Most companies I know have spent the past few years struggling to hang on to what they've got. They've focused on cutting labor costs, complying with accounting rules, executing efficiently and other hardball tactics for surviving tough times. Meanwhile, companies such as General Electric Co., IBM Corp., Microsoft Corp. and Procter & Gamble Co. still strive to fuel top-line growth by acquiring companies. But even at companies that buy their way into new technologies and markets, I keep hearing: "We want to fuel organic growth through innovation." Basically, they want to develop their own new ideas, products and markets.
Innovation, or at least talk of it, is roaring back. To give you a taste of this renewed interest, the May 31 issue of Fortune featured a story about the "innovation machine" inside P&G, and celebrated companies such as Best Buy Co. Inc., SYSCO Corp., Walgreen Co. and Wal-Mart Stores Inc., all of which became "truly huge" through organic growth.
Harvard Business Review is singing the same tune. The July-August issue focuses on "Top-Line Growth," and talks a lot about "Innovating within Established Enterprises." In the past two weeks, I've discussed innovation with people from huge healthcare companies, medical device companies, media conglomerates and a law firm, as well as a GE executive and a wine industry consultant. The other day, a BusinessWeek reporter e-mailed me about a special issue on innovation being planned for the magazine's 75th anniversary.
The apparent success of Google has generated cautious, but palpable, optimism about start-ups and IPOs. I recently spoke at an "Innovation Summit" at Stanford University organized by AlwaysOn, an "insider's network" formed by Tony Perkins (founder of Red Herring magazine). The excitement didn't match 1999, but it came close. People were making public pitches to venture capitalists, and gossip about deals, rounds of funding, hired and fired CEOs, and start-ups that had been acquired by big companies filled the air.
It is a lot more fun to talk about new technologies and products and striking it rich than the gloom and doom of cost-cutting and other hardball survival tactics. I am concerned, however, because I see signs of collective amnesia: Even though so many of us lived through the boom and the bust, and there is much research on innovation, people already seem to be forgetting what was learned. They are saying they want to innovate faster and better. But I keep hearing advice that is likely to have the opposite effect.
First, despite the success of the open-source software movement, I keep encountering massive paranoia about protecting "my" company's intellectual property so "I" can cash in on "our" magic secrets and get rich. Certainly, developing your own protectable intellectual property can provide competitive advantage. But if you take it too far, innovation can't happen. If you never show your ideas to other people, or to only a very few like-minded people, then your ideas won't get any better and you won't get the information you need about which customers willand will notbuy them.
Interval Research provides an especially compelling cautionary tale about the costs of excessive secrecy. A Palo Alto, Calif., think tank started in 1992 by Microsoft cofounder and billionaire Paul Allen, Interval burned through well over $100 million before it closed in April 2000. Yet during that run, the firm never developed a single successful start- up or product. Allen had hired former Xerox PARC superstar David Liddle to run Interval, and Liddle brought in a mix of famous technologists (including a scientist who helped develop the first laptop computer) behavioral scientists, artists, musicians and young researchers from prestigious universities. The problem, as futurist Paul Saffo told Silicon Valley magazine: "They were plopped down in the middle of the greatest technology minds on the planet, in the middle of the biggest revolution of the century, and they never came out from behind their sandbags. . . . They hermetically sealed the place from Day One." Even Bill Savoy, the executive who announced the closing to Interval's staff, admitted, "We probably should have brought in more outsiders earlier so we weren't breathing our own air."
If you want to see how innovation happens, take a look at IDEO Inc., which for more than 20 years has developed one new product after another (everything from the first Apple mouse to the Palm V), and is now developing new consumer experiences and teaching client companies to innovate. It protects its client's intellectual property, but never stops showing ideas to smart people of all kinds, and testing them with users and customers.
Second, creativity and innovation are, once again, being talked about as if they were mysterious processes, magical sparks in the minds of a few lone geniuses like Google founders Sergey Brin and Larry Page. This view of innovation is flawed. It turns out that the peopleand companieswho get labeled geniuses usually have no more than ordinary smarts. But they also have the world-class persistence to spend long hours trying to do new things with old ideas. Indeed, much of the mystery about managing innovation right evaporates when you realize that it mostly entails trying to find new applications for old ideas.
In How Breakthroughs Happen (Harvard Business School Press, 2003), Andrew Hargadon shows that nearly every great innovationfrom the assembly line to jazzhappened when people took knowledge from diverse places and recombined it in new ways. Successful innovators constantly search for places and products where others don't know what they know. So if you want innovation, you should reward people for sharing ideas and punish them if they don't. In the recent Fortune article on P&G, CEO A.G. Lafley explained that his people get credit for both giving and taking ideasand managers who don't share ideas with others at P&G simply don't get promoted to the next level.
If you want fast innovation, you need to take as many ideas as you can from outside your group and company and add some of your own. Apple used this approach to move its wildly successful iPod from concept to introduction in a blazing eight months. Hargadon tells me that Apple made original contributions in its design of the case and the interface, but virtually everything elseaudio components, digital to analog converter, flash memory, battery, FireWire controller and power systemwas developed elsewhere.
Finally, as a culture, we are fascinated with our leaders, not just our technical geniuses. We attribute magical powers to the charismatic Steve Jobs, the tough Jack Welch, and, lately, the modest A.G. Lafley. If you read press reports about innovation, these leaders are everywhere at once, watching every employee's move, making suggestions, and telling them to do this and that. There is some truth to that view, and Jobs is especially famous for his attention to detail. But it turns out that people are more creative when their bosses leave them alone for long stretches to try tangents, make mistakes and think. For creative work, the best management is often no management at all.
This point was brought home to me when I was writing my book on innovation, Weird Ideas That Work (The Free Press, 2001). When William Coyne, who led 3M Co.'s R&D operation for many years, was asked about how to manage innovation in a big company, he replied that he didn't ask people a lot of questions about what they were doing or demand constant updates. "After you plant a seed in the ground," he said, "you don't dig it up every week to see how it is doing."
Robert I. Sutton is co-author with Jeffrey Pfeffer of The Knowing-Doing Gap: How Smart Companies Turn Knowledge into Action. He co-leads Stanford University's Center for Work, Technology and Organization. Professor Sutton's next column will appear in November. Please send comments on this column to firstname.lastname@example.org.
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