Lots of talk, No Action—Part 2

In February 2016 the CEO of BlackRock Inc., the world’s largest investment management company, sent a provocative letter to the chief executive officers of the S&P 500 and large European corporations. In that letter he urged them to figure out how to endow their companies’ future through investing in long- term, value- creating innovation, and to be transparent about it. Investors and, indeed, economies, need something more than short- term stock price bumps, he claimed, in order to build a strong foundation for society. And, he continued, if given the compelling vision of companies’ strategic intent, short- term financial deviations will be better tolerated by the investor markets. I quote parts of his letter here for your convenience:

 “While we’ve heard strong support from corporate leaders for taking such a long-term view, many companies continue to engage in practices that may undermine their ability to invest for the future. Dividends paid out by S&P 500 companies in 2015 amounted to the highest proportion of their earnings since 2009. As of the end of the third quarter of 2015, buybacks were up 27% over 12 months.”

“We certainly support returning excess cash to shareholders, but not at the expense of value-creating investment. We are asking that every CEO lay out for shareholders each year a strategic framework for long-term value creation.

“Annual shareholder letters and other communications to shareholders are too often backwards-looking and don’t do enough to articulate management’s vision and plans for the future. This perspective on the future, however, is what investors and all stakeholders truly need, including, for example, how the company is navigating the competitive landscape, how it is innovating, how it is adapting to technological disruption or geopolitical events, where it is investing and how it is developing its talent. As part of this effort, companies should work to develop financial metrics, suitable for each company and industry that support a framework for long-term growth. Components of long-term compensation should be linked to these metrics.

“We recognize that companies operate in fluid environments and face a challenging mix of external dynamics. Given the right context, long-term shareholders will understand, and even expect, that you will need to pivot in response to the changing environments you are navigating. But one reason for investors’ short-term horizons is that companies have not sufficiently educated them about the ecosystems they are operating in, what their competitive threats are and how technology and other innovations are impacting their businesses.. . . .

“Over time, as companies do a better job laying out their long-term growth frameworks, the need diminishes for quarterly EPS guidance, and we would urge companies to move away from providing it. Today’s culture of quarterly earnings hysteria is totally contrary to the long-term approach we need.”

The letter continues on to address other issues, but this excerpt is our focus. The letter has generated many cynical comments and much debate, but to me it represents a clarion call. A key leader in the finance community; —a community that has often been considered the bane of innovation’s existence, is calling for companies to invest in innovation that may take a while to recover. .breakthrough innovation. Now it’s up to companies to respond, and to do so, they must develop a capability for strategic innovation. It must become part of the fabric of large, established companies.

The immediate after effect of Mr. Fink’s letter was exciting.  A group of leaders of large companies formed the American Prosperity Project, under the auspices of the Aspen Institute, to draft policies that would set American government and business on a course against short termism.

Then they went radio silent.  I thought nothing was happening.  But I was wrong.

In January of this year, bloggers reported progress, at least on paper. The members of the American Prosperity project issued a paper in which they offer a framework of corporate tax reform and corporate governance reform to discourage short termism.

Who are those members?  The CEO of Unilever. The CEO of Levi Strauss. The CEO of Pfizer. The head of the AFL-CIO.  Board directors of companies like Wendy’s and Henry Schein.  These are multi-billion dollar organizations who are generations old. They are not family run enterprises.

So, let’s see what happens next. It needs to happen fast.  The Dow/DuPont merger and subsequent plans to break up into three companies provides one example of the need for urgency.  How will that treasure trove of R&D be stewarded?  Who bears responsibility for commercializing it?  The jury is out.

Is Larry Fink holding company leaders accountable for acts of short termism???

A few weeks ago I received a call from a person in a well-known pharmaceutical company who had just been given the mandate to build an innovation capability that moved them ‘beyond the core.”  He was shocked at the similarities in what I described from our research and his own experience, and realized that…as mentioned in my last post…that we know more than we realize about building a capability for breakthrough innovation.  We suggested some next steps in working together to help him, because he was starting from scratch without a compass to guide him.

Within a few weeks he let us know that his supervisors were reluctant to engage.  It was “too ‘heavy’ for where his company’s leaders are at, given the internal skepticism on how many successes there really are in the corporate world.”

We have a long way to go to put knowledge into action.  I hope Larry Fink redirects his investments, and the American Prosperity Project starts a lobby soon.

Lots of talk, No Action—Part 1

Quite a few requests for talks and write ups about our research on Management Systems for Breakthrough Innovation, and Innovation Roles & Responsibilities have come in lately, and I’ve been able to get to a number of them.  It seems there is a lot of interest in improving the success rate for breakthrough innovation in established companies.  That’s not surprising since, more and more, people are concerned about these companies’ fate, and see the waste of mergers, breakups, and failures of iconic companies and brands that leverage wonderful rich troves of physical and intellectual assets and employee bases.

At the Product Development and Management Association’s Boston Chapter meeting in early July, I was describing the challenges that innovators in big companies face in their careers as they bump up against entrenched business models and corporate belief systems that prevent breakthroughs from commercial success.  As usual, after that talk, several people commented “You just described my career!”

A talk to a consortium of well–known global companies hosted by DSM in the Netherlands on the topic of metrics for breakthrough innovation provoked impassioned discussion.  In Denmark, an entire hospital system sent their leaders and innovation officers to an Innovation Leadership training program at Danish Technical University’s Executive Education center to learn the frameworks and principles underlying our research, and to use our Innovation Maturity Assessment tool to evaluate their management system for innovation.  The Industrial Research Institute’s journal, Research-Technology Management, produced an interview of me about our forthcoming book, in its July issue. The Center for Innovation Management Studies wants a shortened version for their publication in September.

Just a few weeks ago I gave the keynote address at the PDMA’s doctoral consortium, which was attended by early career scholars and some senior level academics from around the world, along with a handful of industry representatives, at University of New Hampshire.  There I spoke about what we now know about breakthrough innovation, and identified some of the next fertile fields for academic research in the field.

Actually, we know a lot more than we think we do. The industry representatives expressed amazement at what is known, and at how little of it is put to use.

From what I can tell, there is plenty of interest from industry, but not enough to drive action. With the stock market hovering at record high levels, tech companies in excellent cash positions, and the activist investor community operating on overdrive, large mature companies don’t have the will to invest in innovation.

But now is NOT the time to back away. Now, when the economy is strong, is the time to build that capability. When you think about the immense changes coming down the pike stimulated by the CRSPR experiments in gene editing, or by the onslaught of progress in 3D printing and additive manufacturing technologies, by the Internet of Things, Drones, electrification, alternative energy, robotics….How are large mature companies setting themselves up to lead the way into their future?

Can you pay too much to innovate?

Intro from Gina:

In class we’ve been talking about what drives and motivates corporate entrepreneurs.  Common wisdom is that entrepreneurs are motivated by the promise of financial reward. Many entrepreneurship professors start their first class by posing this question to their eager students: “Who in here wants to get rich?”  And the hands shoot up.  I’m not so sure that’s the whole truth, of course.  But certainly, in the world of Corporate Entrepreneurship, the financial upside is not there.  Is that a problem? Below are one student’s thoughts on the matter:

At first glance, one might answer the question that titles this post with a resounding NO,because no one will complain on getting more money to do their job. And some might even say the more money they receive, the more effective and loyal innovators will be to the company. But if you really dive deeply enough into the question your answer may start to change. Hopefully, this post will help lead the change in the way you think about monetary motivation in innovation.

In a digital and knowledge-driven economy that thrives on high-risk competition, in order to grow and survive, companies have to continuously innovate. Innovation implies that companies gain new knowledge and transform this knowledge into new products and services. In order to do this and succeed, companies put a lot of pressure and stress on their employees to develop and produce profitable offerings ahead of the competition. On top of all that, an innovator’s career path is “plagued with risk and uncertainty, as well as career stalling obstacles” (Choi et al. [1]) Thus corporations need to attract, nurture, and keep the right employees who have a skill for exploration and that ability to develop and pursue unique ideas.  What you’d think is that organizations that wish to successfully cultivate an atmosphere for constant innovation, their knee-jerk reaction is to motivate through extrinsic rewards. That’s how they handle most problems.  But it turns out that financial payoffs don’t work as incentives for real innovators.

Extrinsic motivation is driven by outside forces, whether the motivation is a carrot or a stick (Amabile). Rewards express and reinforce the values and norms that encompass corporate culture and are used by managers to communicate desired attitudes and behaviors to employees. This prompts innovators to do their job to get something desirable, monetary compensation or status, or to avoid negative repercussions, demotion or firing. The most common extrinsic motivational reward is cold hard cash.  Through extensive research that spans decades, Amabile shows that in the short-term money does not start or stop innovators from innovating. In fact, monetary rewards negatively impact the process because “they eventually lead people to feel that they are being bribed or controlled” It can also prompt an influx of people who are not interested in innovation or even good at it to become attached to that line of work just because of the financial gains.

Bloomberg Tech put out a report on February 13, 2017, highlighting the fact that monetary reward is counterintuitive to corporate entrepreneurship, citing overcompensation as one of the reasons Google’s car project lost essential veteran employees. According to Bloomberg, the problem stemmed from an “unorthodox system” implemented in 2010, where Google agreed to pay key employees bonuses and equity along with the typical salary. On top of the awards a multiplier was added a couple of years later. This multiplier was based on small accomplishments of the car division, instead of the divisions overall performance. “Part of the problem was that payouts snowballed after key milestones were reached, even though the ultimate goal of the project…remained years away.” The snowballing eventually resulted in large numbers of staff members leaving the car division by late 2015.The veteran staff members left because the financial gains were so large, accumulating to over seven figures, that they no longer needed the job security.

The irony of it all is that Google used this reward system to keep valuable employees from going to competing companies. But in the end, the exact thing they were trying to prevent manifested itself. Some of the engineers that left went to work for rival companies or became rival companies by developing their own ventures in the same market. For instance, the previous leader of the self-driving car project, Chris Urmson, left the company in August and formed a startup that develops self-driving software. Similarly, in 2016 the director of hardware development, Bryan Salesky, left Google and became the co-founder and CEO of Argo AI, which was recently awarded a $1 billion investment by Ford to develop a virtual driving system. Google car projects co-founder Jiajun Zhu, and software lead engineer, Dave Ferguson, went on to start Nuro.ai, another self-driving startup.

The moral of the story is that money as an extrinsic reward should not be relied on to motivate corporate entrepreneurship because there is no ideal amount that can ever satisfy everyone. If a person is paid too little, or too much they will eventually leave the company in search for a better opportunity. As Jon R. Katzenbach puts it, “the more you rely on money as your weapon of choice, the more likely you are to encourage self-serving behavior.” Therefore, the answer to the title question is “No you cannot buy innovators.”

-De Andra Salley

[1] Choi, Byung-Chul. O’Connor, Gina. T.Ravichandran. Navigating a Risk Averse Culture: The Effect of Strategic Human Resource Management Practices on Breakthrough Innovation(BI) in Large Firms.RpI working paper available from first author

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Innovation with 3D Printing

An exciting trend in corporate entrepreneurship over the past decade or so is the adoption and implementation of additive manufacturing techniques. Although the products made with this technology are not always new in design, the upheaval of traditional manufacturing processes certainly represents a breakthrough change. Furthermore, the devices used to execute additive processes represent a whole new set of design challenges and, as a result, innovative solutions. While nimble and risk tolerant startups initially swarmed around 3D printing in order to fill the new market space (such as MakerBot, Formlabs, and Aleph Objects’ Lulzbot just to name a few), it is interesting to see how many large firms missed this first mover opportunity.

HP Inc. appears to have been one of the first major corporations to manufacture 3D printers; other notable early firms include Autodesk (consumer market) and Mazak (hybrid additive/subtractive machines). However, their Fusion Jet 3D printer was not actually released until 2016, despite how the 3D printer concept has been around since the 1980s. HP’s “Multi Jet Fusion process” capitalizes on their inkjet-based technological competencies in order to produce more precise parts in different materials/colors at speeds 10 times faster than pre-existing products. Considering the even longer delay for other corporations to pursue this market, I wondered, what led them to jump on the trend first?

The release of HP Inc.’s 3D printer came shortly after their split from the Meg Whitman led Hewlett Packard Enterprise. This may cause some to conclude that the best way for large firms to innovate is by becoming smaller! But, the development of the Multi Jet Fusion process was announced in 2014, before the split and leadership change. Nevertheless, the current CEO, Dion Weisler, stated that the split allowed them to be “more reactive to a market that we see is changing at lightening speed”. Furthermore, HP refused to cut R&D because, as Weisler said, they want to “keep the innovation engine alive”. Commitment to innovation from top management certainly bodes well for HP’s long-term success. Although, I wonder if innovation will remain within HP’s core strategy or simply be a passing fad. Perhaps a separate innovation department, not within R&D, could allow them to institutionalize innovation and to strike on market opportunities more quickly.

On the other side of the token, a fair number of firms have been finding ways to innovate with the new manufacturing capabilities that these devices provide. The aerospace industry in particular has used the technology because of its ability to create complicated parts with one operation and less overall weight. News stories of aerospace companies that are using 3D printing are becoming extremely prevalent with Lockheed Martin and Aerojet Rocketdyne both having recent announcements. These two companies aim “to speed production and lower costs” by using additive processes for components in satellites and rocket engines, respectively. However, the most intriguing story that I have recently encountered was about Adidas’ Futurecraft 4D shoes which combine an innovative 3D printing process with an innovative product design. Talk about a great combination! The soles are made using “Digital Light Synthesis technology” which combines light and specialty resins to achieve the desired layout. This is yet another example of corporate entrepreneurship that has stemmed from the additive manufacturing revolution. 3D printing is clearly opening doors to product and process innovations in many different industries.

Some questions to consider…

  • Are the Jet Fusion 3D and/or Futurecraft 4D breakthrough innovations?
  • Why has the adoption of additive manufacturing into corporate strategy taken so long?
  • What will be the next industry to leverage additive manufacturing for product innovations?

-Kyle DeVault

[1] T. Hessman, “18 Companies Leading the 3-D Printing Conversion”, Industryweek.com, 2017. [Online]. Available: http://www.industryweek.com/technology/18-companies-leading-3-d-printing-conversion#slide-0-field_images-154531. [Accessed: 18- Apr- 2017].

[2] A. Zaleski, “HP’s Biggest Gamble Is 3D Printing”, Fortune.com, 2017. [Online]. Available: http://fortune.com/2015/12/08/hp-3d-printing/. [Accessed: 18- Apr- 2017].

[3] R. Park, “Will 2D Printing Giants Succeed in 3D Printing Business? | All3DP”, All3DP, 2017. [Online]. Available: https://all3dp.com/can-2d-printing-giants-succeed-in-the-3d-printing-business/. [Accessed: 18- Apr- 2017].

[4] J. Vanian, “HP, Inc. CEO Dion Weisler Talks 3D Printing, Layoffs, And Being Nimble”, Fortune.com, 2017. [Online]. Available: http://fortune.com/2016/03/08/hp-ceo-qa-3d-printing-layoffs/. [Accessed: 18- Apr- 2017].

[5] P. Swarts, “Lockheed, Aerojet bet on 3-D printing for manufacturing – SpaceNews.com”, SpaceNews.com, 2017. [Online]. Available: http://spacenews.com/lockheed-aerojet-bet-on-3-d-printing-for-manufacturing/. [Accessed: 18- Apr- 2017].

[6] “Adidas Uses Light, Oxygen to Revolutionize Additive Manufacturing, Sports Industry | Sustainable Brands”, sustainablebrands.com, 2017. [Online]. Available: http://www.sustainablebrands.com/news_and_views/product_innovation/sustainable_brands/adidas_uses_light_oxygen_revolutionize_additive. [Accessed: 18- Apr- 2017].

IBM @ HIMSS 2017 – Healthcare, AI, and Transparency

Last February, Ginni Rometty, CEO of IBM, gave the keynote address at the 2017 Healthcare Information and Management Systems Society (HIMSS) Conference & Exhibition. This annual event attracts over 40,000 individuals from around the word that are currently working professionals, clinicians, vendors, and executives within the healthcare IT industry. Taking place in Orlando, Florida, Rometty’s speech emphasized the values and transparency in cognitive computing, especially through utilizing IBM Watson.

“Every new era [comes] with amazing, inspiring dreams, but they also come with questions,” she said. “We have to take [those questions] seriously. When a new era comes, it’s our responsibility to guide that technology into the world in an ethical and a really enduring way.” – Rometty

But, what does that mean for individuals working in the healthcare industry? This industry generates a massive amount of data annually that is impossible for working professionals to absorb, analyze, and use in a short period of time. By applying cognitive computing and artificial intelligence, thousands of journal articles on specific treatments or injuries can be collectively analyzed and presented for next steps with a patient’s track within seconds.

Will this technology replace doctors, or cause some to lose jobs? Rometty comments saying that “this isn’t man versus machine. This is man and machine together.” Some jobs will change, there will be an honest impact, but these new jobs will require a new set of skills. These “new collar” jobs are the future, and Watson will be there to assist. There will be a level of transparency with how AI functions, its purposes, and the business model around it. Especially within healthcare, this technology needs to be very secure as it becomes more personalized.

Will this initiative pay off for IBM? Watson Health is one of the company’s main focuses at the moment. It can be seen as a moonshot idea that is either a gamble or the next big return for the 100+ year-old company. The attendance and attraction at HIMSS 2017 for IBM was very strong, but it may have been due to individual curiosity about the recent failed partnership between Watson Health and MD Anderson Cancer Center. Can Watson Health bring personalized healthcare on a global scale? Will it fully be able to utilize its cloud-based technology for vast amounts of data and accurately analyze medical information through its integrated artificial intelligence? Will the addition of Watson Health create these “new collar” jobs and benefit doctors, or will medical check-ups and treatments be conducted by machines? Only time will tell, and all interested eyes within the medical and healthcare IT industry are on IBM Watson Health.

-Gavin Noritsky

Sources:

FierceHealthCare

HIMSS 2017: IBM’s Ginni Rometty talks trust, values in a cognitive computing era http://www.fiercehealthcare.com/analytics/himss-2017-ibm-s-ginni-rometty-talks-trust-values-a-cognitive-computing-era

Keynote at Healthcare Information and Management Systems Society (HIMSS)

Ginni Rometty, CEO IBM
https://www.youtube.com/watch?v=D58bqSJr6Mg&t=961s

When is an Intrapreneur really an Entrepreneur?

Rodney Williams is a smart and ambitious man. You can come to this conclusion by just reading a list of what he’s accomplished in his career so far. Williams has four degrees under his belt, including an MBA from Howard University. A marketer from birth, as a kid he perused ads and commercials, always thinking about how products and services can truly serve people. He is a natural entrepreneur, even having started several business ventures as a student.

It was when he was at P&G, though, that Williams’ talents really shone. As a brand manager for Pampers, he accomplished quite a bit; by 27 he had three patents and nine wards for his work at P&G. Williams had done well with P&G, but his entrepreneurial spirit had never left him. During a brain storming sessione was having at work, Williams thought of an idea, that data could be sent by inaudible sound waves instead of Wi-Fi or Bluetooth.

Now Williams could have gone and tried to run with this opportunity inside of P&G. He even compliments them as the place he wanted to be as a brand manager, because, as he says, they “wrote the book for brand management.” He liked how they developed and brought products to market. Though Williams had the resources at P&G to commercialize products under well-known brands, he was always forging his own path when his ideas didn’t fit the traditional brand model or well understood product categories that P&G dominated.  So Williams, instead of continuing to be an intrepreneur, did his research and returned to the world of entrepreneurship.

Williams had decided to try to do this new enterprise on his own. What he did was reach out to a friend, Chris Ostoich, and they kicked the idea around. When the two had developed the idea a bit, they asked their engineer friend to see if it could be done. He told them it could but it would be tough, and to bring their idea to a startup competition SXSW. Here they got a lot of attention for their idea, including a lot of people and investors that wanted to be part of their new company, LISNR. It was then that Williams finally quit his job at P&G to fully develop this venture.

After doing my analysis on the articles I had read I reached out to Rodney William’s. I had asked him if my previous analysis was right, was he a champion at P&G? He said that I was right in what I thought. That he had a great idea and the culture wasn’t right at P&G and he had an idea that he wanted to keep completely to himself. Lastly, I asked if innovation was a key component in his new company. He said that “Innovation is a part of LISNR’s DNA it’s in our culture and will be how we succeed.” This statement wasn’t just interesting to see what he thought of innovation, but its place perhaps in LISNR’s success.

-Andrew Garwys

Sources:

http://www.forbes.com/sites/matthunckler/2017/01/20/how-a-lifelong-marketer-leveraged-his-experience-in-corporate-innovation-to-launch-a-tech-company/#7b670f2b1d59

http://www.forbes.com/sites/rodneywilliams/2016/12/01/how-i-arrived-at-my-big-idea/#620cb99e1268