Innovation

Many volumes of books and articles have been written on this subject, yet most organizations acknowledge they are not truly innovative in spite of concentrated efforts to become so. Back in 1997 HBS Professor Clayton Christensen wrote his seminal book, The Innovator's Dilemma, that described in lucid terms why organizations fail to innovate. Businesses, including my own, Medtronic, took his admonitions to heart, yet most established companies have been unable to move the needle on their efforts to become more innovative. I continue to be amazed at the number of outstanding companies whose leaders talk the innovation talk but fail to create innovative organizations or to come up with innovative business ideas.

In my experience, most companies fail to innovate for five fundamental reasons:

World-class innovation expert Jean-Philippe Deschamps and his co-author, Beebe Nelson, have examined the larger scope of innovation and have discovered why companies fail to innovate. In their view two things are sorely lacking in organizations: leadership and governance. In his 2008 book, Innovation Leaders, Deschamps addressed the vital question of why innovation leaders are sorely lacking in most established organizations. He also addressed the question of what can be done to develop more innovation leaders who rise to the top of large organizations.

In Innovation Governance, Deschamps and Nelson scale new heights in taking the question of innovation leadership to a higher plane by focusing on the core reason for failure: lack of a well-established system for governing innovation. They challenge the reader to ask, why don't all companies who are striving to be innovative have a well-established system of governing their efforts and clear ground rules for carrying them out?

While scholars and practitioners like myself have argued for decades about whether the key is the innovation process or its leaders, Deschamps and Nelson neatly combine the two in their concept of innovation governance. However, their solution is not prescriptive. Rather than advocating a single governance model, they instead explore the full range of innovation governance approaches. Their 3 × 3 matrix model produces nine ways of thinking about the type of governance system you wish to establish for your company.

To provide depth and context to each of the nine models, Deschamps and Nelson examine the innovation structures of the world's leading companies and how they govern their innovation. By avoiding the one-size-fits-all approach so common in most treatises on innovation, they challenge innovation leaders to create their own approaches that will work best in their cultures and align with their business models and strategies.

My Experiences in Leading Innovation

Throughout my career I have seen innovation as the key to creating value for your customers, motivating your employees, and building growing businesses – all the necessary elements for creating lasting value for your owners and investors. In my early years in business my role models of innovation leaders were Hewlett-Packard founders David Packard and Bill Hewlett, Merck's Roy Vagelos, Louis Lehr of 3M and Medtronic founder Earl Bakken. In recent years, newer innovation role models have emerged, such as Dan Vasella of Novartis, Arthur Levinson of Genentech, eBay's Meg Whitman (now CEO of Hewlett-Packard), Apple's Steve Jobs and Google's Eric Schmidt.

I have never considered myself an innovator who invents products. Rather, I have tried to be a leader who leads and stimulates the innovation process to ensure the real innovators get the encouragement, support, mentoring, and focus they need to produce great innovations. Surprisingly, many CEOs and senior leaders of established companies who are eager for their companies to innovate nevertheless take actions repeatedly that prevent an innovative culture from emerging. For example, during budget season they are prone to trim back budgets for innovation projects rather than protect them, or they stand passively by as their business heads do so in order to meet pre-established targets or protect short-term product upgrades. Or they may be quite critical of innovations that do not materialize, often punishing the innovators who took the risks on their behalf. Other leaders fully fund their research and development budgets, but never engage the innovators themselves. Nor do they understand their own cultures well enough to know why they are not producing any genuine breakthrough products.

My first general management role dates back to 1969. My goal was to create the consumer microwave oven business for Litton Industries, a challenge I found highly stimulating. At the time consumers didn't even know what microwaves were. If they did, most were afraid of potential radiation, as we weren't that far removed from stories of Hiroshima and Nagasaki. At Litton we used innovation in our products and marketing to turn the microwave oven from a popcorn popper to a widely used device that has become standard in most homes. Since neither consumers nor appliance sales people, most of whom were men, understood how to use the product, we hired 2,000 part-time home economists to work at retail, conducting cooking classes and demonstrations.

Sadly, when I moved to Honeywell in 1978, my successor at Litton focused almost entirely on getting product costs down and innovation dried up. In my Honeywell years, innovation became more difficult. This company of superb engineers focused primarily on generating better products and processes, not breakthrough innovations. The ring laser gyroscope that guides all aircraft today was a notable exception.

Joining Medtronic in 1989, I saw the opportunity to harness and expand innovation in a highly creative company that was using medical technology to restore millions of people to full life and health. Medtronic was filled with remarkable innovators and exceptional innovation leaders, yet the company's recent history had been characterized more by missed opportunities and notable failures in innovation. Win Wallin, my predecessor as CEO of Medtronic, revived the process by focusing on the implantable defibrillator, whose inventor had been rejected by Medtronic. However, a system for governing innovation had not yet been established within this predominantly functional organization.

To create the innovation governance system at Medtronic, we started with our board of directors. Between 1990 and 1996 Wallin and I took significant steps to add pioneering medical doctors and technologists to the Medtronic board, who ensured that the company's emphasis stayed laser-focused on innovation. The board established a technology and quality committee, which provided oversight, ideas and guidance to management. The T&Q Committee, as it was known, was very helpful in pointing out emerging technologies that management may have overlooked and examining the viability of technologies we were pursuing. The board wanted to ensure that the company never again overlooked an important medical technology as it had with the implantable defibrillator.

From a management standpoint, it was clear that Medtronic's innovation was not well organized, leading to haphazard results. To bring some clarity to the governance process, I decided to bifurcate the organization between established businesses organized around strategic business units (SBUs) and an innovation function that included new ventures, research projects, and external alliances. The existing businesses were run by chief operating officer Art Collins, who later became my successor. The innovative work was championed by vice chairman Glen Nelson, MD. Nelson was a brilliant physician with a keen interest in medical technology who was recruited from a pioneering health maintenance organization. The company's largest business, cardiac rhythm management (pacemakers and defibrillators), was led by an exceptionally strong innovation leader, Bob Griffin. Griffin had a long history within the company of championing breakthrough innovations, often reprogramming funds to keep them alive. For the next decade Nelson and Griffin drove Medtronic's innovation while Collins skillfully managed the SBUs. Both Nelson and Griffin were masters at scouring the world for new medical technologies being created by courageous physicians and entrepreneurs that we could bring into Medtronic.

During this period Medtronic innovators were successful in using medical technology to create breakthrough innovations that addressed a wide range of complex diseases like sudden cardiac arrest, Parkinson's, atherosclerosis, heart failure, spinal disease, diabetes, and incontinence. All they needed from our top executive team was funding, focus, and a high level of engagement with their innovations. Not infrequently, Nelson, Griffin and I had to make organizational interventions to prevent the SBU leaders from shooting down their ideas before they had been developed or refusing to transfer the talent to them that were needed to make their innovation projects successful.

I recall one especially tense meeting involving a novel idea for minimally invasive cardiac surgery, also known as “beating heart” surgery. Since Medtronic sold one-third of all the heart bypass systems in the world, this invention was very threatening to our core business, whose leaders adamantly opposed going ahead with the venture. To bolster their case, they brought in several of the world's leading cardiac surgeons who opposed any designs that did not give them full visual access to the heart on bypass. In the end we proceeded with the new procedure, which today accounts for more than 20% of the world's bypass procedures and results in better outcomes at lower cost for patients. My assumption was that if we did not go ahead, a more innovative company would perfect the procedure and overtake Medtronic in the market.

In terms of metrics, Wallin established corporate goal in 1986 of growing revenues and profits by 15% per annum. To achieve this growth in markets expanding at only 6-8%, we recognized we had to create entirely new markets through innovation. Thus, we established a second primary goal that 67% of our revenues would come from products introduced in the past 24 months. This goal was especially challenging when compared with 3M or Hewlett-Packard, which had announced goals of 25% of revenues coming from products introduced in the past five years. The 67% was achieved every year from 1990 through 2006, when the innovation process slowed down. Realizing such an aggressive goal meant that Medtronic had to employ rigorous processes for product innovations complemented by separate processes for more speculative research into new medical therapies.

In analyzing the actual results during those years, it becomes clear that product innovations were responsible for the bulk of Medtronic's increase in market capitalization between 1985 and 2001 from $400 million to $60 billion. In the past decade the Medtronic's innovation culture has atrophied as Nelson and Griffin retired, and attention shifted away from new medical technologies to improving existing products with lower risk profiles.

Currently, Medtronic's system of innovation governance is being revived by new CEO Omar Ishrak, who has a clear mandate from the Medtronic board of directors. Ishrak, who was born in Bangladesh, is a pioneer in the process of reverse innovation – bringing innovations from emerging markets to developed markets. He gained notoriety for the invention of low cost ultra sound systems in Asia that enabled General Electric to capture the leading position in the United States and Europe. As CEO of Medtronic, he is focusing not only on product innovation, but also on business model innovation as a vehicle to expand Medtronic's opportunities in emerging markets. Ishrak has established a rigorous innovation governance system led by Medtronic's head of business development with regular reports to the board's T&Q Committee.

A Rigorous System of Innovation Governance Championed by Innovation Leaders

In their examination of the nine types of innovation governance models, Deschamps and Nelson offer convincing evidence that a variety of innovation governance models can be effective. Their insightful case studies, drawn from their work with some of the world's most innovative companies – IBM, Corning, Nestlé, DSM, Tetra-Pak, and Michelin – are not only revealing but inspiring. Their arguments on behalf of establishing an effective system of innovation governance are compelling and irrefutable.

This brings us back to the original question, why don't all companies who have a desire to be innovative adopt clear processes for governing their innovation? The answer, in my view, is leadership. To be successful, companies must be led by leaders – the CEO, top executives and board of directors – who are deeply and irrevocably committed to innovation as their path to success. Just making innovation one of many priorities or passive support for innovation are the best ways to ensure that their company will never become a great innovator.

As Deschamps and Nelson make abundantly clear, building and sustaining an innovative organization requires clearly established processes for governing innovation run by innovation leaders that are willing to devote substantial portions of their time and their political capital to the innovation process. They must be backed by a board of directors who is equally committed to innovation. These were the ingredients that made us successful at Medtronic. The same ingredients have led to the astounding long-term success of such innovation giants as 3M, IBM, Apple and Google.

In my experience sustaining innovation requires both innovation leaders and a rigorous system of innovation governance. One without the other is insufficient. Innovation governance without leadership from the top will ultimately wither as the immediate takes precedence over the important. Innovation leaders without a well-established governance process are too dependent on individuals and vulnerable to losing focus when those leaders move on, as we saw in the Medtronic case.

To reiterate Deschamps' and Nelson's fundamental conclusion, “The mission of innovation leaders is to steer and support innovators. Governing innovation means making sure that innovators have as smooth a path as possible, that their commitment and hard work payoff as much and as often as possible.” Their advice is well worth heeding for every organization who wants to become innovative.