Successful companies need to innovate all the time in order to stay that way
A few weeks ago, Mattel announced that its iconic Barbie doll would be getting the biggest redesign since its launch in 1959. For the first time, Barbies will now come in different sizes of petite, tall, and curvy. “Curvy Barbie” has already been lauded for showing young girls a more realistic range of body types.
But the biggest surprise about this product innovation is that it took as long as it did. Innovative thinking, it seems safe to say, hadn’t been routine at Mattel for quite some time. Here’s why that tends to happen at successful companies, and how to avoid a lack of innovation.
When we take risks (and when we avoid them)
The writing was on the wall of Barbie’s Dream House, at least since Mattel was overtaken by Lego as the world’s most profitable toy company in 2014, and her impossibly thin frame had been criticized for decades.
Evelyn Mazzocco, general manager of Barbie, tells Time that Curvy Barbie was “inspired by softness in sales.” In other words, Mattel’s move was less about wanting to jump into the new creative waters than being pushed there from the shallow end by tightening competition. But to blame the 57-year wait for Curvy Barbie on short-term thinking or a lack of imagination among Mattel executives misses the bigger point.
The real culprit is inside our heads. Humans become risk-averse when problems are framed as gains we will receive, and we’re more prone to risk-taking when problems are framed as losses we’ll incur. As Amos Tversky and Daniel Kahneman demonstrated in a groundbreaking study, when the outcome of a hypothetical scenario was presented as “how many lives saved,” participants became more cautious, in contrast to when the identical outcome was framed as “how many people will die,” which made the solutions they chose more daring. It turns out that whoever originally said, “A bird in the hand is worth two in the bush,” might have been the first-ever cognitive scientist.
Risk avoidance and innovation
The repercussions of this psychological tendency in business aren’t hard to see. Large companies tend to get that way because they successfully accumulate lots of “gains.” Maybe they won those gains by thinking innovatively at first, but the more they rack up, the greater the psychological pressure becomes to avoid further risks.
So they instead stick to the current course, even when the headwinds blow stronger. It’s only when losses seem a near certainty, as Mattel’s experience suggests, that business’s inclinations flip toward risk taking.
So railing against an organization’s failure to be more innovative on a routine basis would seem to be as useful as tilting at the windmills of human nature. Yet for larger companies in particular, the need to overcome this habitual innovation inertia is growing more urgent. Richard Foster and the consultancy Innosight authored a report showing that the lifespan of firms on the S&P 500 has dramatically shrunk—from 61 years in 1958, to 25 years in 1980, to 18 years in 2012. At this rate, a stunning 75% of the S&P 500 will be replaced by 2027.
As Daniel Seewald, a director of worldwide innovation at Pfizer, recently told me, “The increasing pace of technological and environmental change means all companies, even in heavily regulated and cautious industries such as pharmaceuticals, need to be more nimble, responsive, and innovative.”
Needless to say, that means getting past the formidable psychological barriers that prevent companies from doing those things—not once or twice, but all the time. Doing that successfully takes getting these three parts of the puzzle right.
Too often, the c-suite of companies treat innovation like a politician dealing with a hot-button issue: Leaders mouth supportive generalities but never get too far ahead of the people they’re supposed to be motivating. But unless an organization’s leadership is staking out a radical position that allows for losses and rewards innovation, risk avoidance will be the default culture.
Paul Polman, CEO of Unilever, demonstrated how to do this when he pledged by 2020 to double the size of the business, while simultaneously cutting Unilever’s environmental footprint in half. Considering an estimated 2 billion people already use its products, the move signaled that the company’s future wouldn’t rest on conserving its accumulated gains.
Whether you lead a team, department, or an entire organization, the first step for making innovation routine is to shake the routines that hold innovation back. That doesn’t mean upending everything your company holds dear, though—it’s just about adding a few big, bold, forward-looking goals and metrics to your usual ones that encourage risk taking and experimentation. In any event, that starts at the top.
It’s only when losses seem a near certainty, as Mattel’s experience suggests, that business’s inclinations flip toward risk taking.
Becoming more innovative is like becoming a great athlete, musician, or chess player: It takes continuous effort and learning over many years to build expertise and “muscle memory.” Stop crowing about that sexy Silicon Valley acquisition; start seriously training employees to routinely use innovation skills—even small ones like creative problem solving, prototyping, and scaling new ventures. Yes, you’ll always need people in your company to just execute certain tasks, but there’s no reason not to encourage them to think of new ways to execute them.
Examples like Fidelity Labs show that this is possible, even within large corporations in more traditional industries. As Rick Smyers, VP at Fidelity Labs, explains, “Starting at a 90-minute crash course all the way to a six-week immersive program, we have trained thousands of our employees with the skills and mind-sets to be more entrepreneurial.”
That was a huge, deliberate undertaking, but it was an investment in the company’s future that could only pay off if it were rooted in the present. Smyers adds, “We then measure our success by whether teams can create and execute new ideas back in the workplace.”
Professors Rita McGrath and Ian MacMillan, in their book Discovery-Driven Growth, wisely counsel organizations to look at their innovation initiatives the way an investor looks at their stock portfolio. They suggest creating a graph: On one axis, write “technical uncertainty,” and on the other, put “market impact.” Successful, innovative projects need to score highly on both axes. Next, write down each of your new initiatives on a sticky note and plot them accordingly. Those closer to either of the perpendiculars are safer and will probably show more incremental returns, while those further out are riskier and potentially transformative.
To be sure, this exercise is a simplified way of looking at complex business initiatives, but it’s a handy way to gauge if you have the right amount of diversification for your growth strategy. If all your so-called innovation efforts are clustered close to the axes, then you might want to invest in a few long-shot bets, like exploring a completely different industry.
Ruth Handler, the creator of Barbie, wrote in her autobiography Dream Doll, “My whole philosophy of Barbie was that through the doll, the little girl could be anything she wanted to be.” Curvy Barbie’s story isn’t just about Mattel. It’s about the very real circumstances that prevent innovation from happening all the time, every day. We’d all do well to pay attention and take risks more often, or else risk paying the price.
This article was from Fast Company and was legally licensed through the NewsCred publisher network.