Innovator's DNA

by Jeff Dyer

  Creating a Safe Space for Others to Innovate

  Establishing an “innovation is everyone’s job” philosophy requires creating a safe space for others to take on the status quo. Researchers call this “psychological safety,” in which team members willingly express opinions, take risks, run experiments, and acknowledge mistakes without punishment. “If you foster an environment in which people’s ideas can be heard,” says Azul and JetBlue founder David Neeleman, “things naturally come up.”

  Many leaders think they encourage others to develop and use their discovery skills, but in reality colleagues often don’t see it that way. On average, team leaders in our research thought they were significantly better at encouraging discovery activities in others than did their managers, peers, or direct reports. (This sounds a bit like the “better-than-average” effect where over 70 percent of us see ourselves as above average in leadership ability and only 2 percent view ourselves as below average. Clearly, this data shows room for improvement. See figure 10-1.)

  FIGURE 10-1

  Leading innovation: perceptions by self vs. others

  How do leaders build a safe space for others to innovate? The most important first step to creating a safe space is to encourage questions. At Regeneron, a highly successful pharmaceutical company (number 16 on our 2018 list), CEO Len Schleifer and chief scientist George Yancopoulos, cofounders, have created a safe space by soliciting challenging questions from each other and from direct reports. “We ask questions and we challenge everything,” says Yancopoulos. “We challenge every concept. Every scientific principle. And we argue about it among ourselves. Len and I have something like five arguments a day. We’ve created a culture where nothing is unchallengeable and you don’t take anything for granted.” Another innovative leader encouraged everybody, even veterans, to ask “why” on a daily basis, because “they stop using their minds; they’ve moved into this execution mode and stop asking questions.”

  Another key to encouraging others’ innovation efforts is to cheer them on when they use their discovery skills. One senior executive excelled at generating new ideas, but expressed intense frustration with team members failing to do the same. An innovator’s-DNA 360-degree assessment helped her better grasp what was going on. The data revealed that she had not created a safe space to innovate. Compared with all other assessors, she consistently rated her team members far lower than anyone else (her evaluation put her direct reports at the thirty-fifth percentile on their discovery skills, while her direct reports ranked each other—with confirming evidence from other peers in the company—at around the sixty-fifth percentile).

  Why did she do this? Two explanations surfaced during a team-building workshop we conducted. First, she liked her ideas more than others’ and often devalued their creative ideas. Second, even though she talked about the importance of creativity, she praised and rewarded delivery skills with her everyday actions. This attention to successful execution, combined with her dismissing others’ new ideas, led some team members to change their behavior when around her. They were innovative elsewhere, but flicked the switch off in her presence.

  This leader’s challenge is not uncommon. Dan Ariely’s research in The Upside of Irrationality shows a simple cognitive bias that causes all people to do this all the time. Ideas that are “not invented here” are always suspect because people tend to discount or ignore evidence from sources they don’t know or trust, which is especially true if the idea contradicts an existing belief or something they already favor. This bias creates a real leadership challenge that innovative leaders conquer by demonstrating an authentic commitment to hearing and supporting others’ ideas. Collectively, these actions help establish a widely shared and deeply held belief that innovation is everyone’s job.

  Give People Time to Innovate

  As we mentioned in chapter 1, founder CEOs on our list of most innovative companies spent 50 percent more time on discovery behaviors than did CEOs of typical companies. Innovative leaders know innovation doesn’t just happen, but requires a significant time commitment. Consequently, they do what other companies do not: budget more human and financial resources to innovation activities. For example, Google has reinforced the “innovation is everyone’s job” philosophy with its 20 percent project rule, which encourages some engineering groups to spend up to 20 percent of their time (the equivalent of one day a week) working on pet projects they choose. Even founders Sergey Brin and Larry Page have tried to adhere to the 20 percent rule. Management does not specify how to use time, but projects must receive a green light, and employee-proposed projects must account for their time and output. Moreover, since projects are reported and documented, they wind up on an intracompany idea-sharing forum for companywide input and vetting, which leads to collaboration. Others within Google who learn about an idea may contribute a portion of their 20 percent time to help nurture that idea. Several highly successful products have come from 20 percent projects—including Gmail, Google News, and AdSense (contextual ads that generate advertising revenues). Roughly half of Google’s new product launches in recent years emerged from 20 percent projects. The 20 percent project rule visibly symbolizes that management believes everyone can and should innovate.

  Like Google, 3M has long been known for a similar 15 percent rule, and at P&G some employees said they were encouraged to devote 75 percent of their time working “in the system” (i.e., executing tasks) and 25 percent working “on the system” (i.e., discovering new and better ways to execute). Other companies, such as Apple and Amazon, give no explicit time allocation but regularly ask employees to run experiments and work on innovation projects. Alternatively, Atlassian Labs (an innovative Australian-based company that makes software-development and -collaboration tools) employs a unique variation of the 20 percent innovation time rule. It conducts an annual “FedEx” day when all software developers devote twenty-four hours nonstop to generating new product ideas. Developers work intensely to build a viable “FedEx Shipment Order” that sufficiently details a new idea for others to review. Twenty-four hours later, Atlassian holds a “FedEx Delivery” day when developers rapidly prototype and then demonstrate new software ideas for others in the company. This annual innovation hack-a-thon has proved highly successful, as developers experience more fun and growth in their work and ultimately help product managers fill in product holes with new options.

  Establishing an “Innovation Is Everyone’s Job” Philosophy

  Our exploration of the world’s most innovative companies suggests that the “innovation is everyone’s job” philosophy gains greater organizational traction and visibility when:

  Top leaders actively innovate, and everyone sees or hears about it.

  All employees receive real time and real resources to come up with innovative ideas.

  Innovation is an explicit, consistent element of individual performance reviews.

  Companies allocate at least 25 percent of human and financial resources to platform or breakthrough innovation projects.

  Companies incorporate innovation, creativity, and curiosity into their core values, in word and deed.

  Consider where your company stands on this innovation philosophy. One acid test that we’ve used to see whether an organization has successfully ingrained this innovation philosophy into its culture is to walk in and ask a representative group of a hundred employees (selected from the top to the bottom and across every function or geography) these questions:

  Does your organization expect you to innovate in your job?

  Is innovation an explicit part of your performance reviews?

  In highly innovative organizations, 70 percent or more of the employees respond with a resounding yes. Innovating is an obvious, taken-for-granted component of their everyday work.

  Philosophy #2: Disruptive Innovation Is Part of Our Innovation Portfolio

  Beyond encouraging all employees to spend time on innovation tasks, highly innovative companies also allocate a greater perc
entage of both human and financial resources to innovation projects. They spend more dollars on R&D and initiate more innovation projects compared with similar-sized companies in the same industries. Such concrete investments signal an organization’s real commitment to innovation.

  Of course, most organizations invest in R&D to pursue new products or services. However, we would describe over 90 percent of their innovation projects as “derivative,” producing very incremental improvements to existing products (e.g., next-generation products or services) based on established technologies that are well known to the company (and usually its customers).2 For example, Sony’s introduction of the game console PS3—which outperforms the PS2 by providing superior graphics, a Blu-ray player, and internet connection—is a derivative project. Sony has added features to an existing product to make it more appealing. But it has failed to create a new platform of products, thereby pulling in a whole new segment of customers, or an entirely new market.

  In contrast, companies design disruptive innovation projects to establish entirely new markets by offering a unique value proposition through more-radical technologies. (Technologies become more radical by incorporating entirely new components—compared with those of established products—and offering new linkages among components within a new product architecture.) Sony’s Walkman was disruptive way back in the day because it opened up a fundamentally new market by offering a music device that was far more portable than any other music device. The Walkman was based on new miniaturized components and on new linkages (interfaces) between those components. Apple took a similar leap forward with the iPod and iTunes, which—compared with the Walkman—were based on very different components and product architecture to open up portable music to a far larger customer group. Over 95 percent of iPod buyers had never used an Apple computer and over 80 percent had never used a portable music device. That opened up an entirely new market for Apple. The iPhone was also disruptive, not so much because the technologies employed were so different (though some were), but because it had a very different architecture (one button, touch screen) and because of the App Store, which allowed the device to do so many more jobs than a typical cell phone. The Apple Watch has also helped pioneer an entirely new category of smart watches. Amazon’s Kindle e-reader and the virtual digital assistant Alexa represent similar disruptive innovations by opening up completely new markets for Amazon.

  Finally, sandwiched between derivative and disruptive innovations are what Steve Wheelwright and Kim Clark refer to as “platform” innovation projects (see figure 10-2; note that Wheelwright and Clark use the term “breakthrough” projects to refer to what we have called “disruptive” projects).3 We see Apple’s MacBook Air laptop as a platform innovation project because it’s different enough to be viewed as a new product category but fails to open an entirely new market as the iPod did, since most MacBook Air users are already users of small laptops or other Apple computers. Moreover, the technologies behind the MacBook Air are a bit less radical than those of breakthrough products like the iPod and iPhone. (Of course, we can always debate the degree to which any given product is based on radical technologies [new components, new linkages among components] or whether it opens up a new market by offering a value proposition markedly different from that of other products.)

  FIGURE 10-2

  Aggregate project planning: a framework for prioritizing a company’s innovation projects

  Source: Steven C. Wheelright and Kim B. Clark, “Creating Project Plans to Focus Product Development,” Harvard Business Review, March–April 1992, 10.

  For us, the framework in figure 10-2 illustrates how innovative companies consciously allocate a significantly greater proportion of people and resources to platform and breakthrough (disruptive) innovation projects. For example, Google uses a 70-20-10 rule for allocating engineering efforts, including the 20 percent project time granted to technical staff. Google devotes 70 percent of engineering time to expanding and developing derivative products within the core business (that is, web search and paid listings); 20 percent to projects designed to “extend the core,” such as Gmail and Google Docs; and 10 percent to build “fundamentally new businesses,” such as the Google Pixel, a new collaborative tool called Wave, free Wi-Fi service in San Francisco, or self-driving vehicles (Google’s subsidiary Waymo). From our perspective, the 70-20-10 prioritization maps well with Wheelwright and Clark’s “derivative,” “platform,” and “breakthrough” innovation project categories. Google’s prioritization demonstrates a willingness to invest in platform and breakthrough innovation projects. “We will not shy away from high-risk, high-reward projects because of short-term earnings pressure,” wrote Larry Page in a letter to shareholders at Google’s IPO. “For example, we would fund projects that have a 10 percent chance of earning a billion dollars over the long term. Do not be surprised if we place smaller bets in areas that seem very speculative or even strange.”4

  Similarly, Amazon and Apple allocate significant resources to platform and breakthrough innovation projects (though they don’t appear to follow any specific resource-allocation guidelines). As far as we can tell, Apple was the only computer manufacturer to allocate real resources to pursue a music business, a phone business, and a digital-camera business (the Apple QuickTake, which failed). These businesses were certainly not direct computer derivatives. As an online retailer, Amazon has devoted significant resources to create an e-reader product, the Kindle, and the Alexa digital assistant. Both have created new product categories. Amazon has also been an early mover and leader in providing a cloud-computing service. These products unlocked entirely new markets for Amazon, but rarely without deep resistance. Jeff Bezos explained, “Every new business we’ve engaged in has initially been seen as a distraction by people externally, and sometimes internally. They’ll say, ‘Why are you expanding outside of media products? Why are you entering the marketplace business with third-party sellers?’ We’re getting these questions . . . with our new web infrastructure services: ‘Why take on these new web-developer services?’”5 Yet, Bezos and Amazon press forward in their habitual pursuit of breakthrough business ideas.

  To summarize, innovative companies invest more absolute time and resources in platform and breakthrough innovation projects. The acid test of whether an organization has adopted a philosophy of pursuing more than just derivative innovation projects is to ask: what percentage of your innovation projects is devoted to platform or breakthrough innovations? If this percentage is small, less than 5 percent, the company is unlikely to be very innovative and certainly wouldn’t be seen that way by investors. If this percentage is at least 25 percent, the company shows tangible signs of buying into the advice to “dream bigger” by actively pursuing more-disruptive innovations. Part of the innovation magic we saw at Amazon comes from how Jeff Bezos pushes people to think bigger. Says Andrew Jassy, CEO of Amazon Web Services, “A lot of times people come to the table with very clever, inventive ideas and Jeff will look at them and say, ‘Well, this is really interesting and exciting, but have you thought about extending it this way and this way,’ in a way that the team hasn’t necessarily thought about. This is how he pushes them to make the idea even bigger and again, encourages and reinforces the culture to think as big as you can.”

  Philosophy #3: Deploy Small, Properly Organized Innovation Project Teams

  Every new product or service idea needs a vehicle to take it from inception to the marketplace. A small project team (whether breakthrough, platform, or derivative) is the vehicle in most innovative companies. Smart leaders know that the way to empower individuals to innovate is to organize them into very small work units with big goals, where individual and team performance is visible. Amazon employs a “Two-Pizza Team” philosophy, meaning that teams should be small enough (six to ten people) to be adequately fed by two pizzas. By keeping teams small, Amazon can work on a larger number of projects, thereby allowing its teams to go down more blind alleys searching for new products or
services.

  In similar fashion, Google engineers typically work in teams of only three to six people. Now-former Google chairman Eric Schmidt explained the intention: “We try to keep it small. You just don’t get productivity out of large groups.”6 The result is an empowered, flexible organization with small teams pursuing hundreds of projects, an approach that Schmidt claims “let[s] a thousand flowers bloom.”7 With hundreds of small project teams developing new ideas, it is little wonder that Google can create so many new product offerings.

  Providing the right structure and right mix of skills for these project teams is also critical. Many organizations fail with innovation projects, especially breakthrough ones, because they fail to understand a basic organizing principle: the more radical the innovation, the more autonomy the project team will require from the organization’s existing functions and structure. To illustrate, a company’s least radical projects are “derivative,” meaning that they typically involve incremental improvements to components or features. For example, Sony designers and engineers who are very familiar with the PS4’s components and architecture will likely develop the next generation of its PS4 game console (we’ll call it the PS5). Most likely they will modify or improve existing components by offering, for example, improved graphics, more storage, more-convenient online gaming. Maybe they’ll add a new component—for example, the ability to digitally record TV shows as a DVR/TiVo does. The best type of team for this sort of derivative innovation project is a functional team in which engineers who specialize in each type of component work to innovate at the component level. Alternatively, they might use a lightweight team that primarily comes from the game-console group but includes a light allocation of engineering resources from other functional areas within Sony.