The DNA of Innovative Companies - Visionary CEO or Company

Processes

Introduction

In the late 1970’s, James Dyson had an idea that challenged industry
conventions and articulated consumers’ unmet needs - a vacuum
cleaner that didn’t loose suction. Dyson understood that vacuum
cleaners loose suction as they collect dirt and replacing bags often was
not economical. Five years and 5,127 prototypes later, Dyson launched
the first, truly innovative, bag-less vacuum cleaner. Since then, Dyson
has come to be recognized as the most effective and popular brand of
vacuum cleaners. James Dyson not only had the vision to develop a
truly innovative product, but also was able to nurture a culture of
innovation within the Dyson organization. Using the expertise
developed in efficiently controlling airflow in the Dyson vacuum, the
company has launched several innovative products that leverage
precise air movement.

Was it James Dyson or the innovative culture of the company, which

lead to the subsequent series of innovative products? While we are all
too familiar with stories of charismatic CEO’s and the innovative
products and services they oversaw, are there any distinguishing
characteristics of companies which have been successful innovators
over the long term with or without these visionary CEO’s?

The Visionary CEO

Companies are faced with a challenging environment characterized by

growing global competition and the increasing demands and fickle
tastes of consumers. Strapped for resources, it is the job of the CEO to
envision a strategic direction for the organization. Identifying
unarticulated customer needs and developing solutions to address
them requires the CEO to look beyond the horizon.

Amazon.com is listed as the most innovative company for the e-

commerce industry in Business Week’s list of top 50 innovative
companies in 2010. When Jeff Bezos launched Amazon.com in 1994, he
understood that customers would jump at the opportunity of an easier
way to browse through millions of books; much larger than what a
traditional brick and mortar store could offer. Realizing the opportunity
that this unarticulated need presented, Bezos developed the largest
searchable online database of books, which was later extended to
music, movies and every category of products imaginable. Bezos
however did not stop here and is now innovating the way people read
the books. By introducing the Kindle, which puts hundreds of books in
a tiny package, he has once again uncovered and exploited the need
to easily access and read one’s book collection.

Successful CEOs have certain visionary characteristics that enable

them to challenge conventions through disruptive innovations. Reed
Hastings, when charged a huge late fee for being late returning the
“Apollo 13” DVD came up with Netflix, the idea of rentals DVDs
through mail, challenging the industry convention a brick-mortar store
rental. Netflix also challenged other industry conventions by offering
unlimited rental times and letting users create a queue of movies.
Consumers really valued the convenience and flexibility that Netflix
offered resulting in tremendous success for the company pushing the
conventional business model towards obsolescence within a decade.

Disruptive innovation by its very nature requires creating non-

conventional solutions for needs that are either unarticulated or
unmet. However very few attempts at solving these needs are
successful. CEOs need to have the conviction and persistence to drive
their companies through the development process in order to yield
truly disruptive innovations. It took James Dyson several failed
attempts, rejection by manufacturers, poor sales via catalog and 5124
prototypes before coming up with the vacuum that today sets the bar
for performance and outsells some of the most popular brands
CEOs play a critical role in helping envision and drive a company’s
innovation agenda.

However, a firm dependent solely on the vision of its leader carries a

high risk of not being able to sustain its path in the absence of this
leader or another suitable replacement. The successful introduction of
the Macintosh at Apple under the leadership of Steve Jobs helped bring
Apple to early prominence in the 1980’s. It contained several
innovations like the mouse and a graphical user interface. However,
after Steve Jobs’ resigned from Apple in 1985, the company was not
able to generate any breakthrough products. Back then Apple did not
have a systematized culture of innovation and when the sole catalyst
for innovation (Steve Jobs) left the company, the company floundered
and came perilously close to bankruptcy. After Jobs return to Apple in
1996, he was asked in an interview about what went wrong at Apple
since he left to which he answered that the leadership of the company
failed to promote innovation. Since Jobs’ return, Apple has enjoyed
tremendous success mainly due to innovative products like the iPod,
iPhone and more recently the iPad. While Apple’s current success has a
lot to do with Steve Jobs’ passion for innovation and his commitment to
being the best rather than being the largest, their continued
dominance will depend on the culture of innovation and the strong
employee base being developed at the firm.
Systematizing Innovation

As exemplified by Apple, while the presence of a prolific inventor and

visionary strategist greatly augments the exploratory spirit and
success of the firm, a sustainable organic innovative culture is
essential for a company in the long term. Can a company achieve
innovative success without the presence of a visionary CEO at its
helm? Is it possible for a company to cultivate a culture of innovation
and systematize it? With adequate investments in resources and
systems, we believe that innovation can be systematized into a
company’s culture.

A key step towards embodying an innovative culture is motivating the

organization to develop offerings that not only sell but also are aligned
with unarticulated/unmet customer needs. Once again, Dyson is a
great example of this approach. Dyson has 350 engineers and
scientists based at its research and development laboratory in
Wiltshire, UK. Their job: Think, Test, Break and Question. Let’s take a
closer look at two of Dyson’s more recent products, the Air Blade hand
dryer and Air Multiplier fan. Dyson’s staff realized that hand dryers,
while ubiquitous, did a sub-par job of drying hands quickly. Leveraging
Dyson’s expertise in controlling airflow, they created a hand dryer that
completely dries hands in 12 seconds and is 80% more energy
efficient. Table/floor fans too have existed for decades; but Dyson’s
staff realized that a fan’s rotating blades are not only dangerous to
children but also create waves of air. Hence they created a blade-less
fan that not only eliminates the danger posed by regular fans but also
creates a steady stream of air.

Innovation by itself does not guarantee success. A company’s ability to

successfully test, produce, time, and market its innovation, or in other
words, commercialize its innovation, is key to extracting the benefits of
innovation. The good news is that a company can develop processes
and programs starting from testing its innovations in a low risk
environments all the way to a full-scale market launch. When Best Buy
wanted to launch the electronics recycle program, they were unsure of
the risks associated or whether they would be successful in
commercializing it. The program involved recycling used consumer
electronics for free in most cases and giving out a $10/$20 Best But
gift card in the hopes of getting the consumer to spend on new
products. The risk was if the consumer bought products that were only
worth the value of the gift card, Best Buy would then be stuck with the
costs associated with recycling what the consumer. How do they
commercialize a service that has never been tried before and how do
they de-risk the experiment? Best Buy set up experimental tents in the
parking lots of select few stores and launched the electronics recycling
service. Consumers loved the idea and used the $20 gift cards to buy
$100’s of dollars worth of products. Today, Best Buy has a recycling
center in every store and even provides home pick up services.

The standards war between JVC’s VHS and Sony’s Betamax highlights
the importance of creating the skills and resources necessary to
commercialize innovation. Sony, a significantly larger corporation than
JVC, developed the technologically superior Betamax format but fell
short of achieving commercial success. Unlike Sony, JVC licensed its
VHS technology to just about every major electronics company making
VHS tapes more desirable due to compatibility across multiple video
players. VHS also offered longer recording times enabling Hollywood
studios to record movies onto a single tape. VHS was also the cheaper
format making it more accessible to consumers. Thus JVC created a
compelling case for the adoption of VHS over Betamax.

3M has sustained and grown its pipeline of breakthrough products over

its 108 year history. 3M’s success with innovation is clearly not
dependent on any one prolific leader; infact the average tenure of
CEOs at 3M is only about 5 years. Its deeply embedded innovative
processes are the driving force behind 3M’s innovative success.
Programs such as the recently adopted “New Product Vitality Index”
which tracks the share of its sales attributable to all new products
introduced within the last 5 years. By tying its employee long-term
incentive plan to this index, 3M is actively incentivizing the entire
organization to innovate.

For companies to be successful innovators, they not only require

strong leadership at the top but also have to build a culture of
nurturing innovation by encouraging new ideas and tolerating failures.
Companies like 3M, Apple and Dyson have not only been able to create
an eco-system of products and services, but also maintain a
sustainable pipeline of innovation projects which ascertains continued
success while reducing the dependence on having a visionary CEO.
Thus by motivating and incentivizing employees to innovate while
developing formal programs and processes to support innovation at
every stage from conceptualization through implementation, a
company can systematize innovation into its culture.

Conclusion:

Intense competition in today's global markets and customer demands

for an even larger range of options creates significant pressure on
margins and market shares. Incremental product improvements, while
necessary, seldom yield sustainably high profit margins or market
leadership. Disruptive innovation on the other hand is a key enabler in
capturing abnormal profits and establishing market dominance. While
many companies do create one-off breakthrough products, few are
able to do so time and again. Industry leaders like Apple, Amazon, 3M,
Dyson, etc have all dominated their industry by pursuing innovation as
a business imperative and launching a cadence of breakthrough
products. Looking closer into the inner workings of these companies
reveals the critical role that CEOs have played in championing their
innovation agenda. Sustained innovation however requires more than
a visionary leader. Organizations as a whole need to cultivate a culture
of innovation and develop an ecosystem of supporting incentives, tools
and processes to capitalize on it.