Many CEOs rise to their positions by virtue of their ability to consistently meet short-term financial objectives. This requires focus, a clear understanding of the business model and its levers, and discipline. Once in the corner office, a new CEO may be strongly tempted to continue to focus on operational matters: that is what got him or her to the CEO position.
But today’s world has changed. The pandemic-driven geometric growth in technology has elevated one discipline to the forefront for the most successful CEOs: innovation. To gain insights into the new role of the CEO I asked corporate innovation guru Jim Euchner to explain. As background, Euchner operationally led breakthrough innovations at Goodyear, Pitney Bowes and Verizon. He holds 13 patents and is Editor in Chief of Research-Technology Management. He is author of the recently released book Lean Startup in Large Organizations.
Robert Reiss: How should CEOs view their role in innovation?
Jim Euchner: “To make the transition from an operations officer to a growth leader, a CEO must play a personal role in innovation. A key part of this role is managing the fears that innovation – especially new business innovation – induces in an organization. The most potent of these are the fears that innovation can create in the senior leadership team itself. Addressing these fears will not create better innovation; it will, however, create the environment that permits it to flourish.” Reiss: How can CEOs ensure that innovation delivers value to their enterprise?
Euchner: “There are three screens that an innovation must pass through to deliver value to the company. It must be a viable and meaningful business; it must be capable of leveraging the assets of the corporation; and the leadership team must make the bet to win, even when that means diverting resources (financial, operational, and human resources) away from the core business. Each screen creates a new set of antibodies.”
Reiss: How should CEOs address the fears and the antibodies associated with innovation?
Euchner: “First, CEOs must recognize that any new venture confronts a range of uncertainties: uncertainty in customer demand, uncertainty in the timing of the market, questions about the viability of new channels or new business models, the potential for new types of competitors, etc. Corporations have gotten better and better at managing these types of risk. The lean startup movement, which is focused on disciplined learning using business experiments, has done much to help with this. The CEO’s role in addressing this screen is simply to make sure that the innovation process is appropriate to the task, adequately funded, and focused on an opportunity that matters.
The second requirement is to assure that the innovation is not inhibited by the culture of the core business. Everyone inside a corporation operates within the context of a set of assumptions and practices that embody “the way we do things around here,” which is sometimes called the culture. The culture can impede innovation whenever doing something different interferes with normal operations. This is especially true when the new venture relies on assets of the core business to order to create competitive advantage. Creating meaningful air cover for innovation is an important role of the CEO. This goes beyond general declarations of support for innovation and includes crafting incentive structures that encourage those in operational roles to work with the innovation team. Critically, it means cascading this message broadly through engagement of the senior leadership team.
The third requirement is deeper, and it operates at an organizational level. At its root, it is the risk that the new business will undermine the existing business – or the positions of leaders in that business. The underlying fear is that the new venture will lead to a loss of control. The new venture might challenge the identity of the core business; it might succeed by cannibalizing ongoing business; or it might divert precious resources from a known world into one that is very uncertain. This is the biggest challenge, and it causes many great new businesses to languish inside the corporations that created them.”
Reiss: What are the minefields CEOs must navigate to assure that this doesn’t happen?
Euchner: “The fears play themselves out in many ways: in subtle messages to people not to support the business; in delays in approving the resources necessary to move forward; in political moves, including undermining of individual careers. If a CEO notices a pattern of delays in commitment to a business, it may be that something deeper is going on.
Ironically, the deeper issues arise only when a venture appears to have potential. Until then, it is small potatoes and little threat. It is only when a venture has demonstrated its viability that the threats are of significance. It is interesting, if disconcerting, that the solutions that address the first type of risk exacerbate the second. It is even more disconcerting that success addressing the first two types of risk activates organizational defenses. It is here that the CEO has his or her main role: to develop leaders that are not easily susceptible to these risks – leaders that Michael Tushman refers to as “ambidextrous leaders.” Only the CEO can model and demand these behaviors. And only when leaders operate with this dual mindset – as both operational leaders and innovation leaders – will they be willing to make the bet to win.”
In summary, innovation cannot be delegated. The CEO has critical roles beyond providing resources and reviewing results. The most important of these is developing a senior leadership team that leans into innovation – one that is willing to spend the time necessary for innovation, that is incentivized to do so, and that is capable of leading in two very different worlds.
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