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Monday, March 08, 2010

Pick Your Best People to Lead Innovation

by Paul Sloane

Pick Your Best People to Lead InnovationMany businesses make the mistake of giving innovation projects to junior executives. It seems natural to hand innovation opportunities to enthusiastic and promising upstarts. But generally it is the experienced heavyweights who can overcome all the process and political obstacles that will occur.

In September 1999 Lou Gerstner, CEO of IBM, read a line buried deep in a report which said that current quarter pressures had forced a business unit to cut costs by stopping efforts in a promising new area. Gerstner was incensed and wanted to find out how often this happened. He asked J. Bruce Harreld, IBM's senior VP in charge of Strategy to find out. Harreld found a similar pattern in at least 22 other cases. IBM had plenty of new ideas but it had a remarkably hard time turning those ideas into businesses. IBM had produced many crucial inventions, such as the relational database and the router, then watched while others, such as Oracle and Cisco built huge companies around them.

Harreld investigated the causes and found that IBM rewarded short-term results and was reluctant to devote management attention and resources to rolling the dice. IBM's leaders did not spend much time on new businesses and they did not tap their "A-team" of executives to run them. "We were relegating this to the most inexperienced people," said Herrald. "We were not putting the best and brightest talent on this." (Quotes from FastCompany magazine, March 2005 issue)

Gerstner and Harreld reversed this approach. They deliberately put their most experienced and talented executives in charge of Emerging Business Opportunities (EBOs). Their mission was to find areas that are new to IBM that can yield profitable billion-dollar-plus businesses in five to seven years. The program has been a remarkable success. Between 2000 and 2005 IBM launched 25 EBOs. Three failed and were closed down but the remaining 22 produced annual revenues of over $15 billion and growth of over 40% per year.

More importantly than their revenue impact, the EBOs helped change IBM's culture. "We've become more willing to experiment, more willing to accept failure, learn from it and move on. Now being an EBO leader is a really desirable job at IBM," says Harreld.

The lesson from IBM is clear. If you want to change the culture of an organisation so that it values innovation and new business start-ups then get your most senior and best people involved in these activities. Don't delegate it to lower level staff and hope for the best.

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Paul SloanePaul Sloane writes, speaks and leads workshops on creativity, innovation and leadership. He is the author of The Innovative Leader published by Kogan-Page.

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Anonymous Anonymous said...

I think the spelling is 'Harreld', by the way. After the abrupt departure of Abby Kohnstamm, Harreld became head of Marketing as well as head of Strategy. The fact that, since Harreld's departure, IBM has reverted to a separate head of Marketing indicates the company's view on the matter.

I'm not convinced that IBM is much of an innovator these days. It's much more of a services company than the product company it once was. It buys in more innovation than it invents itself. IBM is maintaining its share price by cost reduction, not by revenue increase. Yes, it's done well by shifting jobs from the West to India, but in so doing it has damaged or even ruined the lives of thousands of former employees who thought they had an implied contract with the firm.

3:39 AM  
Blogger Blogging Innovation said...

You are correct about 'Harreld'. I've changed the spelling.


5:54 AM  
Anonymous Nicholas Hawtin said...

A good case is always a wonderful thing to meet. Thank you.

As for the grumbling that IBM is not an innovator, two points:

One, nothing is permanent, least of all innovation. Even General Motors was once an innovator.

Two, outsourcing, love it or leave it, is a major innovation, and innovation is not limited to physical products. IBM’s transformation from a product company to a services company is a perfect example of innovation – and the fact that the company managed to make the shift is proof of innovative success.

Bien fait, IBM - and Mr. Sloane.

6:28 AM  
Anonymous bzdev said...

I agree, for innovative ideas in the enterprise you should not follow the short term gains or the worst idea: follow your boss' ideas. You need people that dare to stand out of the crowd and sometimes don't care to become unpopular with their manager.

Don't wan't to comment on IBM, just a company that lives on a reputation build a few decades away. Perhaps they are on the way back?

4:27 PM  
Anonymous Heidi Günther said...

Is the solution that simple? Of course, experienced managers possess reputation as well as authority to promote innovative projects and to give them priority on the strategic agenda. However, along with accumulated experience, these heavyweights may also acquire cognitive blinders limiting their ability to recognize radical and promising new ideas.

Another problem to be considered is strategic path dependency: Organizations are susceptive to inertia and might not be able to build new capabilities for taking new grounds. This phenomenon could be observed with Polaroid when the companies’ top managers still believed in the former core competence of instant photography even when the market demanded the new technology of digital imaging (Tripsas & Gavetti, 2000).Senior managers often shape corporate strategy – and if they are not able to think out of the box anymore, they can freeze strategic paths and block radical innovation. Thus, diversity in terms of age and experience might be important for creative and foresighted innovation leadership teams.

I also think that the so-called lower staff cannot be neglected in innovation leadership. Innovative companies like Google show that unbiased lateral thinkers from diverse organizational levels can not only generate, but also promote innovative ideas. Google traces its innovative spirit back to flat hierarchies and high democracy (see e.g. Grant, 2010), which implies that the whole company must create an innovation-friendly and motivating environment - not only senior managers.

10:24 AM  

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