How Managerial Leadership Drives Innovation

Author Gary P. Pisano
Author Gary P. Pisano

Over his three-decade career, Gary P. Pisano has been a researcher and consultant to many of the world’s largest corporations in various industries from aerospace to nutrition. He is a Harry E. Figgie professor of business administration at Harvard Business School where he has been a member of the faculty since 1988. Pisano’s extensive experience has made him one of the leading experts in management, innovation and competitive strategy. In his new book, “Creative Construction: The DNA of Sustained Innovation,” Pisano examines how businesses of all sizes, not just plucky startups, can become transformative innovators. Workforce Editorial Associate Bethany Tomasian recently caught up with Pisano.

Workforce: When did you recognize the need for leadership-oriented innovation strategies?

Gary P. Pisano: I think it goes back very early in my career working with companies, consulting for them and case writing. I saw that without the right leadership to shape the innovation process, getting the strategy and building the right culture just doesn’t happen. I kept coming across situations with some organizations where you wouldn’t see progress over time. There was no one really taking the ball and running with it to provide that energy. Where there was lack of leadership, I would see there was a lack of progress.

Then there were companies where I would see a leader take ownership and you’d see results. So that crystalized for me that leadership plays a central role in driving innovation. I set out to write the book to give leaders a guide in how to do it.

Workforce: What is the relationship between necessity and competition as driving forces for innovation?

Pisano: I think competition is critical for driving innovation. It provides the motive. I don’t think we see a lot of innovation in sectors of the economy where there is little competition because of there is a lack of incentive. If you look at any of these companies such as Amazon, Apple and Google, there’s a lot of competition going on there between these very techy companies. They’re always changing and they can’t sit still. Competition plays an incredibly important role in spawning innovation and spawning a lot of a good economic outcomes. I’m speaking here as someone trained in economics, so I tend to feel in favor of competition to drive good outcomes in general. Competition does a lot more than innovation, too. It drives better prices and efficiency.

I think competition is one of the reasons companies get interested in innovating, particularly companies whose competitive space has suddenly gotten more intense. They might have had a period where they could get away with not being very innovative and then their space starts to change. That’s when they say, “OK, we need to reenergize this innovation muscle again.”

I’ve worked at a number of those companies where it has been some 20 to 30 years since they’ve been innovative and they got away with it because their markets were only moderately competitive. When the competition kicked up and prices began to erode, they saw they couldn’t generate the margins they needed to sustain themselves without innovation.

Workforce: In an era of nearly exponential technological growth, what defines innovation?

Pisano: We do think about innovation too much as being about the technology change but it’s not always technology. There is a lot of business model change that has very little to do with technology. Technology is not the magic; the magic is their business model.

Think about discount airline carriers, somebody like Ryanair and easyJet in Europe. They all use the same planes and airports as everyone else and they have to follow the same regulations as everyone else. Yet, the story there isn’t about technology; it’s about creating a completely new business model. I think we see a lot of that. There is a lot of business model innovation that doesn’t necessarily have to do with high technology.

Workforce: How can companies stay focused on small-scale innovation rather than becoming distracted by whiz-bang innovative strategies?

Pisano: I think it’s very easy to get inebriated by technology today. To some, it’s all about the technology and pushing the technological frontier. I think you have to go back to letting value become your compass and go back to what your competitive position is. This can help you figure out what you need and what is going to drive innovation. Sometimes that is going to be functionality that is created by technology but sometimes it could be a different kind of service offering, or business model.

Take men’s shaving products. Making a razor blade sharper using ever more sophisticated technology is probably not the value driver, but convenience is something different. Think about companies like Dollar Shave Club and Harry’s, which have online models that provide convenient access to the product. This goes back to the source of value and what customers would be willing to pay for. That’s the acid test of value.

Workforce: Are there examples of established companies that are leading in innovative strategies?

Pisano: I think there are many of them across all sectors of the economy in different ways. Innovation is in almost every sector. You see it in apparel with people buying clothing online. The whole retail sector is being turned on its head, so we see a lot of innovation there as well. If you are going to survive you need to innovate.

There is a lot interesting stuff in the auto industry today. People talk about the auto companies as being dinosaurs, but they are doing a lot of innovation on the technological side. They are doing a lot of advancement around alternative fuel and most of them have some major programs there. They are also experimenting with new business models such as ride sharing. Sometimes it’s the companies that we don’t think of as innovative. When people think of innovative auto companies everyone thinks of Tesla. There are some major auto companies that we haven’t normally thought of as these bastions of innovation that are doing fascinating things.

There are also profound changes going on technologically in the drug industry. These aren’t business model innovations per se, although many pharmaceutical companies are experimenting with new business models. There are scientific changes happening that these companies are actively involved with and investing in. It’s not just startups that are innovating, there are large, established companies.

Every company, I don’t care who you are, there is an opportunity to be an innovator. Some might say, “Innovation doesn’t apply to us. We can do what we have been doing, just do it a little better.” I don’t think that there are many sectors of the economy where that is true anymore. Particularly in the U.S. economy, where we are facing global competition. That’s going to be hard to compete on.

Workforce: As climate change remains an ever-encroaching threat to the environment, how can more companies gear strategies toward greener innovations?

Pisano: I think companies are looking very carefully at their incentives to do it. This is where government policy matters because policies often create the incentive for companies to innovate. Tax policies and other regulations can tilt the field, so you will see that kind of innovation. A lot of companies are waiting and watching. Auto companies certainly see themselves on the forefront of green innovation as they invest heavily in alternative fuel sources. I think that there are a lot of things that every company can do in terms of climate concern.

Think about plastic. Plastic is atrocious for the environment and it’s all over the place. Just thinking about changing materials doesn’t require massive innovation. You can see how much waste there is every day, especially in packaging. A lot of the stuff you buy online that is shipped to your house is loaded with plastic and Styrofoam. None of us want our stuff to be broken but there is an awful amount of waste just in packaging. We don’t think of packaging as this big innovation opportunity but figuring out ways to cushion items without using so much plastic would be amazing.

I think regardless of what business you’re in, you could be thinking about fitting green innovation into your business model. This can be done by just improving efficiency. Even incremental improvements in process efficiency, where you use less energy, can accumulate quite a big effect.

Again, we can see this in the auto industry where cars have become more efficient. We now have smaller cars with much cleaner and more powerful engines. That innovation was largely driven by change in fuel and clean air standards. This is an example of how government policy matters when it comes to driving the incentive for companies to pursue climate-conscious innovation.

There are tons of opportunities for innovation that help the climate. I do think companies need polices that provide those incentives. I would tell companies to have a clear strategy of how you are adding climate change as a priority into your innovation portfolio. Ask yourself how this is going to create value and think about your broader competitive advantage.

Workforce: Any final takeaways for companies that are thinking about approaching innovation?

Pisano: Take your time. There is no magic bullet for these kinds of strategies. I wish I could offer you three easy steps but if innovation were easy then it wouldn’t be a source of competitive advantage. If it were easy, then it wouldn’t be valuable.

It is hard to build an organization that is capable of innovating and doing it over and over again. If you can do that, then your organization has a fantastic competitive advantage.

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