The Psychopath in the C-Suite

 Nicholas Bray | INSEAD  Knowledge |            February 7, 2013

Corporate genius or psychopath? It’s a thin line that divides them. Most people who work in companies run afoul of such a person at least once during their career. Some rise to astonishing heights, and they can cause enormous damage.  Dealing with them can be tricky, but here are some tips.

In Costa-Gavras’s film Le Capital, an unscrupulous banker sends his bank’s shares crashing in an insider-trading scam. Does he get fired? Not a bit of it! An adulating board re-confirms him as chairman, applauding him as he pledges to go on stealing from the poor to enrich the wealthy.

Sounds preposterous? Well, the movie is indeed a bit over the top. But real life often comes close to imitating fiction. From Enron to the LIBOR interest-rate fixing scandal that saw the demise last July of Barclays CEO Bob Diamond, corporate annals are packed with individuals whose sense of what’s right and what’s wrong differs starkly from that of most ordinary people.

Some walk off with hefty bonuses. A few end up in jail. Others poison the workplace long-term, putting the health of both companies and their staff at risk.

In an article entitled “The Psychopath in the C Suite”, Manfred Kets de Vries, INSEAD’s Raoul de Vitry d’Avaucourt Chaired Distinguished Clinical Professor of Leadership Development and Organisational Change defines a type of personality that he calls SOB, for Seductive Operational Bully. Without going so far as to commit murder or arson, but unburdened by the pangs of conscience that moderate most people’s interactions with others, such people qualify, he argues, for the label of “psychopath lite”.

No sense of shame

“SOBs can be found wherever power, status, or money is at stake,” he writes. “Outwardly normal, apparently successful and charming, their inner lack of empathy, shame, guilt, or remorse, has serious interpersonal repercussions, and can destroy organisations.”

For their own self-preservation, companies should do more to guard against them, either by identifying them and weeding them out or by avoiding hiring them in the first place, Kets de Vries told INSEAD Knowledge in an interview. “To have an SOB in your company can be very costly.”

Greed, ambition and selfish disregard for others are nothing new in business. Bob Sutton, a professor of management science and engineering at Stanford University, has been writing for years about corporate types that he calls assholes. “Based on what I’ve seen in law firms, corporate America, and Silicon Valley start-ups,” he observed in a 2007 interview with Inc. magazine, “there’s no danger that companies are going to stop hiring assholes.” Nearly six years later, he is still busy analysing the bad behaviour of American executives and advising on how to deal with their excesses.

While typical assholes are difficult to ignore, however, Kets de Vries’ SOBs can be hard to spot, due to their manipulative personalities.

“Ironically,” he observes, “many of the qualities that indicate mental problems in other contexts may appear appropriate in senior executive positions.” That is particularly the case, he says, in “organisations that appreciate impression management, corporate gamesmanship, risk taking, coolness under pressure, domination, competitiveness, and assertiveness.” SOBs have no sense of conscience or of loyalty to their colleagues or their organisation, Kets de Vries explains in his paper. Kets de Vries is also a psychoanalyst and has been a member of the Canadian Psychoanalytic Institute since 1982. They often do long-term damage to both through their deceitful, abusive, and sometimes fraudulent behaviour. Because of the way they operate, however, they are often “hidden in plain sight”.

Emotional poverty

Exactly what makes a psychopath is still open to discussion. According Kets de Vries, both inherited factors and upbringing can lead to psychopathic tendencies, and those of the ‘lite’ variety often gravitate towards business.  “Estimates vary, but approximately 3.9 percent of corporate professionals can be described as having psychopathic tendencies,” he asserts.

Even traits that reflect a severe lack of human feeling or emotional poverty, such as a lack of remorse, guilt, and empathy, can be used to advantage by SOBs. They shine in situations that call for “tough” and unpopular decisions such as to lay off staff. The financial sector has become a playground for such people, says Kets de Vries, because “that’s where the money is.”

So what can be done to prevent such people can causing havoc? Ideally, says Kets de Vries, organisations should fine-tune their recruitment procedures in order to avoid hiring them in the first place. To help managers recognise them, Kets de Vries sets out a checklist of clues.

Does the person come across as too glib and too charming? Is he or she very self-centred? Lacking in empathy? Sexually promiscuous? Able to lie? If the answer is yes to more than a few such questions – and the list goes on– then the chances, says Kets de Vries, are that you are dealing with an SOB.

Some lines of defence

If you haven’t yet hired the person, there is still time to avoid trouble. Take a closer look at the résumé and scrutinise it for inconsistencies. Try putting the candidate through multiple interviews. SOBs have a tendency to tell interviewers what they think they want to hear, and different interviewers can elicit different, sometimes contradictory, responses.

If a candidate is fawning to a senior interviewer but condescending to someone more junior, he or she should be watched carefully. Such behaviour, says Kets de Vries, corresponds exactly to what you should expect from a psychopath “lite”.

But what if the SOB is already on your staff? The best line of defence then, says Kets de Vries, is “a coaching culture where trust and openness prevail and where people can speak their mind.”

First of all, you need to identify the SOB. Watch out for behavioural clues. If you see talented people leaving a project or a company, find out why. They may have been driven away by bullying or other kinds of misbehaviour of which you are not aware.

Then you need to take corrective action. To ensure accountability, try introducing key performance indicators clearly tied to outcomes. Psychopaths typically don’t like to be called to account.

Encourage team work, as that’s something that psychopaths don’t feel comfortable with. And take steps to develop a culture in which junior employees can feel able to express concerns about their colleagues and superiors without fears of recrimination.

Finally, if you are so unfortunate as to have an SOB as your boss or even as CEO of the company, recognise that you are unlikely to be able to get him or her to change. Trying to oust the SOB is likely to be difficult and attempts to do so might jeopardise your own career.

His advice? Don’t stick around. “Cut your losses, preserve your self-esteem, and move on.”


Deviant Leaders: Falling Hard


 Jane Williams | INSEAD Knowledge|  February 7, 2013

Can top bosses be rude, abusive, egocentric and fiscally irresponsible, as long as the bottom line looks good?

When it comes to infringements around the office, business leaders seem to get away with a lot: A blind eye may be turned when a manager swipes his company credit card to cover a US$200 private lunch, but a worker caught stuffing a coffee tin from the tea room into his backpack could expect to face great condemnation and possibly the loss of his job.

But there’s a limit, even at the very top, as former CEOs Bernie Ebbers (WorldCom), Dennis Kozlowski (Tyco International), and Kenneth Lay (Enron) discovered. When leaders fall, they fall hard.

New INSEAD research has found leaders in general receive greater leniency for their perceived anti-social or “deviant” behaviour, but when a line is crossed – when their deviant actions are perceived to be “most severe” – they face harsher punishment than would an underling.

“Research shows that because of their power and status leaders are perceived as deserving of certain privileges,” Natalia Karelaia, INSEAD Assistant Professor of Decision Sciences and co-author of the paper When Deviant Leaders are Punished more than Non-leaders: The Role of Deviance Severity told INSEAD Knowledge. “But prototypical leaders are also expected to act in a responsible and just manner, so when severe deviances – those that inflict significant harm on others – are committed by leaders, they are likely to be seen as significant acts of betrayal of leadership expectations.”

Too Much Power?

Prior research has shown too much power can lead to unconstrained, socially inappropriate and less moral behaviour. In fact there are suggestions deviant behaviour abounds among high-status power-holders where rule-breaking, aggressive risk-taking and lack of self-restraint are perceived as traits of a successful leader, and accepted until it becomes too severe to ignore. Whether questionable behaviour is seen as severe or within society’s norms depends on the perceived harm done to others, notes Karelaia. As such it is very subjective and open to manipulation giving the media, with its ability to manage public sentiment, a great deal of power when it comes to how leaders are punished.

Take Rupert Murdoch, CEO of global media conglomerate, News Corporation. The operating tactics adopted by his company ran virtually unchecked, resulting in reporters virtually spying on the private lives of high profile movie-stars and politicians. Though the “victims” in question were public figures and therefore legally susceptible to public scrutiny, a line was crossed: when the phone-tapping allegations focused on the harm inflicted on the family of a murdered child, public condemnation resulted in an official investigation into the tactics used.

It also explains why some banking chiefs survive trading scandals – such as JPMorgan Chase’s Jamie Dimon – others, like Barclays’ CEO Bob Diamond and president Marcus Agius were not so lucky: when it was revealed Barclays’ (and other major banks’) attempts to manipulate LIBOR interest rates affected millions of people and trillions of dollars of student loans, home mortgages and credit cards, Diamond stepped down.

Blowing the Whistle

“If the media brings to the attention of the general public the impact certain acts have on employees, clients and their families, then the perception of the magnitude of harm can be affected,” notes Karelaia. “The findings from our research imply that by changing the perceived magnitude of harm we can change the extent to which wrong-doers are seen as more or less villain.”

The research paper was based on four studies. The first two involved surveys in which participants were asked to assume the role of HR consultants and evaluate the actions of two employees, a senior executive in a large company and a staff assistant. One study provided descriptions of four deviant acts, ranging from being late for meetings to sexually harassing co-workers and asked participants to rate the severity of each act and how severely the hypothetical wrong-doers should be punished. The second survey kept the nature of deviant acts the same but changed the extent of the harm. In both studies, in cases of low-severity punishment recommendation for the assistant were stronger than for the executive, while in contrast in high severity cases causing more significant harm to victims, the leader was more severely punished.

The third and fourth studies were laboratory experiments where participants observed certain deviant behaviours – either of a team member of team leader – and were given the power to punish. The results again showed that leadership status protects its holders against punishment for mild misbehaviour but becomes a liability for severe deviant acts. In the fourth study participants were explicitly told the leadership position did NOT involve any extra responsibilities or obligations and consequently the difference between how leaders and non-leaders were punished for severe misbehaviour disappeared, suggesting that perceived betrayal of leadership responsibilities explains why leaders are punished more than non-leaders for deviant acts seen as severe.


“It was reassuring to find the consistent pattern of results in all studies clearly supported our hypothesis that punishment is determined both by leadership status of the deviant and by how severe the deviance is seen by punishers,” Karelaia says.

Participants in both exercises came from France and the United States, countries where research suggests the concept of leadership is somewhat glorified. “In cultures where you expect leaders to be more humble and modest I’d expect the leader would be punished even more for extreme misbehaviour,” notes Karelaia. And in cases where leaders are women it’s possible, given the common stereotype of a woman being someone who takes care of others, the feeling of betrayal, and subsequent punishment, could be even greater.

Corporate governance has evolved over the last decade and leaders are now finding it more difficult to pass off responsibility for their corruption onto lawyers and finance officers. Still, many leave their positions with large settlements and seem immune to punishment. “I’d like to think these findings will at least make people think about the consequences of deviant behaviour among leaders,” notes Karelaia. “By persisting in minor transgressions they may be setting a precedent for others in the company. When a leader goes unpunished for doing something that is not very ethical the general culture within a company can deteriorate and unethical behaviour may become the norm.”

How Leaders Mistake Execution for Strategy (and Why That Damages Both)


 Ken Favaro.STRATEGY + BUSINESS. Feb 11,2013.
When leaders substitute visions, missions, purposes, plans, or goals for the real work of strategy, they send their firms adrift.


When discussing strategy, executives often invoke some version of a vision, a mission, a purpose, a plan, or a set of goals. I call these “the corporate five” (see exhibit, below). Each is important in driving execution, no doubt, but none should be mistaken for a strategy. The corporate five may help bring your strategy to life, but they do not give you a strategy to begin with.

Nevertheless, they are often mistaken for strategy—and when that happens, real damage can ensue. If the corporate five are the cart and strategy is the horse, leaders who put the cart first often end up with no horse at all.

Before they get to the corporate five, companies need to address five much more fundamental, and difficult, questions. Let’s call them the “the strategic five”:

1. What business or businesses should you be in? 2. How do you add value to your businesses? 3. Who are the target customers for your businesses? 4. What are your value propositions to those target customers? 5. What capabilities are essential to adding value to your businesses and differentiating their value propositions?

Although most companies can articulate a vision (for instance, “to be the leading biotech company”), a mission (“to find and commercialize innovative drug therapies”), a purpose (“to improve patients’ lives”), a plan (“to develop molecule X, enter market Y, and partner with company Z”), or a goal (“to bring three innovative molecules to market by 2025”), few convincingly answer all five strategic questions, especially with one voice across their top teams and down their organizations.

They can’t answer those questions because often they haven’t asked them in a very long time, if at all. Instead, the corporate five have become a mask for strategy. When that happens, the real substance of strategy—making deliberate and decisive choices about where to play and the way to play—is lost. There is no foundation for decision making and resource allocation. Everything becomes important. Indiscriminate cost-cutting and growth become the order of the day and, sooner or later, with no strategy as a guide, a business drifts. Consider Procter and Gamble. It has a mission (“to touch and improve the lives of more consumers, in more parts of the world, more completely”) and a CEO who says he is “totally focused on the plan.” Yet the company is struggling to regain its footing and direction because the strategic five has been lost while the vast, complex enterprise strives to operate in a more volatile economic environment.


IBM, on the other hand, is an example of getting it right. When Lou Gerstner took over the reins of the troubled company in 1993, he famously declared, “The last thing IBM needs right now is a vision.” This was widely interpreted as a statement that execution would be the priority and strategy would take a backseat, at least while Gerstner was busy turning around the company. But he proceeded to redefine IBM’s business boundaries (from computer hardware to hardware, software, and services), value proposition (from best products to corporate solutions), and essential capabilities (for example, from selling to the IT department to selling to the C-suite). In other words, he focused on the strategic five—not the corporate five—to make his elephant dance. Gerstner was as strategic a CEO as they come. James E. Burke, former CEO of Johnson & Johnson and former IBM board director, said of him, “He thinks strategically about everything. I once asked him if he thought strategically about his dog.” Gerstner knew that IBM was suffering from a lack of clear and coherent strategic choices and that fixing this was far more important to the company’s immediate needs than was envisioning the company’s longer-term future. Without the former, there would be no need for the latter.

All this is not to denigrate the role and power of having visions, missions, purposes, plans, and goals. Strategy is the primary tool a leader uses to guide decision making and resource allocation for a business and its people, but the corporate five give the leader a means to excite, focus, inspire, mobilize, and challenge. A vision paints a picture of the future around which your company can rally; a mission articulates an objective that defines what the company is seeking to achieve; a purpose describes why your company exists and gives meaning to what it does and the people who do its work; a plan lays out a set of actions to be undertaken within a certain time frame; and goals define how your success and progress will be measured and evaluated. None of these gives you a strategy, but they do play an important role: They motivate an organization to perform at its very best in the context of that strategy. That is what execution is all about.

Gerstner knew this too. After stabilizing the company and establishing IBM’s strategic five, he did, in fact, create a vision: “To lead big companies into the brave new networked world, IBM will devise their technology strategies, build and run their systems, and ultimately become the architect and repository for corporate computing, tying together not just companies but entire industries.” But, even then, he recognized the need to connect that vision to the strategy (and execution). “Vision is easy. It’s just so easy to point to the bleachers and say ‘I’m going to hit one over there,’” Gerstner told a CNN interviewer in 2004. “What’s hard is saying, ‘OK, but how do I do that? What are the specific programs, what are the commitments, what are the resources, what are the processes in play that we need to go implement the vision, to turn it into a working model that people follow every day in the enterprise?’ That’s hard work.”

If you want to have a bit of fun sometime, just ask your head of strategy or general manager how the corporate five differ from strategy. A typical response will be, “Who cares? Aren’t they all about giving direction to a business? Does it matter what you call ‘direction,’ as long as you have it?” Now, you have an answer. Without addressing the strategic five, your company will lack the foundation and the context for making the choices and allocating the resources that are critical to superior execution. Without the corporate five, your organization will lack the perspective, commitment, and alignment required to perform at its very best.

The 10 Happiest Cities In The World


Ariel Schwartz. FASTCOMPANY Co.Exist.Feb 08,2012

What makes these cities’ residents happier than anywhere else?

The U.S. is a pretty unhappy place compared to Europe, Australia, and South America. That’s according to a survey of 10,000 people in 29 countries from market research company GfK Custom Research. Conducted in 2009, the Anholt-GfK Roper City Brands Index, claims that San Francisco is the only U.S. city to crack the list of the 10 happiest cities in the world. Who else came out on top, and why?

Rio de Janeiro is at the top of the list for its many outdoor and cultural attractions, shopping centers (is that really a measure of happiness?), performances, and general amusement. Sydney comes in second for many of the same reasons, and Barcelona rounds out the top three–mainly because of its extensive shopping. Rio and Barcelona seem like traditional choices, but Sydney makes it because of its general Australia-ness, according to Simon Anholt, who conducted the survey. “It’s where everybody would like to go,” he told Forbes. “Everybody thinks they know Australia because they’ve seen Crocodile Dundee. There’s this image of this nation of people who basically sit around having barbecues.”

Amsterdam, Melbourne, and Madrid come in next. You’ll notice that Amsterdam seems to be there because of one reason: its “coffee shops,” which are not coffee shops, but rather marijuana dispensaries.

Oddly enough, San Francisco also makes it onto the list largely because of its shopping centers. I can’t speak to this entire list, but as a resident, that’s probably the last thing I’d mention as a reason for the city’s overall happiness. Traditional picks–Rome, Paris, and Buenos Aires–follow close behind.

The Anholt-GfK Roper City Brands Index is based on perception–that is, the world’s population perceives Rio as the happiest city. But there are objective factors we can take into account when looking at happy cities and countries. Last year, Columbia University’s Earth Institute released the first World Happiness Report, looking at happiness in the world and the science behind it. Some of the findings: Rich people are happier than poor people, but social supports and personal freedom matter; there’s a positive correlation between happiness and self-employment in the American and European data (but not in South America); mental health is the biggest contributor to happiness in all countries; and a lack of perceived equality cuts down on happiness.

Judge for yourself whether the cities on this list meet those criteria (or how much shopping they have). And if you want to zoom out a little and check out the world’s happiest countries, we’ve got a story on that too.


I’m Not Proud, but I’m Not Alone: A Lazy Parent’s Meditations


Noah Berlatsky.THE  ATLANTIC.Feb 11 2013,

Almost all parents fall woefully short of their lofty child-rearing goals in some way or another. It’s not ideal—but sometimes, it’s okay.

banner berlatsky simba color edited.jpg


“My parents are lazy!” my nine-year-old son exclaimed loud enough to wake lazy parents in a neighboring state. Luckily, there weren’t any other adults around. Just me, and three of my son’s friends who I was carpooling back from school. They had all been talking about how much fun they had camping out with their families, so my son was explaining why he didn’t get to go camping with his family. And, like he said, it’s because his parents don’t want to pack up and get in the car and go out and lie on the cold ground somewhere in the middle of nowhere so we can get up at some ungodly hour and be uncomfortable. Which is because we are lazy.

In theory, of course, parents are not supposed to be lazy. We are supposed to sacrifice for the children and wake up at ungodly hours and camp in the rain if that will optimize our child’s happiness quotient. We’re supposed to cook healthy meals at least once a fortnight and clean at least occasionally so that when our friend’s infant comes over he can’t gorge himself on the ominous cat-sized dust bunnies rolling like tumbleweeds of filth amid the drifts of shoes-missing-their-pairs and half-broken down cardboard boxes. Emily Matchar assures me that parenting is all about expressing my individuality and self-actualizing through homeschooling or attachment parenting. And, hey, our son still occasionally comes to sleep with us because we are too lazy to toss him out of bed at 4 a.m. after we’ve watched the first half of Return of the King with all the ghosts and blood and death and thus given him nightmares which we knew we shouldn’t have done but then we kind of wanted to so we did it anyway. I don’t know. Maybe that counts as fulfilling ourselves.

It would be easy at this point to do that thing that writers about parenting love to do and turn my limitations into a statement of purpose in order to shame all of you less lazy parents into worrying about whether you shouldn’t be more lazy like me. Here, for example, is Peter Loffredo, writer at a blog with the unsettlingly enthusiastic title Full Permission Living, singing the praises of his own version of lazy parenting. “JOY! JOY! JOY! ADULT TIME!” he aggressively rhapsodizes, and then insists that parents have to make out passionately on occasion or else they’ll encourage their kids to grow up into passionless, less-than-fully-actualized adults who will not know the “true joy of mastery.” For Loffredo, then, “laziness” isn’t so much being lazy as it is just another meritocratic hoop for passionate parents to leap through on their way to better sex and more masterful children, not necessarily in that order.

I do think that kids can benefit from having some space. To the extent that our general lack of get-up-and-go prevents us from forcing some sort of rice-cake-only diet on our son or scheduling his every waking moment with enrichment activities, that’s probably a good thing. But let’s be honest—no parent sets out to have his or her house filled with feral dust bunnies achieving sentience. And, you know, I’d like my son to be able to go camping if that’s what he wants to do—just as long as I don’t have to go with him.

There are ways around some of these problems, of course, if you have the resources and the willingness to accept your own inadequacies. I finally managed to convince my wife that we were simply never going to keep the house in an even marginally acceptable state of cleanliness, so we hire a maid once a month — which has eliminated the dust bunnies (though not necessarily the drifts of shoes and cardboard). And when the opportunity came up, we cheerfully sent our son off camping with friends, while our lazy butts stayed firmly at home.

Still, it’s not all good. After 14 years plus, my wife and I still haven’t really figured out how to manage the fact that neither of us wants to cook at all—dinnertime comes around every day with a dread, predictable, helpless shock. And of course there are whole lists of things I wish we had more energy for, from helping the boy with math homework to organizing that trip to Australia we keep meaning to take, to keeping him away from sweets. He got a cavity when he was around 5, and I almost cried. Here we’d gotten this perfect, beautiful, radiant boy, and we’d barely gotten him out of the package before we’d broken him. What was our problem?

Our problem, of course, was that we were lazy. And perhaps I’m rationalizing, but I don’t think it’s just our problem. Small human beings are really complicated creatures, and for most parents, keeping them happy and safe is about the most important project you’ll ever undertake in your life. There’s always something more that you can do for them, and always something you can do better. Which means it’s just in the nature of things that no matter what you do, you’ll never do enough. Parenting, from this perspective, isn’t a DIY project in self-actualization; rather, it’s a frighteningly clear demonstration that you can’t do this yourself, and that your self is barely adequate, much less actualized. No matter how much you do, you’re not doing enough—which means that even the most involved parent knows, deep in their heart, that they’re lazier than they should be. Maybe, then, the reason parents are sometimes afraid of letting their kids fail is because they know perfectly well that they are, constantly and brutally, failing themselves.

Perhaps the hardest part of parenting, then, is knowing that—no matter what your income is, or how much energy you’ve got, or how great a cook you are, or how many parenting books you read—you’re not up to the job. And the best part, maybe, is that even when they know you’re not up to the job, children are generally still willing to love you if you give them the chance. My son is a little annoyed that his parents are lazy, but he also thinks it’s funny. He’s got a sense of humor, and he’s also pretty forgiving and kind. He’s this lovely little human being, and it’s at least as much despite me as because of me—which is why children are a gift not just to the deserving, but to the bumbling and lazy as well.

Better Innovation


James  Scott.CEO  FORUM.APRIL  2012



Without the ability to innovate, businesses die. Yet firms often stumble when it comes to even modest attempts at innovation. The truth of the matter is that successful innovation is hard. Few businesses get it consistently right, but most can learn how to improve their innovation strike rate.

Innovation enjoys an exalted status. No one has a bad word for it. Is there a corporate mission statement anywhere that fails to mention innovation? Has anyone ever seen an organisation describe itself as ‘non-innovative’?

People certainly possess high expectations of innovation.

The website for the federal government’s Department of Industry, Innovation, Science, Research and Tertiary Education tells us that innovation ‘…is the key to answering the challenge of climate change, the challenge of national security, the age-old challenge of disease and want. It is the key to creating a future that is better than the past.’ It goes on to say that innovative thought is wasted if not properly captured and practically applied. That’s what the national innovation system is intended to do.

The department is very ambitious when it comes to innovation. Indeed it has spawned a whole ecosystem of innovation coordinating committees, innovation advisory councils and separate industry bodies devoted to the subject. In turn, much of this innovation infrastructure is replicated at the state and territory level. Australia even boasts a ‘festival of innovation’.

In short, innovation has become a patriotic duty.

Practically, most business people have somewhat more modest ambitions for innovation, although they are conscious of how, for example, innovation in information technology has given birth to entirely new industries, destroyed others, transformed consumer expectations and behaviours, and created a whole new dimension of business value.

Innovation has been described as change that adds value. It is the adding of value that is difficult — sometimes change simply produces something that is different, but not better. It can be difficult to make things even a little bit better and all too easy to make them quite a lot worse.

What we do know is that an organisation’s culture will often determine how successful it is at innovation. Innovation rarely just spontaneously happens. It has to be incubated and nurtured. Get the culture right and the rest will likely follow.

Understanding innovation

Last year KPMG and the University of Sydney decided to take another look at the link between innovation and organisational culture. The result was a study, Managing Successful Innovation, based on the real-life experiences of 27 CEOs drawn from the top 300 ASX listed companies. We collected 54 stories about innovation from these CEOs, half that were about successful innovation and the remainder that were about failed innovations. We grouped the CEO stories into categories representing three styles or types of innovation we had identified in typical business environments:

  • incremental innovation (24 stories)
  • evolutionary innovation (16)
  • revolutionary innovation (14)

Yes, classifications of this kind are arbitrary, but they do help make sense of people’s experiences and, in this case, they do reflect what actually happens in the business world. We are interested in how CEO behaviour — particularly the force of the CEO’s personality and his/her approach to new ideas — supports or undermines particular innovation strategies or styles. Of course, the way in which CEOs think about innovation is at least partly shaped by the problems they need to solve, the contexts they find themselves in and entrenched organisational cultures. Nevertheless we believe the classification used in the study respects the varying forms innovation can take and the different demands it makes of organisations and their CEOs.

Incremental innovation

Incremental innovation is about doing what the organisation already does now, but doing it better. It often means solving problems rather than introducing something completely new. What needs to be done to make incremental innovation a reality is often well understood. The best person to solve the problem is not necessarily the CEO, but someone (or some group) at the organisation’s coalface.

Incremental innovation is usually driven from inside the organisation and typically extends the use of existing systems and processes. It is bottom up rather than top down. It often works best when senior management empowers people to make the changes, rather than trying to impose them from on high. It is typically non-threatening to powerful and influential people in the organisation; it does not demand a forceful personality to drive it through to completion.

The incremental approaches to innovation described by CEOs in the study were simple and made part of normal business practice. One organisation asked its people to write down and submit the details of any process they were involved with that did not make sense or seemed pointless. More than 2500 submissions were received over a 3-year period, most of which were considered very constructive.

Evolutionary innovation

Moderately high levels of uncertainty in an organisation’s external or internal environment can trigger evolutionary innovation. It is about significantly extending or changing the existing business model, but not throwing it out altogether. It can sometimes seem very threatening to people. It demands a great deal of the organisation and of the CEO individually. Indeed the CEO’s role is central.

For evolutionary innovation to succeed, the CEO has to believe in the idea. Australian CEOs typically consider an organisation’s culture as either the key enabler of evolutionary innovation, or the main impediment to its progress. The organisation’s structure is often the starting point. (If the structure is unsuitable to the task, it can be the finishing point too.) Three other interesting insights came out from the CEOs’ experience with evolutionary innovation.

  • Process seemed to play an ambiguous role in the stories of evolutionary change. In recounting their success stories, CEOs never mentioned the need for more or better process, yet in their stories of failure the need for process was often raised. Then process was valued because it appeared to reduce uncertainty and risk.
  • Many CEOs were suspicious of an ideas-based approach to innovation where the innovation was based on a single powerful idea or vision. Yes, ideas were the essential starting point, but being able to execute them effectively was what really mattered. Execution, in turn, came back to personality driven, culture sourced and process based styles and how these could be coordinated.
  • CEOs agreed that successful evolutionary innovation had to cut through organisational hierarchies and silos. It was insufficient to possess the right culture if organisational structure stopped good things from happening.

Revolutionary innovation

Industry level or economy wide disruption is often the precursor of revolutionary innovation. Many believe this is precisely what is happening in many sectors of the Australian economy today. Revolutionary innovation can involve radical surgery to, or the replacement of, an organisation’s business model. The need for change can be so strong and obvious, that a collaborative, inclusive management style on the part of the CEO can be more effective than the possession of a strong personality.

Interestingly, the stories uncovered in our study suggest that revolutionary innovation in Australia is likely to be the result of collaboration between separate organisations. The explanation appears to be that because revolutionary innovation is innately high risk, forming partnerships and getting strong stakeholder buy-in are often regarded as essential to success. With several parties wanting the same outcome, the change process picks up added momentum and the imperative need to collaborate overrides personality factors.

By way of contrast, much of the American literature on innovation emphasises the pivotal role of the charismatic entrepreneur in driving revolutionary innovation. Australia, it seems, is different.

Consciously or unconsciously, some CEOs adopted a probability approach to revolutionary innovation. They accepted that most attempts at revolutionary innovation would fail, but if the organisation pursued a sufficient number of ideas, there would be some successes. The problem, of course, is that the cost of the failed ideas could be greater than the profit from the successful ones.

Our analysis also found that the cost of failed revolutionary innovation increased when CEOs failed to let go of an idea when the signals suggested they should. Excessive emotional engagement with an idea contributed to this problem, although a degree of emotional involvement is needed to overcome the obstacles to success.

Innovation in perspective

The moral of all this is that innovation takes different forms. It is rarely just the one big idea. Innovation is about possibilities and how well they are recognised and realised.

Perhaps the key conclusion that can be drawn from our study is that there shouldn’t be a single approach to different innovation forms and situations, risking failure where success might have otherwise been possible. Here CEO self-knowledge is a potential antidote. Recognising one’s own management style and one’s approach to innovation and change can result in a more informed, considered and balanced approach to the innovation task.

Our analysis came up with several other critical conclusions.

  • An organisation in need of revolutionary change requires a CEO prepared to partner with others and manage uncertainty in a systematic manner.
  • A CEO with a charismatic, personality driven management style is better placed to deliver evolutionary change than someone with a more detached approach.
  • Successful innovation should not be too much of a gamble.
  • Robust processes are critical for success, reducing both the probability and magnitude of failure.
  • Belief and emotion are important factors in the CEO’s ability to engage with innovation, without distorting judgment
  • It is wise for CEOs to think about the optimum level of resources they should allocate to innovation.

Cultivating innovation: Learning from the world’s best

Wendy Montague.CEO  FORUM. June  2012
Hay Group’s seventh annual report on the “Best Companies for Leadership”, provides a useful checklist on how the world’s best leaders create an environment where innovation thrives. Almost 7,000 leaders from more than 2,300 organisations worldwide participated in this in-depth study which provides a detailed picture of how top companies sustain high performance through their leadership practices. The study ranks the top companies across the globe and also examines how those companies nurture talent and foster innovation in their ranks. This year, General Electric topped the list, followed by Procter & Gamble, IBM, Microsoft and Coca-Cola.Innovation is the key to future growth and ability to survive in a fiercely competitive global marketplace. And placing emphasis on innovation and leadership has been proven to deliver a competitive advantage. Over a 10-year period, the Top 20 Best Companies for Leadership consistently outperformed their peers, producing a 5.39 per cent shareholder return, compared to a 2.92 per cent shareholder return generated by the S&P 500.

How do these Top 20 Best Companies for Leadership create workplace environments and processes that enable innovation to thrive? Many companies praise innovation, but the Best Companies for Leadership approach it in a disciplined way by, promoting peer collaboration that breaks down functional silos, celebrating successes, learning from setbacks and fostering a culture that encourages a passion for innovation throughout the organisation.

The Best Companies for Leadership also remove barriers and create the right environment for new ideas to be heard. This year’s Top 20 companies reported that they cast a wide net for ideas and develop their people to think more broadly, while providing structured opportunities for younger employees to promote innovative ideas. Traditional hierarchies take a back seat. For example, if an individual has an excellent idea, they can bypass the chain of command without the threat of negative consequences.

In the Pacific region, (Australia and New Zealand) respondents indicated that the gap is narrowing to the benchmark set by the Top 20 in areas such as innovation, collaboration, talent management and development. However, there are some other critical areas where Australia and New Zealand are clearly underperforming, including structuring organisations for speed and flexibility and taking a more positive approach to setbacks by using failure or poor results as an opportunity for leaders to grow and improve.

Results from the study revealed the top 5 things Australian and New Zealand companies value most in leaders:

  • Broad perspectives – expanding employees’ assignments to stretch their capabilities (82 per cent)
  • Close collaboration among leaders in different parts of the business (79 per cent)
  • Creating a work climate that motivates employees to do their best (75 per cent)
  • Excellent ideas may bypass the chain of command (75 per cent)
  • Problem-solving by gathering points from multiple perspectives (74 per cent)

Other lessons from the top ranked companies:

  • This year’s top companies are better positioned for talent now and in the future compared to other companies, as their leaders motivate employees to do their best and actively manage a pool of successors for mission-critical roles.
  • The top companies are structured for speed and agility, with organisational structure favouring quick communications path and leaders at the frontline having all the decision-making authority needed.
  • Collaboration and rewarding it accordingly. Effective leaders can easily bridge functional, cultural, generational or geographic boundaries. They also implement incentive plans to put significant weight on team-based measures, and evaluate and reward leaders based on their ability to build productive relationships.