Editor’s Note: An introduction to an exclusive excerpt from Sustainable Innovation: Build Your Company’s Capacity to Change the World (Stanford University Press 2015) by Professor Andrew Hargadon, the Charles J. Soderquist Chair in Entrepreneurship and faculty director of the Child Family Institute for Innovation and Entrepreneurship.
Whether because of growing risks and promising opportunities, companies increasingly require growth strategies based on sustainable innovations. It used to be that only the largest companies in the oldest industries faced these challenges, but not any more. Companies in almost every industry are facing dramatic changes—from new technologies but also from shifting public opinion, policies, and even capital markets—and few are prepared to respond effectively.
I spent the last five years studying sustainable innovation. I looked at companies that succeeded and those that failed, at companies leading change today and those that shaped historic changes. My interest was in how companies are developing new offerings that use fewer environmental resources, foster the health of individuals and communities alike, and are financially viable for producers and consumers alike but I came to realize it was equally important to understand how companies build the capacity to sustain the pace of innovation needed for the long haul.
Most lessons on innovation are drawn from the few companies doing particularly well right now, often in the fastest growing markets vastly different from the ones you might be competing in today. The most important lesson I learned in my research was the need to look beyond these “best practices” and find the capabilities that will drive sustainable innovations given your strategy and your market conditions.
The challenge for any leader is to build an organization able to thrive when change hits your market, and that means ensuring you have the capacity for innovation where and when it’s needed. But pick up any list of the most innovative companies (dozens are published every year), and two things become immediately apparent. First, there is no shortage of role models. Second, no single definition fits all these companies. Everyone seems to have their own idea about what makes a company innovative and, other than the crowd favorites like Apple, Google, and Facebook, there is barely any overlap between the lists. Some are behemoth multinationals employing hundreds of thousands, others start-ups with less than a hundred; some are competing in heavy industries, others are writing iPhone apps; some are in the United States, others in developing countries.
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Anyone trying to copy what these companies do is left with a Rorschach test rather than a recipe. Do you think a foosball table will foster a creative culture? There’s a company on a list that swears by it. Want everyone to create and pursue develop their own pet projects on company time? Want your own skunkworks? four-star cafeteria? hackathon? It’s all there. But will it make a difference?
The research on innovation offers more tangible findings around innovation’s best practices, grounded in rigorous studies but only marginally more relevance. The ones that correlate most strongly with generating, developing, and delivering successful innovations will sound familiar: cross-functional product development teams, heavyweight team leaders, boundary-scanning activities, prototyping, and a tolerance for risk. Just realize these practices apply to all companies because they are the most common, not the most important, determinants of any one company’s success—including yours. They are the ante to play, not the winning hand.
Building an innovative organization is hard because you can’t just add new practices or people—or for that matter build a skunkworks, change the rewards, hold an offsite, or move the cheese—and expect innovation to suddenly flourish.
Take brainstorming, the practice of bringing people in your company together for several hours to generate as many ideas as possible. Brainstorming works in a company like IDEO, where the participants are trained designers who work in a range of industries, where the culture rewards crazy solutions and failure (or at least dumb ideas), and where there is little hierarchy so nobody waits to see what the boss will say. It does not work in companies where participants have worked together and on the same projects in the same industry for years, the culture punishes failure (or even bad ideas), and there is a strong hierarchy and a domineering boss.
Or consider Google’s much vaunted practice of hiring only the smartest people. They retreated from that notion after finding it had no correlation with which people and teams performed well. “Google famously used to ask everyone for a transcript and G.P.A.’s and test scores,” explains Laszlo Bock, the company’s senior vice president of people operations, “but we don’t anymore, unless you’re just a few years out of school. We found that they don’t predict anything.” It turns out that how people approach the kinds of problems Google faces, how they work with each other, and how they work within the culture at Google matters far more.
To understand why adding smart people doesn’t make the organization smarter and why introducing a creative practice doesn’t make the organization more creative, think about how the people, practices, tools, structures, and culture in an organization all relate to one another. When these elements are aligned in support of a particular activity like innovation, low-cost manufacturing, or safety, we call it a “capability”—a strength, a skill, a competency—of the organization.
Brainstorming thrives in an environment with little heirarchy.
PEOPLE + PRACTICES + TOOLS + STRUCTURES + CULTURE = INNOVATION
Firms have many capabilities, but only a few give them their competitive advantage. Apple’s high-end strategy depends on cutting-edge design; technological innovation; integrating software, hardware, and content; and managing a global and flexible supply chain. For car companies, it’s the ability to manage complex development projects, maintain large-scale manufacturing and supply chains, do mass marketing, and provide long-term service and support. For electric utilities, effectiveness depends on how well they manage the generation or procurement of energy (including long-term and spot-market contracting), maintain system-level reliability, keep widespread capital assets functioning, and work within a highly regulated environment.
In relatively stable times, you need the right capabilities to compete effectively. But when conditions are changing, you also need the right capabilities to innovate effectively and to sustain that level of innovation over time. These are called “dynamic capabilities” because they enable your company to change—to take advantage of opportunities, respond appropriately to threats, and identify, build, adapt, recombine, reconfigure, integrate, align, and in other ways maintain your competitive advantage in shifting markets.
The right capabilities for innovation will have to match the strategic objectives of your company and the particular challenges you will face pursuing those objectives. The strategy and challenges of a ten-monthold Internet start-up will not be the same as those of a fifty-year-old electronics company like Hewlett-Packard, which will differ from a hundred-year-old industrial goods maker like General Electric.
The challenges of developing and delivering sustainable innovations are often quite different from what companies have seen in the past and yet, at the same time, those challenges are often quite similar across industries and markets. That means there is a set of common capabilities all companies need to succeed. If your strategy calls for sustainable innovation, will the capabilities that work for you today be the ones you’ll need moving forward?