Mlab labnotes-021 American management

Management 2.0

Labnotes
Insights, ideas and inspiration from MLab Issue 21 | January 2012

In this issue
Management ideology: The last bastion of Gaining advantage through agility
American hegemony An experiment conducted by a team at leading Nordic
Management thinking remains American dominated. But, insurance firm, If, set out to examine how the business
Julian Birkinshaw asks, is that set to change? > p1 could act faster in the marketplace. Julian Birkinshaw
reports. > p14
A true measure of leadership
Great leaders inspire, motivate and engage the people India Inside: The emerging innovation challenge
around them. We all recognise the truth in this, but could an to the West
innovative twist on a well-known marketing metric bring about In their new book, India Inside, Nirmalya Kumar and Phanish
an improvement in employee engagement? > p5 Puranam turn an often-asked question on its head. Innovation
is alive and well in India, but often invisible. > p17
Beyond talent management: facts, myths, and
implications What makes Apple Apple
From Enron to the more recent banking crises, talent In an exclusive excerpt from his forthcoming book, What
management has conspicuously failed to deliver. Is it time for Matters Now (published in December 2011 by Jossey-Bass
a new way to release talent? > p9 Business), Gary Hamel looks at the core of Apple. > p19

A Time and a place for innovation MLab review
Is it just a coincidence that Archimedes was sitting in his bath Founded in 2006, we take a moment to reflect on what
when he had his ‘eureka’ moment, or did it have something to MLab has achieved to date, and how it will continue
do with the fact that he had time and a place to let his mind its mission into the future. > p23
relax and inspiration to flourish? > p11

Management ideology:
The last bastion of
American hegemony
Management thinking remains Here is a tricky question: How many living management gurus can you name who did not
American dominated. But, learn their trade in North America? I have asked many colleagues this question, and it’s
Julian Birkinshaw asks, is that pretty hard to come up with a good list. For example, consider the individuals in the 2009
set to change? Thinkers50 ranking of management thinkers. Most of the obvious non-American names such as
Mohammed Yunus, Ratan Tata, and Manfred Kets de Vries actually studied in the US, so they
don’t count. By my reckoning, there are only seven who make the cut: Richard Branson (Virgin),
Kris Gopalakrishnan (Infosys), Kjell Nordstrom and Jonas Ridderstrale (Stockholm School of
Economics), Lynda Gratton, Rob Goffee and Gareth Jones (London Business School). Does this
matter? I think it does.

In the years following the Second World War, the United States dominated the global business
world completely – it was the major source of capital, the home of advanced manufacturing, and
the source of most major technological developments. It provided the best quality management
education, and it was the source of all the latest management thinking.
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Management ideology: The last bastion of American hegemony continued...

Today, we live in a more complex, more plural world. The US is now the world’s largest
debtor nation, and the biggest sources of capital are the large Sovereign Wealth Funds of
the Middle East, Russia and China. Leadership in advanced manufacturing is spread across
such countries as Japan, Korea, Germany and the US. Technological innovation is dispersed
across the world, in countries like India, China, Singapore, Israel, Sweden and the UK, as
well as North America. Top-quality business schools exist in every major market.

In short, the rest of the world has caught up. North America no longer holds a clear
advantage in any of these ﬁelds of accomplishment it used to lead.

With one exception: management ideology.

Mainstream thinking
What do I mean by management ideology? I mean the basic frameworks and assumptions
we use to talk about the practice and profession of management; our underlying beliefs
about what management is trying to achieve; and how it goes about achieving it.

There is a management ideology in existence today that took shape a hundred years ago,
primarily through the ideas and practices of US-based management thinkers, and which
continues to dominate the way we think about management. Its key features are:

• Setting and delivering of objectives according to the demands of shareholders

• Coordination of effort and activities through professional bureaucracy

• An emphasis on efﬁciency and productivity as the key measures of success.

Of course, this ideology is not without its detractors. There is an ongoing debate (among
academics) about each one of these principles, and there have been periodic challenges
to this way of thinking from other parts of the world (for example the Japanese quality
movement in the 1960s, and the European Quality of Working Life movement of the 1970s).
But the point is, this ideology is the mainstream – it is the primary way of thinking about,
teaching, and executing management. For those studying management, or applying its
methods, any nuances to the debate are entirely lost.

American roots
This management ideology, with its North American roots, endures primarily because there is
no viable alternative. Consider a few basic facts. At London Business School, one of the top
business schools outside North America, more than 90 per cent of the faculty gained their
PhDs in North America. The same is essentially true at Insead (France), IESE (Barcelona),
the Indian School of Business (Hyderabad), and CEIBS (Shanghai). The top management
journals, from Fortune to Harvard Business Review to Administrative Science Quarterly, are
all based in North America. The top management consultancies, from McKinsey to BCG,
Bain and Booz & Co., all have deep American roots.

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Accelerating the evolution of management

3 | Labnotes


One consequence of this dominance is that other perspectives get suppressed. There are
strong traditions of management writing in both the French and German languages, but they
are being marginalised: the up-and-coming scholars in continental Europe are increasingly
writing for English-language journals, and large French and German companies are
increasingly bringing in North-American trained consultants and academics to advise them.
“As for the developing As for the developing world, there is no better way of proving that you are an ambitious,
world, there is no better progressive company, than by hiring “professional” managers and advisors that cut their
way of proving that you are teeth in the North American system: look at Ambev (Brazil), Infosys (India), Huawei (China),
DTEK (Ukraine) or Korea Telecom. The entire business world is seemingly in thrall to the
an ambitious, progressive
dominant American ideology of management. America may have lost its lead in other areas
company, than by hiring of business, but it still holds sway in this one, vital area.
“professional” managers
and advisors that cut Ruling the world
their teeth in the North I know what you are thinking: the reason everyone wants to adopt the American model

American system.” is simply that the American model is better. Well, there is some truth to this argument.
An influential set of studies on cross-national management practices conducted by
Stanford Professor Nick Bloom and colleagues sought to get to the bottom of things. These
studies showed, essentially, that American firms outperformed all others. “Why American
Management Rules the World” was the headline on their blog post from June 2011.

I have two responses to this argument. First, the methodology used by Bloom and
colleagues, while painstaking and rigorous in its execution, was itself a product of the
ideology I described above. In other words, the evaluation of success was based on such
metrics as productive efficiency, consistent use of incentives, professional training, and
so on. We shouldn’t be too surprised to see that American companies score best on the
measures of success that they themselves developed.

Second, even if the American model is genuinely better today,
why would we assume that it will still be so ten or twenty years
from now? Many observers have commented on America’s
declining influence over the world. And as we know from
history, it is often the imperial power’s worldview that is the
last thing to decline. Wikipedia defines hegemony as “a state
of affairs where the dominant class impose their world view
as if it were natural, inevitable, and beneficial to every social
class.” Management ideology is, in essence, the last bastion
of American hegemony. We continue to see the principles
of shareholder capitalism, professional bureaucracy and
productive efficiency as natural, inevitable and beneficial. But
they can – and should – be challenged.

There is an alternative
So how might our thinking about management evolve? There are already plenty of ideas
about what an alternative to the traditional American model might look like:

• In terms of objective-setting, why don’t we put a greater focus on higher-order purpose or
vision, rather than short-term financial returns? And what about giving equal emphasis to
multiple stakeholders, rather than focusing singularly on shareholders?

• In terms of coordination, can we imagine putting a greater focus on self-organisation and
collective wisdom, rather than bureaucratic rules and procedures, as a way of getting
things done?

• In terms of outcomes, should we put a greater emphasis on innovation, creativity and
employee engagement, rather than just productivity and efficiency?

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Each of these ideas has its own body of adherents – management thinkers pushing a
particular point of view, and practising executives experimenting with a different way of
working. But there is no coherence to these points of view, and there is not sufficient
evidence of success for the established ways of thinking to be challenged.

“India and China have highly distinctive cultures
and rich traditions on which their own distinctive
management ideologies might be built.”

But here is where I think it gets interesting. Everyone can see that the balance of power in
the business world is shifting to the East. We now look to Asia as a source of finance, for
advanced manufacturing, for technological innovation and for well-educated workers. Is it
likely that we will in future look to Asia as a source of management ideology?

Up to now, most Asian companies have been happy to play catch-up, by incorporating

?
the best of the American model of management into their working environment. But once
they are competitive, there is no reason for them to stop there. India and China have highly
distinctive cultures and rich traditions on which their own distinctive management ideologies
might be built.

Already, there is some evidence of a distinctive Indian model of management emerging.
Peter Cappelli and his colleagues recently published a book, The India Way. They focus on
“holistic engagement with employees”, “improvisation and adaptability” and “broad mission
and purpose” as the defining features that make the Indian model different to the American
model. These features, they claim, are inspired partly from ancient writings, such as the
Bhagavad Gita, and partly from the experience Indian executives had growing up in the
chaotic post-war years.

And it seems surely just a matter of time before a “China Way” emerges. Chinese companies
now have a level of self-assurance and success on the world stage that is allowing them to
experiment with their own ways of working, and they are well placed to bring together the
best of the American model with the best of their own unique cultural heritage. I don’t know
what this will look like, but it is surely coming.

And one final observation to emphasise this point further. Culture is a complex thing, but
we do know a few things about how to characterise the cultures of different countries. For
example, the Anglo-American world is relatively individualistic and it has a relatively short-
term orientation. Most Asian countries, in contrast, have a more collective orientation and a
relatively long-term orientation. So if we go back to the elements of the “alternative” model
I sketched out above, with its emphasis on purpose and a stakeholder-based approach to
capitalism, it seems pretty clear that these elements have a natural affinity with the Asian
cultural norms around collectivism and long-term orientation. To the extent that the American
management ideology is going to be challenged, Asian companies with Asian values are well
placed to be the ones doing the challenging.

Julian Birkinshaw (jbirkinshaw@london.edu) is Professor of Strategy & Entrepreneurship
at London Business School, and Senior Fellow of the Advanced Institute of Management
Research. His latest book is Reinventing Management (Jossey Bass, 2010).

NEXT ARTICLE: A TRUE MEASURE OF LEADERSHIP
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5 | Labnotes

A true measure of leadership
Great leaders inspire, motivate and engage the people around them. We all recognise
the truth in this, but could an innovative twist on a well-known marketing metric bring
about an improvement in employee engagement? And could that new metric promote
continuous improvement on the part of the people being measured? Julian Birkinshaw
reports on a team at Roche in search of a true measure of leadership.
A group at the global healthcare organisation Roche has been undertaking a series of
management experiments to address key business challenges. For Jesper Ek, Head of
External Affairs for Roche in Sweden, this was an opportunity to put an interesting idea
to the test: one that he believed could help to deliver the exceptional performance only
achievable with strong line management.

Jesper Ek was familiar with the Net Promoter Score (NPS), a well-known marketing metric
for gauging how much your customers are actively promoting your products. It simply
asks “How likely is it that you would recommend our company to a friend or colleague?”
Responses are divided into promoters (9 or 10 out of 10), neutral (7 or 8 out of 10),
and detractors (1 to 6 out of 10). Research has shown that the net promoter score (i.e.
promoters less detractors) is a useful measure of customer loyalty, and an important driver
of growth.

Jesper had the bright idea of turning the net promoter score inwards, as a way of
monitoring the quality of management in a company. The single question would be “Would
you recommend your manager to others as a good boss to work for?” And by doing the
same calculation (promoters minus detractors), it would be possible to measure the Net
Manager Promoter Score (NMPS) for a business unit or organisation.

The neat thing about such a measure, Jesper reasoned, was that it would be simple and
easy to use (and repeatable). “I have often filled in pages and pages of questions in 360-
degree feedback surveys about people in my organization, and after a while you lose focus.
If we could narrow down to a single, meaningful measure, everyone would benefit.”

Getting the right team
Jesper Ek’s team members were Charlotte Kluit, Marketing Manager Pharma Rx,
Netherlands; Andy Barnett, Brand Team Leader, Pharma Rx, UK; Susanne Somerville,
Senior Director, PTD Planning, Basel; Kin Tang, Senior Research Leader, Formulation
Research, pRED, US; Stephan Weiss, Finance Manager, Pharma Rx, South Korea and
Alejandra Fernandez, Regional Business Leader for Oncology, LATAM, Brazil.

It was a truly global experiment, drawing on colleagues from multiple geographies,
functions and cultures. This was important because it showed how just one simple,
standard question could be used across cultures. It offered the potential for an aggregated
NMPS score to reflect a global measure of the organisation’s leadership culture. Crucially
for the success of the experiment, it also had the backing of two senior sponsors, Carolyn
Medley, Vice President for HR in Latin America and Peter Hug, Head of Roche’s Western
Europe pharma business. Jesper comments that it was important to identify the right
sponsors at the outset; senior players prepared to take an active role in the experiment. For
example, Carolyn Medley recommended that for an experiment of this nature, they should
involve the HR teams in the countries taking part. This was great advice, as HR became
enthused by the results of the experiment and has since sponsored the use of NMPS at a
number of levels, as we will see later.

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A true measure of leadership continued...

Establishing team basics was another factor. Says Jesper: “We had to trust each other to do
what had been agreed so that we didn’t waste time revisiting everything together. Regular
schedule updates and temperature checks were critical. And yes, a weekly conference call
did mean colleagues in Latin America had to start early and those in Korea had to work
late, but nobody missed a call throughout the experiment. That’s the level of enthusiasm
we had for it.”

Establishing milestones
Project milestones were set at the outset to keep the four-month experiment on course.
While this timetable was knocked off course for a while due to a restructuring within
Roche, Jesper believes there is huge value in establishing milestones because it provides
a framework for progress. The ‘pause’ in the timetable didn’t go to waste. It gave the team
time between an initial pilot and fuller programme rollout to pin down exactly what was
needed to make the full experiment a success.

One of the early experiment deliverables was to establish why using the NMPS approach
might be beneficial. This was an important consideration for selling NMPS to the wider
business. The team looked at current approaches for measuring performance and
employee satisfaction. These included employee engagement surveys, multi-source
Jesper Ek’s team feedback, performance appraisals, talent review discussions and global development
Susanne Somerville plans. They weighed up the benefits, such as the way in which these approaches set
Andy Barnett
specific actions for managers. Then they considered the limitations – or the unmet needs
Charlotte Kluit
Kin Tang
– including a lack of consistency and precision, the irregularity of different approaches
Jesper Ek with varying levels of response in different countries or business units and the potential for
Alejandra Fernandez employee feedback on manager performance to be influenced by concerns about what
Stephan Weiss
they should or shouldn’t say.

The experiment team concluded that the current approaches were valuable and well
considered, but might not tell the whole story. The NMPS would add another level
of understanding. It could provide a single snapshot of employee satisfaction with
management that could be measured on a regular basis to deduce whether managers were
improving. The experiment team asserted that NMPS would offer a simple approach to
standardising employee feedback.

“The experiment team Pilot phase
concluded that the To pilot test their hypothesis, the team focused on itself. Each team member went back to
current approaches their own business unit with a set of questions that they had jointly agreed. This included
were valuable and the single NMPS question Would you recommend your manager as a good boss to work

well considered, but for? The other questions were drawn from a Gallup-approved employee satisfaction survey
with additional questions designed to gain a measure of:
might not tell the
whole story.” • Employee engagement

• Leadership attributes

• Employee motivation.

The NMPS response was then assessed to see how its result correlated with the findings
from the other questions.

The pilot was a great success. The value of effective communication was one of the most
important lessons that carried over from the pilot to the ultimate experiment. The team
produced a communication package to support the survey. While this and the survey
questions were written initially in English, each team member took responsibility for
translating them into their local languages. This same approach was then applied to the full
experiment rollout.

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Independent assessment
One of the key messages that the team communicated was the use of an external party
to assess the survey findings. Says Jesper Ek: “We wanted to reassure survey participants
that their feedback would be totally anonymous to anyone at Roche. Funding for this
independent resource was secured by one of the experiment team members. It was money
well spent and I would recommend it as a way forward for projects of this nature.”
“The fact that we had Communication with all the country general managers (GMs) was another facet of this
time to overcome any experiment. After all, it would be their direct reports being measured using the NMPS
potential obstacles, metric and experiment survey. Buy-in of both the GMs and the local HR managers was
such as a lack of essential due to the need for speed at implementation stage. Having delayed roll-out of

employee engagement the experiment due to internal re-structuring, the team had only a few weeks to get results
out once the go-ahead had been given. Jesper comments: “The fact that we had time to
and manager buy-in,
overcome any potential obstacles, such as a lack of employee engagement and manager
before go-live was an buy-in, before go-live was an important success factor. With the GMs and local HR teams
important success behind us, those employees asked to participate were more willing to do so than if we
factor.” didn’t have this backing.”

Results with clarity
Out of a participant pool of 1,250 the experiment achieved a 74 per cent response rate:
153 managers agreed to take part, along with 769 employees. Jesper believes this is
a testament to the preparation, along with the use of a simple response mechanism
(SurveyMonkey) and the promise of anonymity.

The findings were unambiguous. There was a clear correlation between the Manager Net
Promoter Score and employee engagement as defined by the Gallup-approved question
set – see Figure 1.

Figure 1:
MNPS vs Employee Engagement

150

R = 0.7
100
Management Net Promoter Score

50

0
5 6 7 8 9 10
-50

-100

-150
Employee Engagement

This shows simply that managers with a higher NPS have more engaged employees.
This may not seem surprising but, as Jesper observes, there are dozens of factors that
potentially affect an employee’s level of engagement with his or her work – the nature of
the job itself, the physical surroundings, the team of people, the pay. For the immediate
manager to be so overwhelmingly important as a predictor of employee engagement is a
really important finding.

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The team also collected independent data about how managers had been rated by
their own boss in their appraisals. As they anticipated, there was a strong correlation
between the NMPS and the ofﬁcial performance appraisal.

Managing outcomes
So what does this all mean for Roche? The experiment supports the premise that the
quality of line managers is the most critical factor in realising the goal of making Roche
a great place to work. The team believes that the NMPS has the potential to add real
value to Roche by providing sharp insight into the most important factor in delivering
employee engagement – the role of the manager.

Jesper has high hopes for the NMPS and asks whether it could be used more broadly.
“I think it could be used to compare the performances of different regions or business
units for all manner of purposes. For example you could gain a Net Promoter Score
that recruitment could use by asking current employees, “Would you recommend
employment in this unit to a friend?”. An improving aggregated score year-on-year
would be a great advert for prospective employees. NMPS could even be used as a
means of comparing the performance of our own business with that of a competitor.
There is huge scope to expand the concept.”

“NMPS could even be used as a means of
comparing the performance of our own
business with that of a competitor. There is
huge scope to expand the concept.”

For the moment, however, he is delighted that NMPS has already been adopted at a
smaller scale in two programmes within Roche. Head of the Western Europe pharma
business Peter Hug has assessed all the European general managers using just the
NMPS question and two additional ones relating to employee engagement. NMPS has
also been included in a recent global employee engagement survey where it has given
a powerful and easy to assess measure of employee satisfaction with their managers.

Jesper concludes: “We are not promoting NMPS as the only measure of performance
but believe it can easily be incorporated into existing mechanisms for seeking
employee feedback. An aggregated NMPS score periodically calculated offers a new
and potentially valuable approach to realising our goal of making Roche a great place
to work.”

Julian Birkinshaw (jbirkinshaw@london.edu) is Professor of Strategy &
Entrepreneurship at London Business School, and Senior Fellow of the Advanced
Institute of Management Research. His latest book is Reinventing Management
(Jossey Bass, 2010).

NEXT ARTICLE: BEYOND TALENT MANAGEMENT: FACTS, MYTHS, AND IMPLICATIONS
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9 | Labnotes

Beyond talent management:
Facts, myths, and implications
From Enron to the more recent banking crises, talent management
has conspicuously failed to deliver. Is it time for a new way to
release talent? Jonathan Winter gathers the evidence, blows away
some myths, and – in collaboration with MLab – proposes a new
organisation that will enable leaders (especially HR leaders) to help
redesign the way we all work.

Why is it that only a few companies ever become famous for the way they manage
people? Many become famous for their products, or for their advertising campaigns.
Some – like Enron – sadly become famous for their misdeeds. But despite decades of
evidence linking good people-management with good results, only a handful become
famous for their management. They include Semco, W.L. Gore, Southwest Airlines,
Zappos and more recently HCL and Morning Star.

In search of answers, the Ci (Career Innovation Group) research team has now – with
help from many colleagues and research partners around the world – completed more
than ten years of research and development. We’ve worked with some of the world’s
best-known employers to track emerging trends in work and careers and to shape
innovative practices. And we have repeatedly asked: Why is so much talent wasted and
so many people disengaged in their work? What really motivates people? How can next-
generation employers truly inspire, engage and create value through people?

Global partners in this quest have included private companies like GlaxoSmithKline,
Unilever, Boeing, UBS and Marriott together with NGOs such as Oxfam. We have
published 25 research studies, convened over 40 innovation events, and pioneered
research-based practices and tools used by individuals, managers and HR professionals
all around the world.

Across all this work, one startling insight stands out:

Most managers rarely if ever sit down with their valued colleagues and ask this
simple question: What is it that really engages you at work? What are your hopes
and ambitions?

To our surprise, this proved to be true even among the most nurtured ‘top talent’ groups.
We found that on average four in every ten ‘talented’ employees said there was a topic
they wanted to discuss with their manager – a ‘conversation gap’. Most of these missing
conversations were about the future. Many of them were about their future careers.

The more we’ve looked at this, the more significant it seems. We’ve found this single
indicator – the conversation gap – predicts with remarkable accuracy people’s level
of engagement and commitment to an organisation. This simple action – an honest
conversation about the person first, then the business – is in many cases the most
engaging thing a manager can do.

What’s going wrong? And what can be done about it?
Superficially of course the answer is very simple: Managers need to have those
conversations. And in some cases, all that’s needed is a prompt. One young manager at
Microsoft in Seattle read about the research and immediately scheduled time with each
of his team for an agenda-free conversation about themselves and their future work. “It
wasn’t difficult,” he said “and I could visibly see their energy levels rising as we talked”.

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10 | Labnotes

Beyond talent management: Facts, myths, and implications continued...

Unfortunately in most cases we have to do more than simply plead with people to have
better conversations. Under pressure from imposed targets and in the context of constant
change, managers prefer to avoid topics that might expose their own uncertainty. The very
conversations that could engage people get squeezed out. No wonder we’re all stressed.

The conversation gap turns out to be a symptom of a much deeper malaise that is heavily
embedded in the culture and practices of management, especially talent management.
This malaise has at least three major causes at managerial, organisational and
market-wide levels:

“The entire infrastructure 1. Managers misunderstand what motivates ‘knowledge workers’ who – unlike nineteenth
of management is built century factory workers – cannot be managed by close supervision, and whose best
creative work is not measured by hours in the office or the number of units produced.
on the tension between
We must stop trying to ‘incentivise’ people to do things they don’t want to do, and start
workers’ objectives partnering with them – like adults – to achieve great results that have mutual benefit.
and organisational
2. Organisational practices are still assuming a slow-moving environment in which
objectives, rather
planning can take place at the top and centre of organisations, and be cascaded down
than partnership.” as objectives. Rather, today we almost all experience ‘constant change’. We therefore
need to design management practices that build individual resilience and organisational
agility, balancing top-down alignment with bottom-up responsiveness.

3. Business is still ignoring the globalisation of cause-and-effect. The continued focus on
short-term financial return is blinding us to new ways of managing that are needed to
produce longer-term returns in a connected world. This in turn undermines individual
managers who want to invest time – for example – in understanding and developing their
people. In today’s networked world, we need to act in new ways that create a virtuous
cycle of shared value. This builds trust and promotes innovation.

To put these three things another way: The entire infrastructure of management is built
on the tension between workers’ objectives and organisational objectives, rather than
partnership. The problem is getting worse, because the pace of change means we
can no longer manage things top-down, we have to rely on people to respond quickly
to opportunities and threats. And the tension with workers parallels the wider problem
business has, in which the goal of short-term profit is set against the needs of society.

What can we really do?
We need to work on the deepest problem – the mindset – if we’re ever going to create
real change. That’s an ambitious goal. Newer and smaller organisations may be able to
adopt this new talent philosophy immediately and without hesitation. It is intrinsically less
bureaucratic, less costly and more engaging than today’s talent management practices.

For large established organisations, the journey will be longer but not impossible. We’re
consulting several well-known global organisations (including MLab) about a new
‘Academy’ or ‘Lab’. This will equip a network of HR leaders with the structured tools
needed to question assumptions and facilitate experiments in management. Leadership
habits need challenging. Basic management assumptions and practices (see box) need
re-thinking to create a positive environment in which people can do their best work.
Thanks to Ashridge Business School, Clutterbuck
Associates, Creative Metier, Relationships Foundation, Very quickly these experiments will start to take us beyond talent management and towards
Tomorrow’s Company, The Talent Foundation and
all the business school alumni associations who a more rewarding, creative, purposeful way to achieve great things together. Then we’ll
have taken part in Ci studies. With particular thanks
to David Clutterbuck, Ap Eigenhuis, Wendy Hirsh, have built a new generation of organisational communities we really want to be part of.
Charles Jennings, Euan Semple, Naomi Stanford and
Paul Yost. Jonathan Winter is founder of the Career Innovation group (www.careerinnovation.com).

NEXT ARTICLE: A TIME AND A PLACE FOR INNOVATION
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11 | Labnotes

A time and a place
for innovation
Is it just a coincidence that Archimedes was sitting in his bath
when he had his ‘eureka’ moment, or did it have something to do
with the fact that he had time and a place to let his mind relax and
inspiration to flourish? Julian Birkinshaw tests the innovative waters.

Does innovation need to be nurtured? Innovation is seen as a competitive differentiator,
yet in a business world where everyone is multi-tasking and working long hours, finding
the time to innovate can be a struggle. An experiment conducted by a team at leading
Nordic insurance firm If set out to examine whether allocating time and space for
innovation could make a difference to the company’s innovative output.

Operating in a highly competitive market, If believes innovation is crucial to its long-
term success and that creating a culture for innovation is essential. But, as in many
organisations, there are blockers to creating this culture. What are these blockers and
could a change in behaviour yield a more innovative workplace? This was the premise
behind the If Innovation Experiment conducted over a six-week period in the first half
of 2011. Team members were Arve Hildebrandt, Per Gogstad, Andris Morozovs, Astrid
Holm, Camilla Bredrup, Mihkel Uibopuu, and Ulf Backman.

Identifying a hypothesis
Arve Hildebrandt, Head of Commercial Control for
IF P&C Insurance, notes: “One of the problems
with innovation is that there are so many factors
either contributing to it or standing in its way. Our
challenge, therefore, was to whittle down a list of
potential blockers to just one or two that we could
do something about relatively easily in a short
timeframe, bearing in mind that we’d set ourselves
just six weeks to conduct this experiment from
initiation through to final reporting.

“We opted to focus on what many people see
as ‘the’ innovation blocker – a lack of time.
Our experiment set out to test the hypothesis
that allocating time specifically for innovation
would release the creative juices. We also added
space into the mix, giving one group of people a
dedicated room to meet and discuss innovation.”

As a result, the IF Innovation Experiment ran as three strands:

Group 1: allocated 4 hours a week for innovation;

Group 2: allocated 4 hours a week and given an ‘inspiring’ room in which to be creative;

Group 3: a reference group provided with none of the above.

Each group had just four weeks during which a group ‘owner’ collected and analysed
the ideas and initiatives and provided feedback from the participants via interviews and
weekly reports on the use of their time.

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12 | Labnotes

A time and a place for innovation continued...

Use of time
They were encouraged to set their own agenda rather than being told how to use their
time. As Arve says: “We wanted them to consider how they could use those four hours
either most efﬁciently, or in the best way for them personally. We didn’t mind if that
meant seeking inspiration on the street, by going out and visiting companies, or just
taking time out to think. Releasing creative energies might even have been achieved by
going to an aerobic class or doing something that would give them energy. Our intention
was to avoid being prescriptive.”

Interestingly, at the outset, both Groups 1 and 2 organised
themselves fairly formally. They recognised that they
would need to ensure that not everyone took time out all
at once, or this would have had a negative impact on work
levels. Nonetheless, they still scheduled formal meetings
at speciﬁc times and it wasn’t until a few weeks into the
project that this arrangement became looser, with perhaps
just one or two people meeting for half an hour here or
there. Arve suggests that this less structured approach took
time to evolve simply because it wasn’t something people
were used to. “They were unfamiliar with ‘how’ they should
do this,” he adds.

Another point about the early stages of this experiment
was the need to overcome concerns deriving from the
company’s recent history. Says Arve: “We had a not too
distant memory of a department being closed down. It had
shared a corridor with Group 2, the group that had been
allocated a room as well as time. They were really upfront
about this, asking ‘why should we do this; we might come
up with so many good ideas that they make us redundant
in a year or so’. This was a very real concern that we had to
address and the important point here was that we were able
to articulate that the experiment was about identifying and
removing a key blocker to innovation, not necessarily the
innovation itself.”

Experiment outcomes
Generating ideas – Some 180 ideas were generated by Groups 1 and 2. The reference
Group 3 did not generate any ideas in the four-week period, but as Arve points out,
“Is this surprising when it wasn’t on their agenda? They were a control group and
other than informing the group leader about the experiment, no further changes were
imposed on the team.”

Enthusiastic response – Group 2, which had been allocated a dedicated room for
creativity, appeared to be more enthusiastic than Group 1, implying (but not necessarily
proving) that a place as well as time for innovation is an enabler. Arve comments: “It
could be that the allocation of a room somehow implied a commitment on the part of
top management; that this was a serious experiment necessitating a dedicated room.
Some past turbulence in this department could also have had an impact.”

Leadership – The slightly higher level of enthusiasm in Group 2 may also have been,
in part, due to leadership and commitment. Both the group leader and the team really
bought into the experiment and pushed to use its innovation time.

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A time and a place for innovation continued...

Business as usual – There was no signiﬁcant negative effect on general performance
and on daily KPIs between the teams, but it was felt that this might change if time
allocated for an experiment of this nature was longer. However, in retrospect, none of
the teams experienced a lowered performance in the period of the experiment.

Time spent – None of the groups felt there was a need to focus as many as four
hours a week on innovation. The average preferred time (based on feedback
questionnaires) was 2.9 hours. This was enough to yield ideas for business or
process improvement.

Type of ideas – there was a mix of ideas, largely split into processes and welfare.
Some were more serious than others: someone even suggested, perhaps facetiously,
a corporate policy for smiling. Also the type of ideas varied from those that needed to
be escalated to those that could be handled locally.

“ We wanted them to consider how they
could use those four hours either most
efﬁciently, or in the best way for them
personally. We didn’t mind if that meant
seeking inspiration on the street, by
going out and visiting companies, or
just taking time out to think.”

Next steps
Arve comments: “We proved our hypothesis that time matters when it comes to
innovation. Allocating time to initiatives should be a must, although the amount of
time needed might vary from unit to unit. Adding a room to the mix, a place to share
innovative ideas and think creatively, contributes still further to the innovation output.
A strong team leader and commitment from the team is also essential.”

For the experiment groups, a key question was what to do with the ideas that were
brought forward. Half way through the experiment, both teams acknowledged the
challenge themselves. Arve notes: “The teams had no process for taking this further.
In fact Groups 1 & 2 started to set out their own implementation process during the
experiment. We all recognised that implementation knowledge and culture is lacking
and is something we need to address. There has to be a way of linking this bottom-
up effort to the wider business development process – perhaps that is the next
experiment we need to get under way.”

Julian Birkinshaw (jbirkinshaw@london.edu) is Professor of Strategy &
Entrepreneurship at London Business School, and Senior Fellow of the Advanced
Institute of Management Research. His latest book is Reinventing Management
(Jossey Bass, 2010).

NEXT ARTICLE: GAINING ADVANTAGE THROUGH AGILITY
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14 | Labnotes

Gaining advantage
through agility
We’re all aware that speed to market with new products and services can be a crucial
business differentiator. Yet some companies appear to be much better at seizing first-mover
advantage than their competitors – why is this? An experiment conducted by a team at
leading Nordic insurance firm, If, set out to examine how the business could act faster in
the marketplace. Julian Birkinshaw reports.

If is the leading player in the non-life insurance industry in Scandinavia, and like all other market
leaders it runs the risk of becoming inert and complacent. So a team of executives from the
company decided to confront this challenge head on. They asked: What does it look like to be
truly agile in our industry? Could we move as quickly as a start-up company in putting a new
offering together? And what sort of obstacles would we face?

The team (consisting of Mans Edsman, Agneta Liljenberg, Poul Steffensen, Line Hestvik, Mats
Nordensjold and Anne Ramsby) decided the best approach was to run a simple experiment – to
develop and trial a new service offering as quickly as possible, and to monitor both the process
and the outcomes carefully. As Head of Corporate Control & Strategy, Mans Edsman points
out: “We weren’t trying to do something like start a new bank, but simply to identify a process
by which agility could be encouraged and for this we could look at something relatively simple,
something that we could sensibly ‘do’ in the experiment timeframe.”

A brainstorm session in January 2011 narrowed down the experiment scope with what Agneta
Liljenberg, Head of Corporate Systems, describes as, “a focus on what competitive agility needed
to deliver: the ability to gain new and retain existing customers by building on a key strength – our
claims handling. Could we differentiate If’s claims handling by not only identifying a new service,
but quickly assessing its market potential in a practical pilot test?”

The team also drew up three criteria to evaluate their ideas. The experiment had to be simple
(do-able in a five-week project execution phase), relevant (focused on customer value) and
practical (drawing on the competence, resources and logistics available to the experiment team).

Liljenberg notes that there is strong industry knowledge and business intelligence within If, and
the challenge is how to translate that into decisive action: to close what is sometimes called the
knowledge-doing gap. So as well as doing the experiment, members of the team also dug into the
outcomes of recent If projects, to understand how quickly they had been put in place, and what
their obstacles had been.

Prototyping a new service concept
Using their selection criteria, the team settled quickly on the idea of picking up customers and
driving them to their rental vehicle. This was not a new idea by any stretch – indeed, it is one
of the key marketing themes of Enterprise Rent-a-Car, the fast-growing US chain. But it was
not currently being offered in the Scandinavian market, so it served their purposes nicely. They
tailored the Enterprise model slightly, to come up with the concept of If partnering with a number
of vehicle repair workshops. The offer to the customer was to deliver the car (after repair) to
their home or workplace, cleaned inside and out, in return for which the customer would fill in a
questionnaire on their satisfaction with the service.

By design, the experiment involved relatively little investment and only minor IT involvement. The
team did not build a business case, nor did they seek broader endorsement for the idea within
the company – they decided to “just do it”. Of course they were very aware of the cost side of the
equation, but by keeping the pilot small they were able to address the business case later.

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15 | Labnotes

Gaining advantage through agility continued...

Delivering pace and agility
How quickly could the team design and run the test pilot? Well, they committed to getting
it done within eight weeks, and they met this timeline, through enormous amounts of hard
work. There was no one key that unlocked this speed, but rather a number of contributory
factors including, as follows:

Senior level buy-in – Liljenberg asserts: “If you’re going to design an experiment that will
ultimately benefit a specific business unit, you need to involve that business unit from
word go and the starting point has to be at the very top. We went to the head of the claims
organisation and he confirmed that our experiment was, indeed, do-able. Furthermore, he
was prepared to give us both business development and technical people to support the
process and, crucially, provide us with the contact we would need with the car workshops
who we initially thought we could partner with.”

Define very early in the process all the key activities – A project plan is essential, as
Liljenberg explains: “We listed very early on in the process as many of the foreseeable
activities as possible to ensure we could get what we wanted in the given timeframe. We
would also use this activity list as the basis for follow up and, if needed, for re-planning.
We established a common team site on SharePoint and agreed weekly phone meetings,
as well as a day-by-day status update between the claims organisation that was in contact
with the car workshop company and me as the project leader, so that we could follow the
experiment progress.

Agree on defined roles – A strong person at the helm will keep everyone focused on the
tasks in hand. The team allocated clear project leaders for both the agility pilot and the
benchmark study. Liljenberg says: “We used the core team as a working steering group
and we all contributed to the common parts of the experiment, including the preparation
and conclusion. The fact that all members of the core team held senior positions in their
‘day jobs’ and were highly competent meant that we had the necessary contacts to help us
garner support when we needed it.”

Involve people with specialist subject matter knowledge – The resources made available
by the head of claims were crucial to the ultimate shape of the experiment. They took
responsibility for clarifying the project plan both in terms of the vehicle repair workshops
involved and the customers. Edsman recalls: “We’d gone in with the idea of using several
workshops, but the claims people felt this would complicate the pilot. They advised us
to choose just one workshop. Not only that, but they knew exactly which company to
approach. Their industry knowledge was important for us because it facilitated the speed
and agility we were seeking. It allowed us to quickly put in place all the arrangements we
needed with the workshop company. It’s a key learning when it comes to running pilots
– don’t try and do everything yourself; use the specialist knowledge available to you.”

Keep it simple – The objective of this experiment wasn’t to launch something huge, but
to test the processes by which agility is enabled and speed-to-market assured. From the
outset, simplicity was identified as a key factor. “The concept we wanted to pilot was fairly
simple,” explains Edsman. “We would provide an extra service to 100 customers who were
having their cars repaired and this comprised cleaning (inside and outside) and delivery
of the car to their home or office. Thus the premise itself was simple and the processes
too were kept as straightforward as possible. All the customers had to do was fill in a
questionnaire about the service using a basic one to five scoring system and we developed
a very simple form of status report, by re-using an existing IT system. Throughout this
process, we worked hard to avoid over-complicating things, and this ensured buy-in from
all parties.”

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16 | Labnotes

Gaining advantage through agility continued...

Pilot execution and benchmarking
Once all the plans were in place, a four-week execution phase began, with cars both cleaned
and delivered by the workshop partner in close cooperation with If’s claims people. A further
week was added to the execution phase during which just the car cleaning service was
offered. This process went smoothly, largely as a result of the high level of project planning
and good relations between the claims team and workshop operator taking part in the pilot.

As noted earlier, a benchmarking study ran in tandem with the broader agility experiment,
after an initial survey of the project group had suggested that the company rated rather low
on innovation. “There was clearly an assumption that we weren’t especially innovative as an
organisation,” says Edsman. The benchmarking study looked at seven previous If projects
as well as the ongoing agility experiment. The benchmarking criteria included the type
and complexity of the project, the number of IT hours spent, whether it was championed,
whether project teams were taken out of their day-to-day jobs, what the timeframe was and
whether a formal project management tool was used.

Experiment and benchmarking outcome
Was the experiment a success? This project certainly worked in terms of the process by
which an idea is developed, piloted and considered for possible commercial adoption, and
we’ll look at the success factors for this in a moment. Interestingly, the service concept itself
had mixed success – which is, after all, the point of running a pilot. Says Edsman: “I would
not go forward with the full scope of the service because of the cost. But of course the bulk
of the cost is in the delivery of the car, rather than the cleaning, so there is potential for
offering the cleaning service as a standalone value-add for the customer (at no extra cost).
What we’ve shown is the value of running a pilot before developing a full service model.”

At the time of writing this all is not yet over for the team. A meeting has been scheduled
to discuss whether the vehicle cleaning element at least can be pursued as a service
differentiator, and a business owner found to take it forward if it is.

As for the benchmark study, the team was surprised to ﬁnd that there had been quite a few
fast rollouts of new product ideas in recent years. Liljenberg asserts: “The earlier assumption
that we are not an innovative company is false. We are innovative and we are fast. What we
need to do as a company is believe in ourselves as innovators. There needs to be a will to
carry out projects alongside our day-to-day work.”

The benchmarking study highlighted three common elements of a successful project:

• Personal interest: there is a connection between failure and lack of own interest, thus
personal engagement with the pilot is a clear success factor.

• Competence: a competent project team will get results.

• Broad mandate: the project team needs to be given the mandate to shape the pilot as it
evolves; to take ownership.

Liljenberg recalls: “The fact that we had the support of the head of claims was also a
positive door opener for our experiment. Interestingly, the benchmarking, along with our own
experience, also revealed that an advanced governance model doesn’t necessarily add any
value in small to medium scale projects. In fact, a formal tool could easily prevent creativity
in these projects. Another revelation from the benchmarking is that releasing extra time for
Julian Birkinshaw (jbirkinshaw@london.edu)
people involved in the development work is not necessarily a success criterion.”
is Professor of Strategy & Entrepreneurship at
London Business School, and Senior Fellow In summary the team members believe that in order to act faster in the marketplace, If
of the Advanced Institute of Management must close the knowing-doing gap by translating the company’s deep industry knowledge
Research. His latest book is Reinventing into action. Piloting should be encouraged and a culture of business initiatives should be
Management (Jossey Bass, 2010). nurtured, with pilots that improve the customer offer.

NEXT ARTICLE: INDIA INSIDE: THE EMERGING INNOVATION CHALLENGE TONEXT WEST
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17 | Labnotes

India Inside: The emerging
innovation challenge to the West
In their new book, India Inside, Nirmalya Kumar and Phanish
Puranam turn an often-asked question on its head. Innovation is
alive and well in India, but often invisible.

Over the past two decades, India has achieved a dominant share of offshore work, giving
Western populations angst about the loss of white collar jobs. The traditional concern
in the West has been about immigrants coming onshore to compete for local jobs; now
it seems that the effects of that competition can be felt from distant offshore locations.
Yet, many Western elites have argued that this fear is misplaced because the distinctive
advantage of the developed world is innovation. For example, Tom Friedman in The
World is Flat argues that innovation will continue to keep the West economically supreme
with the “more sophisticated tasks being done in the developed world and the less
sophisticated tasks in the developing world – where each has its comparative advantage.”
The more aggressive among this camp offer a powerful retort to the conjecture about
India’s ability to transition from services to innovation: “Where are the Indian iPods,
Googles and Viagras?”

We spent three years researching whether India could make the transition from being
the favoured destination for offshored services to a locus of innovation. We discovered
that despite substantial innovation taking place in India, much of it has been ‘invisible’.
Take for example, Intel – a company that prides itself on “Inspired Innovation that’s
Changing the World.” While Intel ensures consumers know they’re using a personal
computer powered by Intel innovation, there isn’t any label on the product showing that
the innovation originated in India. Here are four types of innovations originating from India
that remain invisible:

“We discovered that 1. Business-to-Business Products for Global Markets: GE’s John Welch Centre and Intel’s
despite substantial Indian operations in Bangalore have already answered in the affirmative: “Can India be a
platform for generating innovation for the global markets?” These companies are seeking
innovation taking place
to develop B2B products for global markets in their Indian research and development
in India, much of it has (R&D) centres just as they do in their R&D centres in the West. Intel launched its Xeon
been ‘invisible’.” 7400 series in 2008, the first chip wholly designed and developed in its Bangalore centre.

2. Offshoring of Research and Development Services: Companies like Wipro Technologies
(Wipro) deliver IT services to clients abroad and Dr. Reddy’s Laboratory (DLR) produce
generic drugs for the domestic market. These companies, for example, have slowly
convinced major multinationals to outsource parts of their product development and R&D
processes. In R&D services offshoring, innovative work is delivered to somebody else’s
specification. Yet the level of technical sophistication required to do this is substantial,
and sometimes, everything except for the final branding and distribution are taking place
in India.

3. Process Innovation: As opposed to product innovation, process innovation is about
how a product is made and how new products are developed. Process innovation in
India is increasingly surfacing in the outsourcing industry because of a phenomenon
we call the “injection of intelligence”. The availability of low-cost, high-skilled labor
in India has led to overqualified personnel being assigned to relatively routine jobs.
This sometimes results in surprisingly effective process innovations even in what were
previously considered “low-tech” settings. Ultimately, some of these process innovations
at companies such as 24/7 and Denuosource are embedded in products in the United
States and all over the world.

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18 | Labnotes

India Inside: The emerging innovation challenge to the West continued...

4. Management Innovation: Perhaps the most invisible of Indian innovations – the global
service delivery model – is responsible for the success of the Indian outsourcing industry. It
is not a product or a process innovation, but rather a management innovation, a new way
of managing globally distributed work. It reconceptualises formerly physically collocated
activities by breaking them up into subtasks that can be done in different geographical
locations, and it specifies the necessary means for integrating this work back again.

Whether a piece of work can be executed remotely does not critically depend on how simple
and standardised it is. Instead, the possibility of remote delivery depends on whether its
linkages to other pieces of work are standardised. Further, we found that even when the links
between processes are not standardised, some of the masters of the services outsourcing
business, such as Infosys and Tata Consulting Services are finding ways to work together out
of separate locations as if they were being executed in adjacent rooms.

One step back
If one takes a step back and thinks about the invisible
innovation in India, it has some disquieting effects for jobs in
the West. As more work moves to China and India, companies
in the West are likely to confront what we call the “sinking skill
ladder” problem.

What is a skill ladder? The idea that to do highly sophisticated
innovative work, you need to have done less sophisticated
work at some stage in your career. Imagine being the partner
at a consulting firm without having been an associate, an
investment banker without having been an analyst or the head
of a clinical research team without having done any “bench-
work.” The work that the “juniors” do in each of these cases
may be fully separable from the work that the “seniors” do;
indeed the junior could be somebody sitting in India. However,
in each of these cases, the seniors will continue to have a
deep understanding of what exactly the juniors do because
they have been juniors themselves at an earlier stage of their
careers. In fact without such knowledge, arguably the seniors
could not do their own jobs, which could include utilising
inputs from juniors, effectively.

But a problem lies ahead in that Western companies are blocking their talent pipelines from
which to promote tomorrow’s senior leaders. Unless they have grappled with this question,
it seems facile to say that companies in the West can “move up into higher value added
services” and leave the “low end” work to their counterparts in Asia. In some sense, the
problem for managers of companies from the developed world is less complicated: they can
move the next rung of their R&D, and even their headquarters, to where it can be done more
effectively and efficiently. However, disconcerting questions for policy makers in developed
countries will remain.

Nirmalya Kumar is a Professor of Marketing and Phanish Puranam is a Professor of
Strategy at London Business School They are also co-directors of the Aditya Birla India
Centre at the School. This article is from their book India Inside (Harvard Business
Review Press, November 2011), the research for which was kindly supported by the
Management Innovation Lab.

NEXT ARTICLE: WHAT MAKES APPLE APPLE
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19 | Labnotes

What makes Apple Apple
In an excerpt from his forthcoming book, What Matters Now
(published in December 2011 by Jossey-Bass Business), Gary Hamel
looks at the core of Apple.

In 1997 I bought an e-tablet from A.T. Cross, the pen company. Codeveloped with IBM, the
CrossPad was hailed as a breakthrough product that would open up a whole new category
– portable digital notepads. I’m a copious notetaker, so the idea of turning my scribblings into
digital files was too good to ignore.

Truth is, I’m not so much an early adopter as an easy mark. Who was I to argue with “Ozzie”
Osborne, head of IBM’s Pen and Speech Business Systems business unit, when he declared
that the CrossPad would “redefine how users perceive pen and paper?” Yet within a month,
the CrossPad was sharing shelf space with all the other “revolutionary” products that had
promised to change my life but somehow hadn’t.

Over the years I’ve become a tad less susceptible to the utopian visions of technology’s
self-proclaimed prophets. Recently, for example, I walked out of a Sony store without a 3-D
television. I’ve learned to my sorrow that a lot of geeky gadgeteers are hucksters not oracles.

Given that, you might have expected me to be at least a teensy bit sceptical of the hype
that accompanied the announcement of Apple’s first generation iPad in January 2010
– but I wasn’t. Not that there weren’t doubters. Some questioned the need for an iPhone on
steroids, others bemoaned the lack of a stylus, while still others panned the device as an
wildly overpriced e-reader. I, though, find it difficult to bet against the pride of Cupertino. Not
because I’m a hopeless fan, which I am, but because Apple has innovation embedded more
deeply in its DNA than any other company I know.

With hindsight, the scepticism over the iPad appears downright silly. In its first nine months,
the shiny tablet generated nearly $10 billion in revenue – that’s 10 with a “b.” If the iPad
were a company, it would have gone from incubator to the middle of the Fortune 500 in less
than a year! This is a feat, I think, unprecedented in the annals of business history.

Over the past decade, Apple has produced a mind-boggling parade of accomplishments:

• Having once been dismissed as a footnote in the personal computer industry, it is now the
market leader in computers costing $1,000 or more. Apple’s share of the industry’s most
profitable segment is estimated to be a whopping 90 per cent.

• Apple is today the world’s largest music retailer, a milestone reached just six years after
the launch of its online music store in 2003. The 10 billionth song sold on iTunes was
downloaded on February 24, 2010.

• Though it was a late entrant into the mobile phone business, Apple currently makes more
money from its roughly 5 per cent of the global handset market than Nokia makes with its
30-plus share.

• Apple opened its first retail store in 2001. At the time, many retail analysts panned the
strategy. Today, though, Apple’s sparse, elegant shops generate four times the revenue per
square foot of its big box competitors, and its Fifth Avenue store in New York is rumoured
to be the most profitable retail outlet in the world.

• Since the launch of the company’s App Store in 2008, Apple has become the world’s
largest software distributor. Thus far, developers have created more than 425,000
applications for the company’s iOS operating system, and consumers have downloaded
more than 10 billion apps.

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20 | Labnotes

What makes Apple Apple continued...

• As I’m writing, Apple’s market value is $361 billion, making it the most valuable
company in the world. To put that in contrast, Hewlett-Packard, a company with twice
the revenues of Apple, is valued at only $54 billion.

All this is more than extraordinary – it’s nearly unimaginable. It is the business equivalent of
an athlete setting world records in half a dozen different sports.

Jobs’ worth
How in the world could one company accomplish all this? How do you build an organisation
that is capable of reinventing not just one industry, but five or six – including computing,
music, retailing, mobile phones, software and (just maybe) media and publishing as well?
Most companies never reinvent one industry; no other company in history has reinvented a
handful.

Some would argue you have to start with Steve Jobs, the inspired and uncompromising
visionary who led Apple from 1976 to 1985, and then again from 1997 to 2011. In that
latter fourteen-year period, Apple’s share price increased 110-fold. When Jobs stepped
down from his CEO post in August 2011, only two months before he would pass away, he
left behind a legacy that is nearly unparalleled in business history. As a business icon, he’s
in the same pantheon as Henry Ford, Thomas Edison and, well, I can’t think of another.
Apple would never have existed without Steve Jobs – that’s obvious. Equally obvious is the
fact that the company’s unparalleled accomplishments are the product of more than one
fertile mind. Even if Jobs had never slept, he couldn’t have spawned all the ingenious ideas
that have made Apple the world’s most innovative company.

Other observers might credit Apple’s unique business model. Ask an analyst or MBA to
deconstruct the company’s gravity-defying performance and they would probably point to
these distinctive elements of Apple’s strategy:

• Redefine the basis for competition. For years, Apple has differentiated itself through
design and ease-of-use. Its competitors, by contrast, have seemed determined to create
products that are as homely and non-intuitive as possible.

• Fuse hardware and software. While most of Apple’s competitors have specialised in
“The success of the either hardware or software, Apple has pursued excellence in both. By tightly integrating
iPhone and iPad has hardware and software design, the company has been able to optimise system
performance to the benefit, and relief, of its customers.
been vastly multiplied
by Apple’s success • Master a broad array of complementary technologies. Though it does little of its own

in activating a manufacturing, Apple’s mastery of semiconductor design, advanced materials, batteries,
power management, component packaging, application development, and industrial
global community of
design gives the company a distinct advantage in launching groundbreaking products
passionate developers.” – and in controlling its own destiny.

• Lock up customers with velvet hand-cuffs. Apple has found ways of locking customers
in and competitors out – all with the goal of delivering a delicious end-to-end experience
(and making boatloads of money). That’s why the only place you can buy music for your
iPod or apps for your iPad is in Apple’s online store.

• Build a giant network of third-party developers. The success of the iPhone and iPad has
been vastly multiplied by Apple’s success in activating a global community of passionate
developers.

• Extend the company’s core competencies into new markets. Apple’s self-definition isn’t
centred on a particular product or market, but on a portfolio of deep competences. It is
telling that Jobs once described Apple as the world’s large “mobile devices company”
(ahead of Nokia, Samsung, and Sony), and not a computer company.

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21 | Labnotes


Value lessons
As logical as this analysis seems, it is unsatisfying. It
reveals something of the “how,” but nothing of the
“why.” Why has Apple been able to rewrite industry
rules again and again? Why does it seem to take such
pride in defying conventional wisdom? Why is it able to
routinely deliver the exceptional?

I don’t think it’s a particular strategy or person
that makes Apple Apple; rather, it’s the company’s
unstinting devotion to a particular set of ideals. Within
the universe of inventors, designers, and artists, these
ideals aren’t all that unremarkable, but within the
universe of Fortune 500 companies, they’re as rare as
water in the Gobi.

Before going further, I should make it clear that my
take on Apple’s signature values isn’t the product of
any in-company research I’ve conducted. Nevertheless,
when you ask yourself, “What sort of values would a
company have to venerate if it wanted to duplicate
Apple’s success?” the answers seem almost intuitive.

First, Be Passionate. Great success is the product of a great passion; it arises from the
tireless and inventive pursuit of a noble ideal. And for Apple, that virtue is beauty. During
his unveiling speech for the iPad, Jobs remarked again and again, “It’s just so amazing
to hold.” To deliver years of exceptional performance, a company must ﬁrst dedicate
itself to the pursuit of an exceptional ideal.

Lead, Don’t Follow. I’m guessing that most of the folks at Apple hate being derivative.
Sure, they’ll sometimes borrow an idea from Microsoft or Amazon, but what gets them
up in the morning is the chance to break new ground. I’m guessing no one at Apple has
ever defended the proposition that it’s best to be a fast follower.

Aim to Surprise. As a company, Apple seems committed to exceeding expectations – to
wringing little gasps of delight from even its most jaded customers. That’s why I think
“How do you build an the company’s penchant for prelaunch secrecy is more than competitive paranoia; it’s
organisation that is simply the way you produce the same sort of gee-whiz delight that a parent aims for on
capable of reinventing Christmas morning. Apple wants to bewitch us. On this point, listen to Jonathan Ives, the
not just one industry company’s head of design: “When something exceeds your ability to understand how it
but ﬁve or six?” works, it sort of becomes magical.” That’s the bar Apple has set for itself.

Be Unreasonable. Greatness doesn’t come from compromise, from resigning oneself to
the trade-offs others so blithely accept. It comes when trade-offs get transcended, when
either/or gives way to both/and. Apple gets this, and frequently challenges itself to do
the impossible – like producing products that are both gorgeous and functional. Apple
proves that a company doesn’t have to choose between high value and low cost.

Innovate Incessantly and Pervasively. At Apple, innovation isn’t a strategy or a
department; instead it’s the basic material that goes into everything the company
does. From the wafer-thin MacBook Air to the App Store to the Genius Bar, innovation
infuses everything Apple does. Apparently there are a lot of people at Apple who realise
that innovation – in products, services, and business models – is the only strategy for
creating long-term value. If so, they must be relieved that innovation is still a sideshow in
so many of their competitors.

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22 | Labnotes


Sweat the Details. Apple is justifiably celebrated for its sense of aesthetics – but
great design isn’t just about bold strokes, it’s about getting all of the tiny things right
that conspire together to make a product truly exceptional. In Apple’s case, it’s the
magnetically-attached power cord on every laptop, it’s the gorgeous packaging that
surrounds every iPod, it’s the single billet of aluminium that gives structural integrity to
every MacBook – plus a lot more stuff you can’t see. “It just works” – that’s another thing
you often hear from Apple’s top executives.

Think Like an Engineer, Feel Like an Artist. A company can’t produce beautiful products
if bean counters win every argument. That thought occurred to me a few years back
when I first visited Apple’s Fifth Avenue Store in New York. This is now one of the most
photographed landmarks in the city – a giant glass cube with the Apple logo floating
in the middle. Now ask yourself, is this the cheapest way to build a store entrance?
Obviously not. Can you imagine getting something so extravagant past the CFO in
your company? No way. So why does it happen at Apple? Because there are lots of
people there whose cranial cavity contains both left and right hemispheres – and they
understand their customers are similarly equipped.

The bottom-line: Apple’s unique success is a
product of its unique values – which are uniquely
innovation-friendly and customer-centric.

To be clear, I don’t think Apple has it all figured out. There are plenty of people who
will tell you that Apple has all the monopolistic tendencies of its competitors, or that its
success owes more to hype than to truly outstanding products. And no one would accuse
anyone on the top team of being humble. The thing that can’t be argued is this: Apple is
one of the most successful companies ever.

The bottom-line: Apple’s unique success is a product of its unique values – which
are uniquely innovation-friendly and customer-centric. That’s why I don’t think any
other company will soon duplicate the kind of run Apple has had over the past decade
– whether or not Apple climbs higher still in the post-Jobs era. I hope I’m wrong, and
maybe I will be. Imagine if Apple’s passions were the norm rather than the exception.
What if the world’s leading insurance company or publisher or bank or airline or hotel
chain was driven by these ideals? What if you encountered them every time you talked to
someone at the Internal Revenue Service or had to apply for a building permit? OK, now
I’m hallucinating. But I still can’t help but dream of a world in which Apple has become
a lot less exceptional because its core values have become a lot less exceptional. Apple
may have patented a lot of things, but it hasn’t patented the values that made it, for a
time at least, the world’s most successful company. Apple is proof positive that innovation
matters now!

Gary Hamel (gh@managementlab.org) is Visiting Professor at London Business School
and Director of the Management Lab. You can follow him on Twitter (@profhamel) and
track his latest project at www.hackmanagement.com.

NEXT ARTICLE: MLAB REVIEW


23 | Labnotes

review
Founded in 2006, MLab was an initiative led by Gary Hamel, who partnered
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with Julian Birkinshaw to create the world’s first Management Innovation
Lab, based at London Business School. Over the last five years, MLab has
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sought to “accelerate the evolution of management” by challenging the basic
assumptions on which our traditional approach to management has been
built, and by coming up with new alternatives.

MLab has worked in collaboration with academics, consultants and thought-leaders
across the world. And it has worked in partnership with many companies, through
practical workshops and experiments with, to put its ideas into practice. Funding for
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Thought leadership.
MLab has been highly influential in shaping the conversation about management. The
Future of Management conference at Half Moon Bay, CA, in 2008 brought together
thirty thought-leaders to share their views. Several books have been published, most
notably Gary Hamel’s The Future of Management and Julian Birkinshaw’s Reinventing
Management. Labnotes has been published 21 times, and its articles and ideas have
been syndicated to other blogs and magazines around the world. There has also been
a stream of influential articles in practitioner-oriented publications such as Wall Street
Journal, Harvard Business Review, Sloan Management Review, Business Strategy
Review, and Strategy+Business.

Academic influence.
The concept of management innovation has gained visibility among the academic
community, in large part thanks to the Academy of Management Review article
“Management Innovation” by Julian Birkinshaw, Gary Hamel and Michael Mol (awarded
the best-paper award for 2008). Many researchers around the world are now conducting
research in this area. For example, an academic conference in Rotterdam November
2011 on the special theme of management innovation attracted 38 submissions.
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sponsored a large number of studies in related areas conducted by London Business
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School faculty. For example, Nirmalya Kumar and Phanish Puranam’s India Inside was
supported by MLab, as was part of the research Lynda Gratton conducted preparing her
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recent book, The Shift. Other faculty whose work has been sponsored by MLab include
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Michael Jacobides, Kevin Boudreau, Rajesh Chandy, Lourdes Sosa, Freek Vermeulen
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with companies, to help them build their own management experiments. Some of this
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work has taken place directly within MLab, some of it has taken place through the
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London Business School’s executive education activities, and some has been through
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include UBS, Roche, Rio Tinto, Irdeto, If, Mars and Swiss.

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“An important part of Educating the next generation of leaders.

MLab’s work has been MLab teaching materials have been used in the classroom at London Business School
and elsewhere, through an elective course to the MBAs, an offering to the Sloan Masters
to conduct workshops
students, and through the “Capstone” course to Executive MBAs at the end of their
and innovation “jams” second year.
with companies, to
Events and business outreach.
help them build their MLab has put on two or three events per year, typically for a mixed audience of
own management local business people, alumni, students and researchers. Speakers have come from
experiments.” innovative companies such as HCL Technologies, Topcoder, Microsoft, Happy Ltd
and Irdeto, and have spoken on such issues as employee engagement, Web 2.0,
management experimentation and innovative approaches to risk management.

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The MLab at London Business School is now being repositioned as a centre within the
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recently-formed Deloitte Institute of Innovation and Entrepreneurship. Our mission to
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accelerate the evolution of management continues to be as important today as it was
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when MLab was founded ﬁve years ago.
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Labnotes
Labnotes is published Editor
by MLab at London Professor Julian
Find out more about Business School. Birkinshaw
MLab’s events. Labnotes enquiries:
Co-founder and
Research Director
Visit the website for mlab.enquiries@london.edu M +44 (0)7966 908 718
regular updates at: E jbirkinshaw@london.edu

Contact MLab
E inquire@managementlab.org Professor Gary Hamel
If you would like to know more or have general enquiries about Co-founder and
T 1-650-851-2095
any MLab events please visit the MLab website or contact: Executive Director

Felicia Collins - fcollins@london.edu or Mailing Address:
PO Box 620955
Julian Birkinshaw - jbirkinshaw@london.edu E inquire@managementlab.org
Woodside CA 94062

© Management Lab® (MLab) 2012.


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