CEOs, Innovation and Growth

CEOs, Innovation and GrowthI’ve been surprised at low little discussion a new report from the Conference Board has generated among innovators. The CEO Challenge, while not specifically a survey on innovation per se, tells us a lot about what CEOs are thinking and how they rank priorities.

In the survey CEOs were offered 10 priorities that they were asked to rank. Growth, unsurprisingly, ranked number 1 basically across the board. According to a Wall Street Journal article, after growth, there was a significant divergence based on the industry. Some heavily regulated industries ranked government regulation as next most important, while manufacturing and firms not in financial services ranked innovation as the second most important priority. Financial services firms alone tended to rank innovation near the bottom. The WSJ suggests that that result is probably the outcome of increased federal scrutiny after the sub-prime mortgage meltdown, the issues with credit card interest rates and other financial industry issues that are attracting attention in Washington.

A quote that jumped out at me from the Wall Street Journal’s reporting seemed especially important:

“CEOs tend to balance talent, efficiency and innovation as their main strategies to drive growth but during crises, cost cutting can drown out the other two said Stanford University professor Robert Sutton. I’m getting the sense that CEOs have squeezed out [all] the efficiency that they can and now have to move to innovation and talent to grow he said. Talent wars between high-tech companies have heated up.”

On the Conference Board site for the report, the top priorities are listed in ranked order, with growth ranked first, weighted almost twice as important as the next three priorities: talent, cost optimization and innovation. Interestingly, all three of the latter priorities have almost exactly the same weight. Taking financial services out of the equation, innovation is a clear second priority.

But what’s interesting about these priorities is that some are outcomes and some are inputs. Business growth is an outcome, achieved when good people (talent) create compelling products (innovation) that customers want. Business growth is driven by new products, new services and new business models driven by innovation. It is difficult to have organic growth without innovation, so innovation is a clear ingredient to business growth.

But it’s also hard to have business growth without good talent, and good talent is attracted to growing companies that have compelling products, interesting visions, the opportunity for growth for the individual. All of these factors happen when innovation is present, and are often missing when innovation is missing from a firm’s agenda. Talent is fungible and will flow to the organizations that have the most compelling ideas and opportunities to convert ideas into new products and services. Innovation is a key ingredient to attracting and retaining good talent.

Of the four stated priorities, only cost optimization stands alone. Cost optimization doesn’t drive business growth, and it often inhibits innovation. Talent isn’t attracted to firms that consistently focus on cost optimization, and cost optimization doesn’t grow new talent or many new ideas. Cost optimization is an expedient way to sustain profits without growth, but only in the short run. One could argue, in fact, that cost optimization is the antithesis of business growth, and the mere fact it shows up so prominently in the priorities of the CEOs is a reflection of the economic environment they face, rather than a long term stated objective.

The Takeaway: Get innovation right and you’ll drive business growth. Get innovation right and you’ll attract and retain the best talent. Innovation is the petri dish that will create the outcomes CEOs want.

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Jeffrey PhillipsJeffrey Phillips is a senior leader at OVO Innovation. OVO works with large distributed organizations to build innovation teams, processes and capabilities. Jeffrey is the author of “Make us more Innovative”, and

Jeffrey Phillips




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No Comments

  1. Thaís Pitaluga on May 5, 2011 at 8:36 am

    Very good text. This part is essential: Business growth is an outcome, achieved when good people (talent) create compelling products (innovation) that customers want! I just graduated and now I’m preparing myself to be an entrepeneur, and INOVATION is my focus!

  2. Robert Mazerolle on May 6, 2011 at 11:48 am

    There is a problem of definitions. This- from my personal experience in disseminating innovation and competitive advantage training for over 15 years: (I lead the marketing at Intervista-Institute- an executive leaning firm).

    My mid management and senior exec customers tell me all kinds of crazy ideas as to what constitutes innovation. Finance guys think it is a hetero unknown compound of 2 or more financial instruments. Product managers think it is a new package. Business guys think it is a new or different (or a competitor’s) business model. And manufacturing people think it is all about cost cutting, or incremental improvement. And so many pundits drone on about ideation (as if it is lacking in some kind of generalized way) without ever going beyond.

    All that is well and good, but builds no sustainable competitive advantage.

    At Intervista- we have developed an executive e-learning program (shameless plug here) that tries to set the semantics straight. Innovation- at it’s core- must be likened to a learning process- ergo leading an innovation initiative is like leading a learning mission and building a learning organization.

    Unfortunately- conference board did not observe that training and organizational learning efforts are in a major dis-investment phase (partly due to the general devaluation of information overall). This dis-investment is sabotaging innovation efforts at the worst possible time in our national economic history. Without a major thrust in organizational learning- CEOs are doomed to re-invent their organizations exactly the same way they are now. Hiring ‘new talent’ and injecting those individuals into the same infrastructure and corporate culture will yield little. Changing the culture, however, should be the CEOs main mandate- and the major tool in the box ought to be – seeking out the best training! After all- wielding capital, relocating premises, acquiring competitors or partners- all this only adapts you to the 20 th century. To actually breakthrough and establish a moat in the 21 st Century- you (as an organization) must be able to see things differently. What has the power to change the way you or your team sees things? I can only think of learning. That is why we ‘do what we do’ – here at Intervista. But, man- it’s a tough sell!.

  3. Rafael Favereau on May 6, 2011 at 1:59 pm

    Simply EXCELLENT!

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