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Learn To Think About Innovation Like A CEO

Innovation is more than just a buzzword; it's something that CEOs think about in a different way than the rest of us. Here's what's going through their heads.

Innovation has become an evergreen subject simply because it is no longer a luxury. It is now a necessity. Gone are the days of the gold watch at retirement. Today, you must earn your daily bread, well, daily.

Shrinking product life cycles, unorthodox competition, and receding barriers to entry across categories have created an unprecedented need to unleash corporate creativity. However, before you set off to "innovate," here are a few things to keep in mind that your CEO wants you to know.

1. It’s not (only) about the product.
Everyone has the opportunity to innovate. Oftentimes net wealth creation comes not from the product, but from innovations in supply chain (Zara), pricing (Google AdWords), marketing (Red Bull), the customer experience (Celebration Health), process (P&G), and people (Zappos customer service). Think outside the product. Think about ways in which you can solve problems within in the business, not only within the category.

2. The future is in the tail, but the money is in the mean.
Keep your eye on the fringe, learn from it, and let it inspire you. Then ask: how might this change our core business to drive incremental revenues or profits? Think McDonald's, for example. Coffee chains over the past couple decades have become kind of a big deal. For McDonald’s, Option A could have been: open a chain of Starbuck's knock-offs. Option B (reality): serve coffee drinks under the Golden Arches. Large corporations are often distracted by emerging and fringe opportunities that may inspire but are not big enough to move the needle on the core business. Study the tail, but sell to the mean. That will move the needle on today’s business giving you the freedom to invest in tomorrow’s business. As the fringe becomes mainstream, not only will you have protected your core business you will have bought an option on the future.

3. Create demand for creativity, and reward it.
Academic research (notably that of Harvard's Teresa Amabile) has revealed that intrinsic motivation is a significant driver of creativity. People who care, create. And extrinsic motivation (think monetary awards) can sometimes have an adverse affect on creativity (you’re working for the money and not for the answer). At the heart of innovation incentives is a single issue: how to motivate people to want to create? In a conversation with a CEO client of mine, he put it this way: "How can we create demand for innovation internally?" From his point of view, he can tell people to do many things (reduce budgets by 10%, develop business unit strategies, etc.) however he knows there is only one thing he can’t do with any degree of success as a leader. He can’t demand that people innovate. He can only create the conditions for them to want to do so. In order to create demand you need to create the environment for innovation to work. Tend to the soil and great things happen.

Many companies fail at getting scale with innovation simply because they work on the supply side of innovation internally—they create the tools, funding mechanisms, and processes—but fail to create the demand within the company for people to step forward with their best ideas.

Beyond infrastructure, you must work on the culture of the company. That begins by working on the culture within your team. Create incentives that matter not only to the company, but also to individuals. It starts with a simple question you can ask of each of your team members: Why do you work here? Once they’ve answered, ask them again: Why do you really work here? And then ask them: If you could create the perfect conditions within your job such that Monday mornings felt like Friday afternoons, what would those conditions be? Give people what they want. You’ll be surprised at what they’ll deliver.

4. You can’t over-innovate.
I was leading a strategy offsite several years ago for the senior executive team of a multi-billion dollar consumer packaged goods company. One of the outside speakers, invited by the current president, was a former chairman/CEO from a decade prior. In the history of the company, he was considered one of the great ones. How he dealt with turnarounds, crises, competition, and innovation was remarkable. And so, the current president wanted his team to have a sense of the ethos under which his former boss’s boss operated. Following his war stories and lessons learned, he left the group with one very powerful question: "How bad can you really screw this up?" Assuming sound financial management and the maintenance of ethical standards, his point was to get them thinking about risk differently. In the thought exercise that followed, he had the group thinking about what it would really take to "over-innovate," to take risks that were too big for the business. It was nearly impossible for the team to conjure up "innovations" that were too radical. And when they did: those ideas just so happened to be the most interesting, the most promising, and the most likely to occur. And so, they pursued them. And, five years later, they are paying off.

5. If innovation is everybody’s job, it’s no one’s job.
Someone must own the innovation agenda for it to get scale. This can take on various forms: Chief Innovation Officers, Vice Presidents of Innovation, and so on. However, know this: it is not the CIO’s job to create. It is his/her job to curate, to facilitate, and to incubate. Ideas can and should come from anywhere. Those "responsible" for innovation (by way of their title) are the best curators, communicators, and facilitators of organizational creativity. Their role is to provide the tools, training, knowledge, expertise, and inspiration to create the environment for innovation to flourish. If you have a CIO at your company, know that they want and need you. They cannot succeed without you.

6. Be vulnerable to possibility.
The only thing you can drive on a half tank is a car. You will never succeed with innovation at 50% effort. You need to go all-in. The reason the future is often created by entrepreneurs is due in large part to their "all or nothing" approach to innovation. They accept from the outset the cold hard fact that they may not succeed. But failure is overblown. What they really accept is that the idea they have may just be possible. They are often unable to find reasons why should not do it and thus they are compelled to move forward.

This "moving forward" is possible because they allow themselves to be vulnerable to possibility. In large corporations, it’s not only the fear of failure we must overcome. It’s the fear of success. In order to succeed with innovation, you must overcome the fear that the big idea may be so good that it cannibalizes that which you have grown to know and to love. If you believe, however, that life is a constant learning journey, then suddenly success (and failure) don't seem so daunting.

Think of it this way: what we know and love today will not—in fact, cannot—be that which future generations will grow to know and to love. By definition, human progress requires change. In order to grow your business, you must be willing to change it before it changes you.

—Andrew Razeghi is founder and managing director of StrategyLab, Inc., a growth strategy and innovation consulting firm and a Lecturer at the Kellogg School of Management. Find him on Twitter @andrewrazeghi.

[Image: Flickr user lehman_11]