Thursday, August 25, 2011

CEO as Chief Innovator

So, after days of pondering exactly what's missing I realized that several of my most recent posts have had a relatively common theme, and perhaps, subconsciously I was working to a specific insight or point.  After pondering this possibility, it's become clear, at least to me, that the person who is most vital, most necessary for innovation, is the CEO.  And not just in a cheerleading role, but in an active, engaged role in all levels of the organization.  But perhaps most importantly, in innovating the "idea" of the company itself.

First, remember, that I argued that many firms need to innovate not just their products, but their purpose.  By that I mean that innovation is often demanded by CEOs and senior executives, who want the latest and greatest products and services.  If I hear one more time how company "X" wants the next iPad of their market...but I digress.  Today, many executives and firms think innovation is something that product teams do, and if they could only do it more effectively then the firm will benefit dramatically.  That thinking isn't necessarily incorrect, just misguided.  Good innovation, in products, services or even business models, doesn't happen in a strategic vacuum.  The best innovators, the ones we constantly look to as the pinnacles of innovation success, have executives who are active in innovation and set clear goals and objectives.  Merely stating that the firm needs to become more innovative isn't enough.  Firms need to innovate their thinking, their purpose, their reason for being, and to do so they need executives who are tuned in to the importance of innovation, and executives who are actively engaged in innovation.

However, most people in leadership today of major firms didn't achieve their roles through innovation success.  Most achieved their ranks through cost cutting, improving efficiency and keeping the fire of existing products and services burning.  In other words, innovation is not a skill that was emphasized as many executives climbed the ladder, and it has not been actively developed.  What's more, I believe, is that the emphasis on financial returns has led increasingly to a reduction of time thinking about strategy, and testing new strategies.  More and more, most firms in any industry follow the same, tired strategies, which makes firms like Apple or Google or JetBlue stick out.  They seem to zig while the majority zags.  I wrote about this phenomenon recently, suggesting that many organizations suffer from Strategic Exhaustion - that is, they've either exhausted all the possible strategies or the leadership has simply exhausted its imagination for new markets, opportunities, strategies and business models.

Which brings us to the crux of the post today.  Innovation is difficult at best in the absence of clear strategy, and will probably only exist at a product level.  Without clear strategic goals and the understanding of the strategic intent and purpose of a business, innovators will struggle and most innovation will be incremental.  As strategic exhaustion sets in, firms become followers of other business models or other organizations, rather than creating crisp, clear strategy and striking off where their vision leads them.  Adam Hartung has an excellent evisceration of Hewlett-Packard which describes how the last three CEOs have identified strategies that simply followed other firms, rather than staking out H-P's value proposition.  

My conclusion is that innovation can only be successful in the long term in a firm that understands its purpose and has clear, consistent strategy.  Those two factors come from the developed vision of a senior executive team, lead by the CEO.  In the absence of a vision or strategy, innovation is difficult, incremental and often futile.  This is why I say the CEO must be the Chief Innovator - not merely as a spokesperson, or cheerleader, or the individual with the deep pockets, because those belief systems take the CEO off the hook for vision and strategy.  While it is important for product managers to innovate new products, it is equally as important for CEOs to innovate the idea or purpose of the company.

In recent research I found a statistic that of the original 500 firms in the S&P 500, first developed in 1957, only 125 remain today, and of those 125 only 94 remain in the current S&P 500. Corporations and their purposes are transient, not permanent. What many CEOs and corporations fail to realize is that shifts in demand, shifts in technology, shifts in demographics create new needs and expectations.  The mere fact that an organization exists does not guarantee existence into the future, unless the corporation changes its products, its services and ultimately its purpose or its "idea" of itself.  Schumpeter's concept of creative destruction applies precisely to large firms that become locked into a business model and worldview while the rest of the world changes.  CEOs own the responsibility to create and communicate a vision or strategy, and ensure that that vision or strategy is carried out.  In the presence of clear strategy, innovation is challenging.  In the absence of clear strategy, it is almost impossible and eventually incremental, in a world where disruptions occur constantly.  The CEO and his or her executive team must be full partners in any innovation effort - supporting and engaging innovation in product groups, yes, but just as importantly innovating the purpose and idea of the organization.  Innovation isn't simply a process that's isolated in one business unit or in R&D, but a set of capabilities that must be exercised at all levels of the organization.  The executives who understand this principle are the ones who will keep their firms vital in the face of constant change.  Those that fail to grasp this concept will be left following those that do.
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posted by Jeffrey Phillips at 5:49 AM


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4:31 PM  
Anonymous Jacob Weinfeld said...

Great article. I agree a culture of innovation must start at the top of the organization, with the CEO.

10:57 AM  
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1:38 PM  
Anonymous Anonymous said...

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