BOOK Creative Construction: The DNA of Sustained
Innovation
Large companies can be
easy targets for disruption
Gary Pisano says there are steps that can keep them ahead
of the innovation curve.
“Larger companies are rarely seen as
fountains of innovation,” says Harvard Business School professor Gary Pisano.
Yet scale, if properly exploited, can still be an engine for transformation.
In his new book Creative
Construction: The DNA of Sustained Innovation, he explains how
to create an innovation strategy, design a system for creativity, and build up
an enterprise’s cultural DNA. Pisano, the Harry E. Figgie, Jr. Professor of
Business Administration, shares insights in our Q&A.
Martha Lagace: Your title, Creative
Construction, plays with a famous concept of innovation. Could you tell us the
background and how you think about innovation?
Gary Pisano: Probably the greatest
economist of the 20th century was Joseph Schumpeter.
He was really the godfather of the economics of innovation. He described a
process he termed “creative destruction,” whereby economies move forward when
young, entrepreneurial companies come on the scene and sweep away large
incumbent enterprises. He famously wrote in 1939 that big companies become, in
his words, like old men, losing their innovative vitality as they age. We have
seen the forces of Schumpterian creative destruction many times over in the
fall of such companies as DEC, Kodak, Nokia, Wang, and more recently Sears.
I am a huge fan of Schumpeter and I’ve been
reading his work since college. But my experience with companies, my research,
and the research of others tells me the process he envisioned is not
inevitable. I saw counterexamples of innovative large companies both
historically and in more recent times. People often forget that when Apple
launched the iPhone it was already a $24 billion corporation. The idea that
scale might actually be an advantage for innovation motivated me to write this
book.
Lagace: As you say, innovation is a
broad term. What does it mean to you?
Pisano: Innovation means change that
creates economic value. Innovations can be about technological change, business
model change, or some combination of both. In my framework, there are four
types of innovation.
1. Routine
innovation builds upon a company’s existing technological competencies and
exploits the existing business model.
2. Disruptive
innovation, a concept made popular by my colleague Clayton Christensen,
involves major shifts in a company’s business model.
3. Radical
innovation involves a major change in technology, but unlike disruptive
innovation it reinforces the existing business model.
4. Architectural
innovation is a radical change in technology that simultaneously involves the creation
of a new business model. That’s obviously the most challenging.
Lagace: What are common errors when
companies try to create innovative cultures?
Pisano: Big companies too often try to
emulate startup cultures, and that’s misguided. First of all, not all startups
have innovative cultures. Just being small doesn’t create an innovative
culture. Second, startups typically operate under some pretty unique
circumstances that are hard to replicate in a larger enterprise. The reality of
startups, though, is that you don’t have a lot of money and so the pressure is
enormous. And the costs of failure in startups are pretty high. If the project
fails, you probably go out of business and lose your job. Just putting people
into small teams, cool spaces, and allowing them to dress any way they want
does not recreate a startup environment.
The other mistake companies make with
innovative culture is presenting it as something that is going to be really
fun. So there is a lot of discussion about tolerance for failure,
experimenting, collaboration, and all sorts of other really pleasant things.
But, there is a harsh reality of innovative cultures. They are not much fun.
There is little tolerance for incompetence, they are extremely disciplined,
they involve high degrees of personal accountability, and they are brutally
candid places. Not everyone will thrive.
Lagace: How can we avoid the same
mistakes?
Pisano: Be clear that innovative
cultures are not a walk in the park. They are more like climbing Everest. Make
sure everyone is prepared for the fact that with all the great things like
tolerance for failure and so forth, there is an equally important set of
behaviors required that may be a lot less pleasant for some people.
Lagace: Why do many companies not
recognize disruptive threats?
Pisano: It’s easy to criticize managers
for missing disruptive threats, but I don’t think it’s entirely fair. Leaders
making decisions are staring in a foggy lens into the future. In retrospect
these disruptive threats look painfully obvious, but they are not obvious at
the time. They can happen much faster than we think.
And, sometimes responding is not even the
right response. As I write in the book with the example of digital photography,
sometimes a new thing coming along is far less profitable than your existing
business. The cliché “eat your own lunch before someone else does” is not
particularly helpful in these circumstances. In some cases, it may be better to
defend and extend your existing business. It’s not necessarily glamorous but it
might be your best option.
In the book, I provide many examples of
companies who have had really smart strategic responses to big shifts in their
industry. For example, when carbon fiber came along it endangered Pinarello, a
high-end manufacturer of steel bike frames. Pinarello shifted its business
model to focus on design, rather than manufacturing, which allowed them to
exploit the potential of carbon fiber.
Lagace: Where can companies get better
ideas?
Pisano: The problem is often not where
they look but where they don’t look for ideas. If you ask where ideas
for innovation come from and companies say, “Everywhere. We’re open to
everything,” watch out. Their ideas might come from the same places: the same
customers, same suppliers, same opinion leaders, same universities. Without
even realizing it they get grooved. It’s better to talk to different customers,
suppliers, opinion leaders, and people in different geographies.
Importantly, you don’t have to be CEO to make
an impact. People on the frontlines can’t change their company strategy but
they can innovate in solving customers’ problems. You want folks to be
constantly challenging themselves to find the right way or better way to do
something. There are regulatory, legal, and safety requirements that can
constrain what you can try, of course, but anyone can be deeply involved in
creating a culture where things are done differently. What it takes is senior
leaders who enable it, and people throughout the organization who don’t say,
“Well, this is the way we’ve always done things. Let’s never try anything new.”
In short, what you need throughout your organization are creative constructors.
by
Martha Lagace
https://hbswk.hbs.edu/item/how-big-companies-can-out-run-disruption?cid=spmailing-24980705-WK%20Newsletter%2002-13-2019%20(1)-February%2013,%202019
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