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Five Reasons Why CEO’s Don’t Get Innovation

April 15, 2011 Innovation, Open Innovation 20 Comments

Here are five reasons why I believe CEOs and other top executives often don’t support innovation, even though the business climate of our time demands it:

The demand for short-term gains nearly always wins the day. Top executives at public companies are under enormous pressure to produce strong financial results each and every quarter. This is the area where they are rewarded for producing results, and their job security increasingly depends on it.

They missed out on innovation education. Many of today’s top executives got their business education before innovation was a significant part of the curriculum at many MBA programs. They could compensate for this with experience, but many also missed on-the-job training, because innovation training usually happens from the top down, not vice versa. They were trained to be problem solvers, not innovators.

Top executives are risk-averse. Innovation, especially open innovation, is scary on many levels. People who make it to the top because of their knowledge of existing businesses aren’t that interested in considering a new business model or going after an amazing yet high-risk breakthrough when that may undermine their own expertise. And who wants to risk having a major innovation effort fail on their watch?

They don’t see why a networking culture is important for open innovation. In a world of open innovation, you need to be an expert at networking and building relationships. This holds true at the corporate level as well as the personal level. So I ask leaders and managers: Where is the strategy, commitment, and structure that you need to create a networking culture? Many of them have not bothered to give this important subject any thought.

Top executives are too far away from the action. It is easy to preach innovation when you do not have to make it happen. I have been in several situations where innovation leaders have to struggle with middle managers who prefer to focus on their day-to-day business rather than support innovation efforts that might contribute significantly to the overall business in the future.

What do you think?

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Currently there are "20 comments" on this Article:

  1. Mike Lachapelle says:

    An extension of your first reason – short term gains required – in the government environment is 'transient leadership'. Many governments move their most senior bureaucrats around on a regular basis. Part of the government culture for executives holds that staying too long in any one job is seen as career limiting. Combine those two with the elected officials changing on a regular basis, and the result is an environment driven by the need to accomplish short term gains, and a lack of long term commitment to ideas for which you won't get the credit.

    This creates a dynamic of an operational layer that is very, very hard to move in a short term, and an executive layer who are committed to short term gains only. Not the most fertile ground for cultivating innovation. Particularly when you add in the effect of reason 3 – risk aversion.

  2. pim vandijck says:

    on top of these reasons, which are all correct, only few CEO's dare to recruit people who are walking outside the traditional lines. Luckily some of the people who walk outside those lines make it to the top themselves (O'Leary – Ryan Air, Richard Branson – Virgin, Steve Jobs – Apple, …). But as everyone knows hiring those kind of people might create problems as well (eg Steve Jobs was fired at Apple a few years ago). But in the end it is often people who dare, people who don't think like 99% of the other employees, people who say things nobody dares to say, … they make innovation happen. And this is no big shocking news !

  3. pim vandijck says:

    A little history ; The well experienced and educated adventurere Christopher Colombus first asked the Portugese king Johan II for sponsoring and find the new world. The Portugese king thought it was too risky, so he denied the request. Afterwards Colombus asked the Spanish crown who gave him the sponsoring. The rest is history… but one thing is sure. If the Spanish king wouldn't have sponsored Columbus, sailors would have stayed in coastal waters for more years and America would have been discovered much later. We can say that the Spanish King was an innovative CEO at his time.

  4. Tim Molloy says:

    I like this summary. It reminds me of Hamel (2000) who noted there were two types of business leaders: the stewards who are very good at running companies and driving efficiencies and the intrapreneurs who are excel at growth and building value. Most of the latter group however can be trouble for a corporate unless they own the company as Pim notes above, people like Branson, O'Leary etc. This is because they typically can't help challenge the status quo, which risks upsetting people. They are therefore more rare in a corporate than are stewards and this is not surprising since if you are an intrapreneur then it is likely that at some point you will see an opportunity to create some real value for yourself outside the company and leave. Stewards on the other hand are the best managers in the business, they understand how to get results and to use Christensen's(1997) jargon are 'good enough' with innovation. You are right to say though that they are not that interested in innovation since they are not rewarded for it, i.e. their shareholders and non-execs are not that interested in it either, since the goals as you say for many today are short term. For me the main weakness of the stewards is a lack of appreciation of the generally accepted theories about value migration and the product lifecycle, i.e. cash cows do not last forever and so a long term focus is needed for at least some of the time. For example stewards are more likely to refuse to accept fundamental shifts in the ways businesses compete until its too late, preferring to attribute changes in demand to the credit crunch or some other cyclical trend such as changes in consumer confidence. At least the intrapreneur is more likely to lead the firm into new areas, since they are more likely to spot emerging trends and appreciate them as long-term shifts. In many cases firms have succeeded by having one of each, a steward and an intrapreneur, e.g. Hewlett Packard originally, Research in Motion today, Google, most Fashion houses and other creative industry companies have this structure since whilst innovation and creativity are vital parts of what they do, they also recognize that running the business requires a more disciplined mindset. The irony of all this is that even if corporates tried to they might find it harder now to recruit intrapreneurs or to nurture them. For years corporates have actively rejected intrapreneurs at job selection since they were perceived correctly to not be a complete fit with the culture of the organization, preferring instead to recruit the stewards for the benefit of the core business. Now the core business is declining they need intrapreneurs but since the Internet has reduced barriers to entry and since many firms have lost their innovation reputations, these intrapreneurs can more easily find the capital and motivation to strike out alone, i.e. they don't want to work in a stuffy corporate and be held back.

  5. Bryan says:

    Bravo Tim, and if I might elabroate….. yes, senior management (the stewards) are like most humans- allergic to change. I quote Upton Sinclair:

    “It is difficult to get a man to understand something when his salary depends on not understanding it.”

  6. Milos Puaca says:

    I agree with at least three of the five. (The other two might be a matter of semantics.)

    1. Executives are far removed from the gate – either things are not reported to them in any form or the editing / screening is so thorough that only connected sources are ever considered.

    2. No one "goes long" when the daily, monthly, and quarterly results are the focus. At that stage, the evaluation and implementation time may exceed a year which is only approved by groups.

    3. If you missed OJT or non-traditional paths, you will think like all the others who think like you.

  7. Robert M. Donnelly says:

    Another is that they are just not innovative themselves.

  8. CEO's are measured too heavily on quarterly success. NFL teams typically allow a coach 3 years to begin positive change with draft picks and implementing a new system – CEO's are measured too heavily by shareholders and boards on their first quarterly earnings report. Executives that foster Innovation have the confidence that they will be a part of the companies future.

    With the rate of innovation continuing to accelerate with no end in sight – executives that don't embed innovation in their companies DNA today are jeopardizing the on-going viability of the entire company and brand.

  9. Henra Mayer says:

    I agree with all off the above. Another reason might be that innovation is not seen as tangible enough. Organisations are not measuring innovation success well and therefore do not know how to demonstrate its value. How do you then justify investment in something for which you can not show returns/impact/value?

  10. Gwen Peterson says:

    Not sure I buy into the second point entirely, since it seems to imply that the only things CEOs know is what they were taught in business school — and that "innovation" is something that needs to be taught. I disagree with both of those assumptions.

  11. Ahmed says:

    It is not only about the CEOs , it is a company strategy and enviroment which promotes innovation culture and education inside the organization. And achieve that state , the company board should by this idea First.

    on the other promote innovation in an organization you need to build the foundation of autonomy and self discipline to create this free style spirit . These means the leaders has to come more closer to the employee and start to look differently to develop their emotional intelligent not only intellectual one.

    In that sense The CEO, is in between these challenges of strategic decision and Human resources. In the end this should go all on one line.

    By the way I am not CEO!

  12. Hamish says:

    Ug, this post is *very* trite.

    Innovation is not some shiny new concept. Henry Ford was an innovator. Thomas Edison was an innovator. Innovation is not something required in "today's business climate", it's something that has *always* been required in *every* business climate. And to say they were "trained to be problem solvers, not innovator" is self-contradictory: every innovation is a solution to someone's problem.

    "Top executives are risk-averse": and so they should be. They're responsible for the livelihood of their shareholders and their employees. Gambling the bank on "amazing yet high-risk breakthroughs" are great for small startups looking for a quick buyout without having to build revenue (refer point 1: maximising the short-term gain!)

    • Stefan Lindegaard says:

      Hi Hamish, I don't really disagree much with you. Innovation has always been important. It is just a question to which degree. The same goes with risk. Innovation today is very much about opening up to external stakeholders and this requires experimentation in order to get the right processes in place as well as experimentation with regards to getting the proper products and services to market. This has always been the case, but I still think it is more important today due to the faster pace of business and the growing understanding of innovation. You can no longer hide behind a monopoly or a strong position build over many years. Someone will try to tear it down and it can happen fast.

  13. Jack Hipple says:

    No mention here of assessments that measure to what degree and in what way people are "innovative". MBTI and KAI, have been used for decades to provide feedback to individuals and teams. Most executives have different profiles than "innovators" and if this gap is not openly discussed (and used proactively!), the innovators will lose and leave to join a startup, begin consulting, or start a blog. Other factors mentioned by others are great, but without this basic understanding, they don't matter. Have been amazed over 30 yrs in industry at how money is spent on assessments and how little they are actually used. See: pubs.acs.org/subscribe/journals/ci/31/i11/toc/toc_i11.html. Different versions of this work have been published in Research-Technology Management and Leaders in Action.These characteristics are hard wired (especially KAI) and peoples' behavior prefences do not change. Behavior can be different than preference for a short time, but not long without serious consequences.They can also predict how an individual will react to stress.Tools without understanding of the people and culture will not work long term.

  14. David Hughes says:

    Interesting thought. But there are some very notable exceptions – for example AG Lafley's transformation of Proctor and Gamble as CEO from 2000. He actually reported on their innovation strategy in their annual reports – may be that is a good indicator of those CEOs that get it. In addition, there is still a widespread belive that innovation is a linear process starting with research. This view is unfortunately still the dominant policy direction of the present UK government. Innovation in my experience is much broader than that and covers design, branding, supply chains, business models, networking, engagement fo the whole workforce and customer focussed product dvelopment. I will be talking more about this at a free worshop to be held at the British Library on 21 May sponsored by the British Libray and Quantum Innovation Centre.

  15. Wilks Poole says:

    Innovations was not as tangible enough for CEO's to support it. It was really vague and propulsive on their side if they will able to take this idea.

  16. John McDermott says:

    I'd say it is risk averseness, plus strategic perspective that pushes innovation down the priority list.

    Every company will have (some) people that have a capability to innovate, but the organisation doesn't support or reward. If the CEO requires predictable improvements to performance then the result will be something like Kodak. This is especially true when the product defines the company.

    Companies that take a customer centred view and understand better than their customers what the market is desiring have the ability to produce ground-breaking developments that move markets in a new direction.

  17. Ankolekar says:

    Depending on which industry you belong to, setting aside a portion of your revenue for R&D will not really result in risking the survival of the entire corporation. But like any other investment, R&D should result add to the bottom line in a reasonable time period – be it a marketable product or a marked improvement in process or additional features to existing products. Timelines in R&D have now become aggressive than ever before, development life cycles are shrinking at a rapid pace. If the corporation has a cash cow, it has all the more reason to invest in R&D as the cash flow may dry up due to better products from competitors or from obsoloscence. If the corporation is struggling to get an edge over the competitors, in addition to cost, more value-add for the same cost (more features) will make the product a Unique selling proposition. Whichever way we look at it Innovation is a strategic imperitive and the slogan – Innovate or Vegetate applies to every corporation. CEOs understand Innovation but are under pressure to explain why revenue is not growing inspite of such huge investments in Innovation. Doing R&D through a subsidiary company with fewer overheads is also to be considered as an option.

  18. [...] recently provided five reasons why executives do a poor job on innovation and although this makes it difficult for innovation leaders to do their job, I am glad to say that [...]

  19. […] Lindegaard, strategi- och innovationskonsult, delade nyligen på sin sajt med sig av sina tankar kring varför chefer inte förstår vikten av innovation trots att det är […]

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