How Large Firms Can Get Innovation Right

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Think of a large company you admire. What kind of leadership culture do they have? And how does that affect their ability to innovate? If you went right to command-and-control leadership, you’re not alone. It’s a common approach to leading large organizations. But MIT Sloan School of Management researchers Deborah Ancona and Kate Isaacs argue that big organizations can be nimble if they have three types of leaders in the mix: entrepreneurial, enabling, and architecting.

In this episode, you’ll learn how these organizations continually develop new talent by empowering employees to lead in their area of expertise and make choices about the projects to which they contribute. You’ll also learn how some companies have created structures that support leaders and their teams, as they transition from hierarchical leadership to more autonomous ways of working. This episode originally aired on HBR IdeaCast in July 2019. Here it is.

CURT NICKISCH: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Curt Nickisch.

Command-and-control has lost its mojo. Nowadays, if you want to create an innovative organization, no one would tell you to build a rigid bureaucracy.

But what should you build? How can you have creativity without chaos?

That’s a question that realty grabbed our guests today. The wanted a clearer picture of the ideal company – and so they went out and looked at two organizations: PARC – that’s the R&D division of Xerox. And W.L. Gore & Associates – that’s the materials science company best known for Gore-Tex.

And what they found was that three different kinds of leaders at these organizations work in conjunction – flexibly – within a set of prescribed rules. Let’s call this nimble leadership, because that’s also the title of their HBR article.

Ours guests are Deborah Ancona. She is a professor at MIT Sloan School of Management and she founded the MIT Leadership Center. And Kate Isaacs. She’s a research fellow there. Along with their colleague Elaine Backman, they wrote the article that’s out now in the July-August 2019 issue.

Deborah, thanks for coming on the show.

DEBORAH ANCONA: Delighted to be here.

CURT NICKISCH: And Kate, thanks for being here.

KATE ISAACS: A pleasure.

CURT NICKISCH: Why did you choose these two companies?

DEBORAH ANCONA: We chose these two companies because we were very, very interested in this idea of what we used to call distributed leadership. Now we’re calling it nimble leaderships. So, we wanted to look at companies that were at the forefront of leading innovation and having entrepreneurial behavior inside of them, but that did not do so with a lot of bureaucracy and a lot of rules. They were also not startups. They were organizations who had been around for a long period of time.

So, they were a proven concept, if you will, of an organization that could continuously adapt to a changing environment, continue at high levels of innovation over time, continue to have employees who are very engaged and excited about the work that we were doing and so, they were kind of the prototypes of this kind of organization.

CURT NICKISCH: Do you feel right away that you’re in a different, that you’re in a different sort of company when you visit these places?

DEBORAH ANCONA: Absolutely. I do a lot of interviews with employees in many, many different kinds of organizations and some of those interviews are fairly scary. People are very disengaged from their work. They don’t like coming to work. We had some interviews where people were actually crying.

And it’s a completely different experience to go back every couple of months, let’s say, to Gore, and people are so excited. We just invented this. This is a new thing that we’re looking on. We just created a new idea of a business model that will reshape the way that the organization operates. There was a lot of energy, a lot of excitement and just movement all the time without being frenzied. So, people were doing a lot and yet they were very satisfied with what they were doing.

CURT NICKISCH: If you hear about a company like that, where people can be creative without it being chaotic, some people would think well, there’s a CEO who really knows what they’re doing. What did you find in your research? What do you think is the secret sauce of Gore and this sort of company?

KATE ISAACS: Well, at Gore there are certainly leaders. There’s a CEO. But it’s the culture that really embodies the principles that keep it running like it does. And the individual leadership, the culture of the place and the structures they have, that’s what makes the whole system work. And the principles that make it operate that way have been there since the beginning and have been refined over time.

CURT NICKISCH: One thing that struck me reading this article is that you said that a high proportion of people at these firms describe themselves as leaders. This is that distributed leadership idea. Why do you think nimble leadership is a better way to describe what’s happening here?

KATE ISAACS: I have always disliked the term distributed leadership in the sense that it makes me think of if you have a glass of water and you put a drop of red food coloring in, everything turns slightly pink. To me, distributed evokes this idea of everything diluted a bit. That’s not what we mean by distributed.

What we mean is that in these sorts of organizations, everyone truly feels that they are empowered and they do step up and lead in their domain of expertise and they even step out of their domain of expertise and stretch into new areas of experience, and they’re supported in doing so. And so, there’s a constant developmental process going on at these organizations that’s supported by the culture and by their peers, and by other sponsors of their development.

So, when we use the term nimble, we mean that the leadership itself is appropriate for whatever needs to happen in the moment inside the organization and the organization as a whole is able to quickly adapt to changing market conditions, what they’re sensing from what their customers want. If a customer is unhappy, they’re able to quickly respond to that because everyone’s really empowered to step up and do what’s needed to execute according to their strategy and what their customers need and want.

CURT NICKISCH: Yeah. It sounded like just about everybody there thinks, or is really in tune with the company strategy. There’s none of this that’s above your paygrade thinking. We’ll take it from here.

DEBORAH ANCONA: Yes, and the strategy is not just some esoteric set of terms that people have learned. It is really in depth: here are the kinds of products we make. This is how we make money. It’s amazing to me when you go to other organizations and they’re working on projects, they don’t necessarily even think about whether it’s going to win in the marketplace. Whereas, in these organizations, you have people who really understand what the business model is and how the organization can be successful with the inputs that they are creating.

KATE ISAACS: And it’s broken down into pieces that people can understand in their domain, wherever they’re working in the organization. So, for instance at Gore, there is a simple rule called fit for use. Meaning whatever you do, whatever product you’re creating, has to be fit for the use that you’re intending it. They don’t want to send a cable up into space that’s going to fail. They don’t want to send somebody to the top of Mt. Everest with a jacket that’s going to leak.

So, that drives the extensive testing and constant attention to quality and constant communication with customers about how the product’s actually performing in the field. It’s a simple rule that’s true at the organizational strategy level, but also at the product development level. And these simple rules knit together the high-level strategy with what people are doing on the ground everywhere and throughout the organization.

CURT NICKISCH: I want to talk a little bit about, that your different classifications of leaders. Because you sound a little bit, almost like biologists who went into, to study an ecosystem or an environment –

KATE ISAACS: I am actually trained in biology and ecology originally.

CURT NICKISCH: Oh, really?

KATE ISAACS: Yeah.

CURT NICKISCH: Yeah. So, yeah you almost came up with taxonomy then for different types of leaders, at different levels of the organization. Entrepreneurial leaders at the lower levels, at project levels; enabling leaders a little higher up and then architecting leaders above that. So, maybe let’s just go through those three different classifications and talk about what traits are required and really cultivated by this system that you studied.

DEBORAH ANCONA: Well, the entrepreneurial leaders, these are the folks that are kind of creating that frothy, bubble up innovation for the organization and they do so because they’re constantly coming up with new product ideas, with new business models, with new ways of organizing in the firm. It can be trying to entice others to follow them, to come and work with them on a particular idea. So, they’re the ones that create teams and those teams bring new ideas through the organization. So, it’s not just coming up with an idea, but it’s also seizing the opportunity and moving it through the organization.

CURT NICKISCH: The other thing that was striking about this level is that there’s a lot of freedom for people to leave projects and join other ones.

DEBORAH ANCONA: Well, so what that does is create a kind of prediction market in the organization because people are free to go and join a product that they think is a better bet for success in the environment. And so, people themselves are orchestrating what the next projects will be just by voting with their feet, as to which projects they join. So, I just want to say managers beware. If, because it’s not the managers sitting in a room making these decisions, it’s in some sense its people choosing with their feet what projects will be the best.

KATE ISAACS: This also puts demands on the leaders of project teams to be willing to let talented people move around to other teams instead of trying to hoard talent. And by and large we found that managers knew that OK, over there is a really cool project that has a lot of potential for the organization and gee, I’d really rather keep this person on my team because they’re very talented, but I know that they’d be able to contribute a lot over here and they want to contribute a lot over there. So, far be it for me to keep them here against their wishes and against the greater organizational good. So, they were constantly paying attention to what would be best for the whole organization and what would be best for the individual.

CURT NICKISCH: Deborah, you just said “managers beware”. And this is exactly the point where people are afraid of losing control?

DEBORAH ANCONA: Well, I do a lot of executive education and almost every company we see is wanting to make this move from bureaucracy, commanding control to more nimble distributed learning network, whatever word you want to use, kind of organization.

This is in keeping with a lot of research being done now that executives feel like there are going to be major changes in their industries and in their environment in the coming three years – 76 percent of people, of executives believe this compared to 26 last year. So, the sense that there’s a speed up of change in the environment is going to require a different kind of organization.

But with that comes incredible anxiety and actually inertia in making the move because of this fear of I don’t know what to do. I don’t know how to create this system. It’s going to mean that I lose my power as an executive who is seen to be in charge of this organization. What’s going to happen if I let go of the reins, is a big fear that we see in these executives. So, it’s scary.

CURT NICKISCH: At the enabling level you describe enabling leaders that direct, manage resources – that sounds very kind of middle management. What makes that different?

DEBORAH ANCONA: Well, the enabling leader is helping the entrepreneurial leaders. So, because often the entrepreneurial leaders are a bit less experienced, they aren’t always able to do everything that needs to be done, enabling leaders come in to help them. Not by ordering them, not by saying do this, but by guiding and asking questions and that’s a very different approach to leadership.

CURT NICKISCH: The questions are more like, which way do you think you should go, or where do you think the opportunity is, or have you thought about talking to this person in this other department, or that kind of stuff?

DEBORAH ANCONA: Absolutely. And so, it’s not “do this,” or “do that”. It’s “have you thought about this?” Or, “have you thought about that?” It’s much more open-ended approach that helps people to develop their own independent way of thinking through a problem. Their jobs are not rigidly specified.

So, we often depict organizations as little boxes and the people inhabit a box that says you can do this, or you can do this, this and this, but not something else. Whereas enabling leaders are more fluid. They help in whatever way is needed. So, if they need to reinforce something about the culture, they can reinforce something about the culture. If they have to be more of an explainer of the organizational strategy, they can do that. If they have to sort of roll up their sleeves and help out with what the team is doing, they can do that.

So, it’s a very flexible, moving, emergent kind of relationship rather than “I have to do this, this, this, this and this.” There’re also connectors. Very often the enabling leaders have broad networks and they travel, they know lots and lots of different people. So, they’re connecting the team, the entrepreneurial leaders and those teams to others in the organization to create what we call creative collisions. Collisions with other forms of expertise that help innovation to grow.

KATE ISAACS: I would add to that: so, if you can imagine the traditional hierarchy has the folks at the top and the senior leadership and then you’ve got middle management which is like a layer of clay through which all the resources and the approvals and everything has to come up and down to the people who are doing the real work on the ground.

CURT NICKISCH: I’ve heard of somebody at an organization describing that layer as permafrost.

KATE ISAACS: Permafrost. Beautiful. I love it. And so, yeah, you see you get stuck at that layer of permafrost and if you do drill through finally and get your message to senior management, then maybe your initiative and bright idea will get some play at some point. But by the time you get some budget, some attention, the moment may have passed, and your competitor has already moved.

So, we chose the name enabling leaders very specifically because as Deborah was describing, it’s their job to make sure that the people who are on the frontline have what they need to move forward with their ideas, to respond to customer concerns and problems and manufacturing issues. So, really they are enabling the work of the frontline to happen. And it’s not their job to restrict anything. It’s their job to make sure that that flow of resources, of attention, of coaching, of networking, of the connections, that those frontline leaders need, happens.

CURT NICKISCH: Let’s talk about the architecting leaders, which other places would call senior leaders, right? Or, executive suite. What makes these leaders special and different?

DEBORAH ANCONA: First and foremost, the architecting leaders are creating the game board. And by game board, we mean the structures and culture necessary for the entrepreneurial leaders to be able to create and follow through on their ideas and for the enabling leaders to be able to do their jobs.

So, the architecting leaders are creating the game board that facilitates those other leaders doing the jobs that they have to do. They’re the keepers of the culture. They are very, very mindful of what the values of the organization are and what the rules of engagement are.

Ironically, the architecting leaders are the ones who are architecting change and yet, they’re in an organization where they’re not dictating because that’s not how these organizations are run. So, before they’re able to make change, first of all they have to have a reputation for being a great leader and caring about the company.

Second, they do a huge amount of consultation with members of the community to make sure that they understand why this change is necessary and why it’s a good idea. They have to listen to people who don’t agree with the change and respond to that. And actually, one funny example was that the CEO of the company was so nervous about making a change from on high that it was taking a very long time and people in the organization were complaining, OK, enough already. Just rip the Band-Aid off and let’s get to it, because of that process that’s necessary.

KATE ISAACS: One of their functions is to, I would say, knit together the emergent product ideas and new innovative ideas into a coherent organizational strategy. And the architecting leaders have to be good “sense makers” to use a term that Deborah has been developing for a long time, in that the people who are at a more senior level have their eye on global trends, market trends, technological trends, they’re talking with other senior leaders, economic trends.

These aren’t things that maybe everybody in the organization are paying attention to, and so they’re taking all of that information about what the competition is doing, et cetera. That information resides in their heads and then they’re watching all the innovative ideas that are bubbling up throughout the organization and they’re knitting all that together into an, it’s really an emergent, strategic process.

CURT NICKISCH: So, it can sound loosey-goosey to some people, but there’s a lot of discipline in the way things are structured.

KATE ISAACS: Yeah, there is a lot of discipline. However, it’s a different kind of discipline than the top people deciding. It’s much more collective. It’s much more inculcated in people’s view of the strategic and culturally appropriate moves to make inside these organizations. And, also because people have such high degrees of autonomy, good talent sticks to good ideas. If you don’t have a good idea, chances are talent isn’t going to stick to it.

So, we’ve talked about this idea of prediction markets. So, if you’ve got a good idea, that’s going to attract talent like a snowball is. It goes along through the organization and as you continue to talk about it, if you’re a champion of a project, and it’s a good idea, people will flock to it and talent will stick to it. If it’s a bad idea, you’re not going to be able to attract the kind of talent that you need to move it forward in the organization because eventually people are going to see that eh, it’s not going to work for one reason or another. So, that’s another way that this control happens through the process of does talent stick to it or not? Do people make autonomous choices to sign on to what you’re selling, or not?

CURT NICKISCH: Yeah. That’s really interesting. That helps me understand this a little bit better in the sense that these architecting leaders and leaders at these nimble organizations are, instead of being the ones who decide what the market forces are and then try to come up with commands to respond to that, they’re essentially letting the market forces work throughout the organization.

KATE ISAACS: Yes. That’s the difference.

DEBORAH ANCONA: This organization is not for the faint of heart. It’s complicated. It’s complex. One of the things that I’ve done though to help people navigate the change in this direction is I’ve created this little card exercise. So, there are 21 cards and there’s one attribute of a nimble organization on every card and I ask people, OK, pick the cards. What do you have now in your organization? Two, what do you wish you had and three, of the things you wish you had, what are the top three things that you can do right now to get change started?

And results of that have been really fun. Sometimes people in an organization agree on what they have. Sometimes they don’t. People from Google think they have everything, although not everything is as strong as they’d like it to be. Other people think they have nothing and none of those attributes are there, but it is a way of getting people think about what does this whole system look like and how can we start with small steps to make the changes needed to move in a new direction?

CURT NICKISCH: Can this work anywhere? Can this work in B to C, B to B companies? Can this work in all industries? I just wonder, if nimble leadership is possible anywhere? You clearly think it should be, I mean I’m guessing you think it should be more places than these handful of companies that we’re talking about, but how far can we bring this?

KATE ISAACS: Well, there are a number of organizations that are experimenting with this way of working. There’s a bank in, a Dutch bank called ING Bank. Very successful bank. It’s winning awards, quite profitable. They’ve shifted to quote, an agile way of working, which looks very similar to what we’ve described in our piece. They reorganized themselves into 350 nine person interdisciplinary teams and they’ve got mechanisms to make the connections across those teams and the leaders there say, “yeah, I was kind of a control freak and I’m finding this way of working is challenging me, because I have to let go and give people more autonomy.”

But the reports from this particular bank anyway is that it’s a lot more fun to work there. They’re much faster at solving customer problems. It’s a bank. They’re dealing in mortgage securities and things like that. So, if a bank can do it, it’s probably transferrable to a lot of other industries beyond the product innovation space.

DEBORAH ANCONA: We also, in the article, talk about Satya Nadella and the change at Microsoft. That’s a company of 125,000 people and it is an example where you don’t have to take on the entire system that we’re talking about, but there are ways to move your organization in that direction.

So, Satya Nadella actually did somewhat of a turnaround at Microsoft. He came in, in 2014, and the organization was kind of a hierarchy and pecking order where different groups were at each other all the time and that was stifling collaboration and creativity, and innovation. And in his mind, this was not how the organization was going to grow and develop. And so, he came in with some of the very similar kinds of steps that we saw in the companies that we’ve been describing.

So, new game board. New senior leadership team. They got rid of a stack ranking, performance management system, instead moved toward more of a coaching and developing approach like you would find at Gore, or at PARC.

CURT NICKISCH: It also gave more authority to managers below to change compensation and a lot of those things that had been more centralized.

DEBORAH ANCONA: Absolutely. So, they were giving people more freedom to do the things they needed to do to keep that innovation flowing. They also refocused the culture on something called the growth mindset that’s built off the research of Carol Dweck. She’s a psychologist at Stanford, with the idea that people are not fixed in what they can learn and how they can develop, rather they can grow. They can always learn more. They can pick themselves up from failure and say, what can I learn from this and how can I do it better the next time, as opposed to stopping right there.

There’s not a culture of blame, it’s a culture of how do we do it better? How can we innovate next time? And so, Satya Nadella has really worked very hard to inculcate that notion of a growth mindset within the entire company. So, he’s made a number of steps that bring this closer to the model that we’ve identified.

CURT NICKISCH: So, if it can happen at a bank, and if it can happen at Microsoft, it could probably happen at a lot of the companies that our listeners are working at. Deborah and Kate, thanks so much for coming onto the show and talking about nimble leadership.

DEBORAH ANCONA: Thank you.

KATE ISAACS: Thank you so much.

HANNAH BATES: You just heard MIT Sloan School of Management researchers Deborah Ancona and Kate Isaacs in conversation with Curt Nickisch on HBR IdeaCast.

We’ll be back next Wednesday with another hand-picked conversation about leadership from the Harvard Business Review. If you found this episode helpful, share it with your friends and colleagues, and follow our show on Apple Podcasts, Spotify, or wherever you get your podcasts. While you’re there, be sure to leave us a review.

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This episode was produced by Mary Dooe, Anne Saini, and me, Hannah Bates. Ian Fox is our editor. Music by Coma Media. Special thanks to Rob Eckhardt, Maureen Hoch, Erica Truxler, Ramsey Khabbaz, Nicole Smith, Anne Bartholomew, and you – our listener. See you next week.