-Pong while fellow engineers doodle inspired ideas on wall-size whiteboards. Are the resulting cultures more innovative? Maybe. But looking for innovation in the places where we most expect it has generally been a fool’s errand. “The story of innovation has not changed,” claims former Google CEO Eric Schmidt. “It has always been a small team of people who have a new idea, typically not understood by people around them and their executives.”7 One wonders where the next great innovative business ecosystem will find its own apocryphal garages, basements, and dorm rooms in which to incubate the future. At the center of institutions—in C-suites, executive offices, or boardrooms—conservatism more naturally reigns. That is not necessarily a bad thing. There are times when institutionalization is critical, periods when centralization should be the primary goal for any business or organization. Just don’t expect innovation to thrive in such circumstances.
Innovation starts on the edges and moves inward. Institutionalization starts at the center and moves outward. Both are important. But leaders must understand the difference. It’s not enough for conscious leaders to wish, hope, and pray for regular visitation from the muses of novelty; they must actively pay attention to the borders and boundaries of their own business ecosystems, where tomorrow’s disruptive ideas, processes, and technologies are incubating the next revolution.
Sometimes companies do more than just pay attention to their disruptors. They work to literally create that disruptive edge themselves, building skunkworks teams that can operate outside of normal institutional parameters to develop new products and ideas. An example of this approach comes from the stock exchange Nasdaq, under former CEO Bob Greifeld. In his book Market Mover, Greifeld describes how he recognized the need for a protected space for innovative projects and initiatives that was not subject to the same economic rigors he was applying to the organization as a whole. In general, he consciously rewarded fiscal discipline, cost cutting, and ruthless efficiency. But these incentives, while critical for the organizational turnaround he was undertaking, ran counter to the longer-term spirit of innovation. So he set up what he called the “Gift Council,” which functioned similarly to an investment committee at a VC firm. Nasdaq team members would present ideas for innovative projects or initiatives, and those that were deemed promising received funding and were considered independent of the proposers’ operational budgets. In other words, their success or failure would not impact the bottom line of the particular department. “That may sound simple,” Greifeld reflects, “but for a large company wedded to fiscal discipline, it was like trying to engage another side of the brain. The metrics for Gift Council projects had to be entirely different from our normal operational metrics; otherwise, the fiscal discipline of our culture would eat those nascent projects alive before they could show their true potential.”8 Not all projects succeeded, but the ones that did became the future growth drivers of Nasdaq’s business. It’s a reminder for conscious leaders to always be mindful of the vast difference between creating new things, new products, new businesses, and new categories and the business of managing those things, products, businesses, and categories in an efficient and productive manner.
Recognize innovation as it happens. “Skate to where the puck is going to be, not where it’s been”—a line from hockey star Wayne Gretzky—has become almost a truism in today’s innovation industry. In other words, one must anticipate the future, understand where cultural and technological trends are converging, and create products and services that fit into that emerging landscape. (For more on the art of forecasting in an exponentially changing world, see chapter 6.) University College London economist Carlota Perez cautions us to recognize that many innovative solutions “don’t come from sheer imagination but from identifying already existing trends in the right direction and accelerating them.”9
A truly forward-looking company is paying attention not simply to its competitors or the existing market, but to the next market transition or disruptive shift. John Chambers, the celebrated CEO of Cisco Systems, who oversaw the rise of that networking giant into one of the great technology companies of our era, emphasizes this point: “When a transition occurs, you focus on the transition, not your competitor. If you focus on competitors, you are looking backwards.”10 By focusing on where the market was moving—which was a signal of where innovation was headed—Chambers was able to keep Cisco ahead of the curve for many years, avoiding mistakes and the creeping obsolescence that comes from playing in one sandbox for too long.
One of Chambers’s talents was recognizing when the company had made mistakes or fallen behind a market transition. Not only did he prefer to restrict Cisco to competing in industries in which he was the number-one or -two player (following the famous advice of Jack Welch), but he was willing to acknowledge a failure and quickly change direction when market signals indicated a rapid shift. A great example of this was when Cisco bought the Flip camera, the popular camcorder that took over the consumer market in 2008. After Cisco paid more than $500 million for the company, the iPhone came along, with its own capable, embedded video camera. Flip cameras quickly became obsolete. In 2011, only a couple of years after buying the business, Cisco shut it down completely, acknowledging their mistake. They didn’t pour increasing amounts of money into this initiative or waste more time hoping to recover their considerable sunk costs. They moved on. For any innovative company, risk is part of the equation. That means occasional failure is inevitable. Being able to acknowledge failure, change strategy, move on quickly, and not get entangled in unsuccessful ventures allows more energy to be put into truly innovative, successful initiatives.
While we’d all like to be in possession of a crystal ball, we can’t always be the one anticipating or creating the future. Once again, conscious leadership is not just about being innovative ourselves. Sometimes it’s just as important to recognize paradigm-changing innovation when it’s happening, appreciate it, and bring that value forward to others. Google started out very late in the search engine business, but it had by far the best product. Facebook didn’t invent social media, but it recognized its enormous promise and created the best platform. Whole Foods didn’t start the natural and organic foods movement, but it saw the potential for a much larger market in a way that almost no one else did.
Legendary venture capitalist Arthur Rock had a knack for this particular aspect of leadership. He didn’t found Intel or Apple; he didn’t drive the remarkable success of those companies; he didn’t invent the microprocessor or the integrated circuit. And yet he played an indispensable role in all of it. His particular genius lay in being able to recognize and appreciate the disruptive innovations happening south of San Francisco in the sixties and facilitate their emergence. He brought East Coast capital and business experience to what was then the Wild West of the business world, acting as a “boundary spanner”—a person who is able to function on the border between two worlds and often create something greater in the interaction. He was not a brilliant inventor or technological visionary, but in his own way, he had an enormous impact on the companies that were central to the emergence of Silicon Valley. He was surrounded by many bright stars, individuals like Gordon Moore, the father of the semiconductor industry; Robert Noyce, co-founder of Intel and one of the great visionary businessmen; and Andy Grove, Intel’s long-serving and hard-driving CEO. But Rock was the behind-the-scenes maestro, helping all the parts to work together. Later, he was a key contributor to the rise of Apple, providing two unknown kids named Steve Jobs and Steve Wozniak with one of their first major investments and helping turn Job’s visions and Wozniak’s engineering talent into a workable, functional company. Rock knew how to recognize creative leaders with purpose and vision. And he knew that great companies have great purposes and that real innovation is far more important to success than the profit motive on its own. “If you’re interested in building a business to make money, forget it. You won’t,” Rock once remarked about his own style of investing. “If you’re interested in building a business to make a contribution to society, then let’s talk.”11
When we think of innovation, we often focus on products or services. But innovation can also work its magic in the fundamental design of a company—transforming structure and culture in such a way as to liberate the company’s creative capacities to serve its stakeholders. In the past few decades, we’ve seen a growing wave of experimentation with organizational design and a shift away from traditional structure in favor of more fluid approaches.
For most of human history, standard designs for larger organizations have been heavily bureaucratic, with power concentrated at the top. They have relied on “command and control” hierarchies appropriated from military culture. Command and control is one way to answer the questions: How do we get lots of people to row in the same direction? How do we establish clear, top-down communication and authority within a large, complex organization? This structure helps ensure control, consistency, and standardization, and while it has its downsides, there were many reasons why it was probably the most effective organizational design at a time when the world changed very slowly and innovation was rare. But today, while governmental organizations still tend to retain bureaucratic hierarchy, businesses are evolving rapidly away from this organizational design. New structures are proving necessary to keep up with the unprecedented pace of change in technology and in competitive landscapes. Bureaucratic hierarchy is simply too slow to be successful.
So how do we develop self-organizing, fast-iterating, dynamic cultures? How do we distribute the right kind of intelligent, problem-solving autonomy throughout our organization, even as we all participate in a shared mission and move in a common direction? To answer these questions, we need to do much more than command and control. We need to create and collaborate. We need an organization that is designed to give people the freedom to innovate and flourish creatively while also offering a structure within which they can effectively collaborate to institutionalize and operationalize those ideas.
Balancing these two imperatives is no easy feat. Any time humans socially organize in small or large groups, they inevitably form strong cultural patterns, and as those patterns become self-perpetuating and self-replicating, it is easy for a certain type of institutional inertia to set in. The culture, in other words, reinforces itself. Every organization has the equivalent of an immune system that rejects new ideas that don’t fit into the dominant organizational paradigm. But real creativity demands the opposite—questioning the “way things are,” suggesting new directions, and challenging the status quo. The philosopher Arthur Koestler once called creativity “an act of liberation—the defeat of habit by originality.”12 Creativity and innovation often move at right angles to the prevailing winds. So if creativity is going to thrive in a company culture, beyond the inspiration of a few people at the top, leaders need to rethink the way they structure their organizations to allow autonomy and tolerance for experimentation.
Inspired by methods like lean manufacturing and Agile project management and software development, many companies and business thinkers today have set out to do just that. Rejecting top-down control, they are reinventing organizations to be more “self-managed” or “self-organizing.” While they vary enormously, most of these approaches involve some form of networked structure built on self-directed teams.
At Whole Foods Market, for example, we have organized our company around interconnected teams. Everyone who works at Whole Foods is a member of one or more teams. Each of our stores has a variety of teams specializing in different customer service areas, such as produce, meat, seafood, prepared foods, grocery, specialty, whole body, and customer service/front end. While each team has work roles and responsibilities that are specific to them, we encourage all the teams to support and help one another as needed. We believe that cross-training work skills between teams is also important to improve customer service and job satisfaction.
The key to the Whole Foods organizational system is that each team is empowered and largely self-managing, while being closely connected to all the other teams in each store. Each store is a member of one of our twelve regional teams, and all the regional teams are members of our global leadership team. Teams, teams, teams—everywhere! Whole Foods has hierarchy, but so far we have largely escaped being overly bureaucratized, despite now employing more than 100,000 team members. This has enabled us to create a great culture of caring for our team members and customers, while fulfilling our higher purpose as a business and being financially successful.
There are many other fascinating examples of new organizational designs that are working well and delivering both great cultures and innovation. The largest and most innovative technology companies—Apple, Amazon, Google, Microsoft, Netflix, and others—have each in their own way rejected the typical bureaucratic hierarchies that most businesses operated with just fifty years ago.
One of our sister companies at Amazon, Zappos, has one of the most interesting and innovative business designs in the world today. Zappos CEO Tony Hsieh was inspired by Holacracy, created by former software engineer Brian Robertson, which offers companies a comprehensive new “operating system” to replace traditional hierarchy. Zappos has worked closely with Robertson’s consulting company, HolacracyOne, to implement the system, but also evolved the ideas of Holacracy to better fit Zappos’s unique and special culture. The result has been to minimize bureaucratic hierarchy while creating empowered self-organizing and self-managing teams. This has increased their innovation capabilities while also helping them to double down on their commitment to exceptional customer service.
There is much that a conscious leader can learn from the various approaches to new organizational design, regardless of whether or not you choose to adopt such a system wholesale. Any organization that wants to survive and thrive today and tomorrow will need to find new ways to be adaptive and innovative in its decision-making processes. And any leader who embraces a spirit of service must focus on empowering their teams rather than simply exercising authority over them. A decentralized approach to management can uncover and liberate creativity at all levels in an organization, encouraging people to make decisions and take initiative by removing bureaucracy and management bottlenecks.
While creativity, empowerment, and autonomy are good things, too much of a good thing can occasionally be a problem. There are times in any business when everyone simply has to get on the same page and move forward in sync, when the ability to closely collaborate, take direction, and deliver on a common mission is essential. Remember that hierarchy is not inherently bad; nor is the absence of hierarchy inherently virtuous. Every conscious leader must be attuned to the dynamic sweet spot between creativity and consistency, autonomy and collaboration, hierarchy and empowerment, originality and institutionalization.
As always, the conscious leader’s guiding light should be purpose: How can I structure and lead my organization so that the best decisions will be made in service of our purpose? Sometimes a clear hierarchy and assertive leader is the best fit. Other times, a highly distributed, team-based approach might be ideal. Whatever the case, we can keep these new approaches in mind and look for appropriate ways to empower people, reduce bureaucracy, streamline processes, and increase organizational agility.
The wonderful thing about innovation is that it can come from anywhere—and probably will. You never know where the next breakthrough idea, fantastic new technique, or organizational advance may emerge. If it’s not in your office or down the hall, don’t ignore it. Many of the most successful companies are not just innovative; they are fast followers. They imitate as well as innovate. (And if they can’t do either, they often acquire other firms that can. There is a reason why some of the most important technology companies in the world are serial acquirers; they are not attached to in-house innovation.) Conscious leaders are always on the lookout for the best ideas, wherever they originate.
To do this, we need to get over our own personal and organizational ego. It doesn’t matter how smart we are—too much organizational pride can torpedo success in the blink of an eye by interfering with a clear assessment of opportunities and threats. This is often referred to as the “not invented here” syndrome. It can be a subtle but dangerous form of blindness, one that infects even very successful organizations.
In fact, this affliction can be especially difficult to inoculate against in highly creative organizations that are used to being the source of their own innovations. Sometimes the most innovative teams (and leaders) are the most susceptible to organizational ego. They become attached to their own processes and approaches and get lost in their own visions. They lose sight of new directions, fail to connect with customers or market needs, or miss important breakthroughs happening around them. A conscious leader is more concerned about actual innovation and value creation than exactly who does it, where they do it, or how it happens. Stay nimble and flexible. Be ready to pivot. Expect surprises. Humility, in a leader and in an organization, is a powerful competitive edge.
What is true for an organization is doubly true for an individual. Nothing interferes with the creative intelligence of a team more than undue arrogance in a leader. If you want to have a creative team, the first rule is that you have to be able to interact with a group or a team in a way that is relatively free of ego. An arrogant person reacts to criticism and disagreement with the instinctive response “I’m right and you’re wrong.” They fight for their position from a place of reactivity and defensiveness. A humble person is willing to listen and consider legitimate feedback. As Ray Dalio, former CEO of Bridgewater Associates, the largest hedge fund in the world, explains, they go from saying “I’m right” to asking “Why do I think I’m right?”13 A humble person wants to get it right more than they personally want to be right. As a leader, one has to model this, encourage it, and even insist upon it. Truth and good ideas come in many packages, some loud and strong, some quiet and unassuming. A conscious leader is always listening for the best approaches, most sensible arguments, and creative ideas.
Humility does not mean you lack confidence or eschew strong opinions. But it’s easy for an organizational leader to get comfortable in a bubble and grow accustomed to a constant flow of affirmation. You can get used to hearing the sound of your own ideas reflected back with words of praise. But the old saying is true: “If you’re the smartest person in the room, you’re in the wrong room.” The higher you go on the corporate ladder—in fact, in any ladder or power structure—the more you have to take responsibility for not living in an affirmation bubble.
If you can implement even a couple of the suggestions above, you can be sure that the wellspring of innovation will begin to flow. But remember, a company cannot live on innovation alone. If it fails to do the extra work to create real value for stakeholders and customers, it is unlikely to truly thrive. That’s why we say “innovate and create value.” A classic example is the cautionary tale of Xerox PARC, the once iconic research lab of the mighty Xerox Corporation that invented some of the foundational technologies of the past fifty years, including the laser printer and the graphical user interface. But they were unable to operationalize their creations into successful businesses. Instead, their outputs became fodder for a grateful generation of startups who happily took advantage and built world-class businesses out of those ideas—companies like Apple, Microsoft, and 3Com.
Don’t forget to create value. Too often, innovators fail to take full advantage of their own genius. But as a leader you can do something about that. You can recognize genius, encourage it, stoke it, test it, and, most important, operationalize it. And you can remember that innovation in a business context never exists in a research vacuum. New products and services must always create real value in the marketplace, solve client problems, provide new services, or in some other way add tremendous value in the context of voluntary exchange. That’s the essential alchemy that fashions economic and social value out of the raw material of creativity.
In a nonbusiness context—such as a nonprofit or a government organization—one may be focused more on adding social value rather than economic value, but the essential point is no different. Bruce Friedrich was once an activist for the animal rights group PETA, working tirelessly to promote animal welfare, trying to get people to stop eating a meat-based diet. A vegan himself, Friedrich eventually came to the conclusion that his confrontational approach was ineffective. He still believed in the idea, but he wasn’t creating much value.
So he took a break, refreshed his thinking, reconsidered his options, and had an insight. Instead of changing people’s minds, why not change the food that was available? That would take more than activism; it would take innovation. Today, Friedrich’s Good Food Institute is one of the most active organizations supporting the burgeoning business of plant-based alternatives to animal-based food, changing industry practices, connecting investors to food technology startups, starting investment funds, and generally shifting the conversation about what’s possible when it comes to changing our relationship to animal agriculture.
When we talk about creating value, it’s also important to remember that we mean value for all of the stakeholders in a business, not only the customers. Innovation doesn’t always have to be solely about the customer. In fact, some of the most successful and innovative companies, many in the tech space, have found that out the hard way. After experiencing extraordinary growth in the past years, they have come up against enormous pushback from some of their other relevant constituencies—local communities, team members, regulatory bodies, suppliers, etc.—in part because they weren’t adequately taking care of all of the stakeholders in their business ecosystem. Now obviously, disruptive companies have societal impact. They change the status quo, put others out of business. They can even change the way we live. They’re never going to make everyone happy; that’s the inevitable consequence of real innovation. But it’s also important to remember that finding ways to truly create value for the many stakeholders in the business, and going out of your way to innovate new methods of doing so, not only is the right thing to do but can pay back enormous dividends over time. If your suppliers appreciate you, they are going to bend over backwards to work with you on favorable terms. If team members have a largely positive experience of their work life, they’re going to be your best ambassadors. If your community has felt the positive benefits of your presence, it is going to be more inclined to support you, even when your public relations hits some rough waters (and it will).
Sometimes we need reminders that innovation can happen in the least expected areas of the economy. Entrepreneur Miki Agrawal has found inspiration precisely by looking at those areas of life that no one else wants to touch—periods and poo. As she puts it, “If you are going to dive into something and spend all of your time on it, you might as well dive into a really big problem.” What struck Agrawal was that the feminine hygiene category hadn’t had any real innovation in half a century, and the entire category of products consisted of tampons, pads, and menstrual cups. Moreover, not much has changed in the toilet category for at least a century. So the company she co-founded with her twin sister, Radha, called Thinx, set out to design period-proof underwear for women that was easier to use, more comfortable, and built with modern conceptions of environmental sustainability in mind. Her other venture, Tushy, is attempting to reinvent the toilet category with an inexpensive, environmentally friendly millennial-focused bidet that might just catch on in an American market that has never adopted the European approach.
Not to be outdone by her sister, Radha Agrawal decided she wanted to innovate on the idea of community. In her mid-thirties, she was a regular at a well-known New York nightclub, but one night, while dining on a 4:00 a.m. falafel, she took a long, hard look at her actual experience of the scene—the drugs, the escapism, the lack of joy and connection. Surely she could create something better. For a millennial generation longing for more connection and community, she began to envision “new containers for belonging.” Her solution was a movement that turned the traditional idea of nightlife on its head. Instead of late night, it would be early morning. Instead of drug-fueled, it would be sober. Instead of being draining and ending in sleep, it would be energizing and end in work. She called it Daybreaker. Greeting the day with dancing, yoga, poetry, and other forms of interpersonal connection, Daybreaker has been a hit around the world, inspiring hundreds of thousands of people in more than thirty cities to greet the day with an experience of community. She calls the experience a DOSE—meaning a natural hit of dopamine, oxytocin, serotonin, and endorphins. Not a bad cocktail with which to start your day.
A popular contemporary business aphorism states, “Your margin is my opportunity.” It’s also true that sometimes “your neglected area is my opportunity.” Sometimes those areas that have not been touched in years, if ever, are ripe for change. The Agrawal twins are reminders that innovation doesn’t necessarily come in the form of a tricked-out new gadget. There is always a space for unique business models and unconventional missions that happen to fit the zeitgeist of the day. The fields of value creation stretch as far as our imagination can follow.