They have something else in common, too. It’s come to be assumed that leadership and innovation are universally good qualities to which all should aspire. Through high-minded training programs, reward systems, and communication efforts, companies today routinely seek to democratize innovativeness and leadership — to drive them into every nook and cranny of their organization. In one way, this phenomenon seems yet another manifestation of the peculiarly American assumption that what’s good in small doses must be great in large quantities. In another way, it appears to spring out of the shift from a manufacturing to a service economy, with the attendant weakening of traditional management hierarchies.
But is the phenomenon as salutary as it first appears? Is it really in the best interest of companies to try to turn all their employees into leaders, all their units into hotbeds of creativity? I’m not convinced. The cult of leadership seems especially, even insidiously, dangerous. Too often, it ends up promoting an insipid textbook form of leadership, a “five keys to success” pantomime. At worst, it breeds a particularly insufferable kind of despot — the boss who, like David Brent in the BBC series The Office, feels compelled to flourish his entirely imaginary “leadership qualities” in front of his beleaguered staff. The result, inevitably, is organizational cynicism.
The cult of innovation seems healthy on the face of it. In a free market, after all, innovation underpins competitive advantage, which in turn undergirds profitability. Being indistinguishable from everyone else means operating with a microthin profit margin, if not outright losses. So why not try to innovate everywhere — to let, as Chairman Mao famously put it, a thousand flowers bloom?
Here’s why not: For every thousand flowers, you get a million weeds. Innovation is by its very nature wasteful. It demands experimentation, speculative investment, and failure, all of which entail high costs and risks. Indeed, it is innovation’s intrinsic uncertainty that gives it its value. High risks and costs form the barriers to competition that give successful innovators their edge. If innovation were a sure thing, everyone would do it equally well, and its strategic value would be neutralized. It would become just another cost of doing business.
But the high costs and risks also make discretion and prudence paramount. The most successful companies know when to take a chance on innovation, but they also know when to take the less glamorous but far safer route of imitation. Although imitation is often viewed as innovation’s homely sibling, it’s every bit as central to business success. Indeed, it’s what makes innovation economically feasible.
Deliberate but Dicey
So the critical first question for any would-be innovator should not be How? but Where? Deciding where to innovate — and where not to — is fundamentally a strategic exercise, requiring a clear understanding of a company’s existing and potential sources of competitive advantage. If corporate innovation involves a deliberate but dicey attempt to create a new product or practice with commercial value, then the target should be one in which a company has an opportunity to establish a meaningful and defensible point of differentiation from its competitors. A meaningful point of differentiation is one that, to paraphrase Michael Porter, translates into either lower-cost operations or higher-value products, the two linchpins of outstanding profitability. A defensible point of differentiation is one that is resistant to rapid competitive replication. Defensible doesn’t mean permanent; competition eventually erases all differences. What’s important is to be able to sustain the differentiation long enough at least to offset the up-front costs and risks of innovation.