Only the paranoid survive. (Andy Grove, co-founder and former Chairman of Intel, 1990) Exercise 8.3 Having read through this chapter, how can you use any new insights you may have acquired about managing organizational and cultural change in the future? Insight Possible strategy 1. 2. 3. 4. 5. ◆ Notes 1 This section is adapted from Forster (2002). 2 For a more detailed account of the turnaround of Continental, see Bethune (1999). 3 And, in the cases of Enron, Worldcom and several other companies, the directors of these companies led them headlong into bankruptcy, while at the same time award- ing themselves very large salaries, stock options and ‘performance bonuses’, and lying systematically to their employees and shareholders, within weeks of these companies’ collapses (see Chapter 12 for further discussion of these issues). In their book on the rise and fall of Enron, Bethany McLean and Peter Elkind describe Enron’s culture from the mid-1990s to its demise in 2001 as arrogant, chaotic, destructive, rotten, dysfunctional, delusional, individualistic, over the top, unethical, avaricious, greedy, macho, immoral and obsessed with money making regardless of any moral considerations (McLean and Elkind, 2003). 4A detailed discussion of the evaluation of change management programmes is beyond the scope of this book. The most systematic and widely used method of ‘before/after’ evaluation is the ‘Balanced Scorecard’ system, developed by Kaplan and Norton (1996, 2000). 346 MAXIMUM PERFORMANCE 9 Innovation and organizational learning Objectives To define innovation and invention. To describe the pivotal roles that innovation, creativity and intrapre- neurship now play in modern organizations. To enhance your lateral thinking abilities, help you become more creative and improve your ability to envision the future. To describe how to create an organizational culture that can promote greater creativity and innovation amongst employees. To define what a learning organization is, to evaluate the benefits of introducing learning organization principles into organizations, and to describe some strategies for achieving this. Introduction Innovation. (The one-word logo on 3m products. This US company has been regularly cited in business surveys as being one of the world’s most consistently innovative compa- nies over the last 50 years) Destroyyourbusiness.com. (The name of Jack Welch’s intranet initiative at General Electric in the mid-1990s) Innovation is the only core competency that an organization needs. (Peter Drucker, 1985) The role of innovation in organizations Innovation comes from the Latin innovare, meaning to ‘change into something new’. Innovation and innovate have been in use since the 347 early 16th century, and ‘innovative’ since the 17th century. However, during this time the word had largely negative connotations. For example, William Shakespeare, in King Lear, talks of ‘Poor discon- tents, which gape and rub the elbow at the news of hurly-burly inno- vation.’ Innovation was synonymous with revolution and, for the political and religious authorities of the time, something to be actively discouraged. Over the next three hundred years, the mean- ing of innovation slowly evolved to signify the creation of something new. The 1939 edition of the Oxford English Dictionary first articulated the modern meaning of this word as ‘the act of introducing a new product into the market’. It is defined here as the process of creating new products or services, introducing new methods and ideas, or making incremental changes or improvements. Innovation is linked to, but distinct from, the process of invention. This word also origi- nates in innovare. To invent means to devise, originate, produce or construct something by original thought. Both are forms of creativity, but invention does not always lead to innovation. For example, Thomas Edison, probably the single most successful inventor in human history, with 1093 patents to his name, was, strangely, a hope- less innovator. His financial backers routinely removed him from many of the new businesses he founded and put these in the hands of professional managers (Nicholas, 2000). If ‘culture’, ‘quality’ and ‘re-engineering’ were three of the dominant buzzwords of the 1980s, then ‘innovation’ was certainly the dominant buzzword of the 1990s, being described by some business analysts as the ‘industrial theology’ of the last decade of the 20th century. In October 2000, in its annual survey of ‘the world’s most admired companies’, Fortune asked the question, ‘How do you make the world’s most admired list?’ The answer was, ‘Innovate, Innovate, Innovate!’ (Stein, 2000). This survey reported that all of the world’s top companies believed that the key to staying ahead of the pack was constant innovation and learning. Included amongst these innovative companies were BP and Royal Dutch Shell, who are featured later in this chapter. There are three principal reasons why innovation became such an important organizational competency during the 1990s. First, many ‘old’ management techniques such as just-in-time, supply- chain management, outsourcing, total quality or business process re- engineering have been used, at some time, by almost every large and medium-sized business in the industrialized world. So, in order to gain a competitive edge, companies have to be able to find new ways of increasing their performance, and improving the quality and novelty of the products and services that they bring to their markets. 348 MAXIMUM PERFORMANCE Second, these traditional organizational management techniques, while certainly improving efficiencies for many companies around the world over the last two decades, can also lead to rigidity and inflexi- bility. In itself, this might not be a problem, except that new ideas, knowledge and intellectual capital are fast becoming the primary drivers of competitive advantage in business. According to many commentators, efficient internal systems and processes have become merely a prerequisite for being in business, and non-linear innovative thinking is fast becoming the principal driver of long-term wealth creation. It is no longer sufficient to make one thing well and sell it at a profit. Sooner or later a competitor will undercut your price, steal your ideas from you or create something better. Sometimes they will do all three at the same time. In any event, your company will either die or be taken over. So the Holy Grail for many businesses today is the generation of a steady stream of new ideas, services or products that will sell in the marketplace (James, 2001; Sutton, 2001; Hamel, 2000a, b; Drucker, 1985). Third is the impact that innovation can have on the bottom-line perfor- mance and profitability of organizations. In Chapter 3, we cited several examples of the dividends that can flow from upward communication in organizations. They are also excellent examples of the power of unleashing the innovative capabilities of all of an organization’s employees. Between 1984 and 1999, the top 20 per cent of firms in the annual ‘Innovation Poll’ conducted by Fortune (in conjunction with Arthur D. Little) achieved double the shareholder return of a compar- ison group of their peers (Jonash and Sommerlatte, 1999). Another survey showed that the overall rate of return on 17 successful business innovations made in the 1970s averaged 56 per cent, compared with an average return of 16 per cent on investment in all American businesses between 1970 and 2000 (Nicholas, 2000). A study of 30 large interna- tional companies revealed that the single most important factor that differentiated high-growth companies from low-growth companies was the emphasis they placed on strategic innovation (Kim and Maurbogne, 1999). In the 1990s, the desire to become more innovative led to an increased interest in ‘intrapreneurship’ in many companies, by devolving power, setting up internal ‘ideas-factories’ or ‘skunk-works’, and a concerted drive to recruit and retain creative and innovative employees (Christensen, 1997). The idea of ‘intrapreneurship’ is not a new one. H.G. Wells, the visionary 19th-century science-fiction writer, created a game in the 1880s called ‘Cheat the Prophet’. This game involved gath- ering together the smartest group of forward thinkers and futurists he could find, asking them to describe the future and then imagining how INNOVATION AND ORGANIZATIONAL LEARNING 349 they could undertake every one of the crazy, laughable ideas that they created. Amongst the ideas that Wells generated were international air travel, flying to the moon, genetic engineering, human invisibility and time travel. Three out of five within 100 years is a pretty good track record. A few maverick scientists even believe that the last two are now theoretically possible (see Chapter 11). Over the last hundred years, we can find many other ideas that were also regarded as being crazy, laughable or ludicrous when they were first suggested. For example, when Jerry Levin (the founder of AOL) first proposed in the early 1980s that every home in America could be wired by cable, and connected to online subscription media and television services, most business people dismissed the idea out of hand. In the 1970s, the corpo- rate world thought that Bill Gates was a pie-in-the-sky dreamer when he first described his vision of having a PC in every home and in every office around the world. At the time, most senior managers in large companies such as IBM and Rank-Xerox dismissed the PC as a toy, with limited commercial applications. Single-handedly, this one inno- vation tore the whole of the mainstream computing industry apart and, in the process, pushed IBM to the brink. In Chapter 11, we’ll look at some other scenarios for the future that most people would currently dismiss as being crazy, laughable or ludicrous. In spite of the importance of innovation, many leaders and managers continue to be sceptical about the business value of ‘creativity’ and ‘learning’. There is no denying that much day-to-day work in organi- zations is routine, and involves what essentially amounts to efficient repetition and/or the fine-tuning of productive processes that have worked well for a period of time. Creativity and innovation imply constant change and constant evolution, and many organizations and their employees can find this prospect threatening and stressful. Nevertheless, sometimes companies must embrace radical innovations in order to prosper. For example, in the late 1990s, Charles Schwab had to make the difficult decision to move its business to the Web, know- ing that this move would force it to slash prices by 60 per cent. How would your colleagues react if you told them that your company would have to do this next month? Other companies, such as Merrill Lynch, dithered and delayed, but Charles Schwab went ahead and, as a result, gained a clear competitive edge over their main rivals. Only non-linear thinking, with an eye to the future, gave the company the confidence to do this (Hamel, 2000a). All of the available research evidence indicates that innovative companies benefit in a variety of ways. They are more adaptable to change, they are able to respond more quickly to changes in their environments, they are able to create change for others to follow in their wakes, they spot new opportunities before the competition does, and are consistently more profitable over 350 MAXIMUM PERFORMANCE longer periods of time, when compared to non-innovative organiza- tions (Hamel 2000a, 2000b; Collins and Porras, 1996). When you have disciplined thought, you don’t need bureaucracy. When you have disciplined actions, you don’t need excessive controls. When you combine a culture of discipline, with an ethic of entrepreneurship, you get the magical alchemy of great performance. (Jim Collins, Good to Great, 2001) Becoming more creative and innovative Doing the same thing, over and over again, and expecting different or better results. (An old definition of madness) I skate to where the puck is going to be, not where it has been. (Canadian hockey superstar, Wayne Gretsky, 1990) In Chapter 1, it was noted that one skill that certainly is important to leaders these days is the ability to envision the future. This ability has been described as something that often sets true leaders apart from the crowd, a unique ability to spot new business opportunities and new markets, like truffle hounds sniffing out truffles in the woods. Vision stems from the ability to see the world in new or different ways, to make associations between already existing bodies of knowledge in order to create new ideas, or to see new and emerging worlds in the future. This also implies a capacity to view the world as an oyster of creative possibilities, rather than a world of restrictive limitations. In this section there are several opportunities to try out some creative and lateral thinking exercises that will enhance your ability to envision and, later on, scenario-map the future. If necessity is the mother of invention, then lateral thinking is the mother of creativity. Creativity refers to the ability to synthesize ideas in new ways or to make unusual or novel associations between bodies of knowledge, in a way that leads to different understandings or inter- pretations of reality. This is where Edward De Bono’s concept of ‘lateral thinking’ can be extremely useful. De Bono has argued for some time that ‘linear thinking’ (based on judgment, analysis, logic and argument), the dominant way of thinking of the 20th century, will have to be supplemented by ‘what can be’ thinking (based on creativity, imagination, reconstruction and redesign). However, most education, in either the scholastic or managerial sense, tends to overlook, or even ignore, the natural ability that young children have to think laterally. As we observed in the last chapter, this is why they are continually asking ‘why’, ‘what’, ‘when’, ‘where’ and ‘how’ questions and why they often learn best through play and experimentation during their INNOVATION AND ORGANIZATIONAL LEARNING 351 formative years. However, most people’s natural creative skills and lateral thinking abilities are usually hampered by the formal education they receive in secondary school and/or universities, where education is still largely based on spoon-feeding, power-point presentations, rote learning and examination tests. Most traditional organizations also emphasize control and the measurement of performance, rather than creativity and learning. This is why it can be difficult for adults to embrace creative thinking, and is the main reason why acquiring this gets harder the older they get, unless they practise this skill. The main differences between linear/sequential thinking and lateral thinking are summarized in Table 9.1. 352 MAXIMUM PERFORMANCE Table 9.1 Linear and lateral thinking Linear/sequential thinker Lateral thinker Can only look at problems Tries to find new ways of looking through common-sense at things; is concerned with frameworks of understanding; change and movement; is concerned with absolute constantly questions the judgments and stability status quo and common sense Tries to find ‘right’ or ‘wrong’ Tries to find what is different; solutions to all problems as not obsessed with finding the quickly as possible ‘right’ answers immediately Makes quick judgments about Analyses all ideas for anything ideas as being either ‘workable’ that may be useful, however or ‘unworkable’ bizarre or extreme they may first appear to be Can only progress by taking Progresses by making sequential steps within narrow dissociative leaps between frameworks of understanding different frameworks and bodies of knowledge Selectively chooses only the Will consider anything, from any information that fits within their source or body of knowledge, to narrow paradigms of improve their understanding of understanding an issue or problem Always considers the obvious; Progresses by creating the future conservative; constantly reacts for others to follow; is to and resists change and comfortable with change, innovations innovation and perpetual learning Source: Adapted from De Bono, 1970, 1985. All leaders and managers will recognize and understand logical or sequential thinking. Fewer will be comfortable with the notion of lateral thinking or, initially, see what its value might be. So to start things off, over the next few pages we are going to reawaken your innate creativity and ability to think laterally. These exercises start with some well-known and relatively simple ones, progressing to others that will stretch your lateral thinking skills and, in the words of many MBA students, ‘make your brain ache’. Exercise 9.1 These exercises can be completed alone, but they are more enjoyable if you can do them with other people. If you have young children, let them try these (they’ll enjoy them). Time allowed, 30 minutes. Part 1 Please solve the following problems (time allowed, 20 minutes). 1. If today is Monday, what is the day after the day before tomorrow? 2. You are a woman. What relationship to you is your father’s only son-in-law’s mother-in-law’s only daughter? 3. Add five lines to the lines below to make a total of nine. |||||| |||||| |||||| |||||| |||||| 4. How many Fs are there in this sentence: ‘Feature films are the result of years of scientific study combined with the experience of years’? 5. Draw one line below to make the Roman symbol for ‘9’ transform into ‘6’ (VI). IX 6. Draw four straight lines that pass through all nine dots in the diagram below, without lifting your pen from the paper. *** *** *** INNOVATION AND ORGANIZATIONAL LEARNING 353 Part 2 When you’ve completed Part 1, please answer the following questions (time allowed, 40 minutes). 1. Every morning, a fit, healthy man walks into the lift on the twentieth floor of his apartment block and travels down to the ground floor. He goes to work. When he returns from work, he gets into the lift on the ground floor, gets out at the tenth floor and walks the rest of the way to his apartment up the stairs. Why? (Clues: there is nothing wrong with the lift and, if it was raining, he did not have to get out at the tenth floor.) 2. A farmer comes into one of his fields one morning. He sees a man lying in the middle of the field. The man is dead. The farmer knows immediately how he died. How did the man die? (Clues: he was not murdered, killed by farm machinery or attacked by a wild animal.) A ‘dissociative jump’ from: 3. An important event took place in Neufchâtel on 17 August 1968 that had a profound effect on Switzerland’s major manufacturing industry. It took some ten years to recover from this. What were the event and the industry? to: 4. What device was first patented as ‘a harmonic frequency multiplexing telegraphy unit’? Who created this device and what was unique about the patent? to: 5. What hybrid device was later created from the innovation described in 4, and Thomas Edison’s ‘electric phonograph’ (whose use is essentially the same as the device described in 3)? If you can’t find the solutions to these, you may want to read through the next paragraph before looking at the answers in note 1. ◆ Was there a mild sense of Eureka when you got the answers? In the case of the parachutist exercise, you needed to ‘think beyond the field’ and consider where the dead person came from and how he arrived there. Most people will spend all their time considering what might have happened in the field. The ‘nine dots’ exercise is a perfect exam- ple of not looking for what you were looking for (discussed further below). You might have started at each corner and joined the dots up and found that two or three dots managed to ‘evade’ your four lines every time. Through trial and error, you may have covered all but one dot using this method, and assumed that, because you were so close, you were on the right track and persisted with this for some time. 354 MAXIMUM PERFORMANCE However, it would only be when you realized that you had to, liter- ally in this case, ‘look outside the box’, that the solution would have revealed itself. Most people trying to solve this problem would confine their lines to the box as defined by the dots. The successful problem solver would see, in their mind’s eye, that the only solution is to extend the four lines beyond the edge of the box (Perkins, 2001: 49–50). The historical questions highlight how closed people’s minds can be to new ideas and innovations, particularly those who would consider themselves to be rational, practical and hard-headed busi- ness people. What these exercises also reveal is that everyone sees the world through preconstructed mind-sets. In Chapter 1, in the context of our views about what leadership ‘is’, we saw that we do not ‘create’ these mind-sets in any conscious sense. This is how a normal mind works and, without this automatic filtering process, we could not function in any meaningful sense. These perceptions also operate almost entirely at an unconscious level, and only a pathological mind can see the world unfiltered through prior knowledge. This is why genius is often associated with madness, or at least eccentricity, and is the main reason why almost all new ideas appear to be crazy when they are first proposed. However, we also saw that the ability not to take things for granted, and to question common-sense ways of doing things, are skills that differentiate visionary leaders from humdrum, run-of-the-mill leader/managers. Here is another exer- cise to illustrate the consequences of our selective perceptions. In Figure 9.1, there are a series of picture puzzles. Please describe what you can see in each of these. The solutions can be found in note 2. These exercises have been used with several hundred MBAs over the last ten years. In that time, not one has been able to see all sixteen objects in these pictures at the same time. Very few were able to see more than half of these at first. However, with practice they could get better at this, but only by not looking for what they were looking for. This may sound odd, but is exactly what you have to do to in order to improve your ability to see the whole picture, and to look at these pictures (or, in organizational contexts, alternative realities) from different perspectives. This ability is sometimes described as ‘refram- ing’ and, by looking at something in a different way, ‘reality’ itself can appear to change. The next group of lateral thinking exercises will help you look for what is not immediately obvious in a specific situation. INNOVATION AND ORGANIZATIONAL LEARNING 355 [...]... offices, and collective communication sharing as a way of creating and cross-fertilizing new ideas Improving an organization’s capacity to innovate means a major organizational commitment to twoway communication Achieving and sustaining active innovation and learning requires sharing information and communicating openly As Gary Hamel has observed: In most companies, strategy is the preserve of the old guard,... that many organizations now operate in It was noted in Chapter 8 that the attrition rate of companies is accelerating decade by decade, and it is apparent that all organizations, particularly in the private sector, have to be able to do something more than reactively ‘manage change’ This is a phrase that is still used routinely in business circles, and by many academics and consultants, but is probably... Hewlett, an Akio Morita or a Thomas Edison in their ranks, and innovative companies have long recognized that they cannot rely on a few maverick innovators or solitary geniuses to create new ideas These organizations have created cultures that attract creative people and fostered 366 MAXIMUM PERFORMANCE working practices and processes that encourage the creation, crossfertilization and rapid dissemination... be amazed at how often insights and ideas from apparently unrelated areas have applications to your business, the way you go about doing your job and the way in which you go about leading and managing others Increase your faith in intuition or ‘gut-feelings’ If you are skilled at information gathering and analysis, and lateral thinking, the chances are that your instincts will be the right ones to. .. this transition as follows: Learning is at the heart of a company’s ability to adapt to a rapidly changing environment It is the key to being both able to identify opportunities that others might not see and to exploit those opportunities rapidly and fully This means that in order to generate extraordinary value for shareholders, a company has to learn faster than its competitors and apply that knowledge... USA A Web Master A mid-ranking tax official in the Italian Civil Service A child slave-labourer in Burma A woman trying to break into a male-dominated profession, such as the military An employee on an oil-rig A young doctor working 80–100 hours a 360 MAXIMUM PERFORMANCE week as a hospital intern A vice-chancellor of a large university A computer games software developer A scientist working on nanotechnologies... competitors, systems have to be put in place to disseminate new ideas quickly Company-wide gatherings, cross-functional teams, formal brainstorming sessions, job placements and formal two-way and cross-functional communication systems can all help with this This might also require a more systemic approach to storing this knowledge and intellectual capital on easily accessible data and web bases Another... culture of making large computers for fat profits in the 1 970 s and early 1980s, managed to break into the leaner, meaner personal computer market in the 1990s To do this, it had to create a skunk works at Boca Raton in Florida, about as far as it was possible to get, culturally and physically, from its corporate headquarters in New York Unlike many of its contemporaries, such as DEC and Wang Computers,... a business as a ‘learning organization’ means that all the activities that its employees are engaged in are used reflectively as the basis for future learning (an ‘observe–reflect–think–decide–do’ mind-set, as opposed to an INNOVATION AND ORGANIZATIONAL LEARNING 381 ‘observe–decide–do’ approach) This is done in order to continually improve both individual and organizational performance, and to enhance... engineers, marketeers and accountants can be set up to push new ideas further These then have to be nurtured to see if they can be commercialized Prototypes have to be built and feedback obtained from potential investors and customers The market then has to be persuaded to adopt or buy the innovation For larger and more complex companies, who may not be able to innovate as quickly as their smaller, nimbler . be amazed at how often insights and ideas from apparently unrelated areas have applications to your business, the way you go about doing your job and the way in which you go about leading and managing others the equation to make it true. 4. You are standing in a room. Above you are two strings some distance apart. On a table, there is a dictionary, a glass, a live toad, a stapler and a clothes peg innovators and paradigm breakers. A good starting point is the autobiographies of Akio Morita, Andy Grove and Thomas Edison, who were true visionaries, maverick geniuses and social philanthropists.