Related read: 5 Ways to Be the Apple of Your Industry
- Long-term success is contingent on the ability to weave the spirit of inventiveness and agility into the fabric of the organization
- Recognizing superstars and nurturing talent is a key part of developing an innovative culture
- Instilling a truly innovative culture demands accepting a certain amount of failure
Long before Apple icon Steve Jobs resigned from the helm of the technology giant last August, industry observers began mulling Apple’s hypothetical future without him. The questions loom larger since his death in October. Will the company that forever changed mobile computing with revolutionary devices such as the iPod, iPhone and iPad continue innovating at the same extraordinary level and pace under successor CEO Tim Cook? Was Apple’s exacting and passionate leader the driving force behind Apple’s creativity—or did he manage to successfully embed that uniqueness in the culture he helped to fashion? Is Apple still Apple without Steve Jobs?
With the company’s pipeline still churning out products developed on Jobs’ watch, the real answers are still several years off. To be sure, Apple’s enormous market success in the years since Jobs returned in 1997 to rescue it from bankruptcy has been credited largely to what Microsoft founder Bill Gates called Jobs’ “intuitive taste for products and people.”
“Steve Jobs wasn’t so much known for generating ideas. He was a CEO who knew how to spot ideas,” says Jennifer Mueller, assistant professor in management at Wharton. By their nature, human beings are generally risk-averse, a tendency that can stymie innovation. The CEO’s tall task is to circumvent that inclination, to create an environment that nurtures idea generation and intelligent risk-taking, while at the same time preserving the financial well-being of the company and its shareholders. Arguably, any company’s long-term success, like Apple’s, is, to some extent, a measure of the current CEO’s ability to weave the spirit of inventiveness and agility into the fabric of the organization.
Build the Right Team
One of Jobs’ great gifts was recognizing superstars and nurturing talent, experts agree. CEOs don’t necessarily have to be creative themselves, but they do need to coalesce managers and leaders underneath them who will encourage creativity. “My role is, first and foremost, to field the right team,” says Mark Thierer, CEO of SXC Health Solutions, $1.95 billion leader in pharmacy benefit management (PBM) services. Although SXC has been a technology innovator in the pharmacy benefits industry for nearly 20 years, Thierer recently noticed that the company’s most creative leaders were too bogged down with day-to-day operations, leaving them too little time to focus on innovation.
He divided the business into a factory and an incubator and hired 450 additional people in 2011 to do the “factory” work, or the daily maintenance of the company. He then announced a new Office of Innovation that includes software developers, pharmacists with graduate degrees, business analysts, strategists and marketing executives. “We’ve handpicked the best and brightest people, the people who were bringing these new innovations to life, and we put them in this role full time,” says Thierer. “Before, they were very busy looking down and making sure nothing fell through the cracks, and now they’re looking up and all they’re going to do is focus on new-to-the-world innovations.” Some of the group’s areas of focus: using complex analytics to combine pharmacy data and medical data to help identify sick patients before they require hospitalization; developing tools for the Patient-Centered Medical Home, an innovative strategy of medical care that many hope will replace today’s inefficient methods; and designing mobile apps to help patients remember medications and other solutions to keep them healthier.
In addition to other areas of spending on R&D, Thierer peels off several million dollars from the budget annually, designated for incubation of ideas with no particular earmarks. “You can’t just tell people to go off and think about stuff,” notes Thierer. “You have to put money behind innovation. You have to fund activities and get the bets out on the table.”
Recently, those bets have been paying off, particularly Thierer’s decision to move the company into the full-service pharmacy benefit management (PBM) market. It now services hundreds of clients directly, effectively competing with its customers, many of which also use SXC’s technology platform. Following this strategy, the company has grown from $50 million in revenue in 2005 to $5 billion in 2011. Over the same time, market cap has grown 15-fold. (The company also topped Fortune’s 2011 list of Fastest-Growing Companies.)
Invest in Ideas and Encourage Failure
Thierer knows that a percentage of bets will fail to pay off. And experts agree that accepting failure is a key ingredient to developing an innovative culture. “If everything you do in the organization is successful, you can be very sure that it’s not very innovative,” says Charlie Prather, president of Bottom Line Innovation Associates, a consultancy for Fortune 500 companies. If the consequences of failure are too great, he adds, “that paralyzes an organization.”
Dan Hendrix, CEO of Interface, a global manufacturer of environmentally responsible carpet tiles—including the FLOR brand—couldn’t agree more. “You have to give your people permission to explore ideas. And we will fund good ideas. If they don’t work, they don’t work,” he says. “If you have too strict of an ROI principle, if the return has to be, say, 35 percent in the first couple of years, a lot of innovative ideas won’t get pursued because the project can’t clear that hurdle right away.” Hendrix recalls Project Lightfoot, a pilot program that experimented with a way to recycle the yarn from used carpet tile. After sinking $6 million into the project, Hendrix had to pull the plug. “It just could not be commercialized,” he says. “That was a hard one—but we learned a lot from the process.”
Indeed, the lessons learned from that failed experiment went directly toward another invention called ReEntry 2.0, a process that recycles old nylon carpet materials into new carpet tile backing. The process took nearly five years to get the quality where it needed to be, but it now allows the company to create modular carpet with as much as 75 percent recycled content. (Since the program began in North America in 1995, it has diverted 243 million pounds of used materials from landfills.) “If I had put a strict ROI on that in year two, we wouldn’t have gotten there,” says Hendrix.
To accelerate the development of ideas, Hendrix is kicking off several new initiatives, including the Innovation Farm, a global intranet/extranet system being piloted over the next six months, which is designed to let employees around the globe post ideas for their colleagues to vote up or down. Those with the best ideas get bragging rights and are also rewarded financially. Hendrix recently reintroduced the practice of payment for good ideas, which was dropped during the budget-crunching recession. Like other companies that hunkered down during the financial crisis, Interface had become hyper-focused on cost-cutting and quarterly results. “The breakthrough ideas were getting somewhat lost because there wasn’t enough funding and because everyone worried about making the quarterly numbers,” he says. “One thing we realized is, we’re only as good as the next idea. You don’t want your product to become a commodity. You don’t want to sit still.”
Creators Without Boundaries
One of the challenges to architecting a creative culture is that formalizing the process of idea innovation can be confining. “I try not to define creativity within my organization, because I feel like if I’m defining creativity and innovation for them, I’m judging it,” says Jerry Sokol, CEO of Vertis Communications, a marketing communications company with 5,000 employees. With print media shrinking fast, Sokol has worked hard since taking the helm in 2009 to transition from a print-based business to a cross-media solutions company. As an executive vice president at AOL Time Warner before joining Vertis, Sokol saw firsthand what happens when a company can’t pivot as an industry changes. “AOL was built on creativity and risk taking, but it ultimately sort of fell to its demise because of two things: It lost its creativity and the will to produce products and it ran into a train with broadband, which was a disruptive technology and the company could just not cope with it.”
To ensure that he gets a constant flow of ideas at Vertis, Sokol recently established the Innovation Awards Program to encourage all Vertis employees—from management down to the shop floor—to bring their best gems forward. One idea came from a direct-mail plant employee. “In direct mail, one of our strengths is the way the paper is folded, and this guy happens to love to fold paper,” says Sokol. After spending hours experimenting with paper folds at home, the employee discovered a new way to fold the direct mail product that would appeal to customers and improve the manufacturing throughput, resulting in a speedier delivery. “We’re now in the process of selling it to one of our larger customers,” says Sokol.
Recently, when a plant employee had a literal “light bulb” moment, the company learned that even small ideas can make a big difference to the bottom line. The employee noticed that the plant’s light bulbs were not energy efficient. He reached out to the regional power company, which agreed to help subsidize the purchase of the new bulbs, and Ventis is now rolling that change out to its 25-plus plants. The company expects to save $40,000 per year per plant. “That might sound small, but it’s over a million [dollar] impact on P&L annually. And it was all because somebody looked up and said, ‘Those light bulbs aren’t green. I think we can do better.’”
To create an innovative culture, the CEO has to recognize that he or she does not necessarily know best. “If I think I have all the answers, I’m going to squelch a lot of ideas that could make the company a tremendous amount of money,” says Sokol. The CEO’s job, he adds, is to coax creative employees, who may have been discouraged from contributing at other companies, to add their two cents. “The first thing to do is get people out of their shells,” he says. “If they are committed to it and they’re going to drive it and own it, I’ve found, in my career, that the chances of failure fall dramatically.”
The Innovation Ick Factor
If creativity is so universally valued by corporate leaders, why do so many employees feel creatively stymied? The answer may lie in the subconscious, according to new research. “Creativity is generally viewed as being very positive, associated with wisdom and intelligence. And yet, this belies the reality that if you talk to people on the ground floor, they’re frustrated because what they regard as creative other people don’t seem to like,” says Jennifer Mueller, assistant professor of management at Wharton, and co-author of the study, “The Bias Against Creativity: Why People Desire But Reject Creative Ideas.”
In their study of 200 people, Mueller and coauthors Shimul Melwani of the University of North Carolina and Jack Goncalo of Cornell found that a bias against creativity exists on a subliminal level. When the mind associates out-of-the-box ideas with uncertainty—as it must, because new ideas are unproven—it can cause that individual, subconsciously, to discount the inherent creativity of that idea. “The more novel the idea, the more negative the associations with uncertainty,” says Mueller. “That creates negative associations with creativity, so when you see something creative, you downgrade it. You have an ick factor.”
For CEOs and other executives who are charged with managing the company’s bottom line, it can be hard to negate that phenomenon. Mueller notes that when Steve Jobs talked to engineers about a new product, he didn’t focus on whether the product could be marketed commercially, but rather how it would work, and how it would enhance customer’s lives once it reached the marketplace. “We suspect that the CEOs who are not so focused on feasibility but on the broader, strategic issues will have an easier time recognizing true creativity,” says Mueller.
One method to counteract subliminal messaging is to employ the “wisdom of the crowd” to recognize creativity. Instead of having ideas evaluated by small groups of managers, companies can create larger rating systems that allow multiple groups of people, including customers, to weigh in on the creativity of various ideas, says Mueller. “Once you have that rating, you can get a better sense of which ideas are in the top 10 percent.”