investiledysfunction

I’ve previously written that I’d like to meet A.G. Lafley, CEO of P&G, because what he has done since taking over at the helm of P&G has been nothing short of bada$$. I’ve also previously written about Jeff Bezos, the CEO and Founder of Amazon.com and am now adding Mr Bezos (I’ll call him Jeff going forward) to the list of people I want to meet.

Jeff talked about innovation in BusinessWeek’s April 28, 2008 issue (article here) and the guy is so spot on, it makes me almost wish human cloning was possible so we could install other Jeffs at old-school companies which need to be shaken up to realize the potential they have before them and help them escape from the unoriginality morass they seem to be stuck in.

Here are my favorite excerpts from the interview with Jeff although the whole thing is pretty outstanding so I’d suggest you read it.

Q: Few CEOs have taken as much flak as you have for spending on innovation, in both good times and bad. What’s your philosophy?
A: My view is there’s no bad time to innovate. You should be doing it when times are good and when times are tough—and you want to be doing it around things that your customers care about. For us, it’s such a deep-seated belief, I’m not sure we have a choice.

Q: The company has a reputation for frugality. Does that apply to the way you innovate?
A: I think frugality drives innovation, just like other constraints do. One of the only ways to get out of a tight box is to invent your way out. When we were [first] trying to acquire customers, we didn’t have money to spend on ad budgets. So we created the associates program, [which lets] any Web site link to us, and we give them a revenue share. We invented one-click shopping so we could make check-out faster. Those things didn’t require big budgets. They required thoughtfulness and focus on the customer.

Q: You seem able to ignore criticism from Wall Street, the press, and others about your investments in innovation.
A: I believe you have to be willing to be misunderstood if you’re going to innovate. That’s actually a serious point. If you’re going to do something that’s never been done before—which is basically what innovation is—people are going to misunderstand it just because it’s new

Q: Every company claims to be customer-focused. Why do you think so few are able to pull it off?
A: Companies get skills-focused, instead of customer-needs focused. When [companies] think about extending their business into some new area, the first question is “why should we do that—we don’t have any skills in that area.” That approach puts a finite lifetime on a company, because the world changes, and what used to be cutting-edge skills have turned into something your customers may not need anymore. A much more stable strategy is to start with “what do my customers need?” Then do an inventory of the gaps in your skills. Kindle is a great example. If we set our strategy by what our skills happen to be rather than by what our customers need, we never would have done it. We had to go out and hire people who know how to build hardware devices and create a whole new competency for the company.

Q: How do you build a culture that is comfortable sticking with ambitious, controversial initiatives?
A: We have three all-hands meetings a year, and I’ll tell people that if the stock is up 30% this month, please don’t feel you are 30% smarter. Because when the stock is down 30% a month from now, it’s not going to feel that good to feel 30% dumber. When the Internet bubble burst, our stock went from over 100 a share to a low right after September 11 of 6. Throughout that entire period, the fundamentals of the business continuously improved. You can see the stock price going in the opposite direction of the fundamentals. So it wasn’t that worrisome to us.

Q: Does that mean that dealing with the whipsaws on Wall Street have not been a management problem for you?
A: Not really. It’s like trying to get people to be long-term-oriented. Also, people who want to pioneer and find new ways of doing things know there are going to be ups and downs, that there will be profound moments of success and failure. And that’s O.K. It’s not an experiment if you know it’s going to work.

Q: Do you feel vindicated, given how well the company is doing now?
A: No. I’ve taken plenty of criticism, but it’s always been about our stock price and never about our customer experience. After the bubble burst, I would sit down with our harshest critics, and at the end of the meeting they would say, “I’m a huge customer.” You know that when your harshest critics are among your best customers, you can’t be doing that badly.

Ok so I copied at least 70% of the interview. It’s really that good.

I subscribe to several magazines which put out lists of most innovative companies.  They tend to generally have lots of overlap in terms of the companies they profile and generally lack much in the way of creativity and surprises.  Basically, Google Apple, Toyota, etc tend to be towards the top of all the lists and are then followed by the same anecdotes about continuous improvement (Toyota), the cafeterias (Google) and Steve Jobs’ awesome creativity (Apple).  Facebook gets on some of the lists because of their current media darling status. 

They tend to describe innovation as the lifeblood of organizations and other overused terms.  They often profile some up & coming head of R&D at one of the profiled companies and talk about how he or she is shaking up how innovation is done at XYZ company.  In essence, it’s the same article basically reformulated year after year. 

But, amidst all this unoriginality, some points, no matter how often they’re restated, are made which are worthy of repetition.  The best point as articulated by BusinessWeek in their latest list is that “As the recession shifts suddenly from ‘what if’ to ‘how long’, slashing research & development budgets just got a lot more tempting.  That high-risk product in your pipeline?  It’s about to get much more scrutiny…two camps emerge.  ‘One is saying times are tough, so it’s the most important time for us to innovate.  The other is saying ‘we simply don’t have the ability to think about innovation right now’.  There’s a real separation between the innovation haves and have-nots.”

As I’ve stated many times before, innovation is not something you should do when times are good.  It needs to be part of the organization at all times especially during downturns when a solid innovation effort can provide new growth avenues for when times get better.  From a contrarian stock market perspective, why not invest in innovation now?  The Street already has low expectations so why not just go for the gold?  Companies continue to write off billions of dollars and their stock prices go up because people feel the worst is over.  Low expectations are a wonderful thing.

I’d also posit that such times lead to a great deal of innovation from entrepreneurs and startups.  As people get laid off, many who have tucked away some money may look at the time as an opportunity to launch that venture they’d been thinking of.  And in some instances, these upstarts will become threats to big companies in the future.  So for the large, well-capitalized, market-share owning organizations, this is a great time to innovate.  Don’t cut back - invest more. 

We recently published the 10 Un-Commandments of Innovation.  We hope your organization will avoid these.  Check them out by clicking here, and of course, let me know what you think.

When Wayne Gretzky was asked what makes him a great hockey player, he responded that he skates to where the puck is going, not where it has been.  I’m not sure there is better advice for organizations when it comes to their efforts around innovation.  Me too innovation ultimately won’t do much for you.

The other good quote I just read was “If you always hit the bullseye, the target is too close.”  Nice, eh?  Innovation requires stretching yourself and is risky and may require you to miss the target occassionally.

Fortune’s March 17 issue contains an excerpt from a book entitled The Game-Changer: How You Can Drive Revenue and Profit Growth with Innovation which is by P&G CEO, A.G. Lafley, and management consultant, Ram Charan, which has a couple of passages which are brilliont (nice, eh?). Before I share Lafley’s awesome insights, it is worth looking at P&G’s stock chart since he took over in 2001. So take a look at the chart below and notice the stocks dismal to pathetic performance until 2001 and then look at when Lafley took over. That is some chart, eh? So how did he do it?

Organic Growth

“We made sustainable organic growth the priority. Organic growth is less risky than acquired growth and more highly valued by investors…Adding a few points in market share can mean hundreds of millions in new revenue.”

Instead of chasing inorganic growth through M&A, Lafley astutely realized that optimizing their portfolio of internal investments in product development, marketing, etc could drive significant value in a much less risky. And the price chart shows the fruits of this effort. This really is one of the best examples I’ve seen of the power of organic growth and the fact that it works. Managing your investments as part of a corporate portfolio really drives performance.

On Innovation

“Long known for a preference to do everything in-house, we began to seek out innovation from any and all sources. Innovation is all about connection, so get everyone we can involved: P&Gers past and present, customers, suppliers, even competitors. The more connections, the more ideas; the more ideas, the more solutions. And because what gets measured gets managed, we established a goal of that half of new-product and technology innovations have some contribution from outside P&G - such as licensing or buying a technology, finding a partner, or making an acquisition. We are already beyond that figure, compared with 15% in 2000.”

I’m really beginning to like this Lafley guy. On the topic of innovation, he hits on so many key elements of innovation and the best part he actually did this in his organization - didn’t theorize or pontificate on it. Let’s dissect his most brilliont points.

• Set goals and measure it - Innovation doesn’t happen. And proclamations about innovation are just that - proclamations. You have to set goals and put them into people’s objectives and then make sure they are achieved. They did this.
• We’re not the smartest guys in the world - Innovation doesn’t happen because the top 10 people in the company think of an idea and go do it. There is no monopoly on ideas. And so opening up the organization and being receptive to ideas from everywhere is smart business.

I hope to meet Mr. Lafley at some point. In the meantime, I’ll settle for his book. For more info on the book, check out it’s Amazon listing by clicking here.

Before leaving American Express recently, I’d established and led the company’s inaugural Chairman’s Innovation Fund.  I was glad to recently see that Fortune Magazine recognized American Express as the most innovative company in the Financial Services industry.  The company’s CEO, Ken Chenault, spoke about the organization’s innovation efforts and the Chairmans’s Innovation Fund in particular.

“A difficult economic environment argues for the need to innovate more, not pull back,” says American Express CEO Ken Chenault. A few months ago he established a $50 million innovation fund to finance “employees’ ideas for how to transform our business long term. We want great ideas to come from all over the company, not just the chain of command,” Chenault says. AmEx (AXP, Fortune 500) (No. 13) has a venerable history of making risky moves during downturns. Back in 1958, despite a slumping economy, the company launched a little thing called the American Express card. “When I first came here, I saw a copy of a letter from an analyst that earnestly explained to our then chairman why the card was a terrible idea and how it would cannibalize our traveler’s check business,” says Chenault. “It was an impeccably logical argument - that couldn’t have been more wrong.”

Given the vast amounts of unproductive complexity (UC) that resides within organizations, it is amazing how prone we are to believing silver-bullet strategies will transform the company and miraculously grow revenues, shareholder returns, profits, customer and employee satisfaction. 

When I talk about unproductive complexity, I’m talking about the absurd matrixed organization structures, transfer pricing issues, overly-detailed budget processes, steering committees, infighting due to silos, bizarre short-term oriented incentive structures and other ridiculous processes and practices organizations adopt.  Managers would have you believe that this complexity is an unfortunate consequence of being big and global or multinational, and to some extent, that is true.  But unproductive complexity is often a result of territorial and suboptimal behavior.  It’s end result is slow and often poor decision-making.  Unproductive complexity is the enemy of innovation.  It is good, however, at creating job security for a host of mediocre and incompetent people who can sneak by while they shuffle papers from left to right and churn out PowerPoint presentations and Excel spreadsheets.  And given their accomplices in the leadership ranks, this activity over accomplishment method becomes acceptable.  If you want to change organizational performance, focus on stamping out unproductive complexity.  This should be the focus on reengineering efforts - not knee jerk cost cutting and layoffs.

So with that rant about unproductive complexity out of the way, let me get back to the subject I wanted cover.  Given this UC, it perhaps makes sense that leaders are drawn to consultant, software, academic elixirs that are simple.  With all the day to day b.s. they have to put up with, it’s probably comforting to think that if they just do “this one great thing”, they’ll have changed company performance and arrived.  There is probably some psychological basis so I’ll just assume that there is some school of psychology that says “when people are overwhelmed, they take comfort in something that doesn’t overwhelm them.”

And as a result, consultants, academics and many software vendors who’ve realized this bring elixirs and other alchemy-in-a-box solutions to management and with great success, they sell them and make lots of money.  In fact, entire industries emerge around some of these practices.  This enables the leaders to not think too hard for a bit because the solution is just right in front of them.  It also often serves the dual purpose of making the leader seem bold, visionary, strategic, etc.  These are all nice appelations that we like.

Here are some of my favorite elixirs that appear to be hot these days.  Some actually have value but given everyone is hanging out their shingle and professing expertise in many of these areas, I worry that organizations will end up with a whole lot of nothing after investing in these efforts with these dubious experts.  

Here is my list which I hope to revisit over time and get input on.  The top elixirs, hot topics, etc are: business intelligence, IT portfolio management, innovation (always hot), corporate social responsibility, anything green, web2.0, social networking.