Why Being a Good Manager Can Make You a Bad Innovator

Excellent view by Jeff Dyer, professor of strategy at BYU, and Nathan Furr, professor of entrepreneurship at BYU in Forbes.

What does good management look like? We teach what we think are good management principles in literally thousands of business schools around the world. Yet Scott Cook, founder and leader of Intuit told us, “When MBAs come to us, we have to fundamentally retrain them—nothing they learned will help them succeed at innovation.” Perhaps a stronger indictment comes from Elon Musk, founder of Tesla, SpaceX, Solar City and PayPal: “As much as possible, avoid hiring MBAs. MBA programs don’t teach people how to create companies … At my companies, our position is that we hire someone in spite of an MBA, not because of one.” While we generally recognize that management training has value, why do leaders of innovative companies offer such harsh criticisms?

To answer that question, let’s start with a quick company illustration. 15 years ago, in 1999, Cisco systems was in the growth phase of the well-known “S-Curve” having launched a variety of innovative new methods and products for routing communications among computer networks. In fact, if there had been a 1999 Forbes list of the most innovative companies ranked by Innovation Premium (IP), Cisco would have been at the top of the list with a 68-percent IP. During its growth phase, Cisco, like all growth companies, needed to hire many new managers: individuals that excel at planning, analyzing and optimizing—skills business schools teach are critical to scaling and managing an existing business. But what they aren’t taught in business school is how to create a customer (even today, how many MBA programs have required courses in product development?). Consequently, they can optimize and execute on an existing business but don’t seem to have the skillset to create innovative new products and services. Not surprisingly, as a company becomes dominated by managers with execution skills, the company starts to lose its innovation mojo. This gradually happened at Cisco, and by 2011 Cisco had dropped out of the top 100. Cisco’s leaders now see a need to reignite innovation—and they are taking action. But can they do it? Have any established companies successfully done it?

Our 10-year study (see about the research) of the 526 public companies that are eligible for the Forbes “Most Innovative Company” list (ranked using the research behind The Innovator’s DNA and more recently with The Innovator’s Method—explained in more depth at learn.theinnovatorsmethod.com) shows that it is rare for companies to reignite their innovation capabilities—but it can be done. Less than 50 companies successfully increased their innovation premium (IP) by more than 20 IP percentage points, but Regeneron, Hindustan Unilever, Regeneron, Modelez (Kraft), Godrej and Boyce, Marriott, and even AT&T, were among the companies that did. As we examined what they were doing differently, we discovered that each had made a major push to introduce a new set of management principles into the company. These were management principles frequently seen in start-ups—such as “design thinking” techniques to deeply understand customer needs and “lean start-up” techniques to rapidly experiment with solutions. These were the same techniques we’d seen used by companies on our “innovation stars” list, including Amazon and Salesforce.com. These companies have maintained an innovation premium above 40 percent and have done a remarkable job of institutionalizing the entrepreneurial management principles on which they were founded. Start-ups are fertile ground for these techniques because they are always trying to create a customer, not sustain a customer, and figuring out how to create a customer is always characterized by high uncertainty. That’s why design thinking, lean-start-up and agile software techniques are so often used in start-ups: because they are designed to solve high uncertainty problems.

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