8

SETTING THE AGENDA

HOW SENIOR LEADERS CAN FOCUS AN ENTIRE ORGANIZATION ON INNOVATING

Professional sports is one of the most competitive business arenas in the world. Not only are teams required to compete for victories on the gridiron, on the diamond, or in the arena, but they must also compete for “share of mind” among customers who are free to spend their hours and dollars on an ever-expanding array of other entertainment options.

In North America, the National Hockey League (NHL) faces some of the toughest business challenges in sports. A distant fourth among America’s “big four,” it trails the National Football League, Major League Baseball, and the National Basketball Association in terms of in-person attendance, television viewing, and overall revenues. The sport’s appeal also tends to be geographically limited. Professional hockey is dominated by a handful of successful franchises in cities with storied traditions in the sport, including the New York Rangers, Toronto Maple Leafs, Montreal Canadiens, and Boston Bruins. Other NHL teams, especially those in cities where ice hockey is relatively new and unfamiliar, struggle to attract fans, TV ratings, and coverage in the local sports media.

One of the NHL franchises facing a particularly tough set of challenges is the San Jose Sharks. Its home base in Northern California is no hockey hotbed. From 1967 to 1976, the region was represented in the NHL by the San Francisco Golden Seals. After a decade of struggles, that team gave up its attempt to gain a foothold in the area and moved to Cleveland, only to go out of business entirely just two years later.

NHL hockey returned to the area when the Sharks were founded in 1991. But like San Francisco, San Jose isn’t naturally hospitable to ice hockey. Located in the heart of Silicon Valley, it’s filled with hardworking families immersed in digital forms of entertainment. And because the city of San Jose has some of the worst rush-hour traffic anywhere, even getting to the games is an ordeal most people would prefer to skip.

Clearly, the task of building an enthusiastic, sustainable fan base for the Sharks is one that calls for more than the usual level of innovation.

Bringing a Culture of Innovating to the Tradition-Loving World of Pro Sports

Under the leadership of club president Jonathan Becher, formerly chief digital officer for the software company SAP, the San Jose Sharks have been finding unexpected ways to turn the franchise’s apparent liabilities into assets. In the process, they’ve won a reputation as the most innovative organization in the NHL and one of the most innovative teams in all of professional sports. Northern Californians, in turn, have been responding by making the Sharks one of the fastest-growing franchises in the league.

The Sharks have accomplished all this in large part by applying the talent for digital innovation that Becher brought to the team’s front office. For example, when the Sharks’ marketing group found that as many as 40 percent of fans were showing up late for games—one of the problems caused by Silicon Valley’s skyrocketing growth and the horrendous traffic jams it has generated—they developed digital tools to create countervailing incentives. One of these is an app that fans can use to track their arrival time at the team’s downtown arena and then rewards early comers with a $10 discount on food and merchandise.

The Sharks have also devised additional interactive systems to increase fan engagement, including the world’s first augmented reality bobblehead doll. This is a high-tech version of the traditional figurines that fans of every sport have long collected, this one equipped with a QR code that lets you experience “a day in the life” of the team’s star forward Logan Couture.

Despite the Sharks’ Silicon Valley location, such digital innovations didn’t come naturally to them. When Becher joined the team in January 2018, he found that, like many sports franchises, the Sharks were somewhat tradition-bound and averse to experimentation. He made changing that mindset one of his chief missions.

Becher’s background at SAP had prepared him well for this task. As that company’s chief digital officer, one of his core missions was to help SAP’s client companies embrace technological disruption, including the new ways of doing business that SAP itself was offering. Along the way, he learned a great deal about how and why companies find it difficult to accept change. He compared the tendency of business leaders to reject change to the mechanism by which the human body deploys antibodies to fight off a “foreign agent.” “The same thing happens in large companies as well,” Becher commented in an SAP company video. “When something seems to disrupt the current business model, the traditionalist will say, ‘Hmm, that jeopardizes our revenue. We should maybe keep it from growing.’”1

“Traditionalists” who instinctively resist innovation are found in every successful organization, but professional sports is one industry where they have a particularly powerful foothold. Fans are steeped in the history of the sports they love. Memories of heroic athletes, beloved venues, and iconic moments shape their relationships with the teams they follow, and they pass the culture of fandom down to their children and grandchildren with some of the fervor of a religious obligation or a political passion. This tradition-laden love of the game permeates the industry itself, since most of the athletes as well as the managers and executives of professional sports organizations are themselves fans who grew up rooting for their favorite teams. No wonder they tend to be skeptical of innovations that might seem to threaten the culture they’ve grown up loving.

The classic book Moneyball by journalist Michael Lewis vividly captures the way iconoclastic thinkers who discover new ways to apply statistical analysis to sports then have to struggle to convince traditionalists to give their methods a try. Lewis’s narrative focuses on Major League Baseball, but a similar dynamic can be found in all of the major pro sports, including hockey. The dominant culture of the sports industry is focused on honoring, even worshiping, the past, not on imagining a different future. Thus, sports leaders who hope to innovate have an even bigger cultural challenge than their counterparts in most other arenas.

After joining the Sharks, Becher tackled the culture-change challenge from several angles. One of the approaches he took was to invite those who were most resistant to change to participate in creating it and designing it for scale. “By centralizing disruption and not putting it on the edge,” Becher observes, “you’re more likely to be successful.” He emphasized the need for a hands-on approach to innovation, particularly in the world of sports. “Normally large companies look for experts when they have problems,” Becher said, “and those experts often come from the outside of the organization; consultants.” But relying on outsiders to generate change can stimulate the production of even more change-resistant antibodies. A better approach, Becher realized, was to teach company insiders how to devise their own innovative approaches. In the process, the organizational culture begins to shift, making innovating feel natural rather than foreign.

Becher also inculcated a focus on running multiple innovating experiments—placing many small bets on new ideas rather than one or two giant bets. This approach has made his team members more willing to embrace innovation by minimizing the risk involved in trying any single idea, instead providing multiple opportunities to discover something new that will really work.

But perhaps the most important culture-shifting strategy that Becher employed was encouraging the leadership team in the Sharks organization to think about innovation not as a disruption of the fan experience they all loved, but rather as a way to enhance and deepen it. For example, when seeking to broaden the definition of the company’s business model, he explained it this way: “I don’t think we’re in the business of putting on a hockey game. What we’re actually in the business of is making memories.”2 That’s a formulation any dyed-in-the-wool sports fan can understand and embrace.

Becher went on to educate his team about the importance of developing a fan-centered innovating engine alongside the existing execution engine, describing it like this: “It’s flipping your mindset from internal, business process functionality—operation-oriented—to what customers need. If we go back to business books written 20, 30 years ago, it’s the modern version of walking a mile in their shoes.”

Becher’s commitment to the customer point of view is so deep that he even took the radical step of urging his front-office colleagues to focus on nurturing the passion of their fans even when their efforts did not result in an immediate or direct boost to revenues. In an interview, Becher explained, “My worry when I did this in the past with my colleagues is the customer journey always had the outcome of, ‘How do we sell them something?’ And so, if I give you very tactical advice, it’s building customer journeys that don’t always have the outcome of having them buy something.”3

Thus, encouraging fans to arrive at the games early isn’t just about having them buy more snacks and souvenirs—it’s about deepening their connection with the sport and the team. It allows them to experience the full arc of the game, from the ceremonial dropping of the first puck to the final buzzer. It also gives them time to enjoy the various special features of the 17,000-seat SAP Center, which fans have lovingly dubbed “The Shark Tank,” such as its state-of-the-art digital display screens. Becher is convinced that innovating on behalf of customers—in his case, fans of the Sharks—will always have an ultimate payoff, even if it’s not obvious in the short term.

Becher’s nurturing of an innovation-centric culture in the team’s front office became more important than ever in 2020, when pro sports suffered an unprecedented level of disruption thanks to the worldwide COVID-19 pandemic. In April, when all of the big four sports in North America had to stop playing in public because of the pandemic, it was the first time that none of the American pro leagues had been open for business in April since 1883.4

The pro hockey shutdown posed a potentially franchise-threatening challenge to every NHL team, including the Sharks. How could the team maintain its bond with the fans when it could no longer provide them with the adrenaline-pumping excitement of games to watch, either in person or on TV? The danger was that, after weeks or months without hockey, the fans would discover other forms of entertainment they liked almost as much, and perhaps lose the hockey habit altogether.

To keep that from happening, the Sharks redoubled their innovative efforts.

One of the things they decided to try—at first out of sheer desperation—was using a video-game simulation platform to put on “fantasy” hockey games for fans to watch. Today’s popular sports simulation software combines statistical analysis of real-life hockey players with randomized play-by-play events to show what might happen in a game between, say, the Sharks and the Dallas Stars or the Vancouver Canucks. Hockey-crazy fans enjoy playing these simulated games on their sofas at home, but they would never be considered an adequate replacement for the real sport—except under the extreme circumstances created by the pandemic.

When the real-world 2020 season was suspended, the Sharks (and other pro sports teams) began televising computer-generated simulated games, using actual video clips of their players to make the action look almost real. They were pleasantly surprised to find that their fans actually liked watching the simulated games. The TV ratings didn’t match those of the real sport, but they weren’t bad.

And then the Sharks began applying their talent for innovating to this unexpected new opportunity. They introduced one new wrinkle after another to turn the fan experience of the simulated games into something truly special.

Perhaps the most exciting of these innovations was the idea of giving selected fans the opportunity to “suit up” and play alongside their favorite Sharks players. When a fan was picked from the pool of avid applicants, the software designed an avatar to mimic that fan’s size and appearance, and decked the fan out in a uniform complete with personalized name and number. Then the Sharks sent the avatar out on the ice to play a game under the control of the joy-stick-equipped fan.

The result was a collection of simulated experiences that Sharks fans have found unforgettable. The very first avatar to play in a Sharks game actually suffered an “injury” during the action (as dictated by the random rules of the software) and had to be removed from the game. At first, the fan was devastated and angry, screaming, “Unfair!” at this unhappy turn of events. But after the avatar was carried into the locker room by his virtual teammates—and after the team’s general manager Doug Wilson placed a real-world phone call to the fan to deliver a “get well” message—the fan described the whole experience as, “Definitely a highlight of 2020 and a moment I won’t soon forget.” Another fan had the thrill of scoring the game-winning goal during an overtime game and celebrating on the ice with his excited teammates. He took to social media to declare it “the best experience of his life.”

Delighted by these fan responses, the Sharks went on to introduce further innovations to the simulated hockey experience. They began inserting simulated versions of popular Sharks players from past eras into the games, making possible the kinds of fantasy matchups across history that sports fans have always loved to dream and argue about. They also engaged the team’s popular radio play-by-play announcer, Dan Rusanowsky, to narrate the action of the simulated games, lending them a realism and an excitement that the fans really responded to.

This development of simulated pro hockey as a way of extending and deepening the fan experience happened only because of the emergency circumstances created by COVID-19. But the value of the innovation won’t disappear when the pandemic is history. Although detailed plans for the use of simulated games in future seasons haven’t yet been made, Becher believes this new way of involving fans will be “sticky.” “The games might be simulated,” Becher says, “but the fan engagement is real.”

Becher didn’t personally dream up these brilliant sporting innovations—in fact, he was surprised at their power, because he himself doesn’t play video hockey. But Becher led the way in creating the culture of innovating that unleashed the inventive genius of the entire Sharks organization, including its digital creativity. No wonder one technology vendor with ties to a number of pro hockey teams has commented, “Oh, in the NHL, everyone looks to the San Jose Sharks for the way they engage the fans now.”5

Levers of Innovation That the CEO Can Control

The story of Becher’s work with the San Jose Sharks illustrates one of the most important roles that a top-level executive can play in a business—namely, to jump-start the innovating engine. When an organization is lagging its competition due to a failure to innovate; when it is struggling to adapt to changes in its business environment, the needs of its customers, or the technological underpinnings of its industry; or when it is unable to take full advantage of business opportunities because of excessive rigidity, risk-aversion, or blind spots—in any of these circumstances, a single leader at the top of the organization can sometimes exert his or her personal leverage to start a cascading series of cultural and organizational changes that can get the flywheel of innovation spinning.

Of course, like anyone in an organization, at any position in the company hierarchy or in any specific functional role, a CEO, president, executive vice president, board chair, or other top leader is expected to be a contributor of innovating ideas. The process of creation is one that everyone can participate in. But top leaders also have a unique job to do in stimulating and encouraging innovating throughout the organization. They carry out this catalytic role through the influence they exert on three main levers:

image Lever 1: The organizational structure. The leader can work to promote innovating by advocating and implementing changes in the formal structure, rules, and guidelines that govern the organization. For example, leaders can appoint one or more executives to roles that are focused on innovating; they can create committees or teams charged with stimulating the development of innovative ideas and shepherding them through the evaluation and implementation steps; and they can support and contribute to the creation of systems and networks that facilitate teamwork and cocreation across departments and divisions of the organization.

image Lever 2: Key organizational processes. The leader can work with others to redefine the processes carried out by people, teams, and departments throughout the organization, making sure that time, money, energy, attention, and other resources are dedicated to innovating. A leader can also promote revisions to the organization’s hiring, evaluation, and promotion processes that incentivize and reward innovating.

image Lever 3: The organizational culture. The leader can use his or her power, influence, and “bully pulpit” to move the shared values, beliefs, and attitudes that shape the organization in the direction of fostering and protecting innovating. Leaders can “give permission to innovate” to people throughout the organization through actions such as publicly recognizing and rewarding those who develop innovations, shielding from punishment or criticism those who take risks and incur reasonable levels of failure in pursuit of innovating, and using their own communication tools to spread the word about the value and importance of innovating. Perhaps most important, CEOs should reposition themselves as their companies’ “Chief Reframing Officers” by personally modeling leadership traits that nurture innovating: open-mindedness, transparency, customer-centricity, listening, and a willingness to experiment.

In many cases, a company’s top leaders can do a lot to stimulate innovating simply through negative steps—that is, by eliminating needless obstacles and barriers that discourage risk-taking, experimentation, and creativity. Frontline employees and midlevel managers in most companies are eager to innovate. Many are in close contact with customers, deeply engaged in the daily activities of the business, and full of ideas about how the company’s products, services, and processes could be improved. All they lack is the organizational freedom and encouragement to act on their innovative dreams. Once that freedom is provided, they are thrilled to be able to unleash their creative ideas.

Innovating activities can go a long way to increasing your employees’ sense of engagement with their work and their positive attitudes toward the organization. Being able to innovate lifts people out of their daily immersion in execution tasks, which often feels routine and uninspiring. Innovating brings richness and fun to work, stimulating team members to spend more time with both customers and noncustomers, and encouraging them to listen mindfully to the subtle messages that the marketplace is trying to deliver.

If you are at or near the top of your organizational pyramid, you should begin taking steps to encourage, legitimize, and support innovating by everyone in your business. If you begin sending the clear, consistent messages that innovating is part of everyone’s job and that innovation is core to your company’s strategy, you may be amazed by the torrent of creative ideas that will begin to flow.

Turning Executive Management into a Dynamo of Innovation: Leadership from the Top at Ecocem

As we’ve seen, Jonathan Becher is an example of a new breed of corporate leaders who are deliberately focusing on the cultural challenge of innovation as a key to the future of their businesses. His work with the San Jose Sharks shows how an innovation-minded leader at the top can help make an organization in a tradition-minded industry into a powerhouse of creativity.

Even more remarkably, something similar can happen in practically every business.

In Chapter 3, we sketched the story of Ecocem, the fast-growing European cement maker. It was founded by entrepreneur Donal O’Riain to take advantage of an underused technological innovation—ground granulated blast furnace slag (GGBS), a cement substitute with a much smaller carbon footprint than conventional cement as well as other benefits. We saw how Ecocem has developed an unusual degree of customer intimacy, which has enabled it to produce a range of product and service innovations that are generating enormous value both for its customers and for Ecocem itself.

The creation of this powerful innovating engine didn’t happen by itself. It was driven from the top, starting with O’Riain. The story of how it happened offers some powerful lessons that other company leaders can benefit from.6

One of the big challenges O’Riain faced in turning Ecocem into a leader of innovation was the dominant culture of the cement industry. As we saw in Chapter 3, the industry is an old one, steeped in tradition and largely controlled by a handful of giant companies that occupy powerful positions with stable shares of a profitable market. For Ecocem to claim its own share of that market, it needed to develop an innovating culture quite different from the one that characterized its biggest competitors. The challenges in creating such a culture started at the very top, with Ecocem’s board of directors.

The members of this board were smart, experienced, and knowledgeable about the cement industry. Perhaps for this very reason, they were skeptical when O’Riain told them that Ecocem needed to become an innovation-driven company, beginning with making a commitment to devote 2 percent of its revenues to innovating. “The board members thought I was a bit daft,” O’Riain recalls. “They asked, ‘Is that really necessary?’ I insisted that it was. And I realized that I needed to convert them into innovation enthusiasts.”

The conversion process began with education. In 2016, to spearhead the effort, O’Riain set up a special technology subcommittee that includes several members of the board of directors. It meets twice a year with four or five key managers of Ecocem who are immersed in the company’s most important innovating projects, including Laurent Frouin, the innovation director. The group spends half a day together delving deeply into six or seven key innovation topics, gaining a hands-on understanding of Ecocem’s current research and development (R&D) projects and why they are so important to the company’s future. The board members’ level of technological expertise has risen significantly, to the point where they can now ask probing questions of the engineers and scientists they meet with as well as share ideas of their own that may be valuable. They can also provide detailed, convincing responses when their fellow board members question the value of Ecocem’s investments in innovating.

The members of the technology subcommittee also perform an in-depth review of the financial results being obtained from the company’s innovation budget. O’Riain explains that Ecocem is currently spending some €2 million per year (equal to almost $2.5 million) on innovating—“a frugal approach,” he says, but a sum sufficient to ensure that the innovating engine continues to hum. The cumulative return on investment has increased steadily over time and now runs between 30 and 40 percent annually. It’s a figure the board takes very seriously. “The fact that we can point to a solid ROI on the money we spend on innovating has turned the skeptics on our board into cheerleaders,” O’Riain says. He hopes the ROI on innovating will continue to grow, estimating that it may reach as high as 60 percent annually by 2025.

The benefits of having a technology subcommittee on the board of directors run in both directions. The board members have taken a big upward leap in their knowledge of innovating processes in the cement business, which enables them to make smarter decisions about how to invest the company’s funds and how to shape its marketplace strategies to take full advantage of emerging opportunities. For their part, the engineers, scientists, and managers who meet twice a year with the board members have also gained a lot. They’ve developed personal connections and lines of communication to some of the most important people in the organization, which is always helpful. They’ve sharpened their understanding of how innovation looks to leaders at the highest level of the cement industry, which helps them think about their work in strategic terms as well as technological terms. And realizing that they have enthusiastic followers and supporters among the members of the board has intensified their personal commitment to the pursuit of innovating.

“Our R&D team is now more motivated than ever,” O’Riain says, “especially when it comes to looking for great applications of the new ideas they think up.”

Ecocem took further steps to spread the new innovation-centric company culture throughout all levels of the organization. With O’Riain’s support, consultant Maria Beloso Hall, an expert in behavioral transformation and change management, was brought in to coach company leaders in ways to encourage everyone to participate in the innovating process. In one team, she found that a handful of highly confident engineers with degrees from the leading French engineering universities were inadvertently intimidating some of the people they worked with, including a group of lab technicians whose credentials were less impressive. Hall organized a “collective intelligence” training program that helped the entire team understand that everyone has valuable insights, ideas, and questions that can benefit the shared effort. As a result, every team member gained a greater willingness to speak up during meetings, thereby surfacing problems and issues more quickly and making the process of generating, developing, and testing innovating ideas more effective.

Ecocem offers a great example of how an organizational leader can make sure that regular activities in support of innovating are embedded in the routine processes of the business, thereby ensuring that no one loses sight of the centrality of innovating for the company’s future.

The culture of innovating has become so central to Ecocem that it is now the first word in the company’s motto: “Innovation Powering Sustainability.” That’s a powerful public symbol of what can happen when a company’s board is encouraged to put innovating at the center of its thinking.

When the Company’s Highest Leaders Show the Way

As the stories we’ve explored in this chapter suggest, one of the most important jobs of CEOs and their leadership teams is to model the readiness to pursue and embrace innovations. That means being willing to challenge familiar orthodoxies, habits, and traditions, and to change beliefs and behaviors as needed to create new value for the organization and its customers—rather than reacting to innovation with suspicion, defensiveness, or hostility.

At many companies that have adopted the innovation methods I teach, the CEO and the entire board have led the way by being the first group to go through our full training process. The leadership team should also use all available corporate communication channels to explain and legitimize the distinction between execution and innovating, and to encourage all employees to spend time in the innovating space.

Symbolic actions by top leadership can carry enormous weight throughout the organization. When the BASF board of directors launched its Perspectives project to teach and promote innovation, it made the announcement at a public meeting in front of 1,500 employees—which not only got the attention of all the leading managers at BASF but also signaled the board’s personal commitment to the concept of innovation at all levels of the business.

Occasionally, corporations that are launching an innovation initiative will assign a human resources (HR) professional to run it. This can be a serious misstep. Managers from HR and other staff departments (such as corporate communications) are often regarded by their colleagues as less powerful, knowledgeable, and effective than managers who are responsible for building businesses measured in terms of profit-and-loss results. Such staff managers may be taken seriously in training roles, but their ability to transform the attitudes and behaviors of their colleagues is limited. As one consultant with extensive experience in fostering a culture of innovation told me, “As soon as the CEO or executive committee member stops participating in the initiative, it becomes just another training exercise, and before long it fades away.”7

BASF avoided this mistake. The executive tasked with heading Perspectives and organizing the teams of coaches and ambassadors who brought its message of innovation to the rest of the organization was a highly respected manager with years of operating experience at BASF. As a marketing specialist and a former head of corporate procurement, Andrés Jaffé had been an internal customer who had worked closely with managers in many departments and divisions of BASF. His operational expertise and his in-depth understanding of BASF and its businesses were unquestioned. By choosing Jaffé for this role, the corporation signaled the seriousness of its commitment to it.

John Feldman, a member of the board, was designated as the official sponsor for the Perspectives initiative. In that role, he provided the project with credibility and legitimacy. He also protected and defended it within the board and across the entire corporation, communicating its importance and explaining why the time, money, and other resources dedicated to it were of crucial importance to the future of BASF. And throughout the years-long process of embedding innovating behaviors at every layer of the organization, when employees at all the BASF divisions were asked to attend workshops and meetings to master the Perspectives approach, at least one board member made a point of attending every session—yet another sign of the seriousness attached to the effort.

When the top leaders of an organization use their words and actions to consistently demonstrate the urgency of innovation, they help to create a culture of innovating that will eventually energize the entire organization.

KEY TAKEAWAYS FROM CHAPTER 8

•   In building the company’s innovating engine, senior leaders need to become their companies’ “chief reframing officers,” modeling openness to change and the questioning of familiar assumptions.

•   Senior leaders must dedicate themselves to inculcating the spirit of innovating throughout the organization, especially using the three most powerful levers of influence at their disposal: the organizational structure, organizational processes, and organizational culture.

•   To further signal the seriousness of the organization’s commitment to innovating, senior leaders should themselves be among the first to adopt innovating systems and practices.

•   Senior leaders must also emphasize the urgency of innovating by assigning widely respected, high-level leaders with operational expertise to spearhead the organization’s innovating efforts.

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