Monday, May 02, 2011

Achieving what the CEO wants through innovation

I've been surprised at low little discussion a new report from the Conference Board has generated among innovators.  The CEO Challenge, while not specifically a survey on innovation per se, tells us a lot about what CEOs are thinking and how they rank priorities.

In the survey CEOs were offered 10 priorities that they were asked to rank.  Growth, unsurprisingly, ranked number 1 basically across the board.  According to a Wall Street Journal article, after growth, there was a significant divergence based on the industry.  Some heavily regulated industries ranked government regulation as next most important, while manufacturing and firms not in financial services ranked innovation as the second most important priority.  Financial services firms alone tended to rank innovation near the bottom.  The WSJ suggests that that result is probably the outcome of increased federal scrutiny after the sub-prime mortgage meltdown, the issues with credit card interest rates and other financial industry issues that are attracting attention in Washington.

A quote that jumped out at me from the Wall Street Journal's reporting seemed especially important:
CEOs tend to balance talent, efficiency and innovation as their main strategies to drive growth but during crises, cost cutting can drown out the other two said Stanford University professor Robert Sutton.  I'm getting the sense that CEOs have squeezed out [all] the efficiency that they can and now have to move to innovation and talent to grow he said.  Talent wars between high-tech companies have heated up.

On the Conference Board site for the report, the top priorities are listed in ranked order, with growth ranked first, weighted almost twice as important as the next three priorities:  talent, cost optimization and innovation.  Interestingly, all three of the latter priorities have almost exactly the same weight.  Taking financial services out of the equation, innovation is a clear second priority.

But what's interesting about these priorities is that some are outcomes and some are inputs.  Business growth is an outcome, achieved when good people (talent) create compelling products (innovation) that customers want.  Business growth is driven by new products, new services and new business models driven by innovation.  It is difficult to have organic growth without innovation, so innovation is a clear ingredient to business growth.

But it's also hard to have business growth without good talent, and good talent is attracted to growing companies that have compelling products, interesting visions, the opportunity for growth for the individual.  All of these factors happen when innovation is present, and are often missing when innovation is missing from a firm's agenda.  Talent is fungible and will flow to the organizations that have the most compelling ideas and opportunities to convert ideas into new products and services.  Innovation is a key ingredient to attracting and retaining good talent.

Of the four stated priorities, only cost optimization stands alone.  Cost optimization doesn't drive business growth, and it often inhibits innovation.  Talent isn't attracted to firms that consistently focus on cost optimization, and cost optimization doesn't grow new talent or many new ideas.  Cost optimization is an expedient way to sustain profits without growth, but only in the short run.  One could argue, in fact, that cost optimization is the antithesis of business growth, and the mere fact it shows up so prominently in the priorities of the CEOs is a reflection of the economic environment they face, rather than a long term stated objective.

The takeaway:  get innovation right and you'll drive business growth.  Get innovation right and you'll attract and retain the best talent.  Innovation is the petri dish that will create the outcomes CEOs want. 
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posted by Jeffrey Phillips at 5:35 AM


Anonymous Tom said...

Not very long ago, there was a study conducted by researchers at Harvard that looked at the sales and EBITDA outcomes for companies coming out of recessions and correlated those outcomes to the business strategy during recession. Their finding was basically the same as you are arguing, but perhaps even more strongly stated: cost cutting hurts; efficiency improvements (e.g. Lean or SS) and innovation help. There was a nice summary analysis in Quality Digest:

6:45 AM  
Anonymous Gianluigi Cuccureddu said...

Interesting article Jeffrey, thanks. In a way it is the chicken-egg dilemma.

To make a company less depended from exclusive internal talent, one can approach innovation as open innovation. Driving innovation through a set of stakeholders, all having their own value add to the innovation process.

This might spur innovation before great talent can be attracted. Another additional value-add is consumer-centric innovation, which decreases time to market and increases innovation output. Certainly outputs that CEO's might find interesting in a time where shorter PLCs reign.

11:06 PM  
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