For many established companies, enormous resources and risky decisions stand in the way of innovation. There are ample opportunities for innovation in large companies, both in terms of technology and business models. But often, a plateau happens when the mindset becomes stagnant. Striking the balance between short-term needs and committing resources to bold innovation is critical.

Gary Pisano, Senior Associate Dean for Faculty Development at the Harvard Business School, advises business leaders to pursue transformative actions creatively. His intensive research in his book, Creative Constructions, suggests injecting innovation capacity through the right strategy, systematic changes, and reframing culture.

Tune in to this episode as Greg and Gary tackle crucial innovation questions and how large companies can overcome them for sustained profitability.

What factors affect the innovation capabilities of a company?

As organizations get larger, they get more complex. There are more interconnected pieces. And when there are more interconnected pieces, any change gets harder to make because it involves other pieces. It can get exponentially more complex to engage in certain things. I think the other thing that happens is organizations build up capabilities, skills, and complementary assets like distribution and brand that become very powerful. But then they become an anchor. They feel like they have to continue to exploit those, they look for ways to exploit those, but it narrows down their focus. The other thing is culturally they, don't attract the right people, they don’t attract people who are creative or risk-taking. They attract people who want the safety of a large company and sometimes a large bureaucracy.

How to best analyze a company strategy?

Ultimately, strategy comes down to, I think, in the book strategy is where you spend your money. So don’t tell me what your strategy is, tell me where you're spending your money, and I'll tell you what your strategy really is. But, you know, strategy is a pattern of commitment to a pattern of behavior, and you don’t always do the same thing. 

Can financial analysis become a systematic way to measure the results of a strategy and help business leaders set a framework for innovation? 

So you think about analytic as a process for structuring your thinking in a logical way, and a rigorous way to invite discussion and to invite exploration that is going to help the senior leaders make a better judgment. And at the end of the day, it's judgment. And that's all these things do, and that's what leaders do. They make judgment calls. But they want to make good judgment calls, and they want to make sure that they're not being biased. They want to make sure they're asking all the right questions.

How can we eliminate silos that create impermeable boundaries inside an organization?

You actually need people who can really bridge gaps, and you need talented people to do it. Technically talented people who become architects if you will, of the vision of a technology and who could say, 'Aha, this insight from field A and this insight is from the very different field B. It is something really powerful that nobody's thought about.' I mean, it's intellectual arbitrage of bringing an idea from one field over to another or combining ideas. I think that's what innovation is. And going back to Schumpeter, he talked about innovation as recombinations, and it's that, I think, is huge. But to get that to happen, again, you need some mechanisms inside the organization to bring those ideas together, and you actually need people who do it. And they really do have to be intellectual like an architect who can see all the pieces.

Which aspect of the corporate culture tends to be the hardest one to implement for leaders who pursue innovation?

I think innovative cultures are really tough on people. They're not necessarily the most pleasant places to be. I think, as an organization and as a leader, your job is to make sure that the organization is prepared for this. It's not a walk in the park. It's more like climbing Mount Everest. The view's great when you get there, but there's hell to pay along the way.

00:02:25 Why do large companies have lesser innovation capacity

00:05:16 What makes Innovation unique from other businesses decisions

00:07:59 Identifying the purpose of Innovation

00:10:09 The Innovation Strategy

00:12:06 Financial Analysis as a Framework

00:16:11 Innovation leads to dematurity of industries

00:24:02 Allocating resources to develop new capabilities

00:25:36 The Value Chain of Innovation: From Search to Synthesis to Selection

00:28:49 Active ideation

00:35:07 Onboard people with intellectual arbitrage

00:38:16 Constructing mechanisms for cross-connections

00:40:50 Building teams outside the silos

00:45:26 Strategy, System, and Corporate Cultures

Guest Profile

• Gary Pisano’s Profile at Harvard Business School
• Gary Pisano on Instagram
• Gary Pisano on LinkedIn
• Gary Pisano on Twitter
• Gary Pisano’s Official Website

His Works

• The governance of innovation: Vertical integration and collaborative arrangements in the biotechnology industry
• Creative Construction: The DNA of Sustained Innovation
• Producing Prosperity: Why America Needs a Manufacturing
• Science Business: The Promise, the Reality, and the Future of Biotech
• Operations, Strategy, and Technology: Pursuing the Competitive Edge
• Harvard Business Review on Managing High-tech Industries
• The Development Factory: Unlocking the Potential of Process Innovation