Call 2014 the year of innovation. A Gartner survey of almost 500 executives at global corporations revealed that growth is this year’s top priority. Google Trends reveals that interest in disruptive innovation crept up to peak levels this year. It seems that every time you hop on a quarterly earnings call, the CEO mentions innovation. The M&A markets are frothy, corporations are investing in Silicon Valley labs, and even PhDs looking for jobs in business schools are finding it tough to find homes without “innovation” somewhere in their background.
If innovation is the foundation to building the future, this focus should be reassuring. To overcome disruption and remain relevant into the future, companies need to build the businesses that will replace their legacy offerings.
The only problem: Being excited about a new corporate commitment to innovation assumes corporate investments aren’t the equivalent of cash flushed down the toilet.
And even with the best of intentions, most CEOs start off disadvantaged in building the next big thing. Many of the reasons for this are well documented. Executives have conflicting incentives, the wrong investment metrics, and enormous margin pressure. But sometimes, executives manage to overcome all of these structural challenges and push the right types of ideas regardless of the barriers. Companies like Apple, Amazon, General Electric, and IBM demonstrate the possibility for ongoing reinvention in pursuit of the next big idea.
But it’s more than simple disregard for the quarterly pressures of the public markets that powers these industry behemoths. They also share another quality uncommon among peers. All of their leaders have staying power. Regardless of swings in the public markets, Page, Bezos, Immelt, and Rometty expect to stay in their jobs for a while.
Staying power is vital for innovation. Consider the industry I call home, enterprise software. The typical enterprise software startup that IPOs is at least 7 years old (to say nothing of those that try and fail). Like most businesses, in the beginning it’s nothing more than an idea. But it’s an idea that demands attention, investment, and a long view of the market. Only with patience and perseverance will it flourish. And after these startups hit the public markets, they’re still generally too small for the average CEO of a Fortune 500 business to care about. In the year before Google IPO’d, it did about $962 million in revenue. The same year, Microsoft did $32.1 billion. Had Microsoft owned Google’s search engine at the time, it would have been an tiny piece of the revenue pie.
Just 10 years later – the revenue Google derived from its advertisements was larger than the largest Microsoft business. How times change, right? And that’s the point.
Tackling big audacious problems take time. It’s why venture investors and entrepreneurs tend to be committed for the long haul. Big ideas start small. Everything requires a foundation of results before it can expand. Sure, the distribution and brand that big companies bring to the mix can be useful in accelerating the pace of change, but innovation still requires long timelines. And the vast majority of public company executives don’t share those timelines.
The unfortunate truth is that most public company executives don’t last too long in their roles. Based on an annual survey conducted by the Conference Board, the average CEO departs her role with fewer than 9 years under her belt. If it takes a decade to build a big business, that’s already too short of a time to be the “executive sponsor” for the project. If it only takes 5 years inside a bigger machine, that still means the CEO only has 4 years to start the project if she wants to see it come to fruition. Everything else might die on the vine in transition.
And 9 years is just the average. Look at Hewlett Packard for a horror story. Since 1999, HP has seen 6 CEOs and interim CEOs. Given the constant turnover, even the best of intentions could be made irrelevant. With HPs projects running on annually approved operating budgets and constant executive turnover, many corporations simply can’t be trusted to invest in innovation over the long haul it requires.
Consider what it has taken to push General Electric into the software business. For more than a decade, GE has been adding sensors to its industrial devices and enabling central collection of that data. Slowly, the company built out proprietary software systems to allow its customers to get more out of its product. Today, GE is emerging as a leader solution provider in the “Internet of Things.” But if not for execution against a decade-long plan, it would all be for nothing.
People often like to reference Apple as an example of a company that figured out how to use innovation to drive growth. Certainly they did. But staying power was a key part of the recipe at Apple. Executives spent years plotting their takeover of the mobile computing world and executing. They focused on a few enormous projects and did them incredibly well. And they lasted. From 1997 to 2014, 9 of Apple’s 17 most senior executives lasted more than a decade in the executive team (with 5 of them lasting more than 15 years).
With that kind of dedication, companies can achieve great things. But that’s more than enthusiasm. That’s staying power.
The fact that 2014 is the year of Innovation in the corporation isn’t surprising. We’re in an up market and people are more excited about technology than ever before. But taking excitement and turning it into results requires more than investment. It requires staying power. Projects need to be funded, sponsored, and protected for the long haul.
In the second part of this series I will dive a little deeper into the economics of this process. In the third part of this series I will make some suggestions about how to pull it all off in a large organization.
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