American business leaders have a perception problem about how innovative we really are. Harsher critics might call it denial.
Recently, Forbes ran an eye-opening article on American competitiveness that is must-reading for every CEO and front line marketer in business today. It is a detailed assessment of a Harvard Business Review study that explores the causes behind lagging growth in business and job creation in the U.S. over the past decade.
Two findings from the study point to startling disconnects between business leaders’ perceptions and reality. While businesses are not competing globally:
- Leaders rate management as both strong and improving
- Leaders rate innovation and entrepreneurship as strong and improving
What do leaders think are the reasons we don’t compete or innovate as we should?
The most common problems business leaders cite are government regulatory policies, tax and fiscal policies and an inadequate talent pool. These are all factors, but the researchers identify a root cause leaders will not like hearing: short-term thinking by leadership.
You are what you measure
The study tracks how corporate governance began to change in the 1980s. In response to globalization, managers adopted a mindset focused on stock price and short-term growth and profitability. Over time, innovation came to be about achieving greater efficiencies and cost reductions more than creating value to customers.
At the same time, business schools reinforced this mindset. By defining profitability in terms of ratios to be measured across industries, they trained a generation of MBAs to measure short-term performance as the gauge for success.
As a result, business leaders define innovation as incremental process improvements rather than breakthrough product ideas. That is how they can determine they are strong innovators when their companies are not competitive.
Think like an innovator
To revive innovation in business, leaders have to change the way they think. Beyond resetting priorities to more long-term objectives, they need to start using the other side of their brain.
Singular focus on productivity and profitability metrics give a limited perspective of your business. Creative inspiration does not fall out of a spreadsheet or accounting ledger. 3M learned this the hard way. In the last decade, it applied Six Sigma principles for manufacturing to the innovation process, and severely stifled new product development.
Analysis has its place, but innovative ideas come from the side of the brain where you explore, experiment and imagine.
For many, this is a new approach to problem solving.
Research by psychologists Joy Paul Guildford and E. Paul Torrance has identified two primary thought processes we use for solving problems: convergent and divergent thinking.
In business, we are most familiar with convergent thinking which is analytical and logical. It is characterized by arriving at the one right solution. Accountants and business analysts excel at this kind of thinking.
The other, divergent thinking is flexible, intuitive and based on associations. It is characterized by arriving at multiple, unique solutions. Artists and inventors excel at divergent thinking. This is where we get innovative ideas.
Research shows remarkably few people engage in divergent thinking. This has to change starting with the C-suite.
Leaders have to lead
This shortsighted focus is nothing short of a leadership crisis. As the proverb says, “Where there is no vision, the people perish.”
To bring about a revival of business growth and competitiveness, leaders must make a dramatic shift away from the short-term vision that has dominated the past 20 years. Awareness of the problem is the first step. But leaders must lead change.
The starting point is a renewed vision for serving customers, workers and shareholders. That means putting the wellbeing of the business ahead of their short-term rewards. Leaders must challenge the status quo of compensation that drives their behavior.
The Forbes article provides a stark account of this situation:
In his book, Fixing the Game, Roger Martin notes that between 1960 and 1980, CEO compensation per dollar of net income earned for the 365 biggest publicly traded American companies fell by 33 percent. CEOs earned more for their shareholders for steadily less compensation. By contrast, in the decade from 1980 to 1990, CEO compensation per dollar of net earnings produced doubled. From 1990 to 2000 it quadrupled.
With incentives based on short term value and stock price, executives earned more while shareholders earned less and companies innovated less. Leaders have to turn this around. They have to start thinking – and leading differently.
We need from them a new vision of success and innovation, and how to achieve it.
Without it, the people – workers, shareholders and society at large – as well as the economy will perish.