Copyright
Copyright © 2019 by Gary P. Pisano
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Library of Congress Cataloging-in-Publication Data
Names: Pisano, Gary P., author.
Title: Creative construction : the DNA of sustained innovation / Gary P. Pisano.
Description: New York City : PublicAffairs, an imprint of Perseus Books, a subsidiary of Hachette Book Group, [2019] | Includes bibliographical references and index.
Identifiers: LCCN 2018027780 (print) | LCCN 2018044029 (ebook) | ISBN 9781610398763 (e-book) | ISBN 9781610398770 (hardcover)
Subjects: LCSH: Technological innovations. | Strategic planning.
Classification: LCC HD45 (ebook) | LCC HD45 .P543 2019 (print) |
DDC 658.4/063—dc23
LC record available at https://lccn.loc.gov/2018027780
ISBNs: 978-1-61039-877-0 (hardcover); 978-1-61039-876-3 (e-book)
E3-20181119-JV-NF-ORI
Contents
Cover
Title Page
Copyright
Dedication
Preface and Acknowledgments
INTRODUCTION
Innovation’s Catch-22
PART I: CREATING AN INNOVATION STRATEGY
1 BEGINNING THE JOURNEY
The Discipline and Focus of an Innovation Strategy
2 NAVIGATING THE ROUTE
Creating Your Innovation Portfolio
3 WHATEVER HAPPENED TO BLOCKBUSTER?
Competing Through Business Model Innovation
4 IS THE PARTY REALLY OVER?
Why You Should Not Always Eat Your Own Lunch
PART II: DESIGNING THE INNOVATION SYSTEM
5 VENTURING OUTSIDE YOUR HOME COURT
Search: Discovering Novel Problems and Solutions
6 SYNTHESIS
Bringing the Pieces Together
7 WHEN TO HOLD ’EM AND WHEN TO FOLD ’EM
Uncertainty, Ambiguity, and the Art and Science of Selecting Projects
PART III: BUILDING THE CULTURE
8 THE PARADOX OF INNOVATIVE CULTURES
Why It’s Not All Fun and Games
9 LEADERS AS CULTURAL ARCHITECTS
Reengineering the Cultural DNA of an Enterprise
10 BECOMING A CREATIVE CONSTRUCTIVE LEADER
About the Author
Praise for Creative Construction
Bibliography
Notes
Index
To Alice
For never letting me take myself too seriously
Preface and Acknowledgments
Larger enterprises are rarely viewed as fountains of innovation. Over the past several decades, a barrage of writings, news stories, and lectures has conditioned us to accept as a “law” that scale stifles innovation. As enterprises grow, the narrative goes, they inevitably suffer organizational sclerosis and become feeble shadows of their once-dominant former selves. They are helpless in the wake of “disruptive” innovation attacks by nimble, entrepreneurial firms. It is a depressing story that, unfortunately, has unfolded many times. And yet it does not have to be this way.
Creative Construction challenges the dogma that, as enterprises grow, they inevitably lose their capacity for transformative innovation. Over my thirty-year career, I have worked with companies across the full-size spectrum—from the tiniest start-ups to the largest corporations on the planet. Sure enough, I have seen many large enterprises whose inertia, bureaucracy, myopia, and culture left them too paralyzed to undertake anything but the most incremental innovation. Even when they tried to rejuvenate themselves through some type of “innovation initiative,” I saw more failures than successes. These cases seemed to confirm the prevailing hypothesis that large scale and innovation don’t mix. As I peered further, however, I began to realize that the root cause of such malaise and the reason so many innovation initiatives fail have more to do with management practice and leadership than with organizational scale per se. Yes, organizational size complicates innovation and can make it hard to sustain or renew innovation capabilities. But, the more I looked (and the more I compared experiences with small start-ups), the more I believed that scale if properly exploited could actually be an advantage, not a liability, for innovation.
The hypothesis that larger enterprises can become highly innovative started me on a decade-long journey of research, case writing, and consulting to better understand which management practices enable companies to sustain their innovative capabilities even as they grow quite large.
I also dug deeply into decades of academic literature on the drivers of innovation performance. My research and experience along with the work of other scholars led me to conclude that company growth and size do not need to spell the end of an organization’s innovative days. Innovative performance is rooted in a combination of strategy, organizational systems, and culture, all of which are shaped by leadership. Creative Construction explores how leaders of both growing and large established enterprises can develop strategies, design systems, and build cultures required for sustained innovation performance.
Many management books promise simple solutions to complex problems. Unfortunately, at least when it comes to innovation, I do not believe such a recipe or formula exists. Innovation is hard. It is not only hard to come up with a commercially successful innovation, but it is even harder to build an organization capable of creating such innovations time and again. There is no magic elixir or single best model for building a durably innovative enterprise. Different enterprises have followed different approaches. Thus, I offer no simple blueprints for instant innovation success. Instead, I wrote Creative Construction for thoughtful practitioners seeking well-grounded principles and frameworks that can help them find the paths that work best for their organizations. Innovation is and always will be a difficult journey. My hope is that this book inspires and prepares you to lead this journey.
Although I have spent my entire career as an academic at the Harvard Business School, I have also engaged heavily in the world of practice as a consultant, as a company cofounder, and as a board member of several enterprises. Having my feet in the worlds of both practice and academia has shaped how I see the problems explored in this book. I have written Creative Construction to bridge these two worlds. While drawing from my own and others’ scholarly research on innovation (references are provided in the endnotes for the interested reader), I have tried to write in an accessible style. My hope was to create a book that has the expected rigor of scholarly work without its typical mortis.
A project like this would not have been possible without the help and support of many different organizations and individuals.
I am grateful for the generous financial support provided by the Harvard Business School to pursue the research underpinning this book. Many of the examples used in the book are from case studies I wrote thanks to the funding of the Harvard Business School. These examples are acknowledged in the references.
In addition to academic research and case writing, my work has benefitted from extensive consulting experience with a broad range of companies throughout the world and across many industries, including the pharmaceutical and life sciences industry, specialty chemicals, medical devices, manufacturing, financial services, consumer products, electronics, and telecommunications. Such experience has exposed me to the real challenges faced by practitioners operating in complex organizations. Through my consulting, I have been better able to understand how hypothesized solutions to problems actually work in practice. The feedback I received from numerous clients has been enormously valuable to me. In various parts of this book, I use examples drawn from my consulting experience. Where those examples may contain proprietary or sensitive information, I do not name the companies unless I have received explicit permission from the individuals and companies involved.
Many company examples in the book are based on publicly available information. Some of those examples include companies with which I also happened to have consulted or been associated in some capacity. In keeping with Harvard Business School’s conflict of interest policies, and my own personal beliefs in transparency, the companies referenced in the book for whom I have consulted, served as a director, or have a financial interest exceeding $10,000 include the following: Johnson & Johnson, Genentech (a wholly owned subsidiary of the Roche Group), Corning Corporation, Becton Dickinson, GlaxoSmithKline, Microsoft, Teradyne, and Flagship Pioneering (a significant investor in Axcella Health, where I serve on the board of directors).
I am deeply grateful to my colleagues at Harvard Business School, who have been enormous sources of intellectual stimulation. In particular, I want to thank my mentors, Kent Bowen, Kim Clark, Bob Hayes, and Steve Wheelwright, whose intellectual fingerprints are all over this book. My understanding of the issues explored here also benefitted immeasurably from collaboration and teaching with Amy Edmondson, Willy Shih, and Vicki Sato. I also want to thank Dean Nitin Nohria of the Harvard Business School for his friendship and support over the course of my career.
I am grateful to Andrea Kates for a number of conversation that really got me thinking seriously about the problems of innovating at scale and for her insightful comments on an early outline. I would especially like to thank Bill Kozy for his helpful comments on the proposal and for countless conversations over the years that shaped this book in profound ways.
I am indebted to Eric von Hippel of MIT, who has inspired my work since we met in the early 1980s and who generously provided detailed comments and suggestions on several chapters. I want to thank my good friend, collaborator, and colleague Francesca Gino for her comments on specific chapters and for the many conversations we have shared about the topics covered in this book.
I am deeply indebted to John Mahaney, my editor at Hachette Book Group. From our first conversation about the book proposal, John has been incredibly supportive and is everything an author could ask for in an editor. I also want to thank my agent, Danny Stern, and his team at Stern & Associates for support and guidance on this project from the beginning.
My longtime collaborator, Sharon Pick, worked behind the scenes once again, reading and editing drafts and providing very helpful comments. This is now the third book I have written with Sharon’s help, and I grow ever more grateful to her with each one. Jesse Shulman, my research assistant at Harvard Business School, did a terrific job conducting extensive and diligent background research. I am especially thankful to Sophie Bick, who did a first-rate job in preparing the manuscript for publication.
Finally, I want to sincerely thank my wife, Alice. I know full well the sacrifices you have borne for the sake of my work, particularly in the past year. You accommodated my incessant travel and my countless sudden urges to write (regardless of the chaos our two young children might be wreaking at the moment!). Your patience and endless support make me realize how lucky I am to have you by my side. This work is as much yours as it is mine.
Concord, Massachusetts
April 3, 2018
INTRODUCTION
Innovation’s Catch-22
One of the many unforgettable scenes in Joseph Heller’s Catch-22 culminates in Yossarian’s insight that “Orr would be crazy to fly more missions and sane if he didn’t, but if he was sane he had to fly them. If he flew them he was crazy and didn’t have to; but if he didn’t want to he was sane and had to. Yossarian was moved very deeply by the absolute simplicity of this clause of Catch-22 and let out a respectful whistle. ‘That’s some catch, that Catch-22.’”
Yossarian would perhaps also be deeply moved by the paradox of innovation, one that comes with its own special catch. Innovation spawns growth, and growth by definition leads to scale, but scale seems to make the task of innovation more difficult. Even worse, the imperative to innovate keeps escalating because competition is dynamic. Rivals and new entrants eventually imitate what you have or come up with something even better. The more you succeed at innovation, the more you need to keep innovating, but the harder the task becomes. It is like those cardiac stress tests where the medical technician turns up the speed of the treadmill every time you get comfortable. You might be forgiven for thinking the technician is trying to kill you. Fortunately, the technician (usually) knows enough to stop the test before you have a heart attack. But competition does not work this way. No one is turning down the dial. In fact, competitors really do want to kill you!
Companies innovate to grow. It is hard to think of many companies in the past hundred years that achieved significant scale without being an innovator. Industrial giants of the twentieth century—DuPont, RCA, Ford, General Electric, Disney, Johnson & Johnson, McDonald’s, IBM, Walmart, Kodak, Intel, Microsoft—and those of the twenty-first century—Apple, Google, Amazon, Facebook—were all innovators of either technology or business models. Innovate and you grow. This is the promise. It’s why in 2017 US companies invested about $365 billion on R&D. Globally, corporate R&D expenditures topped $700 billion in 2017, according to the most recent estimates.1 It’s why venture capitalists invested $155 billion in 2017.2 And why every company CEO talks about the imperative to innovate and why business school executive programs on innovation are oversubscribed. Like all promises, though, this one comes with a catch.
The idea that successful innovators sow the seeds of their own destruction was originally posed more than seventy years ago. The great Austrian economist Joseph Schumpeter described a process he termed “creative destruction” whereby existing “economic structures” (which included existing enterprises) could be destroyed by either technological innovation or organizational innovation.3 Writing in 1939, Schumpeter was particularly astute in recognizing that established successful enterprises were vulnerable to the “gales of creative destruction”:
Most new firms are founded with an idea and for a definite purpose. The life goes out of them when that idea or purpose has been fulfilled or has become obsolete or even if, without having become obsolete, it has ceased to be new. That is the fundamental reason why firms do not exist forever. Many of them are, of course, failures from the start.… [O]thers die a “natural” death, as men die of old age. And the “natural” cause, in the case of firms, is precisely their inability to keep up the pace in innovating which they themselves had been instrumental in setting in the time of their vigor.4
Beginning in the 1980s, a set of scholarly studies began to unearth the underlying reasons why once-successful innovators might ultimately be swept away by the winds of creative destruction.5 As the autopsies piled up—Xerox, RCA, Polaroid, Kodak, Wang, DEC, Nokia, RIM, Sun Microsystems, AT&T, Yahoo, and many others—a depressing picture emerged. Large established enterprises not only appeare
d to be incapable of leading any type of revolution; they could not even respond to attacks by new entrants. Their organizational pathologies included inertia and growing bureaucratization, loss of tolerance for risk, fears about cannibalizing existing products, ingrained processes for R&D, commitment to existing technologies and assets, religious adherence to current business models, an overreliance on flawed financial metrics, and leadership myopia. When it comes to innovation, large enterprises looked like patients suffering from multiple deadly maladies.
The thesis that large corporations cannot succeed at transformative innovation has been repeated so often by so many that—like some law of nature—it is no longer questioned. This is not just an academic issue but also one that influences management practice. Even leaders of many larger enterprises seem to have surrendered to the “fact” that they cannot grow organically through innovation but instead must buy innovation through acquisitions. Investors and analysts also believe it. They pressure larger enterprises to cut back on riskier, long-term research projects to free up cash for stock buybacks and dividends. The highly influential investment bank Morgan Stanley, for instance, issued an analyst report in January 2010 recommending that pharmaceutical companies dramatically slash internal research spending and instead focus on in-licensing development drugs from external sources.6 Citing the industry’s poor track record of R&D productivity, the report argued that buying innovation from the outside offered a better return on investment. The implicit assumption in this report is that larger companies are inherently less capable of innovation than are smaller biotechnology companies.
Transformative innovation inside a large enterprise is viewed as a complete waste of shareholder money. Better to return the money to shareholders, who can give it to venture capitalists to invest in start-ups. When I told a longtime venture capitalist friend of mine that I was writing a book on innovation in large enterprises, he smiled wryly and said, “At least it will be a short book. They can’t.”
Creative Construction Page 1