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How Do Innovators Think?

How Do Innovators Think?
5:21 PM Monday September 28, 2009by Bronwyn Fryer
Tags:Creativity, Innovation, Leadership
What makes visionary entrepreneurs such as Apple's Steve Jobs, Amazon's Jeff Bezos, Ebay's Pierre Omidyar and Meg Whitman, and P&G's A.G. Lafley tick? In a question-and-answer session with HBR contributing editor Bronwyn Fryer, Professors Jeff Dyer of Brigham Young University and Hal Gregersen of Insead explain how the "Innovators' DNA" works.
Fryer: You conducted a six-year study surveying 3,000 creative executives and conducting an additional 500 individual interviews. During this study you found five "discovery skills" that distinguish them. What are these skills?
Dyer: The first skill is what we call "associating." It's a cognitive skill that allows creative people to make connections across seemingly unrelated questions, problems, or ideas. The second skill is questioning - an ability to ask "what if", "why", and "why not" questions that challenge the status quo and open up the bigger picture. The third is the ability to closely observe details, particularly the details of people's behavior. Another skill is the ability to experiment - the people we studied are always trying on new experiences and exploring new worlds. And finally, they are really good at networking with smart people who have little in common with them, but from whom they can learn.
Fryer: Which of these skills do you think is the most important?
Jeff: We've found that questioning turbo-charges observing, experimenting, and networking, but questioning on its own doesn't have a direct effect without the others. Overall, associating is the key skill because new ideas aren't created without connecting problems or ideas in ways that they haven't been connected before. The other behaviors are inputs that trigger associating--so they are a means of getting to a creative end.
Gregersen: You might summarize all of the skills we've noted in one word: "inquisitiveness." I spent 20 years studying great global leaders, and that was the big common denominator. It's the same kind of inquisitiveness you see in small children.Fryer: How else do you think the innovative entrepreneurs you studied differ from average executives?
Dyer: We asked all the executives in our study to tell us about how they came up with a strategic or innovative idea. That one was easy for the creative executives, but surprisingly difficult for the more traditional ones. Interestingly, all the innovative entrepreneurs also talked about being triggered, or having what you might call "eureka" moments. In describing how they came up with a product or business idea, they would use phrases like "I saw someone doing this, or I overheard someone say that, and that's when it hit me."
Fryer: But since most executives are very smart, why do you think they can't, or don't, think inquisitively? Dyer: We think there are far more discovery driven people in companies than anyone realizes. We've found that 15% of executives are deeply innovative, meaning they've invented a new product or started an innovative venture. But the problem is that even the most creative people are often careful about asking questions for fear of looking stupid, or because they know the organization won't value it.
Gregersen: If you look at 4 year olds, they are constantly asking questions and wondering how things work. But by the time they are 6 ½ years old they stop asking questions because they quickly learn that teachers value the right answers more than provocative questions. High school students rarely show inquisitiveness. And by the time they're grown up and are in corporate settings, they have already had the curiosity drummed out of them. 80% of executives spend less than 20% of their time on discovering new ideas. Unless, of course, they work for a company like Apple or Google.
We also believe that the most innovative entrepreneurs were very lucky to have been raised in an atmosphere where inquisitiveness was encouraged. We were stuck by the stories they told about being sustained by people who cared about experimentation and exploration. Sometimes these people were relatives, but sometimes they were neighbors, teachers or other influential adults. A number of the innovative entrepreneurs also went to Montessori schools, where they learned to follow their curiosity. To paraphrase the famous Apple ad campaign, innovators not only learned early on to think different, they act different (and even talk different).
Professors Jeff Dyer of Brigham Young University, Hal Gregersen of Insead, and Clay Christensen of HBS further explore this topic in an article which will appear in the December issue of Harvard Business Review.

The Innovation Value Chain: A Logic for Fixing

The Innovation Value Chain: A Logic for Fixing
Your Company’s Innovation Problems

By Morten T. Hansen and Julian Birkinshaw1

How SAP Seeds Innovation

SAP's collaborative Web sites and discussion forums give its customers ways to learn from SAP business partners as well as from each other

By John Hagel and John Seely Brown

Ecosystem is an overused term. All companies have one, yet when you strip away the rhetoric, most corporate ecosystems turn out to be conventional supplier or distribution-channel relationships with a few high-profile "strategic partnerships" thrown in for good measure. When they are not simply fodder for PR flacks, these "relationships" are often driven by short-term transactional needs, with distrust, rather than trust, as the foundation.

This is a shame, because these collaborations can become fertile ground for innovation and learning, not just among a few select partners but across an ever-expanding array of participants. SAP (SAP) has set the standard—certainly within the tech industry—and offers a good example of the potential here.

There are many reasons for SAP's success, but two in particular stand out. First, SAP generated its ecosystem, which consists of customers, business partners, experts and independent parties by addressing the needs of the participants. Too often, companies launch ecosystem initiatives with a clear view of the benefits for themselves, but with a much less developed understanding of the needs and motivations of prospective participants. Second, SAP went further—it focused on the needs of individuals, not just companies. Even though most of its customers and partners are enterprises, SAP recognized that participation ultimately is by individuals. It designed its various collaboration platforms with the goal of making individuals more successful in their daily roles by helping them connect more effectively with the specialized resources most relevant to them.

While many technology companies have invested to build large networks of business partners and customers, SAP is one of the leaders in the scale, diversity, and integration of its vast ecosystem. Companies in many other industries could think much more imaginatively about their own relevant ecosystems, given SAP's experiences.

IMPRESSIVE PARTICIPATION

Consider some of the stats. More than 9,000 companies participate in SAP's various partner networks globally, and 1.2 million individuals participate in SAP's online communities. Roughly 25,000 new participants sign up for the latter each month, and from 2006 to 2007, its number of page views doubled, to more than 150 million. Participants contribute some 6,000 online posts per day and create better than 60,000 wikis to handle ongoing discussions, while at least 1,200 bloggers comment regularly on community topics. More than 3.5 million posts have accumulated in these forums, and the pace of activity is accelerating. It took three years to reach the first million forum posts, nine months to reach the second million, and only six months to reach the third million. In total, 100,000 members have contributed posts to the online forums.

Beyond scale, SAP's ecosystem has also developed remarkable diversity, with "communities of innovation" organized around specific areas of practice to address the needs of both individuals and companies. For example, the SAP Developer Network (SDN) provides a robust forum for software developers seeking to generate more value from the platforms and products sourced from SAP and its partners. More tellingly, from the time a developer posts a question until she or he receives a response takes 17 minutes, on average, and two to three additional responses typically come in over the following 24 hours to refine and amplify the initial response. About 85% of all discussion threads are closed as complete.

At the company level, 15 Industry Value Networks bring customers together with a broad range of its business partners to address specific issues—for instance, banks looking to develop software interfaces that will help them collaborate more effectively.

By contrast, the Enterprise Services Community provides a platform for technology users and partners to collaborate with SAP to define new services (such as "procure to pay" in the fashion industry or product lifecycle management for the defense industry). Often these initiatives involve the participation of technology users who are not SAP customers. More than half of the enterprise service bundles released in February 2008 as part of SAP's enhancement package for its core ERP system were based on input provided through the Enterprise Services Community.

ADVANTAGE OF ONE BOSS

Unlike most technology companies, SAP has assembled all of its ecosystem components under one senior executive. Zia Yusuf is the executive vice-president of SAP's Global Ecosystem & Partner Group. Yusuf believes that this organizational approach is critical to success. In a presentation, he observed that "when individual functions or business groups have responsibility for segments of the ecosystem, these segments tend to become silos and reflect the interests of the groups sponsoring them, rather than serving the needs of customers. By bringing all of the elements together in one place, we can more effectively focus on the customer and mobilize all of the resources relevant to the customer. We seek to improve the economics of our customers materially by accelerating value creation while at the same time helping them reduce costs."

SAP is continuing to explore ways to scale its ecosystem initiatives and more effectively leverage the growing specialization available within the ecosystem. Already, customers use the forums to collaborate in developing shared approaches to common business needs. For example, 12 hospitals in Germany and Austria came together in an Enterprise Services Community Definition Group and, in less than six months, worked together to define the key service interfaces for several business processes. As ecosystems expand, ecosystem organizers can play a significant role in enhancing the value of the resources by finding more creative ways to connect participants.

What can other companies learn from SAP's efforts to build a scalable ecosystem at the edge of its enterprise?

Effective ecosystems generate differentiation and specialization
Pundits often throw around terms like ecosystems, networks, webs, and communities without differentiating among these various forms of collaboration. Take a hard look at the ecosystem emerging around SAP, and you will find large-scale networks of partners that mobilize specialized expertise to participate in more focused communities. Even broader webs of participants provide the recruiting ground for new partners to join more formal networks. Each type of collaboration serves different objectives and requires different management approaches. Executives need to be clear about which form of collaboration is appropriate and manage the initiative accordingly. Companies in other industries are likely to find that the relative mix of networks, communities, and economic webs will vary.

Ecosystems evolve over time, but the orchestrator plays a key role in seeding and feeding participant initiatives
Evangelists for collaborative ecosystems often scare off executives with rhetoric suggesting that executives need to give up control and that ecosystems are "self-organizing." Executives need to understand that traditional control-oriented management techniques do not work well in shaping broader ecosystems. At the same time, though, executives should be reassured that there are significant ways to influence the development of broader ecosystems by focusing on incentive structures and governance techniques. SAP has taken significant initiative in shaping its ecosystem over time by identifying customers' unmet needs, seeding forums for engagement on specific topics, and encouraging participation. Its programs for recognition of significant contributions by participants have helped to increase involvement significantly in community forums.

SAP awards points for diverse contributions to its community forums, and these points ultimately qualify participants for prizes. More recently, participants can make donations to the UN World Food Program and gain a listing on a prominent Top Contributors Web page.

Robust ecosystems are helpful to individuals, not just institutions
SAP's networks of partners mobilize firms to contribute specialized expertise in the ecosystem, but the forums where much of this value is delivered engage individuals and help make individuals more successful in their jobs. By providing ways for individuals to get their jobs done faster and become more productive in their work, SAP ensures that participation in these forums is sustained over time. If this is important in enterprise software, it is likely to be even more important in consumer product and service businesses—particularly where significant opportunity exists to engage individual consumers by connecting them with others sharing their interests.

Robust ecosystems require mobilizing large numbers of specialized third parties, not just the vendor and its customers
Troll through discussion forums organized by SAP, and you will find lots of examples of employees at one customer helping out employees of other customers. Part of the richness of these forums is that they bring together not just the experience and expertise of SAP and its clients, but the depth and breadth of thousands of highly specialized business partners. This is perhaps obvious in a complex product business, such as enterprise software, but it also can be important in a broader range of businesses. The value of relatively simple products can often be enhanced by grasping the broader context in which they are used. For example, a maker of office products might add a lot of value to filing devices by bringing together advice on office productivity techniques.

Ecosystems at the edge bleed into the core of the enterprise
Discussion forums provide an opportunity for employees to reach beyond the edge of their own enterprise to access expertise in a diverse ecosystem of other companies. The support they receive provides an opportunity to improve internal business processes and the economic performance of their companies. But the full benefits will not be realized unless executives design ways to disseminate this learning within their organizations.

Ecosystems are not just about connecting to existing resources—they help provide platforms for distributed innovation and learning
Many executives tend to view ecosystems in static terms: diverse resources can be accessed and mobilized through ecosystems. At the same time, these ecosystems can become fertile ground for the innovation of new products or services and, in the process, help all participants get better faster. As one example, SAP formed an Industry Value Network to engage a group of banks and technology partners to define new enterprise services to support activities through the life cycle of a loan, from initial marketing to ultimate repayment. Sustained collaboration by diverse participants generated significant new insights into how software can enhance bank-loan performance.

John Hagel and John Seely Brown are co-chairman and independent co-chairman, respectively, of Deloitte LLP's Center for Edge Innovation. John Hagel writes a blog at Edge Perspectives. Their monthly column, Innovation on the Edge, explores what executives can learn from innovation emerging on various forms of edges, including the edges of institutions, markets, geographies and generations. Sign up here for an RSS feed.

Best Innovation & Design Books of 2008

The Back of the Napkin: Solving Problems and Selling Ideas with Pictures

Author: Dan Roam
Publisher: Penguin Portfolio

Roam teaches doodling techniques to executives at companies such as Microsoft (MSFT), Google (GOOG), and Wal-Mart (WMT). He argues that drawing simple pictures and diagrams to express ideas forces executives to be clear when communicating inventive new concepts. And he presents convincing examples of powerful, hand-drawn timelines, caricatures, and pie charts.

Serial entrepreneur and former chief technology officer of Cisco Systems (CSCO), Judy Estrin expands on why the U.S. position in the world has eroded in comparison with those of such emerging powers as China and India—and what government and business can do to redress the deficit. Her core arguments are that many executives have a penchant for short-sighted investments, and that cowed corporate boards are unwilling to ask hard questions. Estrin also takes government to task for scaling back non-defense-related spending on science, causing some American innovation muscle to atrophy.

Disrupting Class: How Disruptive Innovation Will Change the Way the World Learns

Authors: Clayton Christensen, Curtis W. Johnson, Michael B. Horn
Publisher: McGraw-Hill Books

In this book, prolific author Clayton Christensen took on America's crumbling educational system, applying his theory of disruptive change to schools. With his co-authors, he proposes moving away from standardized tests and towards customized learning, student-centric classrooms, and deploying computers to every student. For Christensen, competing in global markets is preceded by competing in the global classroom.

The Endless City

Authors: Ricky Burdett and Deyan Sudjic
Publisher: Phaidon

More than half of the human race lives in cities—a figure likely to reach 75% by 2050. The Endless City, edited by Ricky Burdett of the London School of Economics and design curator Deyan Sudjic, puts urban expansion into perspective. The authors convincingly argue that the growth of cities is not just a problem for local government agents or urban planners but is inseparable from such major political and economic forces as globalization, immigration, employment, and sustainability. Many themes of this encyclopedic book, punctuated with vivid photography and illustrations, happened to closely track issues hotly debated during the U.S. Presidential election.

The Game-Changer: How You Can Drive Revenue and Profit Growth with Innovation

Authors: A.G. Lafley and Ram Charan
Publisher: Crown Business

Procter & Gamble (PG) CEO Lafley and management consultant Charan reveal how P&G and companies such as Hewlett-Packard (HPQ) and Nokia (NOK) have taken steps to create fresh products and new markets by making innovation a key corporate strategy. In addition, they look at such practical matters as how to best manage risk when pursuing goals that lack precedents inside a corporation.

Groundswell: Winning in a World Transformed by Social Technologies

Authors: Charlene Li and Josh Bernoff
Publisher: Harvard Business Press

Li and Bernoff, both analysts at Forrester Research, present a clearly written and refreshingly grown-up look at social media used by entire corporations, and not just Gen Y staff. They present real-world business narratives of how companies from Best Buy (BBY) to Ernst & Young use blogs, Wikis, and social networks to create, promote, and share new ideas, both within corporate walls and among consumers outside them.

Here Comes Everybody: The Power of Organizing Without Organizations

Author: Clay Shirky
Publisher: Penguin Press

Author and New York University faculty member Clay Shirky describes the profound impact of social-technological tools on contemporary culture—from e-mail and blogs to Twitter and wikis. Shirky's book is an example-laden history of the development—and impact—of such tools. For instance, industries such as music and media writhe in a state of turmoil, with no clear strategies to deal with the rise of mass amateurization and cheap and easy distribution. In the author's view, we're living in the middle of a revolution as momentous as that which followed the invention of the printing press. Society and industry are being radically reshaped.

e New Age of Innovation: Driving Co-Created Value Through Global Networks

Authors: C.K. Prahalad and M.S. Krishnan
Publisher: McGraw-Hill Books

University of Michigan professors C.K. Prahalad and M.S. Krishnan argue that, despite the press attention lavished on companies such as Apple (AAPL) and Google (GOOG), modern business is not all about superficial apps and cutting-edge consumer tech. Instead the authors argue that to spur growth, executives must focus on accessing a global network of resources to co-create unique experiences with customers. That means transforming companies by changing processes, technical systems, and supply chain management.

The Numerati

Author: Stephen Baker
Publisher: Houghton Mifflin

Baker, a senior writer at BusinessWeek, presents compelling examples of how data gathered from our Web activity, mobile phone calls, and credit-card swipes, are being used to develop ultra-customized products and services.

The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World

Author: Amar Bhidé
Publisher: Princeton University Press

Despite widespread corporate fears that India and China would surpass the U.S. in inventing new technologies, Bhidé, a Columbia Business School professor, provides a provocative, counterintuitive case as to why the U.S. should support the training of foreign workers and research activities by foreign companies. Why? American companies can benefit, he says—pointing out, for example, that many of the acclaimed features on the iPod were actually developed abroad.

The Ten Faces of Innovation

"My recent studies about Innovation lead me for this book where great new perspectives are mentioned. I would just point out some parts that I consider worth mentioning and keep on track of this challenging and wonderful subject."

Ricardo Nishimura

• W.L.Gore & Associates (http://www.gore.com/en_xx/) What makes it so great?To encourage innovation at the maker of Gore-Tex fabrics, Elixir guitar strings, and Glide dental floss, there are no bosses, job titles, or organization charts, just sponsors, team members, and leaders.

The Human Touch : Its extremely interesting how the human aspect can't be set apart in any discussion about innovation. The more I dig in this matter, more I realize the importance of exceptional organizational structure. Even with individual aspect being very important in this process, it is just impossible to imagine some organization surviving without the team or collaborative perspective.  as the author mentioned in page 6 "... each persona brings its own lever, its own tools ,tis own skills, its own point of view. And they can generate a remakably powerful force. Make sure they have a place on your team. Together you can do extraordinary things." 

 

The Learning Personas

Individuals and organizations need to constantly gather new sources of information in order to expand their knowledge and grow, so the first three personas are learning roles. These personas are driven by the idea that no matter how successful a company currently is, no one can afford to be complacent. The world is changing at an accelerated pace, and today's great idea may be tomorrow's anachronism. The learning roles help keep your team from becoming too internally focused, and remind the organization not to be so smug about what you “know”. People who adopt the learning roles are humble enough to question their own worldview, and in doing so they remain open to new insights every day.

The Anthropologist is rarely stationary. Rather, this is the person who ventures into the field to observe how people interact with products, services, and experiences in order to come up with new innovations. The Anthropologist is extremely good at reframing a problem in a new way, humanizing the scientific method to apply it to daily life. Anthropologists share such distinguishing characteristics as the wisdom to observe with a truly open mind; empathy; intuition; the ability to "see" things that have gone unnoticed; a tendency to keep running lists of innovative concepts worth emulating and problems that need solving; and a way of seeking inspiration in unusual places. 

The Experimenter celebrates the process, not the tool, testing and retesting potential scenarios to make ideas tangible. A calculated risk-taker, this person models everything from products to services to proposals in order to efficiently reach a solution. To share the fun of discovery, the Experimenter invites others to collaborate, while making sure that the entire process is saving time and money. 

The Cross-Pollinator draws associations and connections between seemingly unrelated ideas or concepts to break new ground. Armed with a wide set of interests, an avid curiosity, and an aptitude for learning and teaching, the Cross-Pollinator brings in big ideas from the outside world to enliven their organization. People in this role can often be identified by their open mindedness, diligent note-taking, tendency to think in metaphors, and ability to reap inspiration from constraints.

The Organizing Personas

The next three personas are organizing roles, played by individuals who are savvy about the often counter-intuitive process of how organizations move ideas forward. At IDEO, we used to believe that the ideas should speak for themselves. Now we understand what the Hurdler, the Collaborator, and the Director have known all along: that even the best ideas must continuously compete for time, attention, and resources. Those who adopt these organizing roles don't dismiss the process of budget and resource allocation as “politics” or “red tape.” They recognize it as a complex game of chess, and they play to win. 

The Hurdler is a tireless problem-solver who gets a charge out of tackling something that's never been done before. When confronted with a challenge, the Hurdler gracefully sidesteps the obstacle while maintaining a quiet, positive determination. This optimism and perseverance can help big ideas upend the status quo as well as turn setbacks into an organization's greatest successes—despite doomsday forecasting by shortsighted experts. 

The Collaborator is the rare person who truly values the team over the individual. In the interest of getting things done, the Collaborator coaxes people out of their work silos to form multidisciplinary teams. In doing so, the person in this role dissolves traditional boundaries within organizations and creates opportunities for team members to assume new roles. More of a coach than a boss, the Collaborator instills their team with the confidence and skills needed to complete the shared journey. 

The Director has an acute understanding of the bigger picture, with a firm grasp on the pulse of their organization. Subsequently, the Director is talented at setting the stage, targeting opportunities, bringing out the best in their players, and getting things done. Through empowerment and inspiration, the person in this role motivates those around them to take center stage and embrace the unexpected.

The Building Personas

The four remaining personas are building roles that apply insights from the learning roles and channel the empowerment from the organizing roles to make innovation happen. When people adopt the building personas, they stamp their mark on your organization. People in these roles are highly visible, so you’ll often find them right at the heart of the action. 

The Experience Architect is that person relentlessly focused on creating remarkable individual experiences. This person facilitates positive encounters with your organization through products, services, digital interactions, spaces, or events. Whether an architect or a sushi chef, the Experience Architect maps out how to turn something ordinary into something distinctive—even delightful—every chance they get. 

The Set Designer looks at every day as a chance to liven up their workspace. They promote energetic, inspired cultures by creating work environments that celebrate the individual and stimulate creativity. To keep up with shifting needs and foster continuous innovation, the Set Designer makes adjustments to a physical space to balance private and collaborative work opportunities. In doing so, this person makes space itself one of an organization's most versatile and powerful tools. 

The Storyteller captures our imagination with compelling narratives of initiative, hard work, and innovation. This person goes beyond oral tradition to work in whatever medium best fits their skills and message: video, narrative, animation, even comic strips. By rooting their stories in authenticity, the Storyteller can spark emotion and action, transmit values and objectives, foster collaboration, create heroes, and lead people and organizations into the future. 

The Caregiver is the foundation of human-powered innovation. Through empathy, they work to understand each individual customer and create a relationship. Whether a nurse in a hospital, a salesperson in a retail shop, or a teller at an international financial institution, the Caregiver guides the client through the process to provide them with a comfortable, human-centered experience.

How to Innovate Like Apple

How to Innovate Like Apple
by Chris Morrison

Apple makes it look easy. From the sleek design of its personal computers to the clever intuitiveness of its software to the ubiquity of the iPod to the genius of the iPhone, Apple consistently redefines each market it enters by creating brilliant gadgets that put the competition to shame. What’s the secret? Apple has built its management system so that it’s optimized to create distinctive products. That’s good news for would-be emulators, because it means Apple’s method for innovation can be understood as a specific set of management practices and organizational structures that — in theory, at least — anyone can use. This Crash Course outlines the techniques Apple uses to make the magic happen.

• It may take several years to cultivate new skills and rebuild your product lineup.
• You’ll need funding to create a dedicated innovation team and sufficient capital to rethink your product lineup.
• Strategic clarity: Innovating effectively means creating your own opportunities in a crowded marketplace to avoid both mediocrity and commoditization.
• Patience: Creativity is a fickle thing, and it doesn’t always follow the clock. False starts and the occasional flop are part of the process and must be accommodated.
• Strong leadership: Innovation doesn’t happen by committee. Visionaries with effective management skills are hard to find, but they’re a critical ingredient for success.

Clear Your Mind

GOAL: UNDERSTAND WHAT IT TAKES TO CREATE TRULY REMARKABLE PRODUCTS.

The word “zen” is often applied to both Apple’s products and the company’s highly focused CEO, Steve Jobs. And while the compliment usually refers to the beauty of the company’s minimalist products, enlightenment is more than skin-deep. “In most people’s vocabularies, design means veneer. It’s interior decorating. It’s the fabric of the curtains or the sofa,” Jobs has said of his product philosophy. “But to me, nothing could be further from the meaning of design.” Design is a “fundamental soul,” Jobs says, that expresses itself through an end result — the product.

What is Apple’s fundamental soul? The company’s motto, “Think Different,” provides a hint. Apple maintains an introspective, self-contained operating style that is capable of confounding competitors and shaking up entire industries. For example, Nokia, once considered the undisputed leader in mobile phones, never anticipated that a single product from a computer maker might throw its ascendancy into question.

Internally, Apple barely acknowledges competition. It’s the company’s ability to think differently about itself that keeps Apple at the head of the pack. Current and past employees tell stories about products that have undergone costly overhauls just to improve one simple detail. Other products are canceled entirely because they don’t fit in or don’t perform up to par.

Apple’s culture has codified a habit that is good for any company to have but is especially valuable for firms that make physical things: Stop, step back from your product, and take a closer look. Without worrying about how much work you’ve already put into it, is it really as good as it could be? Apple asks that question constantly.

Build Your Fortress

GOAL: CREATE THE INFRASTRUCTURE YOU NEED TO INNOVATE.

From the outside, Apple’s offices look like those of just about any large modern American corporation. Having outgrown its headquarters campus at 1 Infinite Loop in Cupertino, Calif., Apple now has employees in other buildings scattered across the town and around the world. Size and sprawl are formidable challenges that most companies manage gracelessly, either by splintering into disorganized, undisciplined communities or by locking employees into tight, stifling bureaucracies. Apple tends toward the latter, but it does so in a unique way that generally (but not always) plays to its advantage.

At its worst, Apple’s culture resembles the closed paranoia of North Korea. For example, one Apple source who agreed to be interviewed anonymously for this story backed out at the last minute. Why? He feared that his employer would examine his phone bill and find him out. Another spoke on background but mentioned the possibility of a lawsuit if he were quoted by name. These are common fears within Apple, and they really do keep the company’s employees quiet. The obsession with secrecy is a double-edged sword, however: It gives Apple a vital element of surprise in the marketplace, but the never-ending game of internal spy vs. spy is draining for rank-and-file employees. Indeed, the corporate culture came under scrutiny recently after an employee of a foreign supplier — reportedly under suspicion for leaking the prototype of a new iPhone — committed suicide in Shenzhen, China.

Beyond the secrecy, which affects everyone, Apple’s approach is hardly one-size-fits-all. Rank-and-file employees are often given clear-cut directives and close supervision. Proven talent gets a freer hand, regardless of job title.

Checklist

MANAGING DIFFERENT

Over time, Apple has built a seasoned management team that’s optimized to support bold new product initiatives (and recover from the occasional flop). Here are a few of the techniques Apple’s management uses to make the magic happen.

1. Ignore fads. Apple has held off building a cheap miniature laptop to respond to the “netbook” fad, because these devices don’t offer good margins. Instead it released the ultrathin, ultra-expensive Air, a product more in line with its own style.

2. Don’t back down from fights you can win. Apple is a tough partner and a ruthless enemy. In 2007, Apple pulled NBC’s television programs from the iTunes Store after the network tried to double the prices consumers pay to download shows. NBC backed down within days, and ever since, giant media conglomerates have been hesitant to face off with Apple over pricing.

3. Flatten sprawling hierarchies. Companies with extended chains of authority tend to plod when it’s time to act. Most of the decisions at Apple come from Jobs and his immediate deputies.

4. Pay less attention to market research and competitors. Most firms develop their products through a combination of touchy-feely consumer focus groups and efforts to imitate successful products from other companies. Apple does neither, and the iPod and iPhone are clear proof of that.

Cultivate Your Elite

GOAL: EMPOWER YOUR MOST VALUABLE EMPLOYEES TO DO AMAZING WORK.

In truly despotic societies, both art and science suffer terribly. Apple, on the other hand, reliably churns out the industrial equivalents of da Vinci paintings and Hokusai woodcuts. This has little to do with how the company treats employees in general. Rather, it stems from the meticulous care and feeding provided to a specific group: the creatives. Apple’s segmented, stratified organizational structure — which coddles its most valuable, productive employees — is one of the company’s most formidable assets.

One former Apple consultant tells of an eye-opening introduction to Apple’s first-class treatment of its creatives. The consultant visited Apple’s Industrial Design Group, the team that gives Apple products their distinctive, glossy look. Tucked away within Apple’s main campus, the IDG is a world unto itself. It’s also sealed behind unmarked, restricted-access doors. Within the IDG, employees operate free from outside distractions and interference. “It didn’t feel like working at Apple,” our source remembers. “It felt like working at a small design firm.” Some companies are famous for perks — Google, for example, with its free massages and gourmet lunches. Apple focuses on atmosphere, nurturing its best designers behind opaque glass in a hidden sanctuary with music playing in the background.

Despite their favored status, Apple’s creatives still have no more insight into the company’s overall operations than an Army private has into the Pentagon. At Apple, new products are often seen in their complete form by only a small group of top executives. This, too, works as a strength for Apple: Instead of a sprawling bureaucracy that new products have to be pushed through, Apple’s top echelon is a small, tightly knit group that has a hand in almost every important decision the company makes.

Case Study

NURTURING INNOVATION AT CISCO

Other firms have also found success by separating innovation from business as usual. Here’s what David Hsieh, vice president of marketing at Cisco, has to say about his company’s Emerging Technologies Group:

“Big companies have a tendency to eat their own children. They get afraid of disrupting their own revenue stream with a new unit, or someone has a great idea and an executive sponsors it, but the moment the sponsor comes under pressure, they ditch all the little initiatives to focus on their core business. The advantage of a new unit is to insulate it from people who say, ‘We can’t do it that way because we’ve done it a different way for years.’ You want to enable a group of people to think more broadly and creatively without outside pressures. Cisco’s Emerging Technologies Group has been in operation for three years, and it’s created a number of businesses. The early ones are all growing successfully, even in a bad economy.”

Don’t Rush, Don’t Dawdle

GOAL: PREVENT SHORT-TERM, CYCLICAL, OR COMPETITIVE PRESSURES FROM OVERWHELMING AN EFFECTIVE STRATEGY.

It’s often said that people in particular cultures live life at their own unique paces. Americans are seen as hard-driving and somewhat shortsighted — a side effect of a business culture that takes its cues from the stock market’s emphasis on quarterly results.

Apple is different because Apple dances to a rhythm of its own making. Although its rising stock has become a vital part of many portfolios, Apple cancels, releases, and updates products at its own speed, seemingly irrespective of market conditions or competitive pressure. Apple doesn’t telegraph its moves, either: The iPod and iPhone, iconic products both, each began as rumors that Apple seemed determined to quash.

Plan B

STAYING COOL WHEN THE HEAT IS ON

Your stock price is down, your customers are angry, and investors are banging on your door. Sure, acting like Apple seems like a good idea — until your board starts craving blood. How do you maintain a focus on innovation when you don’t have a few successful quarters to back you up?

For a vivid demonstration of how to publicly recover from your errors (in style, no less), check out the video of Steve Jobs’ 1997 Macworld addressand an associated BNET feature, How to Present Like Steve Jobs.

Clone Your Own Steve Jobs

GOAL: IF YOU PUT A TYRANNICAL PERFECTIONIST IN CHARGE, INSTITUTIONALIZE HIS THINKING.

New adherents to the cult of Steve Jobs may be surprised to hear this: The most iconic Apple laptop, the original PowerBook, was released in 1991, after Jobs had been absent for six years. The smug hipsters who line today’s cafes with rows of identical MacBooks are merely updated versions of their counterparts from the early ’90s. Yet Jobs was in no way responsible for this enduring innovation.

So does that mean Steve Jobs is irrelevant? Or is Jobs — and his maniacal focus on building insanely great products — a necessary ingredient of Apple’s success?

Historians have long grappled with a similar question: How critical are those rare, world-changing “great leaders” whose efforts seem irreplaceable? Most historians now believe that great leaders are made by their circumstances and that their great deeds actually reflect the participation of thousands, or even millions, of people. In the case of Apple, there would be no Mac, no iPod, and no iPhone without the efforts of thousands of engineers and vast numbers of consumers who were looking for products that better served their needs.

That said, Jobs cuts an impressive figure, and if he was “made” by his circumstances, that process took many years. Remember that the first edition of Steve Jobs — the young inventor who, at 21, created Apple Computer — was not the visionary we know today. Instead, after nine years at Apple’s helm, the young Steve Jobs was ousted because of his aggressive, take-no-prisoners personality, which created a poisonous, unproductive atmosphere when it pervaded the company.

Today’s Steve Jobs seems to have learned how to focus that aggressive, take-no-prisoners personality more shrewdly, and to great effect. While he’s still an essential part of Apple’s success, the company has also institutionalized many of Jobs’ values to such an extent that Apple is now far less dependent on him. Tim Cook, for example, worked well as acting CEO during the first half of this year, when Jobs was on sick leave. But questions remain. So long as the overwhelming personality of Jobs is present, can anyone really grow into that position? Only when Jobs steps back from his role permanently will we really be able to determine how well Apple has learned the lessons he has taught.