Fostering a Culture of Innovation:

The Role of Leadership

Jaideep Prabhu
October 2018
 Innovation & Leadership

What is innovation?

The challenges of innovation

What is an innovation culture?

The role of leadership in fostering innovation

 What is Innovation?

“The successful commercial

exploitation of new ideas”

Joseph Schumpeter
(1883-1950)
 What is Public Sector Innovation?

“A product, program, service, or process that

is new, creates value and changes the status
quo of government services.”
“To be impactful, innovations must also be
scalable, not merely one-off novelties.”
Innovation.gov
 Types of Innovation

New products or services

New processes

New business models

Product/Service Innovation: The iPod
Payoff from the iPod
$55,000

$45,000

$35,000
Capitalization $ mill

Apple
$25,000 Napster
Creative Tech
Sony
$15,000

$5,000

2003 2004 2005

$(5,000)
Year
Process Innovation: Larsen & Toubro
Manual project management
Little collaboration between L&T units
Difficulty engaging external partners

Electronic project management

Online knowledge-sharing across business units
Streamlined collaboration with external partners

Faster turn-around cycles for infrastructure projects

Avoids costly paper trail (all electronic)
Avoids penalties for late project delivery
 Amazon.com

Customer benefits: more assortment, cheaper, 24/7,

customer reviews

Revenue structure: exploit long tail of customers who

want rare books or buy occasionally

Cost structure: use technology to reduce costs of

holding inventory and investing in physical location
Should Innovation for Emerging Markets
be Different?

1. Frugal/affordable

2. Flexible

3. Inclusive
 Thinking Outside the (Ice) Box
WHAT IF your fridge
can operate without electricity?
Source: http://gizmodo.com

Source: http://www.mitticool.in/
Mansukh Bhai and the Mitti Cool Fridge
Thinking Outside the (Hot) Box
The Demographic Pyramid
 India’s Changing Class Structure

2005 2020

Upper-Middle
$10,000+ PPP(1)

Middle
$5,000-10,000 PPP

Emerging
$2,500-5,000 PPP

Poor
Under $2,500 PPP
Follow the Money
 Product Innovation: The Nokia 1100

Specifically for emerging markets:

Dustproof keypad and front face
Non-slip sides for humid weather
Built-in flashlight

Over 200 million sold since late 2003

World's best selling handset and consumer electronics device

 The Proposition Is Simple

Cash In Cash Out

Person 2 Person Transfer
Airtime Top-Up
Merchant Payment
Bill Payment
ATM Withdrawals
Social Payments
International Transfer

Page 18
 Reuters Market Light: The Pain
“If I had known timely and accurate information
about the price of mustard in Latur market, I
would have made 40% more money.”

“Heavy rains decayed my coffee berries. Had I

known this in advance, I would have harvested early
and reduced my heavy financial loss.”

“I get a very poor price for my crop. I do not trust

my buyer. I take my produce to the market and have
to accept his money. I am not treated with respect.”

Source: Omkar Joshi, Reuters

 Reuters Market Light: The Solution

RML provides accurate, relevant and customized

information that impacts customers livelihood and
productivity through mobile phones

Local Spot Prices Local Weather Crop related news

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म�ा�ा आवकीतव◌ाढ
1)
हि◌◌ंगणघाट - हवामान
.
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:2%
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र ि.वं६९०
कि◌
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त◌े७५० र◌ू. दर�ान.

Source: Omkar Joshi, Reuters

Business Model Innovation: Dr Mohan’s Mobile Diabetes Clinic

Source: http://www.drvmohan.com/ Source: http://www.worlddiabetesfoundation.org/composite-2731.htm

Harish Hande and SELCO
Innovation in the Indian Government
Think about this individually, then discuss with your neighbours

Thinking back:
1. What is a recent example of innovation you have been involved with
2. What was the process by which this innovation was identified, tested and
implemented?
3. What were the obstacles to and drivers of success?

Thinking forward:
1. What would be a good innovation to introduce?
2. What should the process be by which the innovation should be identified,
tested and implemented?
3. What would the obstacles to and drivers of success be?
 Innovation & Leadership

What is innovation?

The challenges of innovation

What is an innovation culture?

The role of leadership in fostering innovation

 The Incumbent’s Curse

Radical innovations often seem to come from

small entrepreneurs

Incumbents seem to stall, ignore or fight

radical innovations
 Dominant Firm Quotes...

“Who the hell wants to hear actors talk?”

Harry M. Warner, Warner Brothers, 1927

“Television won’t be able to hold on to any market it

captures after the first six months. People will soon get
tired of staring at a plywood box every night.”
Darryl Zanuck, head of 20th Century Fox, 1946
 More Dominant Firm Quotes

“What use could this company make of an electrical

toy?”
Western Union president William Orton, rejecting
Bell’s offer to sell his struggling telephone
company for $100,000

“There is no reason for any individual to have a

computer in their home”
Ken Olsen, President and Founder of DEC, 1977
Researcher Quotes: Incumbents…”

“underinvest” in radical product innovation, and are

“incompetent” at it (Henderson 1993, p. 248)

are prone to “technological inertia” (Ghemawat 1991,

p. 161)

fail to innovate because they “listen too carefully” to

current customers (Christensen and Bower 1996)
Are Dominant Firms Doomed to Fail?

Are dominant firms:

Inert?

Arrogant?

Incompetent?

Stuck in the past?

 Consumer Electronics: Partial List of Significant Innovations
Air conditioner
Analog answering machine
Autofocus color CR camera
Ball point pen
Cassette tape player
Cellular phone
Desktop computer
Digital camera
Digital video disc player
Dot-matrix printer
Electric blanket
Electric can opener
Electric dishwasher
Electric garbage disposer
Electric shaver
Electric typewriter
Electronic black & white TV
Electronic desktop calculator
Electronic watch
FM Radio
Incandescent vacuum lamp
Internal combustion automobile
AM radio
Analog quartz watch
B&W celluloid roll camera
Camcorder
CD player
Color celluloid roll camera
Digital answering machine
Digital quartz watch
Disposable shaver
Dry Ink (electrostatic) copier
Electric blender
Electric clothes washer
Electric fan
Electric percolator
Electric toaster
Electrochemical fax
Electronic color TV
Electronic pocket calculator
Fluorescent lamp
High definition television
Instant camera
Laptop computer
Laser disc player
Magnetic tape player (R-To-R)
Mechanical color TV
Mechanical refrigerator
Mechanical vacuum cleaner
Mini-disc player
Phone set with cord
Portable computer
Single-player video game
VCR
Laser printer
Mechanical B&W TV
Mechanical dishwasher
Mechanical typewriter
Microwave oven
Palm computer
Phonograph
Safety shaver-disposable blades
Photoelectric scanning fax
Voice mail
Source: Chandy and Tellis 2000
 Who Introduces More Radical Product
Innovations: Incumbents or Outsiders?
Proportion of radical product innovations from incumbents vs.
outsiders:

a. 90% incumbents 10% outsiders

b. 75% incumbents 25% outsiders
c. 50% incumbents 50% outsiders
d. 25% incumbents 75% outsiders
e. 10% incumbents 90% outsiders
Results: Incumbency of Radical Innovators

Incumbent: A firm that manufactured and sold at

least one product belonging to the preceding
product generation

Non-Incumbent Incumbent

53% 47%

Source: Chandy and Tellis 2000

Incumbency of Radical Innovations By Time

80%
73% 74%
70%

60%

50%

% Non-incumbent
40%
% Incumbent

30%
27% 26%

20%

10%

0%
Pre WW II Post WW II

Source: Chandy and Tellis 2000

 In Recent Years….

Technologies are more complex

New organizational forms have become popular

Innovation is more international

Incumbents may have learned from the mistakes of their predecessors!

Advantages of Dominant Firms: Resources

Technological resources
Human resources
Marketing resources
Financial resources
But even the largest firms can’t have all the ideas
 P&G Innovation Metrics: 2000
9,000 R&D personnel (1,000 PhDs)

$1.8 Billion in R&D expenses

~27,000 patents (10% being used in current products)

Stagnation of new R&D: only 35% of new products met

objectives

Increasing costs: Always: $10 mn in the 80s, $40-50 mn

by 2000
 P&G from 2002 Onwards

Something changed!

Sales started to grow

Stock-price improved
Sustained Sales Growth

Organic
Target
thru
FY 2010
+4% to +6%

Acquisitions & Divestitures

Organic
 P&G vs. Dow Jones

P&G

Dow Jones Ind. Av.

2001 2002 2003 2004 2005 2006 2007

How?
 A Call to Action

“We will acquire 50% of

our innovations from
outside P&G”
A.G.Lafley

President and Chief Executive

The Procter & Gamble Company
 P&G and Pringles
In 2002, brainstormed ways to make Pringles novel and fun

Traditionally would have spent budget on developing a

workable process, in-house plus ink-jet printer company

Instead, created a technology brief that defined the problem

and circulated throughout the global network

Small bakery in Bologna run by a university professor

Double digit growth for Pringles US

 Examples of C&D . . .
Crest Scratch N Sniff Pkg.
Mr. Clean Autodry
Pringles Dips

Mr. Clean Magic

Swiffer Duster SK-II Airtouch
Eraser
Foundation
SK-II Facial Mask Metamucil
Capsules

Charmin
Fresh Mates

Pantene Kandoo Wipes OTC Drug

Sonic Registrations
Comb Tide Stainbrush Crest New Tubes
Olay Vitamins

Glad Press N Seal Clairol In-Store

Prilosec OTC Shade Selector
Olay White
Radiance Facial
Mask

Olay
Regenerist
Pantene Hair Olay Daily PuR /
Styling Products Facial Pillows Whirlpool Old Spice Shave
Refrigerator Visia Beauty Imaging
Gel Crest Liquid
Filters Dentifrice
Open Innovation: Implementation
Mindset
“Not invented here” to “Proudly found elsewhere”

People
Idea scouts: technology entrepreneurs

Tools
InnoCentive, YourEncore
P&G Technology Entrepreneur Network
 Results of C&D
By 2006, 52% of products had elements from
external sources (up from 15% in 2000)

R&D productivity increased 60%; R&D spending

down from 4.8% of sales in 2000 to 3.4% in 2005

P&G launched 5 of the top 10 consumer products in

the US in 2005

Doubled share price

 Not Just P&G

Goldcorp: a mining company

Shared geological data for $575,000 prize money
2 weeks, over 1,000 ideas, 80% yielded gold
$100 million business to $9 billion

BBC backstage
Developer network uses BBC content feeds
Create new prototype services
 Firm Size and Innovation

Dominant incumbents
Introduce more radical product innovations
Gain more from their innovations

Resources matter

Nevertheless, dominant firms face significant challenges

to remain innovative over time
 Innovation: A Garden of Paradoxes

Pre-empting the future, yet operating in the present

Developing competencies, but preventing rigidities

Maintaining continuity, yet adapting and changing

Deepening functional expertise, yet being cross-functional

Diversifying and growing, but staying focused and lean

 Innovation & Leadership

What is innovation?

The challenges of innovation

What is an innovation culture?

The role of leadership in fostering innovation

Which firm had the most
computer inventions in the
1970s?
 Inventions of Xerox in the 1970s
Laser copier
PC
Printer
Laptop
Mouse
Windows
Word processing
Ethernet
PC networking
Email
Xerox 9700 Laser Printer (1977)
Xerox Personal Computer 1973: Alto
Kids Playing with Xerox Alto
By 1980s all that was history?

Why?
Innovation in Firms Across Nations

Gerard J. Tellis
Marshall School of Business, University of Southern California

Jaideep Prabhu
Judge Business School, University of Cambridge

Rajesh Chandy
Carlson School of Management, University of Minnesota

Journal of Marketing
January, 2009
What Drives Sustained Innovation Across Nations?

Popular belief: Ethnicity

Sociologists: Religion
Social-psychologists: National culture
Geographers: (Distance from equator)2
Legal scholars: Intellectual property
Economists: Inputs
Our thesis: Internal culture of firms
 Surveyed 4000 Firms in 17 Countries
Australia 123 Japan 409
Canada 154 Korea 333
UK 383
USA 843 China 183
Singapore 176
Germany 315 Hong Kong 167
Switzerland 80 Taiwan 243
Netherlands 62
Sweden 113 India 130
France 242
Italy 99 Total 4074
 Pooled Database

Primary Survey Data

Secondary Firm Data
Financials
Patents
Secondary Country Data
OECD and World Bank
World Economic Forum
 Main Finding

Firms’ cultural traits drive innovation across

nations
Firms’ Cultural Traits Drive Innovation

Effect on Radical Innovation of:

0.4

0.35

0.3

0.25

0.2

0.15

0.1

0.05

0
Religion National Distance IP Patents R&D F. Culture
Culture from
Equator
 What Do We Mean by Firm Culture?
Three attitudes
Future focus
Willingness to replace current products/processes
Tolerance for risk

Three practices
Innovation champions
Asymmetric incentives
Internal markets
What About Xerox?
 Force Behind Xerox Innovations

Innovation Champion
CEO Joe Wilson
Why Xerox did not Leap Forward in 1970s?

Innovation champion (Wilson) died

Two silos: scientists versus managers

Managers afraid of replacing current products

Did not see future wealth in electronic office

Refused to commercialize innovations

 Innovation Audit

How do these attitudes and practices relate to

your role in the government?

How does your organisation or department

perform in terms of its culture of innovation?
 Case Study: The City of Boston
Mayor’s Office of New Urban Mechanics (MONUM)
Design studio within government: prototypes
solutions free from bureaucratic constraints
Innovations include:
Citizens Connect, an app for reporting problems to
city officials
Boston Saves, a program designed to help kids in
public school put money away for college
 MONUM Process

MONUM only takes on projects with the potential

to prototype, scale and have impact
Avoids ideas that are too costly or time-
consuming
Once a project is chosen, MONUM researches,
designs, tests, and evaluates it
If it is a success, hands it to a city department, or
calls it a failure
 Tolerance for Risk

How to gain the respect and trust of government

employees, many who are taught to avoid, not
tolerate, risk?

“If departments don’t trust you, they’re not going to

listen to anything you say. You have to create the
cultural context for this type of work — which
means building risk tolerance in government.”
Nigel Jacob, co-founder & chair of MONUM
 Asymmetric Incentives

Departments may worry about having their name

attached to something that might fail, or may be
uncomfortable using their own budget
“If a new project tried by a department doesn’t
work, we try to absorb as much of the bad news as
possible, so they can push all the negative publicity
our way. If it does work, we try to give as much
good credit to these departments as possible.”
Nigel Jacob
 Innovation Champions
MONUM chooses people who are comfortable working
within the rules civil servants must follow, but with an
entrepreneurial streak that can push against the limits

“We try to hire hustlers. We want people who are

comfortable navigating big bureaucracies, but still
creative.” Nigel Jacob
 Innovation Champions
MONUM identifies early adopters across
departments

“There are a small number of innovators spread

between departments that helps us subvert
bureaucracy. After all — bureaucracy is just
people.” Nigel Jacob
 Innovation Champions
Also engages citizens: Citizens Connect, an app for
reporting problems to city officials

The Boston Saves program, which gives children in

kindergartens $50 savings accounts to get them to save
for university, uses family “champions”

MONUM brought in members of the community to co-

pilot and co-own the program, which gets people
talking about Boston Saves, and builds trust with
families
Fostering a Culture of Innovation: Summary

Inputs (resources) are not enough!

Creating a culture of innovation is crucial

The right attitudes and practices are needed
 Innovation & Leadership

What is innovation?

The challenges of innovation

What is an innovation culture?

The role of leadership in fostering innovation

Innovation Starts at the Top
 What Were They Thinking?

“The PC is the stupidest thing I ever

heard of”
An Wang, CEO of word processor maker
Wang Labs
 What Were They Thinking?

Ken Olsen, CEO of minicomputer maker

Digital Equipment Corporation

"There is no reason anyone would want a computer in

their home"

Forbade his employees from using the words “home

computer” or “personal computer” in the firm
 Future Focus

Emphasis on future customers and competitors,

relative to current customers and competitors
 Thinking About the Future

“Senior management is devoting less than 3% of its

energy to building a corporate perspective of the
future”
Hamel and Prahalad (1994)
Bill Gates: Think Week
 Summing Up

What is innovation?

The challenges of innovation

What is an innovation culture?

The role of leadership in fostering innovation

 Take Aways

Innovation is critical ('do or die')

Innovation isn't easy

Creating and fostering a culture of innovation

can help
 Your Role: Leaders of Innovation
Visionaries
Future focused

Risk Takers
Experimenters

Architects
Community builders

Champions
Technical, market, and organizational
Thank you for innovating!