Some examples of innovative companies.

Consider three successful innovative companies: Hewlett-Packard (H-P), Johnson & Johnson (J&J) and Asea Brown Boveri (ABB). Each of these has been able to compete in mature market segments through incremental innovation and in emerging markets and technologies through discontinuous innovation. H-P went from an instrument company to a minicomputer firm to a personal computer and network company. J&J moved from consumer products to pharmaceuticals. ABB transformed itself from a slow heavy-engineering company based primarily in Sweden and Switzerland to an aggressive global competitor with investments in Eastern Europe and Asia.

Although these three companies combined represent hundreds of thousands of employees, each has found a way to remain small by emphasizing autonomous business groups. Take for example ABB, the U.K. giant of 60 businesses, 6000 profit centers in 1300 operating companies, and $30 billion annual revenue. ABB's success can be attributed to a great extent to its management style, symbolized by the 30-30-30-10 rule, which ABB's leadership applies to existing and acquired businesses. The rule provides that 30% of employees are kept at top management, 30% at middle management, 30%on the frontline management and 10% are laid off. The point is to push down as many managers as possible and thus to push decision making further down to where there’s actual contact with the market, and hence innovation, occurs. At ABB, frontline managers are now entrepreneurs driving a bottom up process; middle managers are coaches, leveragers, and developers of the organization; and top managers are institution builders and creators of the organization's values and purpose.

Similarly, J&J has more than 200 separate operating companies that scramble relentlessly for new products and markets. The logic is to keep units small so employees feel a sense of ownership and are encouraged to take responsibility for their own results. This encourages a culture of autonomy and risk-taking that couldn’t exist in a large, centralized organization. These kind of companies retain the benefits of size, especially in marketing and manufacturing. Size is used to leverage economies of scale, not to slow the organization down. H-P, for example, used its relationships with retailers developed from its printer business to market and distribute its personal computer line.

These firms accomplish this without the top-heavy staffs found at other firms. Some years ago, H-P set up an internal Work Innovation Network (WIN) for its managers. Participants met three times a year for 2 - 3 days at a site that was currently involved in some kind of significant innovation. Each meeting was organized by a planning team of WIN members. Short presentations focused on areas of current interest, with long breaks in between so the participants could create their own connections for learning. This “white space” turned out to be where most of the learning took place. People subsequently formed “Neighborhoods” around topics of mutual interest and later “Cyberhoods” where they worked together to help each other develop and deploy innovative ideas.

“In the modern world of business, it is useless to be a creative original thinker unless you can also sell what you create. Management can’t be expected to recognize a good idea unless it’s presented to them by a good salesman.” - David Ogilvy

The bottom line of these examples is that innovative organizations promote variation in products and technologies by decentralizing and encouraging individual autonomy and accountability. They select winners in markets and technologies by staying close to their customers, by being quick to respond to market signals, and by having clear mechanisms to kill products and projects. Finally, products and managers are retained by the market, not by a hierarchical staff who are removed from real customers.