Insperity Flagged the 100 Best Business Executives Over Time

Here’s a Hat Tip to Insperity ! Congrats to Novo Nordisk which has already has a positive impact on the Upper Valley with an improved facility for hemophilia treatment medicine. Located in West Lebanon, New Hampshire, Novo Nordisk US Bio Production, Inc. (NNUSBPI), is a biopharmaceutical manufacturing facility that works to produce trusted products for people living with the rare bleeding disorder known as hemophilia.

HBR offers a tribute to the “best 100 executives” over time and we should applaud that Harvard is looking at leadership performance OVER TIME:

“There are so many reasons for leaders to focus on the short term: slow growth, shareholder activism, political turmoil—to name just a few. Yet some CEOs still manage to train their sights on the long term and deliver strong performance over many years. Since its launch, in 2010, the basic philosophy of HBR’s ranking has remained unchanged: that business leaders should be judged by the results they produce over their entire tenure, and that the evaluation should be based on objective data, not public opinion. That approach achieves a truer—and more dependable—picture of performance. Just as ballplayers’ lifetime batting averages don’t rise or fall dramatically on the basis of their last few at-bats, our ranking doesn’t shift significantly with last quarter’s numbers—or even last year’s.”

Kevin Kruse took the time to assemble leadership quotes for EVERY day of the year (nice for those tear sheet desktop calendars) but here’s just one:

Picture Credit: Emily’s Quotes

Business Innovation and Gamma-Ray Star Twins

Picture Credit: NASA- http://www.space.com/14226-rare-gamma-ray-star-twins-discovered.html

Okay, so the Australians have some ideas on innovation:

Innovation generally refers to changing processes or creating more effective processes, products and ideas. For businesses, this could mean implementing new ideas, creating dynamic products or improving your existing services. Innovation can be a catalyst for the growth and success of your business, and help you to adapt and grow in the marketplace. Being innovative does not only mean inventing. Innovation can mean changing your business model and adapting to changes in your environment to deliver better products or services. Successful innovation should be an in-built part of your business strategy, where you create a culture of innovation and lead the way in innovative thinking and creative problem solving. Innovation can increase the likelihood of your business succeeding. Businesses that innovate create more efficient work processes and have better productivity and performance.

Sounds good. Not that simple. Sisyphus, just push ! Here is Jankovics Marcell’s brilliant 1974 Sisyphus vimeo: https://youtu.be/tYBlAon683s

NEC says that innovation can be manufactured but the real challenge is to inspire workers to be creative.: http://au.nec.com/en_AU/solutions/services/strategic-consulting/business-innovation-overview.html

HBR puts a finger on Peter Drucker’s concept of “functional innovation”:

Drucker argues that most innovative business ideas come from methodically analyzing seven areas of opportunity, some of which lie within particular companies or industries and some of which lie in broader social or demographic trends. Astute managers will ensure that their organizations maintain a clear focus on all seven. But analysis will take you only so far. Once you’ve identified an attractive opportunity, you still need a leap of imagination to arrive at the right response—call it “functional inspiration.”

This fourteen year old paper states a definition crisply: “Innovation is the specific function of entrepreneurship, whether in an existing business, a public service institution, or a new venture started by a lone individual in the family kitchen. It is the means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth.”

Innovation is the specific function of entrepreneurship, whether in an existing business, a public service institution, or a new venture started by a lone individual in the family kitchen. It is the means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth. Today, much confusion exists about the proper definition of entrepreneurship. Some observers use the term to refer to all small businesses; others, to all new businesses. In practice, however, a great many well-established businesses engage in highly successful entrepreneurship. The term, then, refers not to an enterprise’s size or age but to a certain kind of activity. At the heart of that activity is innovation: the effort to create purposeful, focused change in an enterprise’s economic or social potential.

Sources of Innovation

There are, of course, innovations that spring from a flash of genius. Most innovations, however, especially the successful ones, result from a conscious, purposeful search for innovation opportunities, which are found only in a few situations. Four such areas of opportunity exist within a company or industry: unexpected occurrences, incongruities, process needs, and industry and market changes.

Three additional sources of opportunity exist outside a company in its social and intellectual environment: demographic changes, changes in perception, and new knowledge. True, these sources overlap, different as they may be in the nature of their risk, difficulty, and complexity, and the potential for innovation may well lie in more than one area at a time. But together, they account for the great majority of all innovation opportunities.

1. Unexpected Occurrences

Consider, first, the easiest and simplest source of innovation opportunity: the unexpected. In the early 1930s, IBM developed the first modern accounting machine, which was designed for banks. But banks in 1933 did not buy new equipment. What saved the company—according to a story that Thomas Watson, Sr., the company’s founder and long-term CEO, often told—was its exploitation of an unexpected success: The New York Public Library wanted to buy a machine. Unlike the banks, libraries in those early New Deal days had money, and Watson sold more than a hundred of his otherwise unsale-able machines to libraries. Fifteen years later, when everyone believed that computers were designed for advanced scientific work, business unexpectedly showed an interest in a machine that could do payroll. Univac, which had the most advanced machine, spurned business applications. But IBM immediately realized it faced a possible unexpected success, redesigned what was basically Univac’s machine for such mundane applications as payroll, and within five years became a leader in the computer industry, a position it has maintained to this day.

The unexpected failure may be an equally important source of innovation opportunities. Unexpected successes and failures are such productive sources of innovation opportunities because most businesses dismiss them, disregard them, and even resent them.  The first acknowledgment of a possible opportunity usually applies to an area in which a company does better than budgeted. Thus genuinely entrepreneurial businesses have two “first pages”—a problem page and an opportunity page—and managers spend equal time on both.

 2. Incongruities

An incongruity between expectations and results can also open up possibilities for innovation. For 50 years after the turn of the century, shipbuilders and shipping companies worked hard both to make ships faster and to lower their fuel consumption. Even so, the more successful they were in boosting speed and trimming their fuel needs, the worse the economics of ocean freighters became. By 1950 or so, the ocean freighter was dying, if not already dead  A shift in viewpoint, not in technology, totally changed the economics of ocean shipping and turned it into one of the major growth industries of the last 20 to 30 years.

3. Process Needs

What we now call the media had its origin in two innovations developed around 1890 in response to process needs. One was Ottmar Mergenthaler’s Linotype, which made it possible to produce newspapers quickly and in large volume. The other was a social innovation, modern advertising, invented by the first true newspaper publishers, Adolph Ochs of the New York Times, Joseph Pulitzer of the New York World, and William Randolph Hearst. Advertising made it possible for them to distribute news practically free of charge, with the profit coming from marketing.

4. Industry and Market Changes

Managers may believe that industry structures are ordained by the good Lord, but these structures can—and often do—change overnight. Such change creates tremendous opportunity for innovation. Established companies, concentrating on defending what they already have, tend not to counterattack when a newcomer challenges them. Indeed, when market or industry structures change, traditional industry leaders again and again neglect the fastest growing market segments. New opportunities rarely fit the way the industry has always approached the market, defined it, or organized to serve it. Innovators therefore have a good chance of being left alone for a long time.

5. Demographic Changes

Of the outside sources of innovation opportunities, demographics are the most reliable. Demographic events have known lead times; for instance, every person who will be in the American labor force by the year 2000 has already been born. Managers have known for a long time that demographics matter, but they have always believed that population statistics change slowly. In this century, however, they don’t. Indeed, the innovation opportunities made possible by changes in the numbers of people—and in their age distribution, education, occupations, and geographic location—are among the most rewarding and least risky of entrepreneurial pursuits.

6. Changes in Perception

A change in perception does not alter facts. It changes their meaning, though—and very quickly. It took less than two years for the computer to change from being perceived as a threat and as something only big businesses would use to something one buys for doing income tax. Economics do not necessarily dictate such a change; in fact, they may be irrelevant. What determines whether people see a glass as half full or half empty is mood rather than fact, and a change in mood often defies quantification. But it is not exotic. It is concrete. It can be defined. It can be tested. And it can be exploited for innovation opportunity.

7. New Knowledge

Among history-making innovations, those that are based on new knowledge—whether scientific, technical, or social—rank high. Knowledge-based innovations differ from all others in the time they take, in their casualty rates, and in their predictability, as well as in the challenges they pose to entrepreneurs. Like most superstars, they can be temperamental, capricious, and hard to direct. They have, for instance, the longest lead time of all innovations.

The Transformative Business Model

Picture Credit: Leandro Castelao

An interesting Harvard Business School article called “the Transformative Business Model” by Stelios Kavadias, Kostas Ladas, and Christoph Loch investigates 40 new business models with widely different outcomes. These business models relate to how companies organize to serve customers and deliver value, the complimentary firms that they select to partner with, and the means by which their supply chain operates. The professors summarize:

We usually associate an industry’s transformation with the adoption of a new technology. But although new technologies are often major factors, they have never transformed an industry on their own. What does achieve such a transformation is a business model that can link a new technology to an emerging market need.

So, part of the trick to to see the emerging market need before competitors do and to find the early adopters among the customer population that make demand go viral. As the business model evolves, the key is to select, allocate and organize the critical resources (i.e. MP3 combined with a pay-per-listen music service like iTunes driven by an easy-to-use online menu that is a front end to remote, large scale storage such as the Apple Cloud). The authors allude to Thomas Kuhn‘s concept of “paradigm shift” when they explain, “Most attempts to introduce a new model fail—but occasionally one succeeds in overturning the dominant model, usually by leveraging a new technology. If new entrants use the model to displace incumbents, or if competitors adopt it, then the industry has been transformed.” NPR did a nice profile on Kuhn’s 94th birthday last July 18th, defining a paradigm shift as “an important change that happens when the usual way of thinking about or doing something is replaced by a new and different way.”

Interestingly, even though a natural scientist, Kuhn was highlighting that paradigms determine large areas of experience at the same time and the “shift” involves an accelerating adoption of a new way of thinking or doing something. (Kuhn fascinates me and I wrote my senior thesis at Yale in the early 1980s about the shift from a bipolar world to a unipolar political economy in the wake of the collapse of the Soviet Union).

HBR always does the basic takeaway points well (analysts take note)- the professors define the “Transformative Business model” as linking technology and the market:

1. A more personalized product or service.

Many new models offer products or services that are better tailored than the dominant models to customers’ individual and immediate needs. Companies often leverage technology to achieve this at competitive prices.

2. A closed-loop process.

Many models replace a linear consumption process (in which products are made, used, and then disposed of) with a closed loop, in which used products are recycled. This shift reduces overall resource costs.

3. Asset sharing.

Some innovations succeed because they enable the sharing of costly assets—Airbnb allows home owners to share them with travelers, and Uber shares assets with car owners. Sometimes assets may be shared across a supply chain. The sharing typically happens by means of two-sided online marketplaces that unlock value for both sides: I get money from renting my spare room, and you get a cheaper and perhaps nicer place to stay. Sharing also reduces entry barriers to many industries, because an entrant need not own the assets in question; it can merely act as an intermediary.

4. Usage-based pricing.

Some models charge customers when they use the product or service, rather than requiring them to buy something outright. The customers benefit because they incur costs only as offerings generate value; the company benefits because the number of customers is likely to grow.

5. A more collaborative ecosystem.

Some innovations are successful because a new technology improves collaboration with supply chain partners and helps allocate business risks more appropriately, making cost reductions possible.

6. An agile and adaptive organization.

Innovators sometimes use technology to move away from traditional hierarchical models of decision making in order to make decisions that better reflect market needs and allow real-time adaptation to changes in those needs. The result is often greater value for the customer at less cost to the company.