Can innovation withstand the ravages of the crisis and the Middle East blame culture?
Source: BI-ME , Author: Trevor Lloyd-Jones
Posted: Mon May 25, 2009 6:33 pm

UAE. INSEAD Professor Hal Gregersen, an expert in leadership and co-author of ‘It Starts With One: Changing Individuals Changes Organizations’ made an extended visit to the UAE last week to work with the INSEAD Abu Dhabi campus in its executive education programme and in an advisory capacity to the UAE government in its education reforms and in creating a national system for innovation.

In an interview with BI-ME during his visit, he discussed cultural factors in business, working across cultures and the challenges for the leadership equation in an age when more and more Middle East companies are going global.

Explaining his research work on driving innovation and inquisitiveness in a global organisation, Professor Gregersen said that the ability of companies to drop into any part of the world and operate with some level of success, is becoming increasingly important.

Just as Old World explorers navigated uncharted waters, today’s executives have the challenge of leading organisations into new, unmapped outposts of the global marketplace.

Imagine the experiences of explorers such as Magellan or Cook as they scanned the horizon of the great Pacific Ocean for days; they had no reliable charts, an unfamiliar hemisphere of stars, shark-infested waters, a crew losing confidence with each passing day, storm clouds gathering in the distance, waves crashing over the ship’s bow, and wind howling. In many ways, the new business world is just as dangerous, filled with brutal storms of competitors, endless seas of change, seemingly strange cultures, confusing marketing channels, and unknown frontiers of technology.

The great difference, however, is that only a few great and courageous explorers were needed in the days of Magellan. Once the seas and their islands were charted, the coordinates didn’t change. In contrast, the islands, mountains, rivers, and valleys of today’s global business world are not static: they change.

Markets, suppliers, competitors, technology, and customers are constantly shifting. Consequently, global business now requires all leaders to be explorers, guided by only the faintest glimmer of unfamiliar stars and excited by the opportunity and uncertainty of untapped markets.

At current growth rates, trade between nations will exceed total commerce within nations by 2015. In industries such as semiconductors, automobiles, commercial aircraft, telecommunications, computers, and consumer electronics, it is impossible to survive and not scan the world.

International experience confirmed as a success factor

Professor Gregersen referred to his research into leadership involving interviews with 300 high-performing individuals and their characteristics. The study found that 30% of the characteristics were unique to the company and the culture, but two thirds were generic traits that demonstrated a strong “inquisitiveness capability” of successful business owners.

Some other research ‘Global Explorers: The Next Generation of Leaders’, based on research findings from 2000 showed that CEOs with international activity, and especially those that have lived or worked in another country from their own, produced a 6% greater market share on average for their companies, and a 1.5% higher return on assets, compared to CEOs without international experience.

“This means that these individuals [with international exposure] give a jump start to their company and to their careers,” said Professor Gregersen.

“Then in our research, we questioned what it was that these CEOs were doing differently and how does this international experience affect their decisions?”

The creativity of this special group goes beyond products to rewiring themselves. They experiment a lot and reduce the cost of experimentation within the organisation.

“Innovation is so important in a fast-paced world,” comments Professor Gregersen. “Highly innovative companies have highly innovative leaders. For companies, they need to look at these innovative leaders and then extend these characteristics.”

For his research Professor Gregersen took interviews and looked at inconsistencies about how leaders experiment and network for ideas.

“Successful leaders are absolutely inviting questions,” he says. “They use these networks to get diverse ideas into their head and then they connect the ideas into the business. Steve Jobs calls it ‘connecting the dots’. The challenge is to find it, grow it, then synthesise it and turn it into a cash cow.”

So in today’s world, and in emerging markets like the GCC in particular, the ways that companies can foster these ‘discovery skills’ are no less important, but they are coming under pressure from the current financial constraints.
R&D dollars by definition lead to uncertain outcomes. Companies don't want failure during difficult times.

“How to keep these discovery skills close to the heart of the organisation is the key issue,” says Professor Gregersen. “Senior management has to concentrate on running the business today, as well as preparing it for tomorrow.”

Regarding the business culture in the Middle East, Professor Gregersen said there is a fundamental challenge of how to get beyond the traditional “blame culture.”

“Here there are hierarchical issues and saving-face issues, that if you put them all together are a consistent barrier to innovation. Companies that manage this well are very good at open source innovation.”

Companies opening the doors to innovation

To discover which companies innovate best - and why - BusinessWeek joined with The Boston Consulting Group again this year to produce the basis for its fifth annual ranking of the world's most innovative companies. More than 1,000 senior managers responded to the global survey, making it the deepest management survey to date on this critical issue.

The new ranking has companies evoking all types of innovation. There are technology innovators, such as BlackBerry maker and newcomer Research In Motion (RIMM), which features in the list for 2009 at number 8. There are business model innovators, such as Virgin Group, which applies its hip lifestyle brand to ho-hum operations such as airlines, financial services, and even health insurance. Process innovators are there, too. Further down the rankings is Southwest Airlines (at number 45), a whiz at wielding operational improvements to outfly its competitors.

Recession and market meltdown aside, many of the corporations on the 2009 ranking are finding ways to forge ahead. Some, such as Procter & Gamble (PG) (number 12) and Vodafone (number 25), are teaming up with outsiders to share costs. Others, such as India's Tata Group (nuimber 13), are taking greater advantage of in-house experts.

IBM (number 6) illustrates yet another way. The information technology giant is shifting more jobs to low-cost places like India while broadening its services through acquisitions.

"Some may be tempted to hunker down, to scale back their investment in innovation," says IBM CEO Samuel Palmisano. "While that might make sense during a cyclical downturn, it's a mistake when you're going through a major shift in the global economy."

But some previous winners clearly can't afford to spend on R&D for the long term now. General Motors (GM) ranked 18th in 2008. This year, as it struggles to survive, it didn't even make the top 50.

At the top of the list are the masters of many genres of innovation. Apple, which has always held the survey's top position, had 33% fewer votes this year than in 2008, while Google, consistently the list's number two, had 31% fewer. Why? Wrote one respondent of Apple: "Their products are improvements on previous technology. Their execution is flawless, but they are not necessarily innovative."

Another respondent had the same criticism of Google: "Resting on past glory (search). Spending a lot on new things but no new breakthroughs."

To launch the iPod, says innovation consultant Larry Keeley of Doblin, Apple used no fewer than seven types of innovation. They included networking (a novel agreement among music companies to sell their songs online), business model (songs sold for a dollar each online), and branding (cool white ear buds and wires). Consumers love the ease and feel of the iPod, but it is the simplicity of the iTunes software platform that turned a great MP3 player into a revenue-gushing phenomenon.

Toyota Motor Corp is becoming a master of innovation factors many as well. The Japanese auto giant is best known for an obsessive focus on innovating its manufacturing processes. But thanks to the hot-selling Prius, Toyota is earning even more respect as a product innovator. It is also collaborating more closely with suppliers to generate innovation. Toyota recently launched its Value Innovation strategy. Rather than work with suppliers just to cut costs of individual parts, it is delving further back in the design process to find savings spanning entire vehicle systems.

The BusinessWeek-BCG survey is more than just a Who's Who list of innovators. It also focuses on the major obstacles to innovation that executives face today. While 72% of the senior executives in the survey named innovation as one of their top three priorities, almost half said they were dissatisfied with the returns on their investments in that area.

The number one obstacle, according to the survey takers, is slow development times. Fast-changing consumer demands, global outsourcing, and open-source software make speed to market paramount today. Yet companies often can't organise themselves to move faster. Fast cycle times require taking bets even when huge payoffs aren't a certainty.

Some organisations are nearly immobilised by the notion that they can't do anything unless it moves the needle. In addition, speed requires coordination from the hub: Fast innovators organise the corporate centre to drive growth. They don't wait for it to come up through the business units."

Indeed, a lack of coordination is the second-biggest barrier to innovation, according to the survey's findings. But collaboration requires much more than paying lip service to breaking down silos. The best innovators reroute reporting lines and create physical spaces for collaboration. They team up people from across the org chart and link rewards to innovation. Innovative companies build innovation cultures.

Procter & Gamble Co (PG ) at number 12 in the BusinessWeek-BCG ranking has done just that in transforming its traditional in-house research and development process into an open-source innovation strategy it calls "connect and develop." The new method? Embrace the collective brains of the world. Make it a goal that 50% of the company's new products come from outside P&G's labs. Tap networks of inventors, scientists, and suppliers for new products that can be developed in-house.

The radically different approach couldn't be shoehorned into managers' existing responsibilities. Rather, P&G had to tear apart and restitch much of its research organisation. It created new job classifications, such as 70 worldwide "technology entrepreneurs," or TEs, who act as scouts, looking for the latest breakthroughs from places such as university labs. TEs also develop "technology game boards" that map out where technology opportunities lie and help P&Gers get inside the minds of its competitors.

To spearhead the connect-and-develop efforts, Larry Huston took on the newly created role of Vice President for Innovation and Knowledge. Each business unit, from household care to family health, added a manager responsible for driving cultural change around the new model. The managers communicate directly with Huston, who also oversees the technology entrepreneurs and managers running the external innovation networks.

"You want to have a coherent strategy across the organisation," Huston has said. "The ideas tend to be bigger when you have someone sitting at the center looking at the company's growth goals."

Coordinating innovation from the centre is taken literally at BMW Group. Each time BMW begins developing a car, the project team's members - some 200 to 300 staffers from engineering, design, production, marketing, purchasing, and finance - are relocated from their scattered locations to the auto maker's Research and Innovation Centre, called FIZ, for up to three years. Such proximity helps speed up communications (and therefore car development) and encourages face-to-face meetings that prevent late-stage conflicts between, say, marketing and engineering. In 2004 these teams began meeting in the centre's new Project House, a unique structure that lets them work a short walk from the company's 8,000 researchers and developers and alongside life-size clay prototypes of the car in development.

For many companies, cross-functional collaborations last weeks or months, not years. Southwest Airlines recently gathered people from its in-flight, ground, maintenance, and dispatch operations. For six months they met for ten hours a week, brainstorming ideas to address a broad issue: What are the highest-impact changes we can make to our aircraft operations?

The group presented 109 ideas to senior management, three of which involve sweeping operational changes. One solution about to be introduced will reduce the number of aircraft "swaps", disruptive events that occur when one aircraft has to be substituted for another during mechanical problems.

Southwest Chief Information Officer Tom Nealon says the diversity of the people on the team was crucial, mentioning one director from the airline's schedule planning division in particular. "He had almost a naive perspective," says Nealon. "His questions were so fundamental they challenged the premises the maintenance and dispatch guys had worked on for the last 30 years."

Managers are scrambling to come up with ways to measure and raise the productivity of their innovation efforts. Yet the BusinessWeek-BCG survey shows widespread differences over which metrics - such as the ratio of products that succeed, or the ROI of innovation projects - should be used and how best to use them.

Some two-thirds of the managers in the survey say metrics have the most impact in the selection of the right ideas to fund and develop. About half say they use metrics best in assessing the health of their company's innovation portfolio. But as many as 47% said measurements on the impact of innovation after products or services have been launched are used only sporadically.

Actually, most managers in the survey aren't monitoring many innovation metrics at all: 63% follow five gauges or fewer.

Chu Woosik, Senior Vice President at Samsung Electronics says the most important metrics are price premiums and how quickly they can bring to market phones that delight customers. Samsung also watches the allocation of investments across projects and its new-product success ratio. That, Chu says, has nearly doubled in the last five years. "You want to see it from every angle," he says. "A lot of companies fall into the trap that they thought things were really improving, but in the end, it didn't work out that way. We don't want to make that mistake."

General Electric Co (GE), has begun evaluating its top 5,000 managers on "growth traits" that include innovation-oriented themes such as "external focus" and "imagination and courage." GE has also added more flexibility into its traditionally rigid performance rankings. GE will now have to square its traditional Six Sigma metrics, which are all about control, with its new emphasis on innovation, which is more about managing risk. That's a major change in culture.

India and China are growing sources of innovation for companies, too. The BusinessWeek-BCG survey shows that they are nearly as popular as Europe among innovation-focused executives. When asked where their company planned to increase R&D spending, 44% answered India, 44% said China, and 48% said Western Europe. Managers tended to look to the US and Canada for idea generation, while a lower percentage looked to Europe for the same tasks. India and China, though, are still seen as centres for product development.

Leadership challenges for the Middle East

Professor Gregersen says that many typical Gulf companies need to to be more questioning in their approach to experimentation. Do you foster and encourage innovation? Are you confident with questions that challenge the status quo? Do you create an environment of experimentation? Do you provide time for people to observe the end users? Do you allow your people to go across silos and to go outside the immediate circle for ideas?

“These are the leadership challenges that are facing the world,” said Professor Gregersen.

“With the financial crisis, companies are having to put more careful thought into the innovation process and we are seeing a range of companies in the UAE, such as Mubadala, that are rising to the challenge of getting better ideas flowing.

“When the world changes, we can only hope that the way we work now will still work when we come out of the current period.”

Note: Professor Gregersen is Affiliate Professor of Leadership at INSEAD and he is the driving force behind the Learning to Lead programme at INSEAD Abu Dhabi. His research, teaching, and consulting work focus on leading innovation, leading strategic change, and leading globally. Before joining INSEAD, Dr Gregersen was the Donald Staheli Professor of Global Leadership and Strategy at BYU; a visiting professor at the London Business School, the Tuck School of Business Administration at Dartmouth College, Helsinki School of Economics, and Thunderbird; and a Fulbright Fellow at the Turku School of Economics.

Dr Gregersen has co-authored several books, including Leading Strategic Change: Breaking Through the Brain Barrier and Global Explorers: The Next Generation of Leaders, as well as published numerous articles, book chapters, and cases on leading innovation, change, and globalization in business journals such as Harvard Business Review, Sloan Management Review, Academy of Management Journal, Journal of International Business Studies, Journal of Applied Psychology, and Human Resource Management. His research has also been highlighted on CNNfn and in Across the Board, Business Week, Fortune, Psychology Today, and the Wall Street Journal.

Dr Gregersen's current research centres on how senior executives successfully discover new strategic direction, deliver results, and develop others in the process. Putting his research on leading innovation, change, and globalisation to practice, he regularly consults with senior teams, conducts executive seminars, and delivers keynote speeches on these issues with companies like Cemex, FMC Technologies, IBM, IHC Health Care, Intel, Johnson & Johnson, KPMG, LG, Lockheed Martin, Lucent Technologies, Marriott International, Nokia, Philips Electronics, PWC International, Sun Microsystems, Tong Yang and Yahoo!



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