6

HANDS-ON CREATIVITY

HOW TO INSPIRE AND EMPOWER YOUR COMPANY’S FRONTLINE INNOVATORS

Running a hotel is one of the most grueling jobs you can imagine. Every day, there are thousands of small, essential tasks that must be done correctly, from serving the breakfast toast while it’s still hot to fixing a balky Stairmaster in the fitness center to shuttling a departing guest to the airport on time. Botch one task, and you may have lost a customer forever. Under daily, detail-oriented pressure like this, it’s tough for hotel managers to generate big, innovative ideas for the future of their industry—which is why most hotel chains today offer me-too products and services.

How, then, did the giant Starwood organization—operators of 850 hotels in 95 countries under brand names that include Sheraton, Westin, W, and St Regis—inspire its managers to generate no fewer than 1,700 innovative ideas . . . all in a single day?

Perhaps we can attribute it on the magic of Paris.

Robyn Pratt, then vice president for Six Sigma and operational innovation at Starwood, Europe, Africa, and the Middle East, organized the day during a conference in Paris attended by the company’s managers from Pratt’s whole region. Asked to find a way to jump-start fresh thinking about the future of Starwood, Pratt organized the 700 attendees into 64 teams and assigned each team one of eight words reflecting the company’s core values: beauty, trust, thoughtfulness, luxury, individuality, inspiration, style, approachability. Then she sent the teams out to roam the streets of Paris with notebooks and cameras, challenging them to find images, experiences, and insights that embodied those words.

Three hours later, the 700 managers came back with an amazing wealth of stories and ideas. Street scenes, the famous parks and fountains of the city, intimate glimpses of Parisian family life, the elaborate awnings over the windows at Maxim’s restaurant, a young couple kissing on the Metro—all were fodder for fresh insights into the nature and meaning of Starwood’s hospitality brands. The 1,700 ideas that poured out were captured and sorted for possible use in improving the hotel’s day-to-day operations. Some turned into minor improvements to existing projects, others into clever new advertising or promotional concepts, and still others grew into major strategic initiatives that Starwood adopted globally—like FamTASTIC, a marketing approach that develops special family packages based on research into what kids, not their parents, want from a hotel.

None of the 700 managers who took part in this exercise was a specialist in innovation. But once the managers were taken out of their daily work routine, given permission to innovate, and taught a few simple mind-expanding tools, they produced a flood of new ideas—many with the potential to create huge new value for Starwood. Afterward, one participant commented, “I didn’t know I was a creative type, but now I think I can do it.”¹

Why Frontline Innovators Play a Crucial Role in the Process of Creation

As I’ve explained, one of the foundational processes of innovating is creation—the generation of ideas for new products, services, process improvements, or other innovations that may benefit the organization as well as its various stakeholders. Most often, the crucial actors in the creation process are frontline innovators. These could include assembly-line workers and foremen in a factory, actuaries and sales agents in an insurance company, and nurses and physicians in a hospital. In the case of Starwood, they were frontline managers from throughout the hotel chain—people who spent most of their days interacting with guests.

When these frontline workers operate within the execution engine, they focus on doing their assigned tasks as well as possible—as they should. But when they enter the innovating engine—as all employees should do from time to time—a shift in mental gears is required. While inside the innovating engine, their minds and actions should be totally focused on looking for new value-creating business ideas.

The potential of frontline workers to generate such ideas is enormous. Frontline innovators are the employees who directly face customers (and often noncustomers, too) in the greatest numbers and with the greatest frequency. Thus, they have the most numerous opportunities to learn from customers about their unmet needs, unspoken desires, and unsolved problems—each of which represents a possible opportunity for innovation by the organization.

In addition to serving customers, frontline innovators are also directly engaged in most of the other processes that are central to the organization’s business model. Frontline workers are personally involved in making products, delivering services, managing financial transactions, designing apps and webpages, handling human resource functions, and carrying out all the other activities that, through their cumulative impact, lead to success or failure for the company. No wonder frontline workers are in the best possible position to generate ideas about how to make those activities work better.

Unfortunately, in many organizations, frontline workers don’t get the respect they deserve. Many frontline jobs are entry-level positions that end up being filled by employees with little or no experience and few specialized skills. The pay, prestige, and power associated with these jobs are often minimal. And when specific frontline employees stand out from their peers because of their unusual talent, efficiency, and creativity, they usually get promoted into the managerial ranks—which means they stop being frontline workers.

The result is a paradoxical one. In many organizations, the higher employees rise in the business hierarchy, the less hands-on, face-to-face contact they have with customers and with the work processes that actually produce revenues and profits for the company. As they move up the ladder to become midlevel managers, and, in some cases, senior executives, they gain increasing power to innovate—yet, at the same time, they lose the continual firsthand access to customers and processes that helps to generate innovative ideas.

Fortunately, there’s a way to resolve this paradox. Organizations that want to embed innovating in their DNA must recognize the crucial role that frontline innovators play. These organizations need to develop ways to incentivize frontline workers to devote time and energy to developing and sharing innovative ideas. They also need to create systems that surface those ideas, identify the best ones, and turn them into practical realities. Frontline employees can benefit enormously from the creative opportunities such systems provide—and the companies they work for can benefit even more.

How a Hospitality Giant Uses Customer Intimacy to Fuel Innovation—and Vice Versa

Shortly after the Paris adventure I described at the start of this chapter, the Starwood organization was acquired by Marriott International. The new combination created the world’s largest hotel company. Embracing 30 different hotel brands that operate some 6,700 individual hotels in 130 countries around the world, the Marriott organization faces the challenge of efficiently running a vast operation while staying closely in touch with the needs, wishes, and preferences of millions of individual customers. Empowering and listening to frontline employees is crucial to carrying out this complex balancing act between execution and innovating—and one of the reasons Marriott chose to acquire Starwood seems to have been the company’s widely recognized talent for innovation.

In recent years, one important arena for innovation in the hospitality industry has been social media. This is a challenge that businesses in practically every industry have been dealing with. Social media platforms from Facebook and Twitter to Instagram and WhatsApp have made it easy for individuals to broadcast their experiences, feelings, and opinions about companies to thousands or even millions of people around the world. Hospitality businesses must also pay attention to specialized platforms like TripAdvisor, Expedia, and Kayak, which wield a huge influence over the travel decisions made by countless customers.

Starwood was a pioneer among hospitality companies in tapping social media as a source of innovative ideas. For example, Starwood was one of the first companies in any industry to empower team members in its customer service centers to proactively monitor comments about their business appearing on social media sites. These frontline employees were also empowered to periodically “surprise and delight” individual customers by offering them benefits and gifts tailored to their interests as expressed online. Starwood also pioneered such creative social media tactics as displaying hotel menus in photo layouts on Instagram, which proved to be a uniquely effective method for reaching millennial and Gen X travelers. Starwood was also one of the first companies to jump on the bandwagon when Snapchat took off, which enabled the hotel chain to engage four million additional customers within just a few months.² All of these examples show how Starwood led the way in using social media as a tool for understanding and responding to the needs of customers—a classic illustration of the unique role that frontline innovators are positioned to play.

Starwood also excelled at learning from customers using traditional, low-tech tools. Mark Vondrasek, formerly the head of Starwood’s customer loyalty program and currently chief commercial officer at Hyatt Hotels, described how the company created its Ambassador program to provide a channel for making customer needs and preferences into sources of innovative thinking. The Starwood Ambassadors were a special cadre of frontline employees trained to serve as the single point of contact for individual travelers. Through repeated contact, the Ambassadors got to know a variety of Starwood customers intimately—globe-trotting business travelers, families with small children, young adults backpacking on a budget—thereby learning a lot about what these customers really needed and wanted.

To take full advantage of the insights these frontline workers were developing, Starwood convened twice-a-month meetings that gave the Ambassadors an opportunity to report on their observations and suggest innovative ideas. Starwood also modified its human resources policies to incentivize innovating by these frontline workers. Vondrasek explains:

One thing we had struggled with before was the “pyramid effect”: if you were talented on the [customer service] phones and wanted to progress, you pretty much had to become your supervisor. Now, we have new opportunities for these employees. We’ve even created paths from the Ambassador program to sales roles in our various properties—something that didn’t exist five years ago. As a result of all this, turnover in our contact centers went down and employee satisfaction went up.³

Here’s one example of the way the Ambassador program systematized frontline innovation at Starwood. The hotel chain developed a new benefit for its frequent guests called YOUR24. It came about as a result of complaints from international travelers who often arrived from overseas early in the morning, having taken red-eye flights from Europe or Asia. Exhausted, they were frustrated by having to wait until the mandated 3 p.m. check-in time before they could get access to their hotel rooms. Created in response to suggestions by the Ambassador team, YOUR24 was one of the first hotel programs to let guests choose their own check-in time—a differentiating feature that enabled Starwood to attract and retain the loyalty of more international travelers than rival hotel chains.

Since acquiring Starwood, Marriott has continued to develop the same kinds of frontline-driven innovations. In 2019, it launched the Marriott Bonvoy app, which facilitates a host of activities for on-the-go travelers, from remote check-in and mobile key delivery to the use of chatbots to receive instant responses to simple questions. Marriott also became the first major hotel chain to offer a customized version of Alexa, the voice-activated personal assistant created by Amazon. Alexa for Hospitality serves as a “virtual concierge” for Marriott guests, making it easy for them to request services from extra towels to local restaurant recommendations.⁴

Notice two crucial features that link all these innovations from Starwood and Marriott—the pro-active use of social media, the Ambassador program, the Bonvoy app. First, these innovations all originated in response to unmet customer needs that were recognized and highlighted by frontline employees. Second, in varying ways, they all help to bring frontline innovators and customers into even closer connection, creating opportunities to provide better, more responsive services that make Marriott guests even more loyal.

For this hotel giant, the ideas produced by frontline innovators reflect an unusually high degree of customer intimacy—and at the same time, they also help to increase that intimacy for the future. Thus, the way Marriott empowers and incentivizes its frontline innovators creates a virtuous cycle that benefits both the hotel chain and the millions of travelers around the world whom it serves.

Valve: Making Everyone in the Business a Frontline Innovator

In the quest for innovation, big, established companies like Marriott are often seen as being at a disadvantage when compared with smaller, newer businesses. There are a number of reasons why this might be so. Startup companies generally have less bureaucracy than older ones; they’ve had less time to develop rules, regulations, and policies that define and limit what employees can do, which can discourage the outside-of-the-box thinking that’s necessary for innovation to occur. Smaller companies are usually more aggressive about pursuing growth opportunities; because their revenue bases and profit margins are smaller, they are hungry to find ways of attracting new customers, and therefore more willing to take chances on new business concepts than their larger, more comfortable rivals. And smaller, newer companies lack the histories of success that older businesses boast, which means they are less likely to be tempted to “rest on their laurels” and assume that the same strategies and philosophies that brought them this far will suffice to carry them successfully into the future.

All of these well-known factors surely play a role in explaining why big, long-established companies often struggle to innovate, and must make special efforts to keep their innovating engines humming. But one of the less widely recognized reasons that small startup companies are often more innovative than large, established firms is that they have a higher percentage of frontline employees. Newer firms generally offer fewer products or services and have fewer workers, simpler administrative structures, and few or no layers of hierarchical decision makers. As a result, practically everyone works directly with customers. The high percentage of frontline workers means innovation has a chance to pop up almost everywhere—and it often does.

A handful of companies have sought to maintain this spirit even after years of growth. They seek to avoid becoming hierarchical and bureaucratic, instead encouraging employees to stay in close contact with customers and to make independent decisions about how they spend their time. These companies also try to minimize the need for approvals from managers, and to treat all team members as more or less equal in status and power.

In effect, these companies try to inspire everyone in the company to behave like frontline employees. They hope in this way to inspire levels of innovation and creativity that most companies can only dream about.

Of course, there are good reasons why most companies develop managerial hierarchies and bureaucratic systems as they grow. Sheer size and complexity makes it hard for businesses to operate their execution engines successfully without such organizational tools. Therefore, relatively few large companies have managed to operate according to the low-hierarchy, maximal freedom model. However, the few that have succeeded in doing so offer some important lessons that other companies should consider in managing their innovating engines.

One large business that has striven to remain relatively nonhierarchical and nonbureaucratic is W. L. Gore, the materials innovation company discussed in Chapters 2 and 3. Though Gore is not completely free of managerial layers and bureaucratic controls, it provides frontline employees with a greater degree of freedom than most corporations, including the freedom to explore a diverse range of customer needs and develop innovative projects up to a point in pursuit of their own interests. As we’ve seen, Gore has successfully built a substantial business using this unusual managerial model.

An industry in which the low-hierarchy model is relatively common is software development. There’s a good reason for this. Most employees in a software development firm spend their time mainly on creative work, which is not true of companies in most industries. In effect, the typical proportional relationship between the execution engine and the innovating engine is upended. At most companies, the execution engine is much larger than the innovating engine; in the world of software development, the reverse is true. Thus, organizing the entire business using a management model that encourages creativity and innovation, even at the expense of other values such as efficiency and consistency, may make good sense.

A software firm known for its nonhierarchical structure is Menlo Associates, an Ann Arbor, Michigan–based company that specializes in custom business software and consulting services. Rather than creating conventional work teams led by a manager, Menlo Associates pairs up developers who work on projects together, switching partners periodically to keep the teams fresh and their creative juices flowing. The company likes to describe itself as being “in the business of joy,” and the company’s cofounder, Richard Sheridan, described its innovative methods in a 2015 book titled Joy, Inc.⁵

Another example is GitHub, which provides internet hosting services and systems for managing distributed software development. Founded in 2008, the company originally designed its structure to be one in which “everyone is a manager” and in which every employee had the freedom to choose the projects he or she worked on. GitHub operated in this fashion quite successfully for several years. However, in 2014, having grown significantly and encountered some of the organizational challenges that most expanding businesses face, it installed a middle management layer. Four years later, GitHub was purchased by Microsoft, and it is now run as a more-or-less conventional division of that technology giant.

Perhaps the most famous nonhierarchical software company is Valve Corporation, a Bellevue, Washington–based video game designer. Founded in 1996 by two refugees from Microsoft, Valve as of 2021 has over 300 employees and, while privately held, has an estimated value well over $3 billion. Valve’s super-popular games, including Half-Life and Counter-Strike, have won dozens of game-of-the-year awards, and its online gaming portal Steam is the world’s most popular. For some 15 years, Valve was arguably the most successful video game development company in the world, until—as you’ll see—its business model dramatically shifted.

During its decade and a half at the top of the video game business, what made Valve particularly unusual was the fact that it was virtually devoid of managerial layers. No one at Valve was considered anyone’s “boss.” (The closest thing was company founder Gabe Newell, who had the power to fire someone when he deemed it necessary.) Workers at Valve chose the projects they wanted to work on or launched their own. Self-selected, multidisciplinary teams called “cabals” formed organically around interesting topics, from which products often emerged. And as soon as any group of three or more employees believed a new product was ready for the marketplace, they were empowered to ship it, with no need for approval by anyone else.

One employee’s blog post summarized well the thinking behind Valve’s antihierarchical philosophy. The post began by making the point that, in the world of video games, innovation is the single most important source of business value. It then continued:

If most of the value is now in the initial creative act, there’s little benefit to traditional hierarchical organization that’s designed to deliver the same thing over and over, making only incremental changes over time. What matters is being first and bootstrapping your product into a positive feedback spiral with a constant stream of creative innovation. Hierarchical management doesn’t help with that, because it bottlenecks innovation through the people at the top of the hierarchy, and there’s no reason to expect that those people would be particularly creative about coming up with new products that are dramatically different from existing ones—quite the opposite, in fact. So Valve was designed as a company that would attract the sort of people capable of taking the initial creative step, leave them free to do creative work, and make them want to stay. Consequently, Valve has no formal management or hierarchy at all.⁶

As this blog post explained, Valve’s nonhierarchical management structure was designed specifically to make frontline innovating as fast and easy as possible. In the words of one observer, Valve believed that “each employee is capable of producing your company’s disruptive technology or service”—so why not give every employee the freedom, the flexibility, and the tools to do just that?⁷

This management system—which perhaps should be called a “nonsystem”—worked brilliantly for Valve. But the company itself acknowledged that its management nonsystem wouldn’t work everywhere. Among other things, a nonhierarchical structure requires employees who are very smart, self-motivated, team-oriented, and ultra-flexible. The Valve Handbook for New Employees, which is available online, is quite frank about the fact that the company’s philosophy has both strengths and weaknesses. It contains a section headed “What Is Valve Not Good At?” that lists six things the company has struggled to do, including “Helping people find their way,” “Mentoring people,” and “Disseminating information internally.”⁸ This degree of honesty is admirable. It also reflects some of the challenges that generally arise when a company tries to manage without clear, organized structures, team-management protocols, decision-making processes, and communications systems.

As I’ve said, Valve operated as a nonhierarchical game developer with enormous success for some 15 years. More recently, however, the company’s business model has changed. The seeds of this shift were planted back in 2003 with the company’s launch of Steam, an online storefront for the games produced by Valve. Soon the company decided to offer games produced by other developers on Steam. The platform proved to be so popular that the value of Steam exploded to the point where it dwarfed the value produced by Valve’s own games. Today, Steam is the world’s dominant distributor of video games, offering more than 34,000 games that are available in 28 languages and reach over 95 million monthly users. Steam’s revenues for 2017 (the last year for which data are available from this privately held company) exceeded $4.3 billion.

The rise of the Steam platform has ended up eclipsing the company’s original purpose. While Steam has come to dominate the gaming marketplace, Valve’s creativity as a game developer has largely stalled. The company continued to release popular games through the mid-2010s, but the product flow gradually diminished, and today Valve produces just a handful of new games each year. Many of the top-flight game developers who were once thrilled to work at Valve have departed.

Observers offer varying explanations for this change. Some concluded that Valve’s nonhierarchical management structure simply stopped working. Others, however, blame the decline in game-design creativity on the overwhelming success of Steam. “There is clearly a lot more money in being an Amazon-style distribution platform than in developing games,” one journalist concluded.⁹

Stories like those of Menlo Associates, GitHub, and Valve illustrate how difficult it is to maintain a nonhierarchical management structure for long. Yet they also suggest that, while such a structure is in place, the freedom it provides to frontline innovators can produce tremendous benefits both for companies and their stakeholders.

Hierarchy, Rules, and Creativity: Lessons for Running a Great Innovating Engine

When we look at companies that do an especially good job of empowering their frontline innovators, some managerial patterns seem clear. In particular, it’s important for companies to strive to run their innovating engines with as much freedom and flexibility as possible—even while their execution engines may need traditional hierarchies and rules in order to carry out the daily functions of the business with as much efficiency and consistency as possible.

This doesn’t necessarily mean that your innovating engine should be devoid of hierarchies and rules. But companies can benefit from striving to minimize the degree to which they allow such administrative growths to creep in, since they tend to limit the creativity that frontline innovators need. For example, they can seek to emulate Netflix, a big, successful business that prides itself on making an effort to keep rules and hierarchies to a minimum—not to the extreme extent that Valve did, but far more than most companies of their size have managed to do.

The story of the Netflix system is told by company founder Reed Hastings and INSEAD professor Erin Meyer in their book No Rules Rules.¹⁰ Hastings recounts how he learned to hate stifling hierarchies and rigid rules during his previous corporate jobs. Thus, when he founded Netflix and began building it into a successful movie distributor, he vowed that he would keep the company’s bureaucratic structure as simple and unobtrusive as possible. Among the unusual results: the company is famous for having no rules controlling the number of vacation days employees can take, the sums they can spend on corporate travel, even the amounts they can invest in business initiatives. Netflix’s Culture Deck, a famous collection of slides that summarizes the company’s business philosophy, encourages employees to operate according to such maxims as “Lead with context, not control,” and “Don’t seek to please your boss.” Thus, the entirety of Netflix—not just its innovating engine—is managed with as much freedom from rules and regulations as possible.

People who join Netflix from traditionally run companies are often shocked by the level of freedom they enjoy. Some can’t handle it: every year, a few newcomers quit because they don’t feel comfortable making business decisions without having a boss who must review and approve their choices. And a tiny handful abuse the system: No Rules Rules tells the story of one Netflix employee who had to be fired after it was discovered that he’d arranged to be reimbursed for over $100,000 worth of lavish vacations over three years.

Founder Reed Hastings acknowledges that there are necessary limits to the principle of allowing employees to make decisions on their own. In industries outside of the world of entertainment, such a model may not be workable. Hastings observes that “high-volume, low-error” businesses in which errors can affect critical matters like safety—pharmaceutical manufacturing, for example—may require traditional methods of control. Netflix itself enforces limiting rules in areas “where error prevention is clearly more important than innovation,” such as financial reporting and customer data privacy. The execution engine, in other words, is generally not a place where absolute freedom from rules and processes is desirable.

What’s more, even when it comes to innovation, Netflix is not completely without rules and processes. For example, one of the company’s core innovation principles is to require employees to “farm for dissent” before launching any new initiative—that is, to proactively seek feedback from colleagues, especially contrary opinions that might highlight weaknesses that need to be eliminated. Thus, Netflix’s innovating engine does involve rules and procedures, though these are kept as minimal as possible.

Nonetheless, for a large company (with revenues of over $1.8 billion as of 2019), Netflix is unusually free of rules and hierarchical practices that limit the freedom of frontline employees to innovate. And the evidence shows that Netflix has been extremely successful—and also highly innovative. Since going public in 2002, its stock price has risen from $1 per share to more than $500 (as of January 2021). It has achieved this sustained success by successfully navigating changes in an entertainment industry undergoing a series of dramatic technological and market shifts that have staggered many of its competitors. Finally, most employees like the opportunities to innovate that the Netflix system provides: in a 2018 survey, tech workers rated Netflix as the #1 company they’d like to work for. Being able to attract top talent in this way is a big competitive advantage for Netflix.

Of course, it’s important to note that, like Valve and the other software development companies we looked at earlier, Netflix is centered on innovating to an unusual degree. Most of the company’s employees spend most of their time purely on creative work, such as developing new films and television programs for distribution to Netflix’s millions of subscribers. This is not true of companies in most industries. Because the entire company is focused almost exclusively on innovating, it can be organized in a way that encourages maximum individual freedom and creativity.

For this reason, I think it makes sense for most business leaders to look at the management structures of Valve and Netflix as potential models for their companies’ innovating engines—but not necessarily for their execution engines. In many industries, you’re likely to find that you need to maintain a traditional, hierarchical structure for your execution engine while encouraging employees to interact and operate in a much more unstructured, free-flowing fashion while working in the parallel innovating engine.

I’d also suggest that Valve’s aspiration to operate completely without bosses is probably a bridge too far for most companies. Perhaps the innovation lesson most businesses can take from these company stories is not “Eliminate hierarchy in your innovating engine” but rather “Keep hierarchy to a minimum in your innovating engine, thereby empowering and incentivizing the innovative instincts of your frontline workers.” It’s a less ambitious, less revolutionary approach than the one Valve embraced—but one that can help keep your innovating engine humming even as your company grows.