Creative Construction: The DNA of Sustained Innovation

Innovation is a hot topic. And the dominant narrative today holds that innovation comes from lean, hungry startups, not from corporate giants that have become sluggish, risk-averse copiers. The entrepreneur Sam Hogg speaks for most when he writes, “Startups require innovative entrepreneurs, and that typically isn't in a job description for a large company. Big companies hire people when the workload demands it, not when they can come up for air and think about innovation.” Yet as Michael Lind and I write in Big is Beautiful: Debunking the Myth of Small Business (MIT Press, 2018), “this narrative, as widely touted as it is, is not true. Scholarly research shows that large corporations continue to play a leading role in innovation.”

Gary Pisano’s masterful book, Creative Construction, is therefore, a welcome addition to this debate as it is both an analysis of how many large companies are innovative and a playbook for what they can do to become even more innovative.

Pisano, a professor at Harvard Business School, has long written about innovation, both by companies and economies. His new book provides a detailed roadmap for how large organizations can become and stay innovative. As such, this book is not for everyone, although it is well written and a compelling read. But anyone involved in managing any organization, large or small, is likely to find much to appreciate in Creative Construction.

Pisano starts off by describing the conventional thinking that large organizations are “helpless in the wake of ‘disruptive’ innovation attacks by nimble firms.” But he points out that many of the most important innovations have come from large companies: IBM’s 360 mainframe computer, GMO crops from Monsanto, the iPhone from Apple, fiber optic cable from Corning, cloud computing from Amazon, and many more.

Pisano directly challenges the dogma that as organizations growth they lose their capacity for transformative innovation. To be sure, size brings with it an array of challenges when it comes to innovation, including bureaucratization, loss of tolerance for risk, fears of cannibalizing existing products, an overreliance on flawed financial metrics and other factors. But what is usually overlooked is that size brings with it considerable advantages (financial resources, scale, deep R&D resources, and more), that when combined with astute and thoughtful management, can help large organizations thrive through innovation.

This gets to the crux of Pisano’s message: When large organizations fail to innovate, all too often the causes have “to do with management practice and leadership than with organizational scale per se.”

To help managers understand what to do, Pisano divides up the tasks and challenges into three main areas: strategy, organizational systems and culture, and within each area devotes several chapters to a deeper dive. He argues that by “systematically creating in innovation strategy, designing and organizational system and building an innovation culture, organizations develop the capability for transformational innovation, regardless of size.”

But developing an innovation strategy is more than simply having the CEO say call for more innovation, and developing an innovation culture is more than setting up a foosball table and telling employees they can wear casual clothes on Fridays. Pisano argues that there is a discipline to all three tasks, and he articulates in detail exactly how organizations should do each of them.

Yet he points out that all too often when big organizations want to innovate they reflexively adopt the latest fad in organizational innovation: installing a chief innovation officer, instituting “design thinking,” embracing open innovation, adopting rapid prototyping, creating innovation teams, setting up internal venture funds, and more.

But as Pisano points out, while these tools can be useful, mindlessly throwing them at the wall to see what sticks is putting the cart before the horse. Organizations need to first understand what kind of innovation they need and only then decided what organizational systems are needed to get that.

Yet more often than not innovation attempts fail. Why? Pisano lays out three big challenges that have to be addressed. The first is time horizon: too many organizations look at innovation as a fad, and if it doesn’t pay off in a year or two, it is abandoned. But Pisano shows that to be successful organizations need a multi-year commitment.

Second, a focus on innovation by definition means tradeoffs. As Pisano writes “every dollar that goes into exploring a new space means one less dollar for making an important refinement to a new product.” There is no right answer to how to manage that tradeoff—in some organizations the answer will be much more spending on innovation, in others relatively less. But organizations need to understand that there is no free lunch: tough choices usually have to be made and stuck to.

Third, big organizations have gotten big developing organizational cultures that enable execution, reliability, and predictability. Without those cultural traits, there would be disarray. But those traits are not what’s needed for innovation. As Pisano writes, a new culture than enables “risk taking, creative exploration, rapid learning and experimentation, [and] comfort with ambiguity,” is needed. However, the challenge is that, “a new culture more oriented toward innovation has to be created while also preserving the culture that supports existing industries.

For those who at this point might want to throw up their hands and say, “that sounds too tough,” Pisano offers not just hope, but a deeply researched, thorough guide to how organizations can be more innovative and what top leaders need to do.

This is not to say that getting this right is a magic elixir that will save any company, no matter how threatened its market share is. As Pisano writes there was little that typewriter company Smith Corona could have done to respond to the emergence of the personal computer, regardless of how innovative it was. It’s core capacities in electro-mechanical technology could not be used to gain competitive advantage in digital technology.

To understand an organization’s opportunities Pisano lays out a helpful four-cell matrix, with the nature of the threat (distant or imminent) on one axis and relative impact of switching through innovation (erodes profitability or enhances it).

If you are in an industry where the threat is imminent and you can switch profitability, Pisano calls that A New Day Is Dawning. Case in point is Netflix: the business model of mailing DVDs was at risk, but the emergence of high-speed broadband networks gave an opening for Netflix CEO Reed Hastings to innovate through digital streaming.

But if you are in an industry where you can’t respond profitability, as Smith Corona was, he calls that “The Party is Ending,” where there is little that can be done. Industries where the threat is farther off are either in the “Dark Clouds on the Horizon” cell or the “Intriguing Possibilities” cell. For those in the latter cell, the appropriate strategy is to hedge and build an array of options for the future, while still maintaining the core business.

Pisano ends with call for “Creative Constructive Leaders.” These leaders have a number of “habits of mind” including being outward looking; embracing being different; being disciplined about tough tradeoffs; developing a systems perspective; being “talent hawks” to identify, recruit, and retain the best people; and being a culture warrior, who is obsessed with creating the right organizational culture.

In closing Pisano rightly asks, “We thrived in the twentieth century because of innovation. The question is whether we are up to the task of innovation in the current century.” If more people, especially organizational managers, read Creative Construction, the odds of the answer to this question is yes, will go up significantly.