The Innovative Leader: Step-By-Step Lessons from Top Innovators For You and Your Organization

The Innovative Leader

Praise for

The Innovative Leader

Whether you’re responsible for a big corporation with a legendary brand, or a small group that’s still creating its story, this book will ignite a spark of innovation that can transform your organization.

Chip Bergh, President and CEO, Levi Strauss & Company

How do you make innovation happen across a corporation of more than 260,000 people? You need a straightforward approach that can also adjust to quite different contexts. That’s what The Innovative Leader does.

Anish Shah, Managing Director and CEO, Mahindra Group

You had better hope your competitors don’t get this book and put its recommendations to work before you do! The Innovative Leader charts a clear path to creating the kind of system that can innovate over and over again. The book is just full of concepts and checklists that will allow you to start becoming a more effective innovator right away. It’s accurate, readable, actionable, and human. Now there is no excuse for an organization being unable to innovate—the playbook is right here!

Rita McGrath, Columbia Business School professor and best-selling author of Seeing Around Corners

The Innovative Leader does two things – 1) It tells you how you can be more innovative, and 2) it tells you how you can make your entire company a powerhouse innovator. The combination is super-powerful.

Bracken Darrell, CEO of VF Corporation and Former CEO of Logitech

Fast-paced times call for innovative leadership more than ever before, and that’s what this book delivers. Read it, learn from the people who have done it, and be the leader that these times demand.

Karim Lakhani, Harvard Business School Professor and Author of Competing in the Age of AI

Innovation isn’t some elusive pixie dust. It comes from systemic disciplines, for yourself and your teams. This book tells you what 50 innovative leaders from around the world have done to make it happen, and how you can make it happen too.

Josh Linkner, New York Times best-selling author of Disciplined Dreaming and Little Big Breakthroughs

STEPHEN WUNKER | JENNIFER LUO LAW | HARI NAIR

NEW YORK

LONDON • NASHVILLE • MELBOURNE • VANCOUVER

THE INNOVATIVE LEADER

Step-By-Step Lessons from Top Innovators For You and Your Organization

© 2024 Stephen Wunker, Jennifer Luo Law, Hari Nair

All rights reserved. No portion of this book may be reproduced, stored in a retrieval system, or transmitted in any form or by any means—electronic, mechanical, photocopy, recording, scanning, or other—except for brief quotations in critical reviews or articles, without the prior written permission of the publisher.

Published in New York, New York, by Morgan James Publishing. Morgan James is a trademark of Morgan James, LLC. www.MorganJamesPublishing.com

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Table of Contents

List of Interviewees

Introduction: What Makes Innovation Work

Section 1: The Innovative Leader

Chapter 1 Step 1: CREATE Your Leadership Style

Section 2: The ABCs of Innovative Leadership

Chapter 2 Step 2: Aspire

Chapter 3 Step 3: Build

Chapter 4 Step 4: Cultivate

Section 3: Putting the Pieces Together

Chapter 5 A Culture of Innovation

Chapter 6 Extended Case Study: ABC in Practice

The Innovative Leader Toolkit

Chapter 7 Advice for Special Roles

Chapter 8 Handbook of Innovation Activities

Chapter 9 Tools for the ABCs of Innovative Leadership

Innovation Aspiration Worksheet

Innovation Archetypes Worksheet

Top 20 Innovation Metrics

Troubleshooting Guide for Common Innovation Pitfalls

Chapter 10 Diagnostic Surveys

Audit of Your Organization’s Innovativeness

Acknowledgments

About the Authors

Endnotes

List of Interviewees

INTRODUCTION

What Makes Innovation Work

We often think of innovation as something visionaries draw out of thin air, like manna from heaven. That’s a myth. Often, and especially in contemporary times, the real story of innovation doesn’t involve lone geniuses and flashes of inspiration, but teams, organizations, and leaders who cultivate systems and cultures where new ideas can sprout and flourish.

Here’s an innovation story that’s closer to reality: It’s a story of loss, grit, and renewal. It’s about a wildly successful company that went off course. It’s also about a never-too-late approach to innovation that enabled a floundering business to launch a second golden age.

You know this company. It has more subscribers than Netflix and Amazon combined. Its profit margin is higher than Google’s. Its market cap is over two trillion dollars. Chances are you are one of a billion people that use its flagship software. We’re talking about Microsoft.

Back in the mid-2000s, Microsoft was in trouble. Not only was the US government scrutinizing it for monopolistic practices, but the company was coming under fierce attack for investing in its archrival Apple. Even more alarmingly, almost every new business it launched failed: E-books, mobile phones, search engines, music—it was one dramatic dud after another.

Inside the company, morale was at an all-time low. Long-timers and new hires alike were deeply disillusioned by a caustic culture that was quick to assign blame and pitted employee against employee. With few wins in the ledger, the best and the brightest started to leave. For Microsoft, the future looked bleak.

In stepped Satya Nadella. In 2014, when the company’s market capitalization was $380 billion, this Microsoft veteran took over as CEO. The turnaround he engineered was nothing short of remarkable. By 2019, Microsoft’s market capitalization edged past the $1 trillion dollar mark, making it the world’s most valuable company. That same year the press declared, Microsoft is cool again. By 2023, its market cap reached $2.5 trillion, and the company led the race for tech’s next big trophy—making Artificial Intelligence mainstream. How did this happen?

Troubleshooting Microsoft

Microsoft is undeniably one of the greatest transformation stories that the twenty-first century has seen so far. Few other companies in the history of technology have recovered so thoroughly after falling so hard. What precisely did Nadella do to not only steady the company but also launch it into a high-octane period of growth and innovation? He told us, Leadership means making choices and then rallying the team around those choices. Any institution-building comes from having a clear vision and culture that works to motivate progress both top-down and bottom-up.¹ Look at two of his moves to see how he made this happen:

First, innovation is simply a means to an end. Nadella understood that innovation is a tool rather than a destination. His goal was not to make Microsoft the most innovative company, but the most successful in its field. Of course, part of that entailed reestablishing the company’s reputation for cutting-edge technology. But there was much more than that. To him, Microsoft’s efforts lacked a strong mission. The company had been rolling out one product after another without any guiding rationale other than they were innovative. It was no wonder that they failed to gain traction. Innovation had become the goal, and that wasn’t enough.

Nadella changed all of that. He quickly pivoted Microsoft from being a company that sold boxed software to a global computing engine that rents out its processing power and online storage to businesses. At the time, this was a bold suggestion. Nadella proposed that Microsoft move beyond its most profitable product, Windows, in favor of chasing a cloud dream in which Amazon already had a four-year head start. Moving into services instead of hardware also meant abandoning ambitions to compete with Apple and Google in smartphones—Microsoft had already spent billions of dollars buying Nokia’s cellphone business. Naturally, there were many skeptics.

But the decision stood. A longtime executive at Microsoft described the atmosphere at the time, Suddenly, everything from Satya was ‘cloud, cloud, cloud!’ Nadella made this change in strategy clear when he announced a company-wide goal for his 115,000 employees: We will take our tiny cloud business and build it into a multibillion-dollar empire. This meant passing on many seductive whiz-bang opportunities—like autonomous vehicle hardware—and staying laser-focused on this core mission.

By 2019, Nadella started shifting his aim. The company wouldn’t just be a leader in cloud, but also in AI. That year, he championed Microsoft’s first $1 billion investment into OpenAI, the company that would shake the industry with its release of ChatGPT. In 2022, he upped the ante, investing $10 billion in OpenAI to acquire just short of a majority stake. Perhaps more significantly, he also pushed each of the company’s business units to infuse AI capabilities throughout their offerings. He wanted Microsoft to become the world’s undisputed leader in AI. Its many innovations would be undertaken with that clear objective always in mind.

As Karen Kocher, Global General Manager of Talent and Learning Experiences at Microsoft, remarked to us, To be innovative, people need to feel a purpose and a connection—they need to be inspired by what it is they are there to do. Being innovative is not aspirational enough. There needs to be a more specific goal than that.²

Second, innovation thrives in structure. This can be counter-intuitive. Doesn’t micromanaging and process smother creativity? But the key to innovation powerhouses is that they don’t leave innovation up to chance. They know that innovation needs to be nurtured. You do that by setting up structures that notice, encourage, and develop innovative ideas and practices.

At Microsoft, this meant fundamentally changing how people worked. It started with creating systems that captured and vetted new ideas from all over the organization. The company created rules of the road for what to do with a new idea—how to test it, how to build a business case for it, and who to pitch it to. Nadella championed numerous innovation programs, including allocating physical spaces for Microsoft employees to work with local entrepreneurs, creating accelerators to incubate new businesses, and hosting a global hackathon that became one of the largest innovation events in the world.

From top to bottom, everyone was expected to get on board. Those who resisted—and many did at first—were often given a stern talking-to by Nadella himself. At one point, he gathered 150 middle managers and told them bluntly, To be a leader in this company, your job is to find the rose petals in the field of sh**.³

As the Microsoft story shows, it’s never too late to pull out a big win. Not everyone can do it, though. More often than not, leaders gravitate to the sexy fixes that promise transformative change and forget to invest in the scaffolding required for innovation to really perform its magic. This book was written to refocus the conversation around innovation. Our goal is to help organizations understand how to set the stage for innovation so that they can find continual success in a rapidly changing environment.

Why We’re Passionate about Making Organizations More Innovative

For the past two decades, we have observed companies struggle with transformation. The recurring question is: Why do some companies excel at transforming themselves while others suffocate the life out of anything that even whispers of change? Time after time, leaders ask us what they can do to make their organizations more innovative and responsive to changing circumstances. We finally decided to put our hard-won experience down on paper.

This book is a compilation of our decades of experience helping clients transform their businesses, research into the vast innovation literature, a survey of dozens of organizations, and conversations with fifty leaders across a variety of industries, from tech giants at Google and Microsoft, to the CEO of Singapore’s largest bank, to the head of a progressive elementary school in Massachusetts, to the US Postal Service. We aimed for actionable insights on how to create a culture of innovation in your organization and make it stick.

Through all of the different opinions and contexts, the ways to become innovative are surprisingly similar. They’re also accessible to any organization—whether a publicly-traded company, a small nonprofit, a family-led business, or a government institution.

This book lays out how to create an environment where innovative thinking and action can flourish throughout your company, not just once but as part of its DNA. Our goal is to provide very practical steps on how to get there.

The ABCs of Innovative Leadership

Microsoft didn’t just get lucky. Its cultural revamp and mission redirection didn’t just happen to work because of good timing. Data collected from dozens of organizations show that Nadella hit on the key components of transformative innovation. First, he created his leadership style—a critical foundation that we’ll explore in Chapter 1 of this book using an acronym for the elements of innovative leadership that, unsurprisingly, spells CREATE. Second, he articulated a clear direction for change. Third, he created the processes for good ideas to be discovered and developed. Finally, he established a culture of curiosity and questioning to prevent the company from falling back into complacency and disarray.

Once a leader like Nadella creates a leadership style, he or she can then embrace what we call the ABCs of innovation: Aspire, Build, Cultivate.

1. Aspire: First, you need an innovation strategy which makes a clear case for change, invokes a sense of urgency, and defines in precise terms what the company hopes to get out of innovation. For Microsoft, the strategy was framed around its ambition to be a cloud leader.

No employee has time for innovation if they don’t see it as an essential activity. No one will know how to contribute effectively if they don’t know what strategic goals you are trying to accomplish and what output you expect to see.

Key finding: If you want to generate innovation, everyone needs to see it as your priority. People also need to know what you expect to materialize. They need to be able to answer: What specifically are we aspiring towards?

2. Build: If you want innovation success to appear again and again, people must understand where to go and what to do with a new idea. There needs to be a structure and plan for handling innovations. Staff should know how new ideas will be measured, which types of innovations are welcome, and whether investing their time in this will be worth it personally.

As a straight-talking executive once told us, An idea without a plan is just a fart in the wind. The same is true for innovation. Failures often stem from missteps in the innovation development and commercialization process, not from the ideas themselves.

Key finding: To support the systematic discovery and commercialization of new ideas, you need to build four structures:

A process for discovering, testing, prioritizing, and launching new ideas

A governance structure to oversee your innovation work

Dedicated time, resources, and budget; and

Metrics that hold the program accountable and gauge what success looks like

3. Cultivate: You can’t just set up an innovation initiative and then walk away. It requires constant nurturing and, possibly, adaptation. Economies fluctuate, leadership teams shift, and customers evolve. Through all of that, you’ll need to work hard to ensure that innovation remains a North Star for your organization.

There are time-tested ways to re-energize the momentum around innovation. Occasional events like Pitch Days and hackathons as well as trainings in innovation techniques are just a few of the ways that companies build confidence in innovation. These actions also reassure colleagues that the hard work and risks of innovation are worthwhile.

These activities should happen at the end, not at the beginning, of your transformation. For example: Innovation tours of Silicon Valley can energize and inspire your team and reinforce a sense of urgency for change, but we often see that the impact of these tours doesn’t last long unless they are embedded in a clear innovation vision (Aspire) and a supporting system for identifying and sifting through new ideas (Build).

Key finding: Innovation isn’t just a one-and-done activity. Staying innovative requires a