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How to Convince Your Company’s CEO to Invest in Innovation

Skot Carruth
at Philosophie
Apr 26, 2018

Innovation doesn't just happen; it must be accounted for in a corporate budget.

CEOs who truly invest in innovation aren’t just rare; they’re often self-sacrificing. How did investors reward General Electric’s former CEO, Jeff Immelt, for placing a $4 billion bet on the industrial Internet of Things, remaking GE into a model for lean, entrepreneurial management? By firing him, of course. Immelt surely knew that his shareholders wanted to see innovation; they just didn’t want to invest in it.

Proactive execs like Immelt have a long-term vision and a desire to create a culture of innovation. Given the profit pressures they face, CEOs don’t develop those things overnight.(i(

Thanks to those shareholder pressures, most CEOs settle for “innovation theater.” To discover how many CEOs dance around the innovation issue, I turned to Ryan Iyengar, ZipRecruiter’s senior director of marketing and analytics. According to Iyengar’s analysis, the first job title containing “innovation” appeared in 2002. Today, the most common title containing the term is “chief innovation officer,” a role that grew 500 percent in prevalence between 2006 and 2015.

At many companies, then, the innovation “department” is but a shell with a figurehead. And most CEOs, boards, and investors are content for it to stay that way.

Capitalize on Crisis

Shareholders’ and executives’ myopic view of the balance sheet is an unfortunate reality of for-profit companies. It’s also, however, a sound starting point for those trying to persuade their chief executive to invest in innovation. 

What can make a big, eye-opening impact on a company’s bottom line? Externally, it’s disruption: a technologically or structurally superior competitor that springs up.

Upstart financial companies, for example, are forcing the banking industry to change at a pace it hasn’t in decades. After being blindsided by blockchain technology, bank executives are now reckoning with an industry-changing technology.

If your company is beset by a disruptive crisis, use it as an opportunity to reason with your executive. If she suggests a copycat product, remind her that mimicking peers isn’t a strategy. When competitors launch new lines of business, you can’t know how they’re planning to support or expand them.

You can, however, counter the competitor with an investment in an “enduring source of value,” in Harvard Business School professor Michael Porter’s words. Improvements in sales support, user interface design, or hardware materials can be bulwarks now and later against encroaching companies.

Still, CEOs are experts at projecting a facade of certainty, so yours might not let on that she’s feeling the disruptive fire. If you see her vision waver — if not by copying competitors, then perhaps by expressing indecision or fear — cast your innovation initiative as a way to efficiently explore strategic options. rd.

Press on Internal Pain

If you aren’t facing imminent disruption, you might be able to sway your executive following a period of growth. Growth creates a glut of resources, enabling rapid scaling. Scaling produces process complexity, slows the pace of product development and complicates communication.

While successful founders often become nostalgic for the startup days, larger firms are notorious for their lack of efficiency and agility. When I recently visited Facebook’s Palo Alto campus, this sort of post-growth fallow was literally written on the walls in a room covered in posters that said, “Move fast and make things,” as opposed to its old motto, “Move fast and break things.”

Understandably, breaking things doesn’t appeal to shareholders after whirlwind growth. Even when an innovation could pump up profits, leaders have to manage unnecessary risk.

Instead of telling your CEO how an innovation investment could pay off, show her. Place a tiny bet. By providing fewer resources than teams are used to working with, you can break their traditional thought cycles.

If you’re a manager, assemble a three-person team to tackle an unfamiliar project. Give it a few days’ time and half the budget you’d typically provide, and stand back. Executives will be much more receptive to a larger initiative if you can prove that your bet — and the team that could do more with fewer resources — paid off.

Why would a smaller, less experienced team be better positioned to solve a problem that the current one couldn’t? The answer is shoshin, a Zen Buddhist concept that translates to “beginner’s mind.” Shoshin describes an attitude of openness and curiosity, a generalist mindset that allows someone to approach problems without self-imposed limits.

There’s no single solution to stalled innovation, but there is a single role on which the solution rests: the CEO. More often, though, they could use a kick-start from an entrepreneurial employee or manager. If you won’t lead your leader, who will?

Company boards and shareholders will tell your CEO that innovation equals risk; what they won’t tell her is that innovation never happens unless it comes from the top.

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Skot Carruth
Skot Carruth is the CEO and co-founder of Philosophie, a digital innovation firm with offices in San Francisco, Los Angeles, and New York City. It helps large organizations validate and develop their promising ideas through agile design, rapid prototyping, and software craftsmanship.