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Drive Personal Reinvention

Tactics for Improving Your Skills as an Innovator in Tough Times

E x c e r p t e d f r o m

The Silver Lining:

An Innovation Playbook for Uncertain Times

B y

Scott D. AnthonyCase Study

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Drive Personal Reinvention

F. Scott Fitzgerald famously wrote, “The test of a first-rate

intelligence is the ability to hold two opposed ideas in the mind

at the same time and still retain the ability to function.”

Unfortunately, most managers can’t pass this test. The Great

Disruption will require many managers to go to “innovation

school” to develop the skills to master paradox.

The word crisis was popular in 2008. At one point or another, pundits talked about the oil crisis, the global warming crisis, the sub-prime mortgage crisis, and, of course, the credit cri- sis. The hidden crisis emerging from the economic rubble of 2007–2008 is how corporate leaders have to deal with a chal- lenge for which they are completely unprepared. A genera- tion of corporate classical musicians who found success by following precise scores and furiously pounding keys now has to become expert at improvisation.

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The Silver LiningCase Study

Existing systems, structures, and development programs that were sufficient for leaders to thrive in an era of ordered capitalism are proving to be inadequate in today’s increas- ingly turbulent times. Most leaders just aren’t ready to grap- ple with the paradoxes that will increasingly characterize their day-to-day lives. Hope is not lost, however. Research by development psychologists and business scholars provides practical pointers for the personal reinvention required in the Great Disruption.

Change as the New Constant

Standard & Poor’s index of leading U.S. companies goes back to 1923. Research by Innosight board member and longtime McKinsey director Richard Foster found that in the 1920s (when the list contained ninety companies), when a company got on that list, it would stay on for about seventy years. That meant that people who joined an S&P company might be joining the same company their parents worked for and might expect their children to work there as well.1

Today, a company that enters the S&P 500 index will stay on it for about fifteen years. That means if you join a S&P 500 company today, it most likely won’t be an S&P 500 company by the end of your career because it will have failed, shrunk, or been acquired. Increasingly, companies that buck the trend and last thirty or more years will do so only by mastering the kind of transformation described in this book. As Foster notes, “It’s an entirely different world where the balance be- tween continuity and change has moved to change.”

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Drive Personal Reinvention

The Great Depression was about working hard, master- ing skills, and trying to find employment. The Great Dis- ruption is different. It is about developing the ability to be comfortable with constant change. To expect your business or function to be obsolete in a decade’s time. To be ready to transform not just your company, but yourself.

For generations, the United States had a culture that sup- ported entrepreneurialism and the creation of new growth businesses. Silicon Valley was the embodiment of this cul- ture. Today, individuals and the companies they work for have to develop this ability.Case Study

Think about the seemingly paradoxical requirements fac- ing leaders:

• I have to focus on running operations with laserlike precision without stifling creativity.

• I exist because of my big business, but “small saplings” are critical for long-term success.

• Data drives my decisions, but I have to trust intuition and judgment when data doesn’t exist or is vague.

• Attention to detail and focus on numbers has allowed me to progress in my career, but too much focus on details or numbers can crowd out innovation.

• The people I trust the most are the people who deliver short-term results and never surprise me, but innovation almost always involves some kind of surprise.

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• I have to leverage my capabilities to win today’s battles while walking away from many of these capabilities to win tomorrow’s battles.

More than ever, corporate leaders have to meet the challenge laid down by author F. Scott Fitzgerald in 1935: “The test of a first-rate intelligence is the ability to hold two opposed ideas in the same mind at the same time, and still retain the ability to function.”2

A Generation Unprepared

How prepared are leaders to pass Fitzgerald’s test? Not very, most research suggests.3

Developmental psychologists have demonstrated that human capacities unfold in a series of stages.4 Each level des- ignates a new capacity that is inaccessible in the prior stages. For example, at one level, an individual might use rules, reg- ulations, and the chain of command to determine what is “right.” At this level, the individual would have the ability to manage his or her own activities. At an intermediate level, the individual would have a strong self identity that allows them to mediate demands from different stakeholders, al- lowing them to manage a group of people and tasks. At a higher level, the manager might be able to manage a group of ideas. In other words, the manager could simultaneously see the world from multiple perspectives and integrate those perspectives together to determine the most useful approach, given their particular circumstance. Harvard professorCase Study

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Robert Kegan calls these levels of leadership development individual, autonomous, and integral, respectively.5

Research shows that the further a manager develops, the better his or her overall managerial ability.6 Yet, scholars suggest that the ranks of leaders who can reach a level at which they can integrate different perspectives—a prerequi- site for truly grappling with paradox—is no more than 5 percent of the total manager population.

It seems counterintuitive that achievement-oriented man- agers haven’t naturally achieved higher development levels. Michael Putz from Cisco has studied this problem for the past decade. His perspective is that the problem isn’t a lack of basic intelligence, desire, or capacity. Rather, managers haven’t developed the ability to grapple with paradox be- cause they haven’t needed to.

Modern capitalism has been on a spectacular run since World War II. Today’s leaders operate global diversified businesses on an enormous scale. The ability to handle para- dox has marginal incremental utility to these challenges. Of course, many would like business to take on missions, such as a broad notion of corporate social responsibility, that may de- mand more complex organizational and leadership struc- tures. However, modern capitalism has largely been able to fulfill its primary mission of creating shareholder value with leaders who lack the ability to grapple with paradox.

This mismatch helps to explain a puzzling issue for dis- ruptive innovation advocates. Harvard Business School pro- fessor Clayton Christensen clearly laid out the pattern of disruptive innovation in academic work in the mid-1990s.

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Academics and practitioners have accepted the fundamental premise of disruptive innovation. The how-to of disruptive innovation is growing increasingly clear. Yet, the number of companies that demonstrated a systematic ability to disrupt is stunningly low.

A few companies have launched a macro disruption that enabled a number of micro disruptions. For example, in the 1960s and 1970s, Sony’s macro disruption was miniaturiza- tion. Sony carried that disruption to televisions, radios, and portable music players. Cisco’s macro disruption is the Inter- net Protocol (IP). Cisco has taken its mastery of IP to data, voice, and video, creating disruptive growth in a number of markets. Google’s macro disruption is the rationalization of advertising, which it is bringing to a number of different markets.

A few companies, primarily those run by a founder or a charismatic CEO, have created separate businesses that were disruptive to the core organization, such as Intel’s creation of the Celeron processor in the late 1990s to respond to disrup- tive threats in its core microprocessor markets. A few other companies run by professional managers have created one- off disruptive success, such as GE’s portable ultrasound device (discussed in the previous chapter). But the list of companies that have created the systematic ability to launch different types of disruption is amazingly short.

It’s certainly not a fear of new concepts and management theories; executives seem to buy and change them as easily as a new set of clothes. But executives demonstrably favor ideas that involve ways to do what they are currently doing in aCase Study

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more efficient, more effective manner. Systematizing dis- ruptive innovation is a different beast. Senior executives have to think and act in ways that run counter to everything they have done to be successful in their careers. As Putz notes, they must be multi-paradigmatic in how they struc- ture their business model, run their firms, lead their teams, and most difficult of all, see themselves and frame their iden- tity as leaders. Put simply, leaders who want to capture the potential of disruptive innovation need to be “consistently inconsistent” with their teams and themselves, and still hold it all together and deliver results quarter after quarter.7

In layperson’s terms, leaders have to manage two different gut instincts at the same time, one more operational and one more entrepreneurial. Few leaders—such as Apple’s Steve Jobs—do this well, and even then one side of the gut usually dominates. Leaders who can personally pass Fitzgerald’s test can’t crisply articulate how, inhibiting their ability to develop and select a successor. It is not uncommon to see one of the rare great growth leaders like longtime General Electric CEO Jack Welch turn on a hand-selected successor without the self-reflective capacity to understand their own role in the unsustainability of the growth engine they left behind.

What Do You Do?

Hypercompetitive markets with shrinking windows of com- petitive advantage mean that the importance of embracing paradox and systematizing disruptive innovation is going from a nicety to a necessity. Developing the capacity for par- adoxical leadership is a tough challenge. Chris Argyris noted

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in his classic 1991 Harvard Business Review article, “Teaching Smart People How to Learn,” that the most successful pro- fessionals are the ones who have the most difficulty examin- ing assumptions and behaviors in the face of failure, even when given simple guiding tools.8

There’s no silver bullet to address this challenge, but there are some tips to help individuals and companies develop par- adoxical leaders. The first step is awareness. Experts suggest that levels of self-development should be primarily a private assessment tool, not a shared metric, with data limited to select senior managers and key human resources executives.

The next step is to develop a personalized educational program that takes advantage of a leader’s self-development level. This isn’t your father’s HR program. Putz suggests that including psychological, philosophical, or even spiritual elements in training can help leaders improve their ability to grapple with paradox.

The good news is that there are many validated instru- ments to measure self-development. Further, experts who have spent substantial time using well-grounded models like Kegan’s are able to quickly sniff out an individual’s level of self-development. They can then design personalized train- ing programs with off-the-shelf tools to help leaders progress. The need for customized, personalized coaching can be expensive and time consuming, but the payoff can be worth it.

One human resource executive at a famously innovative Fortune 500 company designed a customized program for the company’s top fifty leaders based on these insights. She

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worked individually with leaders to determine their level of self-development. She then created customized plans to help leaders achieve higher levels of self-development. Leaders who had “framework fatigue” from going through nonstop assessments throughout their careers found great insight by going through the process. They became more aware of their strengths and limitations, and developed tactical plans to ad- dress those limitations.

Strengthening Your Innovation Muscle

Customized development programs require serious corpo- rate commitment and personal investment. And many man- agers don’t have to worry about paradox in the near term. They do have to improve their ability to spot seemingly hid- den opportunities and act in more entrepreneurial ways. Tapping into two streams of academic research can help managers strengthen their innovation muscles.

The Innovator’s DNA

Here’s a simple activity. Ask ten people whether successful innovators are different from the general population. Nine of the ten respondents are likely to say that innovators are, in fact, different. Interestingly enough, for a long period of time, academic research disagreed with public perception: most large-scale research rejects the hypothesis that innova- tors are different, in statistically significant ways.

Jeffrey Dyer at Brigham Young University, Hal Gregersen at INSEAD, and Clayton Christensen at Harvard launched

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a research effort to address this puzzle. The professors conducted scores of interviews at innovative companies. They followed the interviews with large sample surveys. They tried to determine what characteristics had statistically significant impact on innovation outcomes—the successful creation of meaningful new growth businesses.9

The professors discovered a straightforward formula. Almost all successful innovators excel at what they call “asso- ciational thinking,” which is the ability to see the connection between two seemingly unconnected ideas. An example the professors cite is Pierre Omidyar, who founded eBay. Omidyar drew on his personal experience in the collectible business, observations about the limitations of newspaper classifieds, and insights into the benefits of efficient markets from previous work experience. The need for associational thinking is consistent with a long stream of research that suggests that innovation almost always occurs at the intersec- tion of disciplines, when people look at an idea from a new perspective.10

Innovators then excel at one or more ways to gather stim- uli that can help them make these connections. One ap- proach is to excel at questioning, or relentlessly inquiring to find insights, connections, possibilities, and directions. Some innovators are always observing, or intensely and intention- ally watching the details of the world they explore. Of course, many innovators are constantly experimenting, visit- ing new places or trying new things. Finally, networking can be a way to find and test ideas through accessing a diverse network of people.

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Based on this research, Dyer and Gregersen have created a simple diagnostic instrument to help innovators figure out their strengths and weaknesses. The instrument functions like a Myers-Briggs Type Indicator, using a series of rela- tively simple questions to tease out individual tendencies. One project team at a large company used the approach to help “unstick” a struggling team. The team was working on an innovation that had the potential to create a new category. Constant squabbling was slowing progress and leading to significant frustration. A version of Dyer and Gregersen’s in- strument highlighted how half of the team had tendencies that favored what the professors call discovery skills, where they would use some of the aforementioned techniques to innovate toward a solution. The other half of the team had a bias toward delivery skills related to analyzing, planning, and detail-oriented implementation. Documenting the different approaches helped the team understand differences and more productively spread tasks throughout the team.

An innovator’s DNA is not fixed. Research suggests that only about 25 percent of an individual’s capacity for innova- tion is inherited. The other 75 percent is based on experience. In other words, individuals can become better at innovation.

Dyer and Gregersen offer the following tips for people who want to improve their innovation abilities.

To become better at questioning:

• Make a regular habit of writing ten questions that impose or remove constraints (e.g., what if the price of oil were $1,000 a barrel? What if it were free?).

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• Hold meetings at which you spend fifteen to twenty minutes doing nothing but ask questions (a technique known as question-storming).

To become better at observing:

• Schedule regular observation excursions to watch how certain customers use a product or service.

• Carry a diary or a notebook and frequently write down observations.

To become better at experimenting:

• Intentionally complicate your life by bumping into new information and experiences. For example, attend a conference in a different industry.

To become better at networking:

• Meet with one creative person a week for a period of five weeks.

• Have lunch with three diverse people every week.

The Right Innovation Schools

Companies are increasingly asking managers to grapple with common entrepreneurial challenges, such as dealing with ambiguity, making decisions based on intuition, experi- menting to find success, using a network to solve a problem, and operating in constrained environments.

Worried about what you will do if these challenges seem unfamiliar to you? You should be. Research by University

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of Southern California professor Morgan McCall shows that you can reasonably predict whether a manager will suc- ceed or fail in the face of a particular challenge by looking at their “schools of experience.”11 The schools-of-experience model suggests that people have the greatest chance of suc- cess when grappling with a problem they have previously grappled with.

Consider this analogy. Imagine you have thrived in your company’s core business for fifteen years. You know how to play that game, and you play it well. Then you get the call: “Jim, I’d like you to head up our new innovation effort. It’s an exciting opportunity for you. We’re looking for you to re- ally show us the way here.” You immediately feel a pit in your stomach. The skills you have developed won’t help you in this new assignment. In essence, after perfecting the abil- ity to hit a baseball for fifteen years, you’ve been told to don skates and start playing professional ice hockey.

Leaders like Jim can be phenomenally successful. They can be phenomenally intelligent. They simply haven’t at- tended the right schools of experience for their new assign- ment. Individuals in organizations rarely attend schools that prepare them for common entrepreneurial challenges. For example, many line operators are rewarded for removing or minimizing ambiguity, relying on well-grounded market re- search, or dispassionately making decisions based on hard numbers.

Ask yourself what sorts of problems you can anticipate en- countering in the future that you have not wrestled with in the past. Look for low-risk ways to give yourself an experience

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that builds your ability to respond to that problem. Raise your hand for an international assignment. Find a nights- and-weekend activity that is rife with ambiguity. For exam- ple, one manager in a Fortune 100 company who managed a multibillion-dollar division’s new business development ac- tivities created a Web-based business with a family member so that he could experience what it was like to be a true en- trepreneur. Consciously put yourself into circumstances where you have to develop skills that will serve you well in future assignments.

Keeping Creative Talent Motivated

Leaders face another important challenge beyond improving their own abilities: motivating creative, innovative employ- ees who don’t land an exciting innovation project. This task doesn’t have to be impossible, if companies creatively tap into their collective creativity.12

Companies that encounter tough times naturally become more conservative. After all, it seems hard to tolerate out-of- the-box thinking when a company faces the very real prospect of downsizing due to sliding economic fortunes. Companies place premiums on getting things done and dis- count long-term strategic efforts that look risky and unpre- dictable. As this book argues, sagging fortunes do not diminish the need for innovative thinking. Companies that play it too safe can end up in trouble down the road. Not only can more forward-thinking competitors create competitive advantage that takes years to counteract, the exodus of

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frustrated managers can leave a company without its most valuable assets when the economy inevitably turns healthy again.

So what can a company do to harness its creative talents given the unique needs of an economic downturn? One ap- proach is to continue to give innovators freedom to dream up bold new ideas, but tighten the leash on near-term activities. In other words, force innovators to prove their dreams are within reach through the kind of smart, low-cost experi- ments described in chapter 5. Alternatively, involve creative minds in core business challenges. Can they find different ways to prune portfolios or do more with less? While explor- ing low-cost market research techniques or finding ways to trim benefits without alienating the staff might not sound as sexy as creating the next iPod, they require creative thinking and have a deep impact on business. Further, the more a company can improve its core operations, the more it will have funding—and patience—for innovation.

Companies that don’t take these actions will see their in- novation muscles atrophy during an economic downturn. Imposing discipline on the innovation process and letting creative managers use their talents to help with core chal- lenges can keep innovators in shape for the next battle.

Summary

The Great Disruption doesn’t just pose challenges for organ- izations; it poses severe challenges for individuals. Leaders need to improve their ability to pass Fitzgerald’s test of

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mastering seemingly paradoxical demands. While many leaders lack the level of self-development to manage this balance, careful self-assessment and a customized develop- ment plan can help to build this skill.

Innovation practitioners need to strengthen their innovation muscles. Recent research highlights how successful innovators tend to excel at associational thinking, with tendencies toward discovery skills, such as questioning, observing, exploring, and networking. Innovators can take specific actions to improve these skills. Also, would-be innovators can consciously attend schools of experience that promise exposure to common inno- vation challenges.

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APPENDIX

Selected Experiments

from The Innovator’s

Guide to Growth

Internal best-practice assessment. Talk to other people in the company who have addressed similar assumptions and risks to see how their efforts panned out. Use this information to assess whether you prioritized your assumptions and risks correctly. Always be careful of assuming you can be better than the best.

Secondary market research. Focused external research helps to quickly spot developments in a market space or gives a win- dow into the actions of competitors.

External benchmarking. Look to the external market to see how other companies addressed similar issues. If your success is predicated on doing something better than it has ever been

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Appendix

done, at least ask whether your assumption is reasonable. Mar- ket research or analyst reports are good sources for external in- formation, as are consultants who specialize in an industry. Of course, remember that market research reports describe what has already been done, and experts are experts in what has been done before, not necessarily what could be done.

Business modeling or simulations. Combine your financial as- sumptions to see how the business model might work. Run scenarios to see what happens when assumptions change. Use this approach to find the real pivot points in your model. Also try to find assumptions that influence several others.

Competitive war games. Put yourself in your competitors’ shoes and imagine what they would do in response to your approach. This exercise helps you understand how you can influence your strategy so it looks unattractive to your com- petitor. It also helps you develop systems that spot competi- tive moves early.

Patent analysis. Patents hold a wealth of information about an emerging market space. Patent activity or regulatory permit filings indicate how companies are approaching a space well before they announce official strategies.

Focus groups. Focus groups are useful ways to start conversa- tions with customers. Be careful, however, about reading too much into a single focus group. One loud voice can dominate discussion, and it’s always dangerous to draw conclusions from a sample size of six. Try to bring stimuli to the focus group to encourage expansive discussion.

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Appendix

Thought leader roundtable. Bringing together thought leaders in a defined space with a diverse set of perspectives helps you see things you might otherwise miss. Consider a way to have regular interactions with thought leaders, such as a standing advisory board.

Customer observations. Observing customers is a great way to identify the real innovation jobs that people are trying to do. While it takes time and can be expensive, sometimes there is no substitute for getting out in the field and watching a cus- tomer try to solve the problem you are hoping to help them solve or use the solution you are providing to them.

Concept tests. These tests involve describing a fully formu- lated concept to a customer to assess his or her willingness to purchase it. Concept tests should be used carefully for new- to-the-world or game-changing initiatives.

Quantitative market research. More detailed market research helps in developing market sizes, understanding how cus- tomers would trade off feature improvements, and identify- ing customer clusters. It is getting easier to design and execute good quantitative research using the Internet and other means.

Prototypes. No matter how much effort you expend, it is hard to get meaningful feedback for an idea described on paper. Similarly, there can be unpredictable interactions between components of a product that are invisible until you actually build the product. Physical or virtual prototypes can test those interactions, while also providing a more tangible

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vehicle to garner customer feedback. Some managers think that prototyping is only relevant for companies that make physical products. Creating Web screen shots or detailed process maps are helpful ways to develop a deeper under- standing of intangible offerings. A simulated conversation between a customer and a salesperson is another way to prototype a service concept.

Test markets. Some of the most important assumptions, such as pricing, relations with the channel to market, and buyer behavior, are hard to simulate or test accurately until you actu- ally get to market. Creating a localized test market in a par- ticular geography, or among a particular group of customers, provides critical insight into these variables. It is important to try to simulate real market conditions. In other words, it is possible to rig the test market so it apparently succeeds, but that is not in a company’s long-term best interests.

Appendix

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Chapter 8

11. Richard N. Foster and Sarah Kaplan, Creative Destruction (New York: Doubleday, 2001).

12. F. Scott Fitzgerald, “The Crack-Up,” Esquire Magazine, February 1936.

13. Some of the ideas in this section were discussed in more depth in “Integral Leadership: Overcoming the Paradox of Growth,” an unpub- lished working paper by Michael Putz from Cisco Systems and Michael Raynor from Deloitte. Contact mputz@cisco.com for information about his research.

14. Jean Piaget’s stage model of cognitive development, which in- forms the timing of subjects in school curricula, is the most widely known in developmental psychology. For example, algebra is taught in middle school or later based on Piaget’s observation that abstract reasoning

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