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Innovation Leader: What role does a good CEO play in aiding innovation in a company?
Steve Blank: In the most extreme case, they are the innovators. They are the Steve Jobs, the Elon Musks, etc…[But] most CEOs—I’d say 98 percent of them—aren’t innovators… They’re executors.
IL: Can you explain the difference between an innovator and an executor?
Blank: An executor is somebody who’s a world-class manager of processes, procedures, people. They know how to get the trains running on time… If you’re managing process, procedure, and people, you’re looking at numbers, so you tend to be finance-oriented. That’s what the board tells you to worry about, and that’s what your investors on Wall Street tell you to worry about.
Innovative leaders look past that. [Innovative] leaders are curious and see things others don’t—and they see further than others do. An execution-[oriented] CEO operates in the present or the next quarter, but very rarely sees further…
About 30 years ago, McKinsey came up with the idea of three horizons of innovation…The first one is your core business… Who are your current customers? Your current products? You innovate in that horizon. It’s not like you stand still; you get better materials, better pricing, new products, etc.
Some companies are pretty good at doing Horizon 2 innovation: “Let’s extend our distribution channel. Let’s go to the web. Let’s go to mobile. Let’s sell the same product to different customers. Let’s team with Procter & Gamble. Let’s invent the Swiffer for our existing customers.” That’s Horizon 2 innovation. Competent companies that stay in business for a while do that.
The real innovators are the ones who do Horizon 3 innovation. That was when [Steve] Jobs invented four new industries in the span of seven years. That’s when [Jeff] Bezos in 20 years put the entire retail business—not just books, but everything from groceries to everything else—literally out of business.
Great CEOs have all three going on simultaneously. Nowadays this isn’t an option because disruption, which happened rarely in the 20th century, now happens continuously in the 21st.
Innovation is no longer an option. Innovation is a matter of survival in almost every industry.
What we’re going to see is…a lot of companies going out of business that simply don’t have this continuous innovation culture.
IL: How do you avoid death of innovation when a CEO who creates the innovation program leaves their position?
Blank: That’s hard. In fact, the equivalent is what’s going on in Apple. Tim Cook is, in my opinion, the new Steve Ballmer. Steve Ballmer took over for [Bill] Gates as his anointed successor [at Microsoft.] Actually, Steve Ballmer was the most profitable CEO Microsoft had, yet he almost made them completely irrelevant in the 21st century…
He missed every technology trend. He missed mobile, missed search, missed all of that stuff. He optimized Windows and Office, [and] made more money than Bill Gates ever did.
If you look at what Tim Cook did, Apple’s the most profitable company in the history of companies on Earth, with a third of a trillion dollars in the bank. Yet I’ll contend he’s been a failure, because [of the question], “Why should we innovate? We’re making more money.”
In another five or 10 years, they will be completely irrelevant. They’ll be a company that’s living off their past. They’re not going to go out of business, just like Microsoft wouldn’t go out of business. But they will be irrelevant.
When Steve Jobs died, when Bill Gates retired, when Walt Disney died, the people underneath them [were not] innovators. World-class innovators do not have world-class innovators working for them. They have world-class executors.
That’s not a problem when the innovators are there. In fact, that’s what you need to make the company stable. If the board has some wisdom, they understand that those executors are not the innovators. [They could say,] “Well, we’re going to go outside [the company, or] we’re going to go one level below you and find those innovators.”
IL: So let’s say a CEO sets up an innovation initiative and the job is handed to one person, a Chief Innovation Officer…
Blank: [Most] chief innovation officers are innovation theater for the board and investors. The first test is, do they have process, people, and budget? If they don’t have any of those, then they’re just window dressing.
If you really think about where innovation belongs, it belongs in every component of the organization using the same language and same methodologies. Typically, the board beats up the CEO, and says, “We need to be innovative.” They [write] some memos, [put up] posters in the cafeteria, and that’s wonderful. Then you come back in three years, and go, “OK, did we move the top or bottom line?” The answer is almost [always] no. The CEO doesn’t really care, because he was operating on quarterly numbers.
By the way, the board in the meantime says, “Hey, why don’t we buy company X? They’re innovative.” So much for doing innovation internally.
The other thing to look at is, if you have a chief innovation officer and you still have a separate silo of M&A group, a strategy group, an advanced R&D group, [then] you really haven’t done anything about innovation. In fact, you’ve created more process and procedure without actually understanding what the goal is.
IL: As someone who is based in Silicon Valley, I’m sure that you’re seeing companies that have said, “Hey, even though we’re based in New York, we’re going to open up an innovation lab in the Silicon Valley.” Do you think that there is any benefit to making that sort of move to improve innovation?
Blank: There’s over 200 innovation outposts in Silicon Valley. What’s really interesting is to figure out why [they are] here. The response could be, we’re investing, we’re buying, or better yet, we’re building something near the Valley.
The problem is that these outposts are typically innovation theater. They typically report multiple layers down from the CEO, and they don’t have any authority. Often, if they build something, it’s not particularly strategic, and not particularly aligned with the company, or not disruptive enough to create something new.
I’d say of those 200, probably about 185 or 190 are theater.
The biggest problem to start with is that the outcome is ill‑defined…and they report way too low in the organization.
IL: Say you’re on an innovation team that’s faced with all of the challenges that we just discussed, and your CEO isn’t necessarily onboard. How can an innovation team start working to overcome these obstacles?
Blank: If that’s the case, you either need the health insurance, or you’re in the Department of Defense and you have a military term to serve, or you believe in the mission of the company or the government. Those are the only three reasons you’re still working there, because that condition is usually what [leads to] people leaving.
There are companies that I’ve seen start with innovation insurgence, [with] people running guerilla innovation activities inside. You could do that; it’s just incredibly hard. In fact, doing innovation inside a [large] company is at least three to four times harder than doing it in a startup; [doing it] inside government is probably 5 to 10 times harder.
…If you think about Uber, Tesla, PayPal, or Airbnb, these startups all started with the founder understanding that they were breaking the law — every one of them. They got hundreds of millions, if not billions, of dollars of investment money because they were breaking the law. It’s a big idea. Investors realized that if these startups could disrupt an entire industry by breaking the laws, their investment would pay off fantastically.
If you think about it, you cannot have that conversation inside a large public company. Who do you think is the first one who would shut that down? Your legal people who would say, “Well, we can’t break the law. We’d be sued by shareholders and state attorney generals. How can we start a new initiative by saying we’re going to break laws?”
IL: Do you have any other advice for teams about how to get CEOs onboard to go beyond theater?
Blank: The first thing I would do inside of a large company is, have the CEO go back to HR…and say, “I want to look at our attrition numbers, not just [the] numbers of people leaving, but how many of our most creative people are leaving? Not just the people from the manufacturing line.”
All of a sudden, they’re going to understand whether you have an innovation problem or not, or an innovation culture problem.