Gerard J. Tellis (www.gtellis.net) is a professor of marketing and organisation and Director of the Centre for Global Innovation, University of Southern California. He has published over 100 papers and five books, including, ‘Will and Vision: How Latecomers Grow to Dominate Markets.’
His latest book describes three key cultural traits of innovation success, and three practices necessary to sustain the culture of unrelenting innovation. Organisations must be willing to cannibalise successful products, embrace risk, and focus on the future. Organisations build these traits by providing incentives for enterprise, empowering product champions, and encouraging internal markets.
“Incumbent’s curse” arises when companies are unable to put these practices into action, and therefore do not succeed beyond their current crop of products.
The material makes for an interesting and compelling read, and is thoroughly referenced. It is based on a study of 770 companies across 15 countries, and addresses 90 innovations spanning over 100 years in 66 markets.
I have summarised a few of the key themes in Table 1, though each chapter of the book itself could be another book in its own right; Tellis has done a remarkable job of packing so much useful insight into one book.
Table 1: Culture and Innovation
|Aspects of innovation||Properties||Dynamics|
|Incumbent’s curse||Fear of cannibalising existing products (Xerox and computers; Microsoft and search ads; Kodak and digital film), risk aversion (Sony’s MP3 player), too much focus on present||Type One error (failed innovation), Type Two error (missed innovation). Fears of cannibalisation: economic, organisational. Risk aversion: hot-stove effect, expectations effect.|
|Traits of innovative culture||Willingness to cannibalise existing products (Gillette razors), embrace risk (Toyota Prius; Amazon e-commerce; Facebook model), focus on the future||Gambling on growth, vision. Future focus biases: hot-hand, availability, paradigm, commitment|
|Practices for innovation||Provide incentives for innovation (3M: 15% of employee time eg. Post-Its; Google: 20% of employees’ time eg. Gmail, News, Finance), establish internal markets (HP: inkjet + laser printing), empower innovation champions (Apple and iPod creator Tony Fadell; Google Young Turks; Tata Nano)||Asymmetric incentives for success and failure (‘freedom to fail’). Perks, options, awards. Moral and social incentives. Learnings from psychology and game theory. From awards to seed capital and grants. Idea fairs, research contests.|
The book will be useful not just for incumbent players but also newly minted startups who will need to figure out how to sustain their innovative edge and not join the graveyards of also-rans with one-trick stories.
The book begins by provocatively asking what happened to Sony (creator of the Walkman) v/s Apple (one fifth the size of Sony before the iPod and then twice the size of Sony in terms of market cap, five years after the iPod). Intel dominates PC chips, but is a minor player in cellphone and tablet chips. RIM dominated smartphones with the Blackberry but is now eclipsed.
Market leadership in a number of categories has passed on from one wave of companies to another: search (Altavista, Yahoo, Google); minicomputers (Altair, Tandy, IBM, Compaq, Dell, HP); and retail (Sears, Walmart). The key reason for the transition is inability to sustain the culture of innovation, according to Tellis.
“Culture is that uniquely human product that is complex, ambiguous, slow to develop, difficult to change, and hard to analyse. Money can’t buy culture. And culture plays a critical role in innovation,” says Tellis. Even companies with resources, technology and patents will not succeed in the long run without an innovative culture.
It is important to realise that at any point in time, multiple technologies can co-exist in the market with different price-performance points, and thus a company will have to hedge multiple innovations.
Some innovations take as long as 10 years before market takeoff, and call for tenacity and creativity, as the example of Toyota’s Prius indicates. Amazon launched in 1994 but posted its first profitable year only in 2004.
Google has a range of perks, options and awards for innovation, including Founders’ Awards of millions of dollars (eg. Bret Taylor and Jim Norris, for Google Maps). Google’s Young Turks programme nurtures champions through a buddy system, mentor and management coach.
Tellis urges that it is important to recognise the qualities of innovation champions: they have a vision for future mass markets, they are dissenters, and have the conviction to fight a lonely battle full of risks against heavy odds.
External market conditions can be simulated inside the company via internal markets, to spur innovation. This should also involve future-oriented experts from outside the company. Care should be taken, however, to avoid unhealthy competition and lack of focus.
The internal culture of a firm is the primary driver of innovation, and can be created by a company of any size, location and geographic location, Tellis concludes.
The book has a number of witty and inspiring quotes, and it would be nice to end this review with some of them.
“The risk of not innovating is greater than the risk of innovating.” – Masahiro Fujita, Sony
“You can become a bigger part of a customer’s life by just simply doing a better job for them.” – Jeff Bezos, Amazon
“I don’t think I’m ever going to have an idea this good again.” – Mark Zuckerberg, Facebook
“If you’re not failing, you’re not trying hard enough.” – Richard Holden, Google AdWords