Innovation in Large Organizations: Evolution & Disruption with Dr. Peter Temes

Jeff Kavanaugh: Welcome to the Knowledge Institute Podcast, where we talk with experts on business trends, deconstruct main ideas, and share their insights. I'm Jeff Kavanaugh with Infosys Knowledge Institute, and today we look at innovation in large organizations. My guest today is Peter Temes, who leads the Innovation in Large Or-ganizations Institute. Welcome Peter. Thanks for being here.

Peter Temes: Thank you. Great to be here.

Jeff Kavanaugh: Through the years, corporations have had traditional R&D units, secret groups like Skunk Works and Innova-tion labs. However, globalization, digitization, and other strategic imperatives have forced innovation to well, have to innovate. What are the notable ways that you've seen corporate innovation evolve throughout your career, especially the last 10 years or so?

Peter Temes: Yeah, yeah. Well, we started this institute, the ILO Institute about 20 years ago, and it's changed a lot. So that was kind of the early days of what you could call the Clayton Christensen era of corporate innovation. He published his book, the Innovator's Dilemma, 1997. What Clay's model really suggested at its net was your big company should start doing things that are disruptive to itself, that offer new services, new ways of doing business, and keep them at arm's length from the core because the core will kill them if you bring them too close. Today, that's probably not the case.

Today, almost every one of the large organizations we work with from NASA to P&G, all the gang, they know that they have to have change not on the edge, but at the center and as the technology has matured, and so you really are much closer to that purely efficient kind of information environment. We also see that in-novation is much less about creating a whole bunch of new things and sequence, and it's much more about matching emerging needs with resources that might already exist or that could be created, but it's not about inventing, it's about coordinating, composing, pulling things together.

Jeff Kavanaugh: Interesting point, because it also highlights that difference between inventing and innovation, creating ver-sus matching.

Peter Temes: Yeah, that's right. And I would say for a long time we defaulted to this helpful definition that innovation is really invention at scale, but it's more than that because it's really more about the network connections that humans are so fundamentally creative.

Jeff Kavanaugh: Innovator, you've mentioned going from mindset of scarcity to abundance. I don't know if you want to elabo-rate on that.

Peter Temes: Yeah. This is from the conversation we were having earlier today with a great group in your facility. Thank you again for hosting that. So, you look at American industry, you look at how US Steel became US Steel, Harley-Davidson. It's got some wonderful work we've done there with some folks. How they became Harley-Davidson. There was a long time when you couldn't compete with them directly at all unless you had a couple of billion dollars, unless you had a lot of specialized expertise. Over literally generations they amassed capital, they amassed equipment, they amassed inside knowledge about how to produce stuff, and they created a workforce. How do you compete with that? Well, over a decade and with a billion dollars, maybe you can try. Today, I can compete with Harley probably in 30 days. I could sit right here, take out my credit card. Let's say I have 50,000 real dollars.

I can go online; I can turn that into 500 with leverage through a usurious interest rate. But I can do it and I can do it sitting right here. And then I can find a basic motorcycle chassis probably out of China that I can make a commitment to online, have on the way to be shipped here, go to Upwork, and find a good system designer for motorcycles. Look at some of these other sources for folks who can do pretty good design. Now, I'm not going to build a great motorcycle, probably. I'm not the guy for that, but I'm going to be able to then, oh, let's say through garden shops and other non-traditional retail areas where I can sell these motor-cycles. I can be on the street within three, four months having put only 50,000 real dollars in. And if I have the hustle and I have the talent, which believe me, I don't for motorcycles, I can compete with them.

Can I compete with US Steel? Absolutely. There are markets where I can buy excess steel and I can own them and ship them through third parties. I can do it fast because I've got the internet connectivity, and I can go out there. I might not be a good competitor. I'm sure I wouldn't be a long-term threat, but I can be in that business. So, with so many people now able to compete, why? Why do I do Harley? Why do I do US Steel? Why do I buy my products and services from a company when... And in your game, if I'm looking at selling really good support and advice, if I'm looking at selling digital services, that's even easier to dupli-cate at its base level and not necessarily the way you guys play the game, but I'm doing something that's fundamentally different if I'm the competitor, historically really didn't exist before, one little guy who can compete against the big giants because we're no longer in this era of scarcity, capital is not scarce today.

And certainly, the ability to produce things of value is not scarce. Some big heavy metal machines are scarce, but you know what? Most of them are not running 24 hours a day. And I can go to University of Cali-fornia at Berkeley where they have a platform, they productized their billion dollars’ worth of lab facilities and I can rent them in some cases for 100 bucks an hour as available, literally online. And I'm in business synthesizing God knows what. That scarcity has gone. So why do I do business with Harley? Well, I do busi-ness with Harley because it's Harley. Because the brand represents a community. The brand represents a series of promises that that company has kept for 100 years. It's no longer a sense of a marketplace driven by the limited number of people only who can do what needs to be done or what I wish to be done.

Now it's a question of who do I trust? Who do I want to connect to? Who is going to connect me with a community of other people who I feel like either are like me or are like the me I want to be? And that changes the innovation equation. It forces the providers of goods and services to be closer to their custom-ers. And we're often asked, what's the difference? How do I have an innovation culture? What should I do that I'm not doing?

Jeff Kavanaugh: Where does the innovation leader or function sit within an organization?

Peter Temes: Yeah, a lot of different places. And as you know, fewer and fewer chairs, which is to say chief innovation of-ficers’ heads, of innovation are becoming less frequently staffed roles. There are fewer of them now than there were five years ago. And this is based on research we've done in the last six months.

It's the first time we've seen that. There were more and more and more and more, and we've had a peak. And now there are fewer and fewer and fewer. At the same time there are more people, many more people deploying what we would call the innovation toolkit and more people with innovation in their title at lower levels. There are a couple of firms we know where there was a chief innovation officer, that person was viewed as not succeeding and left. Chief data officer had just come in and is viewed as a champion. So, they give innovation to that person. And a year later, that person is now the chief data and innovation officer. So, you see that chief innovation officer role being absorbed in other functions. I don't think that's a bad thing. I think that's a clue that innovation as a function didn't fail.

It succeeded, but it succeeded in a way that it became in the DNA in the bones of the organization. So, it's being just distributed and kind of metabolized. And we were just talking about this around the table with a couple of pretty good VPs and chief innovation officers. A lot of them are probably not going to have an in-novation job as their next job. They're probably going to be chief strategy officers. They're going to be head of a business unit, they're going to be doing something big, and they will be more effective in it and more attractive to play that role because they led innovation. So that innovation spreads everywhere.

Jeff Kavanaugh: All right, that's the people side. Let's talk about the tech side.

Peter Temes: Yes.

Jeff Kavanaugh: How has innovation become easier with digitization or more difficult?

Peter Temes: Yeah, I think easier, except the tech can be a distraction. Easier because I can hear the voice of the custom-er through electronic means much more easily. I had an experience years ago; I was running a small founda-tion in Chicago. A guy came into my office, and he said, "Hey, so glad you're here as our new boss. I love what you're doing. I love how open you are. And the customers feel more empowered to come in and share." He was like, "But could you do that a little less because I got a lot of customers complaining and it's preventing me from selling." I'm like, "No, we're not going to do that less man. You're going to hear from your customer more." The more we hear from our customer, at first it can seem obnoxious. It's a new thing. But the more we hear from our customer, the more we're dynamically shaping our products and services to fit them better.

Jeff Kavanaugh: How do innovation leaders get line of business leaders and executives to buy into these things and support them?

Peter Temes: So, we've observed, again, borrowing from others the idea that leadership tends to come in two flavors. Transactional leadership, which is helping the group get what it already knows and wants. New boss is in, boss, help me make more money. Help me get promoted, help me do a better job. And then if you do that first and well, you've earned enough trust to go from being a transactional leader to being a transformation-al leader. And the transformational leader helps the group want something different and better. And that's where you have the leverage, the big leaps ahead. So, the big answer to that question is you start by help-ing people solve problems they already know they want and then you move them once you've helped them solve those problems to the point where they want things that they didn't even know are possible.

Jeff Kavanaugh: And it's so counterintuitive because you get that person coming in, all right, I'm making a change. I've got to do it fast first 100 days.

Peter Temes: It's a different thing.

Jeff Kavanaugh: And they leap ahead, and everything falls apart because they didn't go slow to go fast.

Peter Temes: Yes. I think it's exactly right. And it's that alternating speeds is a really interesting idea. We see that coming up again and again and again. Sometimes you have, for example, in a lot of technical management environ-ments, we learned this from Ray Johnson when he was CTO at Lockheed Martin. So, they came in, we had a lot of teams here doing critical work, and every team had a rating, red flag, yellow flag, and green flag. Green was good, red was very bad.

So, we had a lot of red flags and he had to really change the culture. And what he found after a lot of exper-imenting was that short cycles, that alternated between high accountability and high autonomy really worked well with these very talented technical people. And what that would mean is every couple month we're going to spend about a week and you're going to report out and we're going to talk about problems in a positive way to help solve them. And then for the next seven weeks, you folks are the geniuses you are. Do your thing but get that rhythm straight and know that there's that... Accountability's not the right word.

Jeff Kavanaugh: It's some guardrails. It's also some level of structure. Just enough of a bin going work with them.

Peter Temes: Yeah, exactly.

Jeff Kavanaugh: Not all projects make it to launch maybe nor should they. And what's some good criteria and how do you know when... Hate to use the word kill, stop a project? And is there value in stopping a project when you partially done it and you haven't launched it? What's you’re thinking on that?

Peter Temes: That is a great question. You go back to how a project launches, how a project gets started. If you look at efforts to do a kind of open innovation model, which are very, very important for a good while as you saw innovation as a function begin to emerge, you saw the creation of innovation boards, innovation groups where basically we say we've got a group of fairly senior execs. Anyone can come in on Thursday and pre-sent and throw some ideas at us. And if we like it, we might give you a couple of days release time or maybe no release time because you're passionate, you want to do it anyway. Give you five grand or 50 grand and see if you can essentially do what we would now call a proof of concept. And for a while you saw tons of great proof of concept, and they didn't go anywhere.

Why? Because this worked like, hey man, this worked in the lab with the innovation people. Good, let's go bring it to the head of manufacturing. Who is that? Where's their office? And we go knock on the door. And if they deign to give us time, we say, "Hey, we just did this thing. You want to see it?" No, I do that all day. I do it better than you do. I'm like, "Actually this had an advantage. See?" It's like, are you telling me how to do my job? Who are you? I'm busy. Goodbye. We saw working with University of California's Health System, they created a great... A woman named Molly Coye, a chief innovation officer, created a great protocol.

She said, "We do that model except the handoff receivers have to be part of it from the beginning. So, we know who wants to come in and present. And we say, 'Oh, this is about some great new way to schedule nurses. We have chief nursing officer at the table as well as everyone else. We do the murder board. We ask some questions, we get excited.' And then it's up to the chief nursing officer to say, 'Yeah, I'll mentor this for 90 days or I won't.' And if she says no, no project, no soup for you." And that's really healthy. It's a false negative, but false negatives are not as bad for the system as the false positives. It really worked, but no-body wants it. That's harmful to the whole organization. Instead, you say it's almost a social engineering trick. If it does work, who do we have to introduce it to? Let's introduce it to them now so they know about it, and they can see it work. And then if it works, they're already there.

They're already bought in, and it's going to be much, much easier. So, it's a question of how you kill a pro-ject, but it's also kill it in the crib, kill it before it's out there walking around. That's actually super valuable. And again, thinking about what our organization can tolerate, false positives and more than false negatives. And almost always, we've had this conversation with some of our members when someone says, "No, I think we would do well if we actually had more projects to prove early that didn't go." That is not a good sign. What that means is they're doing this innovation program for a reason other than trying to get good new stuff to market. They're doing it to show that they're being busy or to show how creative they are. And that's never a really good sign.

Jeff Kavanaugh: We've seen situations where... Hate to use the phrase, high priest of innovation, these innovation groups becoming either silos or [inaudible 00:14:47] functions. And how do you prevent this and draw on the ex-perience of others and get some synergy or some positive from it?

Peter Temes: Yeah, it's a great question. And we've seen some really good new models lately. We've been talking today in our meeting here about how innovation is spreading across the organization. Even if as a function it might seem a little bit less visible. That's kind of a good thing. Some companies are doing that intentionally. It's a great manufacturing company called Vertiv that spun out of Emerson in Ohio. Their head of innovation has a whole team of people who aren't recruited informally. They have 20%, 30% of their time paid for from his office, but they're in other roles for their full-time commitment. So, they're distributed through the organization, but they come to those meetings, they report back, and they carry the innovation agenda off as well. That model turns out to be brilliant because it creates eyes and ears, it creates real reporting interest and incentive, and it just pulls down that barrier between innovation as a separate thing and what the com-pany really does every day. And we think that's a model worth repeating.

Jeff Kavanaugh: You've given a lot of hope, a lot of good advice for innovation leaders and things to think about. What about for that senior executive who innovation reports to them, they know it's important. What are the one or two things you would say, do these things think this way because it's going to help furthest in the organization.

Peter Temes: If you are a reluctant leader or sponsor of innovation, that's okay. There is still a bunch of those out there. There were more of them 20 years ago, but that person needs to realize it's the same. You've heard this 100 times, what got me here won't get the next person here and what got me here won't get the organiza-tion where it needs to go. It's hard once you reach a certain point in your career and in your life to say, "I am a whole singular person in a world that's vastly changing." Read King Lear, Shakespeare, understood, King Lear was the king of England, but his worldview did not match what was happening next. And it's a tragedy. He made dumb mistakes based on not being able to listen. The language that people around him, including his family, his daughters spoke, became unintelligible to him.

This happens to a lot of executives as they go through their careers. What's the solution? What's the way not to be King Lear, but to be the king, the minister, the duke, even the servant, or the fool who can adapt. Number one, tell the truth. Number two, understand that however smart you are, everyone else together is smarter. Innovation leadership is a listening function. It's not really a creating function anymore, especially as you go higher and higher up the org chart, it's not about turning a wrench, partly because fewer wrench-es need to be turned by human hands today. But also, because the information processing, the learning of new languages moment to moment, the learning of the language that you think you speak in its new form is critical.

So, if you're a senior exec in a large organization and innovation reports to you and you feel uncomfortable, A, it may be time to go if you are not in that role to learn. B, if you can have the mindset, and many of these folks do, we know that that's why they've been successful in their careers. They may be hearing lan-guages spoken by everyone around them that become more and more distant to the language that they speak natively. But they need to be able to hear the music and they need to be able to hear that the cus-tomer gets more value. The world gets more value from that evolution and difference, and you still get credit for it if you're the boss.

There's something in there to celebrate. So having that positive mindset and being able to celebrate the change, even though it moves the world further from the world you grew up in, that's I think the outlook that makes all this work well.

Jeff Kavanaugh: And keeps it fresh for you as a leader as well.

Peter Temes: And keeps it fresh, makes you a happier person.

Jeff Kavanaugh: That's right. Well, great. Well wrapping things up, where can people find you online?

Peter Temes: Yes. So, our website is www.iloinstitute.net.

Jeff Kavanaugh: Got it. And you can find details on our show notes and transcripts at infosys.com/iki in our podcast section. Peter, thank you very much.

Peter Temes: Oh, my pleasure.

Jeff Kavanaugh: Highly energetic and really interesting discussion.

Peter Temes: Appreciate that. And thanks to you.

Jeff Kavanaugh: The Knowledge Institute Podcast is an Infosys Knowledge Institute production. Be sure to follow us wherev-er you get your podcasts. And visit us on infosys.com/iki. Yulia De Bari and Christine Calhoun produced the podcast. Dode Bigley is our audio engineer. I'm Jeff Kavanaugh of the Infosys Knowledge Institute. Keep learning, keep sharing.