August 24, 2012

Developing Innovative Leaders

From MWorld Summer 2012

Steve Jobs has become a symbol of innovative leadership. Sad to say, there aren’t many leaders like him. Most of them — Google’s Larry Page, Amazon’s Jeff Bezos, Facebook’s Mark Zuckerberg, Genentech’s Arthur Levinson, and Starbucks’ Howard Schultz — are entrepreneurs who founded and built their businesses. 

These days virtually all large companies want to be innovative, yet they aren’t producing innovative leaders. What has happened to these leaders in large corporations? Have they been squeezed out by constant focus on producing short-term results and replaced by financially-oriented managers who respond to Wall Street’s demands for quarterly earnings? Or do corporate leaders lack the basic understanding of what is required to lead innovative organizations? While hundreds of books and articles have been produced on innovation, very little has been written on what is required to produce innovative leaders. 

Research and Product Development Are Not Innovation

In this era, many companies are investing heavily in research and product development, yet they fail to create innovative products and ideas. U.S. pharmaceutical companies like Pfizer and software companies like Microsoft illustrate that heavy spending on research and product development doesn’t necessarily yield innovations. In contrast, the breakthrough ideas that created Genentech, Google, and Facebook illustrate what can be done with limited budgets. It is important to recognize that research, product development, and innovation are radically different disciplines. 

Research is based on well-established scientific principles. At its best, research produces scientific breakthroughs that extend knowledge like Schottky’s invention of the transistor and Novartis’s breakthrough drug Gleevec for treating chronic myelogenous leukemia. Product development, on the other hand, follows established engineering principles to improve existing products.

Innovations result from unique ways of looking at problems that produce original solutions. Another approach to innovation takes existing ideas and combines them into unique solutions. In retrospect, the outcome may seem obvious, yet is highly original. Apple’s iPad is an example, combining Apple’s iPod, iPhone, and iMac to create a breakthrough product. 

  1. Because research and innovation require long time frames, the pressure on business-unit leaders to produce near-term success often results in funds being shifted from innovative projects to product development and product extensions. 
  2. Large organizations that are heavily dependent on previous successes frequently squeeze out innovative ideas and the innovators who create them. Not infrequently, the most innovative ideas run into significant difficulties in their infancy and get killed or underfunded in favor of high-profitability development projects. 
Qualities of Innovative Leaders
To overcome these pitfalls, organizations need innovative leaders at the top willing to sacrifice near-term financial results to support their innovators through success and failure. The characteristics of great innovative leaders are dramatically different from traditional business managers. Here are five essential qualities they must have to lead innovation: 
  1. Passion for innovation. Innovative leaders not only have to appreciate the benefits of innovation, they need a deep passion for innovations that benefit customers. Just approving funds for innovation is insufficient. Leaders must make innovation an essential part of the company’s culture and growth strategy. 
  2. A long-term perspective. Most investors think three years is “long-term,” but that won’t yield genuine innovation. Major innovations can change entire markets as the iPod and iTunes did, but they take time to perfect products and gain adoption by mainstream users. Leaders cannot stop and start innovation projects as if they were marketing expenses; they must support innovation regardless of the company’s near-term prospects. 
  3. The courage to fail and learn from failure. The risks of innovation are well known, but many leaders aren’t willing to be associated with its failures. However, there is a great deal to be learned from why an innovation has failed, as this enhanced understanding can lead to the greatest breakthroughs. At Medtronic, our failures with implantable defibrillators in the 1980s led to far more sophisticated approaches to treating heart disease in the 1990s. 
  4. Deep engagement with the innovators. Innovative leaders must be highly engaged with their innovation teams: asking questions, probing for potential problems, and looking for ways to accelerate projects and broaden their impact. That’s what HP’s founders Bill Hewlett and David Packard did by wandering around HP’s labs and challenging innovators. 
  5. Willingness to tolerate mavericks and defend them from middle management. The best innovators are rule-breakers and mavericks who don’t fit the corporate mold and are threatening to middle managers following more typical management approaches. That’s why innovative leaders must protect their maverick’s projects, budgets, and careers rather than forcing them into traditional management positions. 

How can companies develop innovative leaders capable of ascending to top management? They need to identify these emerging leaders and then give them their most challenging projects, while protecting them from failures and organizational conflicts.

Some Examples of Innovative Companies

When I joined Medtronic in 1989, it was evident that the innovation process had broken down. My first week, I was informed that all innovative ventures were being divested because they were losing money and the company needed improved short-term results. The company had many highly innovative people, who were demoralized by lack of senior management support. Engineering problems and product development overruns were absorbing all their funds. To solve both problems simultaneously, we created entirely separate organizations with different profit-and-loss structures and put disciplined leaders in charge of the established organization and innovative leaders in charge of breakthrough ideas. 

To solve engineering problems, a highly disciplined engineer restructured the product development process. He cut new product lead times from 48 to 18 months with a rigorous approach that kept unproven ideas and innovation off the critical path. He selected disciplined engineers as project leaders and produced a steady stream of products resulting in near-term success. This provided the profits and cash flow to fund innovative ideas as well as refuel the product development process. 

Meanwhile, two very innovative senior executives led the creative side: a scientific leader and a medical doctor with a keen interest in technology and innovative medical ideas. They created a series of venture projects addressing unmet medical needs. Although many projects failed, enough succeeded to propel Medtronic to sustain a growth rate in excess of 18% for a 20-year period. This built the company from $400 million to $16 billion in revenue and gave Medtronic a reputation as “an innovation machine.” More important, innovations resulted in a dozen major medical breakthroughs to treat intractable disease, including original therapies for heart failure, spinal pain, cerebral palsy, and Parkinson’s disease. 

Because the established business organization contained most of the people and budgets, I focused more attention as CEO on the innovators. This ensured their projects and their careers didn’t get crushed by the established organization that produced near-term profits. Since many of the innovations couldn’t withstand careful scrutiny at their outset, they had to be protected from engineering and financial analysis until they were sufficiently proven to put them through rigorous product design and clinical testing. 

In recent decades the creators of America’s great growth corporations have been succeeded by established business leaders lacking the innovative drive to sustain growth. The stories of Hewlett-Packard and Amazon are particularly instructive. For 30 years, HP was the role model of innovation, producing 20% revenue growth and 20% operating profits. As it grew, HP became complacent and bureaucratic. In response, its board divested its original businesses and went outside four consecutive times to appoint commercially oriented CEOs, none of whom has restored the company’s innovative capacity. 

In contrast, Amazon founder Jeff Bezos never wavered in his commitment to online retail marketing, even when the dot-com bubble burst in 2002 and Amazon’s stock declined more than 90%. More recently, Bezos ignored short-term profitability to expand into hardware with the Kindle. Faced with mounting costs and technical difficulties, Amazon’s financial chief asked him how much he was prepared to lose on this venture. Not flinching, Bezos replied, “How much money do we have?” He was so committed to this venture that he was prepared to stake the company’s future on its success. As a result, Amazon is transforming the book world from printed books to electronic. 


For America to regain its global competitiveness, a new generation of innovative leaders needs to take over top roles in our leading corporations, not just found startup companies on the West Coast. This new generation seems to be emerging, led by IBM’s Sam Palmisano, Ford’s Alan Mulally, PepsiCo’s Indra Nooyi, Lilly’s John Lechleiter, and General Mills’ Ken Powell. For America to regain its competitive edge, we will need many more like them.