This Post is Really Innovative

May 252012
 

You’ll notice that we called this post “innovative.” That’s because innovation is good, and everyone is practicing it. Or at least they say they are. “Innovation” has become the “awesome” of corporate speak.

Earlier this week, The Wall Street Journal took a bemused look at the phenomenon, noting that companies are claiming to innovate as never before. “But that doesn’t mean the companies are actually doing any innovating,” the Journal observed. “Instead they are using the word to convey monumental change when the progress they’re describing is quite ordinary.”

One of the people interviewed, Scott Berkun, author of the book The Myths of Innovation, explained that he prefers to save the word for “civilization-changing inventions like electricity, the printing press and the telephone.”

Peter Drucker was always quick to call out business leaders for employing hackneyed or all-too-fashionable terminology, and he deplored the “growing disparity between our rhetoric and our practice” in business.

But Drucker, we know, would have taken a far more generous view than does Berkun toward companies boasting of innovation. That’s because in his book Innovation and Entrepreneurship, Drucker went to great lengths to emphasize that most innovation isn’t civilization changing.

“To be sure, there are innovations that in themselves constitute a major change; some of the major technical innovations, such as the Wright Brothers’ airplane, are examples,” Drucker wrote. “But these are exceptions, and fairly uncommon ones.”

Indeed, Drucker’s definition of innovation was modest and simple: It is “the task of giving human and material resources new and greater wealth-producing capacity.”

“Most successful innovations are . . . prosaic; they exploit change,” Drucker added. “And thus the discipline of innovation (and it is the knowledge base of entrepreneurship) is a diagnostic discipline: a systematic examination of the areas of change that typically offer entrepreneurial opportunities.”

In short, you really can be innovative without inventing the airplane.

What sort of activity do you think merits the word “innovative” or “innovation”—and why?

We Hope You Like This Post Even If Everyone Else Does

May 162012
 

If your financial advisor is an oddball, you may be in luck.

According to The Wall Street Journal’s Brian Hershberg, contrarians do much better at picking stocks than do conformists. “Year in and year out, the best analysts have proved to be those who advise investors to buy or sell a stock before the pack,” Hershberg noted in a recent analysis. “They’ve also been the ones who will go against the grain.  Stock analysts tend to move in the same direction.”

The same could be said of managers, or people in general. Writing in the 1940s, Peter Drucker, listed many admirable qualities of Americans but also noticed a “preference so often shown for ‘safe’ mediocrity or the premium on conformity.”

In Drucker’s view, successful business leadership involves daring to defy the herd. “When innovation is perceived by the organization as something that goes against the grain, as swimming against the current, if not as a heroic achievement, there will be no innovation,” he warned in Innovation and Entrepreneurship.

In The Effective Executive, Drucker offered five historical examples of crucial business decisions and explained that part of what made them tough, although correct, was that they defied conventional wisdom. “They were all highly controversial,” Drucker wrote. “Indeed, all five decisions went directly counter to what ‘everybody knew’ at the time.”

Illustration credit: Alisa Gorohovsky

That said, even a contrarian stock analyst will make some bad mistakes. A person of great ability must be judged over the long term, not the short term, so that missteps can be placed in perspective. As Drucker wrote in Management: Tasks, Responsibilites, Practices, “A management that does not define performance as a balance of success and failure over a period of time is a management that mistakes conformity for achievement, and absence of weaknesses for strengths.”

Where have you seen contrarianism pay off in your line of work?

What Peter Drucker Would Be Reading

May 082012
 

Peter Drucker

Recent selections from around the web that, we think, would have caught Peter Drucker’s eye:

1.  The Structural Revolution: Is our current recession a down cycle or a grand reset? David Brooks writes in the New York Times that many people on the left think what we’re going through is a deeper-than-normal cyclical downturn. But Brooks believes that’s missing the truth: “The recession grew out of and exposed long-term flaws in the economy. Fixing these structural problems should be the order of the day, not papering over them with more debt.”

2.  Why a Little Pessimism is a Good Thing: Americans are optimists in general. And if they’re not, they get told they’d better be. But Leslie Brokaw makes a good case on the Improvisations blog at MIT Sloan Management Review that pessimism should get a little more respect as a tool in its own right: “For one thing, it’s a good defensive tactic.”

3.  Why Innovation Dies: If you have a wonderful innovation to suggest and want to make sure it goes nowhere, put it into the hands of a committee. That is what entrepreneur Steve Blank writes on his site. Blank offers many reasons why committees are no good for making innovation happen. One of them: “New market problems call for visionary founders, not consensus committee members.”

4.  The Dx Comment of the Week: In response to our question about what it means that, according to new research, the workplace tends to be dominated by a small band of superstars and a large mass of below-average workers—a Pareto curve rather than a bell curve of talent distribution—Scott Kuethen had this to say:

Maybe the true stars are high-performing individuals who are team players. Fewer of those types than the masses to be sure.

A Curveball for the Bell Curve

May 042012
 

We all know what a bell curve looks like. Many of us also use it when we make decisions. We expect, for instance, that a group of students will be made up of a few geniuses, a few dunces and a lot of pretty average folks who fall in the middle.

But maybe you can’t take that to the bank—or at least not to the office. When it comes to talent or productivity, people often don’t distribute themselves on a bell curve. There are simply superstars and everybody else.

“Rather than describe how humans perform, the bell curve may actually be constraining how people perform,” National Public Radio declared this week, as it reported on the findings of researchers Ernest O’Boyle Jr., of Longwood University’s College of Business and Economics, and Herman Aguinis at Indiana University’s Kelley School of Business.

In their study of productivity in 198 groups of people “ranging from physics professors and Grammy nominees to cricketers and swimming champions,” they found that superstars accounted for most of the success of the group. “The vast majority of the others in the group,” Aguinis explained, “were actually performing below the mathematical average.”

It’s a variation of the Pareto principle, or the 80/20 rule. Peter Drucker wrote about this often, and he observed that measurable phenomena in nature (height of people, temperatures during the year, etc.) tend to distribute themselves along a “normal” bell curve.  But social phenomena, like the things we do for a living, don’t work that way.

“In a social situation a very small number of events—10% to 20% at most—account for 90 percent of all results,” Drucker wrote in On the Profession of Management. “A handful of customers out of many thousands produce the bulk of the orders; a handful of products out of hundreds of items in the line produce the bulk of the volume; and so on. This is true of markets, end uses and distributive channels. It is equally true of sales efforts.”

Image credit: Tang Yau Hoong

There are many implications to this. One, as we’ve pointed out before, is that you should focus on making your stars into superstars, not on making the other 80% better. But another could be that most workers are neither superstars nor cut out to be superstars, and any manager must take that into account when hiring and promoting.

Neither businesses nor service institutions can “depend on superstars to staff their managerial and executive positions,” Drucker wrote in People and Performance. “If . . . we cannot organize the task so that it will be done on a satisfactory level by people who only try hard, it cannot be done at all.”

Does the idea that there are only superstars and below-average players change the way that your organization should be managed—and, if so, how?

Joe’s Journal: On Policing Oneself

May 012012
 

“A business that does not show a profit at least equal to its cost of capital is irresponsible; it wastes society’s resources. Economic profit performance is the base without which business cannot discharge any other responsibilities, cannot be a good employer, a good citizen, a good neighbor. But economic performance is not the only responsibility of a business any more than educational performance is the only responsibility of a school or healthcare the only responsibility of a hospital. Every organization must assume responsibility for its impact on employees, the environment, customers, and whomever and whatever it touches. That is social responsibility.”

—Peter F. Drucker

As Peter Drucker asserts, wealth creation is the first responsibility of business. If it does not earn enough to pay its total cost of capital, it is not being socially responsible to its investors and lenders. In addition, sufficient profit is necessary to provide for future innovation.

But a business should also act in a socially responsible way by taking into account the requirements of all stakeholders, first and foremost its customers. Then, it must make sure it eliminates any negative impacts that it creates on society, such as pollution of the air and water, and unethical practices that jeopardize the general welfare.

If operating ethically puts a business at a competitive disadvantage, it should encourage the right kind of regulation of the entire industry.  If it does not, it will almost certainly encounter the wrath of society, and pressure will build for government regulation that may well turn out to be overly and needlessly burdensome.

In recent years, this brand of leadership was sorely absent from executives who were knowledgeable about long-standing abuses in the mortgage and consumer-credit markets. The result was passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, an 848-page bill that has been widely criticized by business and by elected representatives as an example of over-regulation.

One of the differences between good capitalism and bad capitalism is the practice of socially responsible behavior. We have witnessed the damage irresponsible behavior can create. The challenge now before us is to change the attitude of influential executives toward the interest of society.

—Joe Maciariello

Because It’s Not Enough Just To Believe You’re Helpful

Apr 302012
 

Cutting defense spending is hard enough. But we also suffer from a “social services-industrial complex” that may be even harder to cut.

So asserted Daniel Stid, a partner at the nonprofit consultancy the Bridgespan Group, in a recent piece for the Washington Post.

“The dirty little secret of the social sector is that once government money starts flowing, the nonprofits that have advocated for it and/or who are benefitting from it have a vested interest in keeping it going, even as evidence shows ‘weak or no positive effects,’” Stid wrote.

That, of course, is never a good thing. But it’s especially troubling at a time when budgets are so tight. “In a time of mounting austerity, the only practical way to direct more public funding to what works is to reallocate it from what doesn’t work,” Stid argued. “But this challenges the status quo and is thus politically much more fraught.

That nonprofits and other service institutions barrel on despite lacking evidence of effectiveness isn’t news. As we’ve talked about, Peter Drucker felt that nonprofits, not just businesses, must learn to measure outcomes and abandon what’s not working.

Illustration credit: Matt Kenyon

But when government is involved, and the organization is large, that can be especially hard to do. “The public service agency is always in danger of frittering away its best people as well as a great deal of money on activities which no longer produce, no longer contribute, have proven to be incapable of producing, or are simply inappropriate,” Drucker noted in Toward the Next Economics.  “Unless results can be appraised objectively, there will be no results. There will only be activity, that is, costs.”

Because government programs, or government-sponsored programs, can be nearly impossible to kill, Drucker therefore advocated killing them in advance.

“Instead of starting with the assumption that any program, any agency, and any activity is likely to be eternal, we might start out with the opposite assumption: that each is short-lived and temporary,” Drucker proposed in the Age of Discontinuity.  “We might, from the beginning, assume that it will come to an end within five or 10 years unless specifically renewed. And we may discipline ourselves not to renew any program unless it has the results that it promised when first started.”

What do you think is the best way to get rid of federal spending on non-performing social services?

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