What CEOs Need to Understand about Innovation

How should CEOs think about innovation as a path to growth for their companies? In a decade of listless economic growth companies can either grow through acquisition or by creating new products or services and the businesses that support them. When thinking about innovation most assume one is referring to high tech. Innovation is said to be the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or service. But prosaic mid-tech companies such as 3M have created more than 100 new businesses or major new product lines over the last 70 years and has been successful four out of every five times in its ventures. Procter & Gamble has been able to effectively partner with researchers and engineers outside its organization to develop billion dollar products.

This brings us to an even more important question; how should CEOs pursue innovation? Some prefer to think about innovation as a discipline capable of being learned and practiced. Some innovators have been highly trained P.H. Ds while others were college dropouts. Steve Jobs is widely seen as the archetype innovator of our age but we are reminded that it was Xerox that built the first Alto, a forerunner of the personal computer in 1973.

Apple launched the Macintosh with great fanfare in 1984. Also, the concept of the mouse which Jobs highlighted with great fanfare was actually developed by Xerox PARC, the company’s R&D unit decades earlier. Jobs was a gifted synthesizer and Apple became the world’s most valuable company by limiting the number of products it sells and relentlessly focusing on the end user to make things that are “insanely great.” Also known for its innovativeness, Google continuously experiments with endless streams of new innovations some of which create new business models.

“There is great value in listening to one’s best customers. Feedback from demanding customers helps to map out a trajectory that allows a company to charge premium prices, earn attractive margins and beat market competitors.”

Greg Satell author of the recently published book, Mapping Innovation: A Playbook for Navigating a Disruptive Age, says innovation “is far more difficult and complex than most people give it credit for. It takes more than a single big idea to change the world, and it can take decades after the initial breakthrough for the impact of an idea to become clear.” Effective innovators, he argues, combine the talents and wisdom of people from diverse fields to synthesize ideas across domains.

Two approaches among several often emerge that CEOs have found particularly successful. One is an assiduous focus on a product breakthrough to solve a single issue. Another is a systemic approach on organization-wide innovation platforms. Both require the creation of a tight focus on unifying innovation principles. Two CEOs  who have  taken these concepts to create their own innovation playbook are Adam Elsesser of California-based medical device maker Penumbra and  Michael Polk who took over consumer product company Newell Brands (formerly Newell Rubbermaid)  in 2011. Each illustrates a different kind of innovation challenge and the problems leaders must overcome to achieve success.

Together with a college friend Elsesser started and sold a medical device company before founding Penumbra in 2004. Their mission, based on that experience was to focus on only products that address medical conditions with limited treatment options. The area of focus was ischemic stroke, a leading cause of adult disability and death that is caused by a blood clot in the brain. At the time the remedy was a TPA drug to dissolve the clot, but this took time and there were complications if the clot was too big. The company introduced a product that enable physicians to remove the clot using aspiration, which acts as a minimally invasive vacuum inside the artery. Elsesser set a course for the company to become pre-eminent in its core aspiration technology. Penumbra later launched a product to treat brain aneurysms with embolization using a small platinum coil.

Relying on its core expertise in aspiration and coil technologies the $317 million company focused on products to treat conditions that were almost untreatable just a few years earlier. Its reputation for its technology is one of the reasons the company has a become one of the largest independent companies focused on the stroke market with a 40 percent growth rate. With giant competitors such as Stryker and Medtronic Penumbra cannot afford to stand still. Hence the CEO avoids increasing bureaucracy that makes innovation more difficult owing to turf wars and hierarchy. He also prizes teamwork and cooperation, something Satell argues is a hallmark of most innovators.

Like Elsesser Michael Polk places teamwork and cooperation at the center of his company’s culture, but instead of focusing on one product Newell Brands offers scores of diverse products that address a variety of consumer needs. Instead of a narrow core competency Polk has sought to create an innovation platform for a variety of consumer products. The company’s familiar household brands include Rubbermaid, Sharpie, Oster, Yankee Candle, Crock-Pot, Paper Mate, Graco, and Coleman just to name a few. He left the number two position at Unilever, where he is credited with transforming the company’s Global Foods, Home and Personal Care business in the Americas, sharpening Unilever’s global portfolio strategy and creating a more competitive, innovation-driven organization.

Today he runs a $15B consumer goods powerhouse created about 1 year ago with the acquisition of Jarden Corp. Polk has led his team to focus and simplify Newell’s portfolio (6 transactions in the first 15 weeks of 2017), to deliver growth that far outpaces competitors during a volatile time for consumer product firms. Newell has become a top 10 supplier to Walmart and Amazon, by investing heavily in a powerful pipeline.

“To emphasize greater innovation,” Polk says, “We decoupled the P&L from brand development. We aim to build claimable functional differentiation in our products.” Some of its breakthrough products include food containers using special membrane technology that keep fruits 80 percent fresher than keeping them in their original containers.  For the same resin cost the company developed a gasket seal technology in a its Brilliance line that offers a 100% leak-proof seal along the edges of the container where most leaks occur. It’s Papermate InkJoy gel pens dries 3 times faster than the next three gel pens in the market. Its share of writing instruments in the US direct to consumer channels has jumped to 33 %.

Newell’s products enjoy #1 or #2 positions in every category where it competes. One of the ways Newell is doing this is through a newly established global e-Commerce hub, based in its new Hoboken, NJ headquarters. Given that consumers are increasingly turning to the Internet to buy the things they need, and companies need to adapt to meet the demands of the changing retail landscape, Newell’s rapidly growing e-Commerce arm is hard at work developing new ways to consistently win where Newell competes.

“When we think of innovation we don’t think of it as a creative process but a discipline that starts with consumer data and analytics continuum built around each category,” observes Polk. “It’s built around usage, listening, insights, and a set of tests each concept must clear. We test whether the product fulfills the objective of giving clear value to consumers, “Polk says. Where P&G has up to five stages in its process Newell Brands has slimmed it down to three with a gestation process from concept to market that has been streamlined from 24 to 18 months. So far Polk’s transformation has improved operating margins from 12.5 percent when he took over to 14.4 percent. Gross margins have moved from 37.5 percent to 39.4 percent. The company is ahead of its target in achieving $1.3 billion in cost savings by 2021. Corporate growth has jumped from under 3 percent per annum to over 5 percent a year.

In researching his book, “Mapping Innovation,” Greg Satell found that every innovation strategy falters eventually because innovation, is at its core about solving problems—and there many ways to innovate as there are types of problems to solve. “There is no one “true” path to innovation.” But as Elsesser and Polk have demonstrated is the power of open innovation. When faced with tough problems it often helps to open one’s domain beyond specialists in a single field. Satell and others believe that being open to unlikely combinations of people in one’s process is the key to coming up with breakthroughs.

Cautionary Lessons About Innovation

There are many so-called false paradigms that may have an element of truth but which can easily lead companies astray when seeking to innovate.

Always listen to your best customers. There is great value in listening to one’s best customers. Feedback from demanding customers helps to map out a trajectory that allows a company to charge premium prices, earn attractive margins and beat market competitors. However, this raises the question about being blinkered to new growth opportunities not appealing to established customers. By only listening to one’s best customers one might not see disruptors making headway in the lower tier of your market.

Market segmentation. Segmentation schemes often define the characteristics of their products by price, industry, or geographical location. The problem with normal segmentation schemes is that the assume the customer is static. Even business-to-business customer behavior changes. Most “home runs” of marketing were hit by marketers who sensed the fundamental job that customers were trying to accomplish.

The Illusion of Core Competencies. Companies make many decisions based on what they perceive to be their core competencies. But misperceptions about one’s core competencies can cause one to miss opportunities for growth. Companies that outsource what may be thought of as peripheral value-added activity sometimes find that the outsourcing partner has been building its own competency that will be the basis for future success.