Part two of three in a series where Silicon Valley’s longest serving CEO chats with Professor Jennifer Chatman, a Distinguished Professor of Management and the Associate Dean for Learning Strategies at the Haas School of Business at UC Berkeley.
Professor Chatman is also the Director of the Berkeley Culture Initiative, a program with the goal of identifying the most promising opportunities and challenges facing leaders who harness organizational culture as a strategic resource.
Guy Smith: Welcome to the second in a three part series of the Tough Things First podcast, where we, with the help of an imported expert and the experience of Silicon Valley’s longest serving CEO, are going to explore the topic of corporate culture, what it is, how you shape it, how it facilitates innovation and performance, and quite a bit more. Now if you did not listen to the first installment of this three part series, you might want to give it a listen first. Not essential, but it does lay some ground work and helps us more deeply investigate what corporate culture is and why it is so vitally important.
For this series, we’re joined by Professor Jennifer Chapman, distinguished professor of management and the Associate Dean for learning strategies at the Haas School of Business at UC Berkeley. Professor Chapman is also the director of the Berkeley Culture Initiative, a program with the distinct goal of identifying the most promising opportunities and the biggest challenges facing leaders who harness organizational culture as a strategic resource. So welcome Professor Chapman, and thank you once again for being with us.
Professor Chatman: Thanks Guy. I’m glad to be back.
Guy Smith: We’re glad to have you back too.
Ray Zinn: I’m glad to have her back too, Guy.
Guy Smith: And that was Ray Zinn, the longest serving CEO in Silicon Valley and a man who’s no stranger to shaping corporate culture himself. Hello Ray, always good to be with you.
Ray Zinn: So glad to be here Guy, with such a rockstar like Professor Chapman. So I really appreciate her coming back on and I’m very anxious to do this particular podcast.
Guy Smith: Well let’s get on with it. Now in episode one, Ray and Professor Chapman discussed how leaders can create or craft a strategically aligned execution based culture. So today, they’re going to discuss the adaptability advantage and how business leaders can cultivate a culture of innovation. Now Ray’s company, Micrel, was highly innovative. Ray himself holds numerous patents, but first professor, let’s start with you. Draw Ray into a discussion about why culture impacts innovation and how a leader makes that particular combination happen?
Professor Chatman: A great place to start, Guy. In our first session together we talked about two of the criteria for developing an effective culture, that the culture be strategically relevant and strong, and then to round out that list is this third element that is the topic for today’s session, and that has to do with making sure that the culture that you develop is adaptive over time, and let me give you a kind of academic justification for why this is so important and then Ray can provide the testimony on the ground for how it worked in his company. We conducted a major study, 60 of the largest publicly traded high technology firms. These would be household names for you all, particularly you all in Silicon Valley, very familiar firms. So the top 60 publicly traded high technology firms control about a trillion dollars in revenue. These are very important organizations to not just the US economy, but to the world economy.
We tracked the firms over a six year period, and what we found that the firms that develop a strategically relevant and strong culture didn’t also show great financial results unless they also built in a capacity for adaptation and change over time, and just to give you a sense of the magnitude in financial terms of how important it was to emphasize adaptability culture, the firm’s average revenue at the time we did the study was about $36 billion a year, and what we found was that one additional … and I’m going to say this [inaudible 00:05:03] way, but an additional standard deviation of adaptability in their culture was worth about $5 billion in revenue.
So the more adaptable leaders and members of the organization could ensure in their culture, the more likely these organizations were to be able to respond effectively, and in some cases, innovate and lead changes within their competitive landscape. So this adaptability piece ends up being very important, and let me just give sort of two substantive thoughts about what it means to be adaptive. It actually means two things. One is that you have a culture in which people feel comfortable raising creative ideas, and this may sound easy, but in fact, if you think about the subject of creative ideas, creative ideas are always challenging the status quo. So some organizations are very reluctant to have people doing that on a regular basis. That’s the first point.
The second point is it’s not enough to just come up with the creative ideas. You have to pick one and run with it. That is you have to be able to implement with some level of urgency and speed, and so what I find is that some firms that are good at surfacing creative ideas are not so good at implementing those ideas, and some firms that are good at being fast and scrappy are not very good at surfacing those creative ideas. So it’s really the combination of those two elements that leads to an organization’s ability to be adaptive. So let me stop there because I know Ray has a lot to say on this topic and how he managed these challenges within Micrel.
Ray Zinn: Yeah, thanks Jenny. Yeah. So let’s start with the first one you talked about, which I call the buggy whip culture, and that is like the Who Moved The Cheese book. You’re not following the cheese, and you’re so stuck in going back to the same place it was before that when the cheese gets moved, of course you starve to death. So the buggy whip, of course, comes back to the industry that made these buggy whips for driving the horse and cart or horse and buggy, and so when the car came along, of course these companies that made buggy whips were kind of out of luck because we had moved more into the automotive arena and buggy whips became out of style. So if they didn’t learn how to pivot and learn how to move away from making buggy whips to doing something else, they’re just going to starve to death.
So that’s what I call a buggy whip culture, which is the one where you get kind of stuck in low gear. The other one of course is the one where you’ve got all these fantastic ideas, but you’re like a ping pong ball. You’re bouncing off the wall. You come up with a great idea, and then of course you can’t see it through because you’ve already come up with another idea and you come up with another idea and you come up with another idea and all you’re doing is just bouncing all over the place. Nothing gets really finished or executed in the proper timeframe, and it probably takes a little combination of having the ability to stick with a product, but also be able to pivot, but not just go bouncing all over the wall, going from one product to another product to another product.
So what I learned is that products tend to obsolete themselves every four to five years, and so what I told my people, my engineers and my scientists, is that consider the product that you’re coming out with now is already obsolete, and so it’s already going to run out of gas, because by the time you design it and then you get it produced and then you get it designed in, you’re talking three years. So you can imagine if you’re not looking out five or so years in advance, you’re not going to come up with the right product, and your competitors are going to be out there doing the same thing. So you got to look out, you got to look ahead, and just don’t become so in love with your product that you can’t get off of it and so you become a buggy whip. In terms of your culture, you want to be able to refresh your product line every five years, but not just ping pong yourself into these product areas, but be resilient and make sure your products are finished and are executed such that you do reap the rewards of the research and development that you put into the product.
Professor Chatman: Great points, Ray. So for those of who are thinking about how you might make this happen within your organization, there are lots of options and law practices out there. Organizations have regular brown bag meetings where people come together and think of kind of blue sky ideas. There are informal science fairs where people bring their interesting idea to show people in the rest of the organization. There are lots of ways of stimulating creative idea generation. The big principle here though … and let me just say it a second time because I think it’s so important. You need to recognize that any new idea is going to challenge existing ideas, and so the ability to sort of lower the political temperature of what that means in your organization ends up being really important. People shouldn’t believe that because someone else came up with a better, newer idea, that it’s going to displace the idea that was newer and better of theirs three years ago, that somehow that that’s a critique of the idea that they came up in the last round.
People have to remove the sort of personal aspect of this so that they can remind themselves that what they’re trying to do is band together and find great solutions for the organization, rather than they’re involved in some tournament or competition with their colleagues to see who can look the smartest for the longest. So anything that you to balance this political orientation can be helpful. Companies like IDEO actually value most not the originator of a new idea, but the people who give the assist to the new idea, who actually help make the idea really, really good. So in some ways that takes the pressure off this sort of idea generator as being the most important role within an organization.
Ray Zinn: No, what’s interesting is what I would do is … this is an example, is I’d take a brick, just a red brick, put it on the table with our brown bag out of the box thinking group, as you would, and I’d say, how can we improve on this brick? And they would stumble and stumble, and then I would grab … off the floor, I’d grab up a paver and I said, “We don’t build driveways or structures anymore out of brick. We use a paver. So the pavers are different colors and different shapes,” and I said, “So this is how they pivoted from just this plain old red brick to a paver, and so I’m saying you got to think it through. Don’t be stuck with the brick. Come up with how do we improve on it.” So that got them thinking about, you got to think outside the box. So inside the box is all what we call the knowns, everything that we know, and so people who get stuck inside are people who are inside the box. So I say you got to think outside the box, and that means you got to forget about conventional wisdom. Get really creative, get really wild, and where can we go? So I said, “Not only do I want you just to go outside the box, but I want you to go beyond that, go to the unknown, and even beyond the unknown.”
When I invented the wafer stepper in 1975, it was so radical, and by the way, it took 10 years for it to get adapted because they had to have all the support equipment to support the idea I had, but that idea, which was 10 years before it was needed, actually has now become the most important piece of equipment that we use in manufacturing semiconductors to really get these very dense and high performance chips out that we do today. So it was really out of the box thinking and it, by the way, cost me my job and I ultimately left and formed my company Micrel, because I was too far out of the box for the guys that I was working with, and so people who are deep thinkers and people who really can pivot and think beyond the box, as you would, are the ones that are going to be your most creative and positive innovators, and so when I put my teams together, I take some … not all of them are brainy, print ping pong guys, but I put one with that group and then surrounded with the guys who were more practical. Between the ping pong guy and and the practical ones, we came up with some very, very good products at Micrel, and some that we’re so well known for even to this day.
Professor Chatman: Those are great examples, and the fact that you left the organization meant that the political challenge was too great, and look what that company lost out on. The world benefited because you started Micrel, but that organization lost because you were too challenging to the status quo, which is unfortunate, but let me just make one little point, which is about the other piece of it. There’s the surfacing of creative ideas and then there’s implementing those ideas, and what’s so difficult for organizations is to be able to do both well, to have this kind of ambidexterity of coming up with creative ideas, but also being able to choose one and run with it, and what’s important there is now that you’ve identified the idea that you’re going to push through to production or commercialize or whatever your process is, now is the time for members of the organization to align behind that and be as scrappy and fast as possible, because the opportunity window, as you said before Ray, is very, very short, particularly in a place like Silicon Valley, where people are coming up with new ideas all the time. So this is where kind of speed and a sense of urgency really matters on the implementation side, and that’s why it’s difficult for organizations to stay innovative, because there’s both this coming up with that idea case and the speed and urgency needed for the implementation side.
Ray Zinn: Well again, this subject of having the right kind of culture and creating a culture of innovation is not easy, and it does take someone, a leader who will challenge his people to think outside the box, and unfortunately, those who stay inside the box because it’s comfortable, it’s like a cocoon, they feel comfortable, and they just can’t break out, but those who can break out become that beautiful butterfly that stuns us all because of its beauty, and that metamorphosis that we go through as a company is one like companies like Apple have done, which keep innovating and keep causing their product line to be refreshed and new. Now I’m interested to see where kind of they go from here, because we’ve been kind of stuck now in the last 10 years with the smartphone, as you would. They had the Apple watch, but we’ll see what we can do. IOTs, that’s internet of things, that’s a new area and that tech could be promising for all of us, but put your thinking caps on. Don’t be a buggy whip. Be creative, but be not just innovative, but be able to execute on that idea. So again, I really appreciate this podcast and look forward to doing podcast number three. So I hope you all will stick around.
Guy Smith: Now before we break away, though, I am going to exercise the MC’s prerogative here, because you sparked a question in my mind. One thing which I heard is that innovation is inherently disruptive. I mean that’s the whole purpose of it, to change things, and so I heard the two extremes. We have a situation where an organization is not readily adaptable, and thus they cannot be flexible enough to absorb disruption, and on the other side, you have the ping pong ball analogy where things are perpetually disruptive to the point of the organization becoming nonfunctional. So my question to Ray would be, how do you recognize when the ping pong ball syndrome is beginning to develop inside of a company? And to professor Chapman, my question would be how do you recognize when an organization is so awesified that they’re not adaptable and ready to be disrupted?
Ray Zinn: Well the ping pong effect is the project never gets finished. It just goes on and on and on. It becomes almost like a culture unto itself of, “Well, they’re not ready to release. We’re not ready to release. We’re looking for perfection,” and so they just can’t drop it. I mean they just want it … they’re, “Oh, I’m not ready, I’m not ready,” and so then they ping pong off to another product idea and it never gets finished or completed, and I have seen that as much or more than I have on just getting it out and getting it out quickly in the well, rather than just keep innovating, innovating, innovating for the sake of just coming up with ideas. So I’ve seen both.
Professor Chatman: Well, so Ray, your intuition there is backed up by systematic search that shows that most organizations are better at the idea generation side than they are on the implementation side, and what distinguishes the really successful firms is they’re the ones who actually pick one and push it out the door, and so it’s interesting that what we would think of as the easier process actually is the more difficult one for organizations. In some sense, having great ideas is kind of a typical capability that many organizations have, and I would say in technology, it’s even part of the lifeblood, that they’re coming up with ideas all the time. The real question is when you pick one and implement in a timely way that gets it out there before the opportunity window closes, and that’s what the research shows.
Ray Zinn: Yep. That’s 100% correct. I mean I’ve seen it time after time, and we’ve had to make some very difficult decisions when we start seeing that sort of phenomena happening, where we’re constantly innovating, but never creating, never finishing.
Guy Smith: Well it sounds like we almost have the opportunity for a fourth episode where we discuss the different micro-cultures between the people doing the innovation and the people who are delivering, but we’ll save that for some other time. First, thank you, professor and thank you, Ray, for joining us today. This is one of the most fascinating topics in Silicon Valley because everyone talks about it. Not very many people do it very well, and I think our audience is well served by your expertise and your experience, and for you listeners who are tuned in today, do us a favor. Write and review the Tough Things First podcast. We’re rated in the top 10 list of Silicon Valley podcasts and we want you to rate and review and then share it with your friends because they will benefit from this as well, and tune in next week for the final of this three part episode where we will go a little bit deeper still into the essence of having a great corporate culture that allows you to be in the innovation organization.