The Journal of The Human Resource Planning Society

Volume 29 Issue 3 2006

Special Issue — Innovation

Building and Sustaining a Culture that Supports Innovation

Jay Jamrog/Mark Vickers/Donna Bear

Case Studies in Emerging Innovation

McDonald’s/Motorola/Health Care Service Corporation

Case Studies in Sustained Innovation

Whirlpool/Timberland/Best Buy

CURRENT YR/VOL

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 HUMAN
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The 2006 Corporate Sponsor Forum Allan Bradshaw

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 2006: VOLUME 29, ISSUE 3

Human Resource Planning

TABLE OF CONTENTS

HRPS News 4

Article 5

Building and Sustaining a Culture that Supports Innovation

Jay Jamrog/Mark Vickers/Donna Bear 9

Emerging Innovation 20

McDonald’s 21
Motorola 23
Health Care Service Corporation 25

Sustained Innovation 27

Whirlpool 28
Timberland 31
Best Buy 34

Book Reviews 37

Membership/Registration/Order Form 44

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HUMAN
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Human Resource Planning
VOLUME 29, ISSUE 3
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4 HUMAN RESOURCE PLANNING 29.3

 ARTICLES Richard M. Vosburgh, Executive Editor

This truly is a special edition of the journal, dealing with one of We are indebted to James Dulebohn (Michigan State University)

the most important areas that we in human resources can and must as the ongoing editor of the book review section. The first review is

help facilitate—innovation. Our editorial staff for the journal met Peter Drucker’s book Innovation and Entrepreneurship: Practice

almost a year ago and decided that this topic warranted a deeper and Principle. Drucker’s 1985 book is widely viewed as providing

dive. Two of our editors, Ed Gubman (Strategic Talent Solutions) enduring information and as the classic treatment of innovation.

and Jay Jamrog (The Human Resource Institute), stepped forward to This work is extensive in its presentation and convincingly argues

lead this effort. Bill Stopper (The Walker Group) took responsibility that innovation is purposeful and involves an organized, systematic

for many of the organizational case studies, and James Dulebohn process. Further, Drucker demonstrates through his book that inno¬

(Michigan State University) led the book reviews. These are the HR vation represents behaviors that most people are capable of learning.

professionals who deserve all the credit for pulling this edition From this basis he presents principles of innovation including

together, so my introduction is brief. sources of innovation opportunity that lead to market success.

HRPS is committed to addressing strategic organizational issues. The second review is of Tom Kelley’s The Ten Faces of

The upcoming HRPS Corporate Sponsor Forum (October 22-25 in Innovation: IDEO’s Strategies for Beating the Devil’s Advocate &

San Diego) is also focused on the theme of innovation (Making the Driving Creativity Throughout Your Organization. Written in

Difference: Leveraging Culture, Innovation and Talent). If you are 2005, this book provides innovation case histories that illustrate

not yet a Corporate Sponsor, or have not yet made plans to come, it Kelley’s conceptualization of 10 roles that, singularly and inter¬

is not too late (go to www.hrps.org). mixed, drive a successful innovation culture and process. As a

We all see organizations publicly claiming innovation through recent work, Kelley provides specific best practices in organizations

their commercials, websites, and advertisements for products, serv¬ that facilitate innovation.

ices, and talent (recruitment). The reality of creating an innovative We hope that the ideas contained in this journal will help jump

culture that fosters new ideas is far more difficult to create than is start innovation in your organization.

the design of a new external marketing campaign. In the space

between claiming innovation and making it real, effective HR Richard M. Vosburgh, Ph.D., HRP Executive Editor
SVP-HR, MGM Mirage Resorts
groups can make a contribution. This edition of the journal explores
rvosburgh@mgmmirage. com
many organizational examples of how innovation can be fostered

and maintained over time.

In addition to the extensive research review and a large

assortment of organizational case studies, the two book reviews are

specifically in the area of innovation.

HUMAN RESOURCE PLANNING 29.3 5

 Survey to take an in-depth look at the various types of innovation—
Introduction by the Editors of this Special Edition
breakthrough, incremental, and organizational—that companies
The tide is turning in corporate America. The almost single-
pursue. The authors analyze what drives different types of innovation
minded focus on pruning costs, and the various techniques used to
and the components of a culture that supports innovation.
get there—six sigma, lean manufacturing, restructuring, operational
The HRI survey results show that more than two-thirds of the
efficiency, and others—that dominated the early years of this century
1,356 global respondents said they consider innovation to be either
are no longer leading the business agenda. For a while now, the idea
“extremely important” or “highly important” to their organizations
has been building that it is time for growth. Opportunities are out
today. Yet, those impressive numbers pale when compared to respon¬
there for the taking, but there are no shortcuts to achieve them.

Our renewed attention on pushing the top-line has many people dent’s predictions about the future. Fully 85 percent said innovation

rethinking how to achieve faster growth. The choppy seas brought will be “highly” or “extremely” important in 10 years.

about by globalization, especially the rise of India and China, as well At the same time, survey results suggest that most companies are

as rapidly advancing technologies and shifting demographics and only moderately effective at innovation. The research literature implies

wealth patterns, have business leaders searching for new and that the vast majority of innovation efforts fail to meet or exceed

improved routes to expansion. Particularly noteworthy is how some return-on-investment goals. Some of this may result from an issue the

smart companies have used breakthroughs in product design and the authors describe: There is no consensus on how to evaluate ideas in

customer experience to churn out big results. organizations. Many companies do not know how to select which

The key to navigating these difficult waters is innovation. Business innovations to pursue and which to let die.

Week calls it the “creativity economy”—a paradoxical economy Survey respondents said customer demand is the top reason for

flooded with cheap goods, but one in which people will pay a premi¬ pursuing innovation, both today and in the future. Throughout much

um for high value items, loaded with imaginative features. This is why of the survey, respondents viewed customers as the most dominant

innovation is on everyone’s minds. Once considered primarily an output factor influencing innovation. But a focus on customers is not enough.

of R&D labs, innovation has become a corporate priority that Innovation is inextricably linked to corporate cultures that put an

touches every facet of an organization and almost all employees. emphasis on teamwork, collaboration, communication, appropriate

Even external constituents—customers, academia, the government, risk-taking, freedom to innovate, and other factors. To adapt to an

communities, vendors, and competitors—are playing increasing roles uncertain future, companies need to become more resilient and agile

in organizational creativity and invention. in some areas, more disciplined in others. They need to be more inno¬

Aligned to our mission at HRPS, we offer an in-depth look at the vative, not only in terms of products and services, but also in the ways

human side of innovation—specifically how businesses are driving they manage. They must become more forward-looking and capable

innovation through culture, organization, leadership, and talent. We of anticipating future trends. Before they can innovate for the market¬

have created an innovative issue to look at the topic. We have altered place, they must often reinvent themselves, or at least their innovation

our usual format to include a major research piece that offers a processes.

comprehensive survey of what is happening in innovation in global Following this major piece of research, we present six case studies

business, several case studies of major organizations initiating or sus¬ on innovation. The first three cases involve new or emerging efforts at

taining crucial efforts in innovation, and book reviews of both classic innovating to improve the customer experience, to increase efficiency

and new volumes on the topic. Our hope is that reading this issue will and to use data and technology to increase results for customers and

enable you to launch your organization on a new path to growth partners. The next three cases offer lessons from companies that have

through innovation, or significantly bolster your ongoing efforts. been working at innovation for several years. Each of these cases illus¬

In the first article, Jay Jamrog, Mark Vickers, and Donna Bear of trates some of the key points from the HRI global survey about

the Human Resource Institute use HRI’s 2006 Global Innovation process, business model, product, and customer innovation.

6 HUMAN RESOURCE PLANNING 29.3

 McDonald’s has adapted the mantra of “think big, start small, and Sustaining innovation initiatives is the focus of the next section of

scale fast” to create new products and kitchen processes that improve this issue of Human Resource Planning. We knew about the initiatives

the customer experience. McDonald’s is so huge that new products at Whirlpool, Timberland, and Best Buy, as all three companies

often require years of advance planning so that supplies of foods like presented their stories at the 2004 HRPS Corporate Sponsor Forum. At

chicken and apples are available when items go to market. McDonald’s the time, Whirlpool was well along in embedding innovation into its

is working hard to balance the entrepreneurial drive of its owner-oper¬ corporate culture and entire organization, but Timberland with its

ators, many of whom can innovate “on a dime,” and the standardized Invention Factory and Best Buy with its new thrust toward customer-

needs of a corporation that feeds more than 1 percent of the world’s centricity were in earlier stages of their innovation journeys.

population every day. We returned to these companies recently to learn how successful

Motorola's goal is to become as effective at supply chain processes they have been in sustaining the momentum behind their initiatives and

as it is in product design. While launching a number of sleek new realizing significant results. We are pleased that all three have made

handsets to recapture the mobile communications marketplace, remarkable progress. In each case we report to you the extensive

Motorola is also consolidating all of its separate supply chain opera¬ lessons these companies have learned and offer some insights about

tions into one global organization. This new business model is designed applying the lessons to your companies. No one innovates the same

to innovate continuously so more customized products can be moved way, and your organizations will require tailoring as well. Whirlpool is

around the world faster and less expensively. innovating world wide, whereas Timberland uses specialized innova¬

Our third case is HCSC - Blue Cross Blue Shield of Illinois, Texas, tion labs. Best Buy started by piloting with some of its stores and

New Mexico, and Oklahoma. HCSC is committed to customer service then slowly rolling out its new customer-led model to other stores;

advocacy—giving all of its 11 million members the experience that they however, it quickly learned to accelerate the rollout to all remaining

have a family member working at the company, looking out for their stores simultaneously. As each company notes, changing to a more

well being. Doing this requires a massive effort to engage their innovative culture takes a lot of time, energy, and executive attention.

customer service advocates and provide them with detailed information

Ed Gubman JayJamrog
on their members, so advocates can fully engage their members to Strategic Talent Solutions Human Resource Institute
improve their health and lives. ed@strattalent.com jamrog@hrinstitute.org

HUMAN RESOURCE PLANNING 29.3 7

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Building and
Sustaining a
Culture that
Supports
Innovation
Jay Jamrog, Mark Vickers, Donna Bear, Human Resource Institute, The University of Tampa,
St. Petersburg, FL
I n today's fast-paced business
environment, innovation is a
prerequisite for success—per-
I haps even for survival. That
is why innovation has found its
way to the top of the agenda at
organizations around the world.
In the Innovation Survey conduct¬
ed by HRI in November and
December 2005, more than
two-thirds of the 1,356 global
respondents considered innova¬
tion either "extremely impor¬
tant" or "highly important" to
their organizations today. Those
impressive numbers seem mod¬
est when compared to respon¬
dents' predictions about the
future. About half of respon¬
dents think innovation will be
"extremely important" to their
organizations in 10 years, and
35 percent say it will be "highly
important."
Once considered primarily
an output of R&D labs, innova¬
tion has become a corporate
priority that touches every facet
of an organization. External
constituents, too—customers,
academia, the government,
vendors, even competitors—
are playing a growing role in
companies' creative processes.
Yet the survey results showed
a gap in the way US firms
and their counterparts abroad
approach innovation.
In this article, we look in
depth at what is driving innova¬
tion and how companies view it
and analyze the components of
an organizational culture that
supports innovation.
HUMAN RESOURCE PLANNING 29.3 9
 Nearly three quarters (71.4%) of US respondents viewed their
companies as moderately successful at innovating. At face value, this
statistic indicates that US companies enjoy a degree of comfort in their
abilities to drive the kinds of breakthrough ideas that have historically
defined them as leaders in their respective fields. Although US
executives say they value innovation, only a third put systems in place
to foster and reward innovation in the workplace. On the other hand,
more than half of companies in Europe and Asia have formal
structures in place to review and evaluate innovative ideas.
This may result from an overly conservative attitude towards risk
at these companies in the United States. Only 5.2 percent of US com¬
panies polled said that risk taking is rewarded within their companies,
implying that companies are hedging their bets on innovation.
Nobody likes risk, least of all corporate managers. Still, without risk
there is no innovation. A recent survey of businesses revealed a
painfully conservative approach towards risk, and a correspondingly
lackadaisical approach towards fostering innovation.
This is supported by the finding that most of the focus on inno¬
vation takes place in the area of research and development, suggest¬
ing that innovation is compartmentalized from the rest of the
organization. But to be truly effective, innovation needs to move out
of the clean room. It needs to take place at every level of the organ¬
ization. Anyone who has spent time trying to reach the customer
service department at a US company, for example, would know this is
clearly one area in which companies should be applying some of their
innovative talents.
The news is not all bad, however. The findings brought to light in
the survey offer hope as well. Many companies are fostering customer¬
centric cultures that are focused on innovation, and these companies
offer lessons in how firms can stay competitive.
The Race for Innovation: Who Has the Innovation
Edge?
Many experts still consider the United States to be the most inno¬
vative nation in the world, but some warn that the nation’s lead in this
area is quickly slipping away. They point to three general trends:
1. The percentage of papers in top physics journals authored by
Americans declined from 61 percent in 1983 to just 29 percent
in 2003.
2. Fewer Nobel Prizes have recently gone to Americans.
3. Americans’ share of US patents is now about 52 percent, down
from 66 percent in the years prior to 1988 (Broad, 2004).
There is a problem in science and engineering as well. Even as US
doctoral degrees in science and engineering have declined, there has
been a fairly steady rise in such degrees in Europe and a remarkably
sharp upsurge in Asia. Science and Engineering Indicators 2004, a
biennial report of the National Science Board, reports that the US
ranks just 17th among nations in terms of the percentage of its 18- to
24-year-olds earning natural science and engineering degrees, whereas
it was ranked third in 1975.
In China, many students are graduating in the fields of science and
engineering, potentially leading to greater innovation in the future.
Although China is spending less than the United States on R&D,
it may be getting a huge return on its investment because Chinese
engineers and scientists earn much less than their US counterparts. By
some calculations, China has 1.3 million researchers, compared with
743,000 in the United States (Fishman, 2005).
If current trends continue, by 2010 over 90 percent of those
10 HUMAN RESOURCE PLANNING 29.3
educated in physical sciences and engineering might be Asian workers
who live in Asia (Human Resource Institute, 2004). Already, R&D
centers are springing up in both China and India.
Even as the United States' relative advantage in innovation has
declined, other nations have made progress. The northern nations
of Europe (Sweden, Finland, Denmark, and the Netherlands)
achieved particularly high scores in a “creativity index” of 15 coun¬
tries, compiled by London think tank Demos. The index looks at
the “3Ts of economic growth,” which include talent, technology,
and tolerance. The United States “placed second behind Sweden on
the overall creativity index and fell to 10th out of 14 countries in
terms of growth of creative capabilities in recent years,” according
to a press release (Demos, 2004).
Other nations have also made progress in the field of innovation.
Japan is second only to the United States itself in terms of the percent¬
age of US patents granted in 2003. Canada, too, has fared fairly well
in innovation, ranking fourth (behind the United States, Sweden, and
Finland) of 24 OECD countries, according to a report from the
Conference Board of Canada (Vu, 2004).
Latin America has also been making progress, according to data
from the National Science Foundation. Between 1988 and 2001, the
number of science and engineering articles authored by Latin
Americans nearly tripled. The majority of this writing was generated
by authors from Brazil, Mexico, Argentina, Chile, Costa Rica,
Colombia, and Venezuela (“Science Research Rises,” 2005).
What Is Innovation?
Innovation is the term used to describe how organizations create
value by developing new knowledge or by using existing knowledge in
new ways. The term is often used to mean the development of new
products or services, but organizations can also innovate in other
ways, as through new business models, management techniques, and
organizational structures.
The literature on innovation is large and covers a wide range of
topics. Over the last half century, the kinds of innovation that
have been examined and the kind of problems in which innovation
scholars are interested have changed. “In the 1960s,” reported JT
Hage (1999) of the University of Maryland’s Center for Innovation,
“the emphasis was on incremental change in public sector organiza¬
tions, while in the 1980s and 1990s it [was] on radical change in
private sector organizations” (p. 600).
In economics, Nobel Prize winner James March (1991) uses an
organizational learning perspective to distinguish between innovations
that explore for new knowledge and innovations that find clever new
ways to exploit existing knowledge. Firms that explore for new
knowledge may seek incremental scientific improvements to serve
existing markets, or may break away from the safety of existing
products and markets to pursue bold new product ideas or try to
create new markets.
Product and Service Innovation
Incremental Innovation
Applied science that searches for incremental improvements to
existing know-how adds value to existing products for existing
markets and is more common than high-risk pure research. Indeed,
the most common form of innovation is to look for low-risk ways to
improve the design of existing products using current knowledge to
serve today’s markets. Larger and more established firms tend to be
more risk-averse and prefer innovations that have a greater chance of
making money even if the potential returns are less than spectacular.
These firms often have a large installed customer base and a larger and
a more geographically dispersed supply chain.
For these firms, the central innovation challenge is constantly to
move the performance bar a little bit higher without losing the ability
to keep a complex set of technological and business relationships
arranged in an orderly fashion. These firms prefer gradual incremental
innovations and tend to delay more fundamental innovations as long
as possible (Anderson & Tushman, 1986, 1990).
Nothing is easy about taking a more incremental approach to inno¬
vation and product development. Mature products tend to be more
complex to design, produce, market, and distribute because significant
commitments have already been made and are hard to change despite
the constant threat of new entrants and technological change.
During the 1980s, Japanese companies in the automobile industry
came to represent the state of the art in rapid, cost-effective, high-
quality product development. The rise of Japan as an industrial
power owed much to faster, more productive product and process
development (Womack, et ah, 1990). Companies learned that
the complexity of new product introductions requires concurrent
product-process design participation by hundreds of suppliers
(Howells & Wood, 1993).
Nothing is easy about taking a more incremental
approach to innovation and product development. Mature
products tend to be more complex to design, produce,
market, and distribute because significant commitments
have already been made and are hard to change.
Products that are incrementally improved can lead to new product
“architectures” that seem dramatically different and can undermine
the usefulness of the knowledge of established firms (Henderson &
Clark, 1990). Hybrid cars, for example, are the result of many small
improvements in automotive technology, but, combined into a new
product architecture, they can lead to big changes in the competitive
environment.
The complexity of new product development can be reduced
by designing “platform products”—groups of products aimed at a
market segment or customer group with the same product architecture
applied to a series of related products (Meyer & Utterback, 1993).
This allows firms to introduce variations rapidly while delaying peri¬
odic changes in the architecture as long as possible.
Customers also play a role in effective product innovation.
Engineering approaches such as “quality function deployment”
(Akao, 1988) allow designers more freedom to use customer needs to
guide design decisions by translating those needs into product and
engineering specifications.
Breakthrough Innovation
Exploring for new knowledge is well illustrated by the basic science
that is often pursued in corporate research and development labs as
well as in university research centers. This form of R&D feeds
the value chain for new product development by making scientific
discoveries and earns a return on investment by claiming ownership of
intellectual property through patents and proprietary knowledge.
Because this form of R&D can be expensive and risky, it is sometimes
hard to justify the investment unless there is some clear idea of the
potential market value of new knowledge discoveries. “Pure science”
is exceedingly uncertain from a business perspective.
Departments that focus on basic research are more likely to be
staffed by people with Ph.D.s; those in departments devoted more to
technology development are more likely to have business educations
and business backgrounds. The “performance” of R&D can be highly
uncertain. Long lags between scientific discovery and technology
development and commercialization occur because knowledge is
missing concerning product design and production know-how
(Narayanan, 2001).
R&D is inherently more difficult to manage with the same yard¬
sticks of efficiency that might be applied to other areas of organiza¬
tions. Lawrence and Lorsch (1967) found significant differences in
the way organizations structure their R&D efforts compared to
their operations, with most R&D departments exhibiting less formal
structure and a longer-term outlook than other departments.
Breakthrough thinking can yield tremendous new opportunities,
but the time needed to bring a breakthrough product to market can be
long and many hoped-for breakthroughs never achieve their goals.
Organizational Innovation
Innovation often means more than the creation of new products
and services. It can mean innovation in terms of business models, man¬
agement techniques and strategies (Hamel, 2006), and organizational
structures. The attempt to create new products and services may spur
organizational, or what some term “management,” innovation, or
innovations such as new business models may arise to take advantage
of newly discovered market opportunities.
One of the principal reasons for organizational innovation is
that established firms can lose not just their ability to innovate but
even their insight into the necessity to innovate. Successful firms
sometimes become blind to opportunities other than those that
sustain their current customer base. Christensen (1997, 2003)
explains that as firms sell more technologically advanced and
feature-rich products to serve their existing customers, they fail to
see discontinuous innovations that would serve new customers in
new ways. Overlooked opportunities might include a demand for
new products that are technologically less sophisticated than their
current products. By achieving higher mastery of technology, and
higher mastery of product complexity, firms risk losing a sense of
how best to respond to customers whose requirements for simplicity
override their need for the most technologically advanced products.
HUMAN RESOURCE PLANNING 29.3 11
Business Model Innovations
History proves that successful innovations often stem from excel¬
lent business models as much as they do from excellent technologies
(Shelton 8c Davila, 2005). Companies may decide to innovate in terms
of how they approach markets. For example, a manufacturing compa¬
ny may decide that it should move primarily into providing services,
such as consulting. Or it may decide to move from being a low-cost
producer to a value-added one that that depends on selling fewer
products at a higher price with larger profit margins.
Business Structure Innovations
Whether because they wish to pursue new markets, pursue new
innovations, or meet some other strategic goals, businesses may inno¬
vate in terms of their structures. This can involve everything from
mergers and acquisitions (often spurred by a desire to absorb some
other company’s innovations) to reengineering to offshoring. For
larger organizations, it can also mean restructuring to try to duplicate
some of the advantages of smaller organizations. Or it can mean
inventing structures that did not exist before, as occurred when the
banks that founded Visa formed a consortium to create a well-known
brand and global financial web (Hamel, 2006).
New markets and new technologies are often easier to pursue in
newer, younger organizations that are not captives of the existing ways
of doing business. Entrepreneurs thrive in this type of innovation.
Entrepreneurs are rewarded by their ability to take initiative in
exploiting new opportunities before others can respond and often
before they understand the true potential of the opportunity. Some
experts emphasize the role of lead customers in actually creating their
own new products (Thomke & Von Hippel, 2002). Entrepreneurs
rapidly build prototypes and test new product ideas in a close relation¬
ship with lead customers.
If organizations are interested in preparing to serve untapped
markets, however, they cannot expect their current customers to lead
them there. Discontinuous innovations require breaking away from
existing organizational practices and perspectives and may also
require the development or acquisition of new knowledge. This type
of innovation often requires an approach resembling the creation of a
new venture, whether in the form of a new organization, or in the
development of a new division within an existing organization
(Christensen & Raynor, 2003).
Business Process Innovations
This type of innovation looks less at what is produced than it does
at how it is produced, though these two factors often influence each
other. When Ford Motors moved to a production line system for
creating a standardized product, the system wound up being a great
process technology innovation combined with a great business model
(Shelton 8c Davila, 2005). In some cases, companies are able to reduce
costs while boosting productivity and quality via business process
innovations.
Depending on how one chooses to look at the literature, other
types of organizational innovation exist as well. For example, it would
be easy to make a case for “business culture innovation” in which a
company systematically tries to forge a new and more innovation-
friendly corporate culture. The literature indicates, though, that any
classification system has certain limitations. A complex subject such as
innovation tends to defy neat and discrete categories, which is one of
the primary reasons it remains a major challenge for organizations.
12 HUMAN RESOURCE PLANNING 29.3
Characteristics of a Culture that Supports
Innovation
The AMA/HRI survey, combined with a literature review and
interviews, clearly shows that an innovative culture has various
characteristics. The ability to focus on customers is viewed as the top-
ranked factor for developing an innovative culture, according to the
survey. This is no surprise given that other sections of the survey show
that customers are the number-one drivers of business innovation.
The innovation literature shows that a focus on customers alone
does not guarantee that a culture will be innovative. Current
customers may not see the possibilities of major technological
paradigm shifts and may have few insights into how companies can
expand into new markets with a very different set of customers.
Organizations also need to have enough resources, teamwork,
communication, autonomy, and other qualities to allow innova¬
tions to flourish. Exhibit 1 illustrates a range of influences ranked
according to the importance that the AMA/HRI respondents
assigned to them. In this section, we examine the role that many of
these factors (and some additional ones that show up strongly in the
literature review process) play in shaping innovation-friendly
organizational cultures.
Customer Centricity
Current and potential customers have always driven innovation in
companies in the modern age, but today’s organizations are taking the
idea of focusing on customers to a new level by “capturing” their ideas
or actually allowing them to innovate in their own behalf.
Some companies look to “lead users” or “luminaries” to help them
innovate. GE’s healthcare division, for example, calls upon published
scientists and doctors from well-known institutions to attend adviso¬
ry board sessions, where discussions of technological advances can
lead to new GE products. BMW has reached out to customers via a
toolkit on its website that allows customers to propose and expand
new ideas. “Not only is the customer king: now he is market-research
head, R8cD chief and product-development manager, too,” sums up
The Economist (2005, p. 59).
“Tapping into the innovativeness and imagination of customers ...
can generate tremendous value,” said Harvard Business School profes¬
sor Stefan Thomke. He recommends encouraging customers to design
what they want with state-of-the-art software. “It could generate
innovations that suppliers simply cannot imagine today” (“Speeding
Up,” 2004, p. 8).
Some companies are also working to create new products and
services geared more for the individual tastes of customers. In what
has been coined a “mass market mutiny,” customers are clamoring
for the host of personalized products that companies allow them to
create. Such customization has become a trend in the clothing, music,
and telecommunications industries. Research by the consultancy
Brand Keys suggests that between 1997 and 2005, the relationship
between customization and brand loyalty grew fivefold (Laue, 2005).
Then there’s the trend toward “design thinking,” an increasingly
popular notion for boosting growth and innovation. The idea is that
we are evolving from a “knowledge economy” to an “experience
economy.” This new economy is increasingly customer-centric and
focused on delivering not just goods but “experiences” to customers.
Successful firms will be those that can deliver better customer experi¬
ences by using empathy skills to build new brands or develop new
consumer experiences using established brands (Nussbaum, 2005).
 EXHIBIT 1
Factors for Developing an
Innovative Culture, by Rank
Factors
Customer focus
Teamwork/collaboration with others
Appropriate resources
(time and money)
Organizational communication
Ability to select right ideas for research
Ability to identify creative people
Freedom to innovate
Ability to measure results of
innovation
Encouraging both small ideas and big
ideas
The Need for Diversity
The most creative teams are drawn from diverse backgrounds, says
Michael West, professor of organizational psychology at Aston
Business School. West says such teams bring diverse skills and knowl¬
edge to projects, offering many creative solutions to problems because
they approach such problems with different perspectives (Glover &
Today In 10 Years
Smethurst, 2003). Team diversity can also help companies improve
1 1 their focus on customers. When diverse employees relate to diverse
customers, companies can tap into new product ideas and markets
2 2 (Lockwood, 2005).
3 6 Tania Aldous, a manager in the global consumer design depart¬
ment of Whirlpool Corporation, says that if employees are to work
on cross-functional teams, “We need diversity of thought, various
4 3 perspectives and cultural heritages.” It is important not to “bring in all
clones,” said Robert Sutton, a professor at Stanford University and
5 4
author of Weird Ideas That Work: IP/2 Practices for Promoting,
6 5 Managing and Sustaining Innovation (Pomeroy, 2004, p. 50).
Michael West cautions, however, that teams made up of people
7 7
from diverse backgrounds can generate conflict, and they must be well
8 8 managed to make sure such conflict remains constructive (Glover &
Smethurst, 2003). The bottom line is that teams and teamwork are
important to innovation, but they require skilled leadership to make
9 9 them as effective as they should be.

Innovation accountability/goals 10 10 Internal and External Collaborations

Culture of risk-tolerance
Organizational structures
Diversity
Balancing incremental improvements
and breakthrough discoveries
More innovation occurs through collaboration and community
11 12 than through the inventive thinking of a single mind, according to
Andrew Hargadon, author of How Breakthroughs Happen: The
12 11
Surprising Truth About How Companies Innovate. Hargadon
13 13 contends that most new ideas are adapted from existing ones, a
concept he calls “recombinant innovation.” What is more, ideas can
14 14
spring from even casual encounters that expose one to a new perspec¬
tive as easily as they can from concentrated teamwork. His book
explores other theories that support the value of community, such as

There’s little doubt that as new business models arise and new tech¬
nologies emerge, organizations will find other ways of gaining new
customers and involving current customers in the innovative process.
Teamwork and Collaboration
Both the AMA/HRI survey, the research literature review, and
interviews show that teams and work groups are critical in terms of
their ability to encourage and support innovation. Of course, not all
work groups are created equal. They are most likely to be innovative
when they can integrate people with diverse perspectives and allow
them to swap ideas and expertise effectively (McLean, 2005). Cross¬
functional teams may be especially good at arriving at new ideas that
are both innovative and practical.
Teams probably will not be successful unless they have the support
of leaders who provide them with clear goals and necessary resources.
On the other hand, poor leadership can be damaging to teams. One
recent study examined how well cross-functional new product
development (NPD) teams are supported. These cross-functional
groups typically include representatives from R&D, design,
engineering, manufacturing, marketing, and key customers and ven¬
dors. The survey of 269 product development managers at US and
Canadian manufacturers found that NPD team managers often
believe that the teams will usurp their power, and sometimes a lack of
commitment and communication exist when it comes to such teams
(Boyle, et al., 2005).
the concepts of “serious play” and “communities of practice,” in
which companies purposely create internal networks to foster knowl¬
edge-sharing and creative thinking (Kleiner, 2004).
Collaboration occurs both within organizations and among them.
These days, only slightly more than half (55%) of innovation is
generated internally. Organizations are tapping academia, the govern¬
ment, and other firms for fresh ideas, according to the 2004 Making
Innovation Work study by The Conference Board. That survey found
that organizations seek innovation through collaboration with univer¬
sities, private R&D labs, and government agencies and through
participation with consortia. Such “open innovation” is expected to
strengthen as firms continue to diversify their innovation portfolio
(Troy, 2004).
Companies with R&D located in the United States seem particu¬
larly interested in collaborations based on alliances. Relatively large
increases in “participation in alliances and joint R&D ventures” have
occurred in recent years. In fact, 61 percent of surveyed companies
expected to increase their participation in those endeavors in 2006,
according to the IRI’s 22nd annual R&D Trends Forecast (Ayers,
2006).
Sometimes companies collaborate through investment. Companies
that do not want to risk trying to achieve their own breakthroughs
find ways to invest in other creative but risky firms by providing some
of their start-up capital or by buying these companies once they prove
the value of their ideas. Real-options reasoning provides valuable

HUMAN RESOURCE PLANNING 29.3 13

 communication among different parts of the organization, communi¬
EXHIBIT 2 cation among team members, and communication up and down the
corporate hierarchy. Communicating not only means sharing ideas but
Top-Ranked Barriers to also sharing the lessons learned from failures and successes. Ways to
Innovation"' enhance communication include more inclusive meetings, better
online tools for sharing knowledge, cross-functional assignments, and
Barriers Rank more brainstorming sessions (McGregor, 2005).
The most suitable type of communication (e.g., via technology or
Insufficient resources 1
face-to-face meetings) will often depend on the type of collaboration
No formal strategy for innovation 2 needed to solve problems that call for creativity (Sonnenburg, 2004).
In situations in which an organization is trying to develop more
Lack of clear goals/priorities 3
radical innovations (or find more radical solutions to problems),
Lack of leadership/management support 4 collaborators are often friends or partners who need to communicate
on a more personal level. In other situations, technology-mediated
Short-term mindset 5 communication is probably sufficient.

Structure not geared toward innovation 6

EXHIBIT 3
"'Seen by 10 percent or more of respondents as the #1
barrier in their organizations.
Percentage Using These
Approaches to Evaluate Ideas
insight into how flexible commitments can be made to fund
breakthrough research projects by taking the investments of large
in Their Organizations
companies and spreading them across many path-breaking smaller
Approach Percent
firms in the hope that some of them will succeed (McGrath, 1997).
But whether collaboration is among companies or individuals, the There is no standard policy for reviewing and 47.6%
differing backgrounds that parties bring to the table can often produce evaluating ideas
friction or conflict that erodes trust. Cultural differences must be taken
There is an independent review and evaluation 16.5
into account. If properly channeled, such conflict can benefit the
process for ideas
innovation process. The collaborating entities must focus on their
commonalities, such as goals and challenges, rather than their Ideas are reviewed and evaluated by the manager of 15.4
differences, but properly managed friction can serve as a catalyst for the unit in which the idea was proposed
productive change (Hagel & Brown, 2005).
Ideas are reviewed and evaluated by the unit that 12.6
would be affected by the idea
The Right Resources
The 2005 AMA/HRI survey showed not only that “appropriate The employee is responsible for starting and manag¬ 7.6
resources (time and money)” was among the top factors for develop¬ ing the review process
ing a culture of innovation but also that “insufficient resources” was
the most widely cited barrier to innovation.
More is not always better. Having too few resources hinders inno¬ Communication also includes storytelling: telling both
vation, but having too many might also be a kind of obstacle inspirational and cautionary tales. After all, stories about why ideas
(McLean, 2005). Employees with long spans of time in which to come fail might be as valuable a source of learning for businesses as stories
up with results may lose motivation. The right balance of money is about success. Without examining why ideas fail, valuable lessons that
important, too. Too little, and employees have to devote time and might be learned are lost, according to Jerker Denrell, assistant profes¬
energy into seeking other resources. But too much (beyond the sor of organizational behavior at the Stanford Graduate School of
“threshold of sufficiency”) has not been shown to have a positive Business (Wagner, 2005).
effect on creativity (Troy, 2004).
This rule applies to research and development as well. A recent An Ability to Select the Right Ideas
Booz Allen Hamilton study found that “there is no relationship Fully 96 percent of all new innovation initiatives fail to at least
between R&D spending and the primary measures of economic or meet return-on-investment targets (“Creative,” 2005). Although hav¬
corporate success, such as growth, enterprise profitability and ing an idea-sharing culture in place is part of the profile of innovative
shareholder return” (Jaruzelski, et al., 2005). On the other hand, the firms, the bigger challenge may lie in having the right processes in
same study shows that spending too little on R&D can hurt corporate place to cull quickly through those ideas and select those to shepherd
performance. through to fruition.
There is no obvious strategy for selecting or even evaluating ideas.
Communication Nearly half (48%) of the AMA/HRI respondents reported they do not
A truly creative culture tends to be distinguished by open commu¬ have a standard policy for evaluating ideas, by far the largest response
nication and the free exchange of ideas (McLean, 2005). This means to a question on this subject. The next most common responses?

14 HUMAN RESOURCE PLANNING 29.3

About 17 percent said they use an independent review and evaluation
process; 15 percent said ideas were evaluated by the manager of the
unit in which the idea was proposed.
Some experts contend that the best way to sort through multiple
options in the pursuit of innovation is to create a defined portfolio of
innovation approaches. This allows a company to balance different
types of innovations (e.g., incremental and breakthrough) in order to
maintain a healthy range of selections.
Some companies vest their employees with the responsibility
to “sell” their own ideas. Whirlpool Corporation, for example,
encourages innovation teams to pursue new ideas by creating a
business case and applying the $25,000 in funding to prove its worth
quickly. The low-budget, quick-turnaround method was a far cry from
the big-dollar projects of Whirlpool’s past and was designed to gener¬
ate “radical and low-risk” ideas (Pomeroy, 2004). Whirlpool also uses
an “i-pipe,” or online idea pipeline, in which ideas are shepherded
through the process by trained i-consultants and i-mentors who help
employees to work as part of an innovation team. Surveys, business
plans, focus groups, and brainstorming sessions are all tools that
might be utilized to manage the project. Separate teams may nurture
an idea through the research, development, and implementation
phases, as well (Pomeroy, 2004).
American Family Insurance Group, too, gives peer groups the vote
for determining the feasibility of new IT projects. IT code writers are
encouraged to develop prototypes quickly without heavily investing
time and effort to demonstrate what a new application might accom-
What If research claims that the physical environment
stimulates eight out of 10 new ideas, with creativity trig¬
gered by something immediately visible to the employee
plish. Depending on colleague reaction, the project might get
approved for code development (Ulfelder, 2005).
Technology plays an important role in idea evaluation as well.
Some organizations are bypassing physical models and using Web-
based simulations or rapid prototyping to test designs (Shelton &
Davila, 2005). Among the advice from UK business school Henley
Management College is to use technology solutions such as computer
or mathematical simulations to evaluate ideas. When it comes to
decision time, that companies are recommended to ask questions from
a commercial perspective. Identifying the problems that will need to be
addressed in order to implement the idea is one of the key decision
points (Henley, 2005).
All in all, the ability to make quick decisions and to move from idea
to action appears to be a key determinant of successful innovation.
According to Patrick Kulesa, global research director for ISR,
“Successful innovation companies excel not only at setting the stage for
generating new ideas, but also have the business discipline and process¬
es necessary to take those new ideas to market” (Kulesa, 2005, p. 41).
Creative People
Companies need creative people, of course, but it is a myth that
innovation stems only from a small cadre of “creatives” (Breen, 2004).
When it comes to creativity, in few areas of human activity do we all
start out so equal, according to Kristina Murrm, managing partner of
the What If consultancy (Glover & Smethurst, 2003). Some experts
say that creativity is, to a large degree, a trainable skill.
Still, people who are prone to invention do tend to share certain
traits or habits, notes Murrin in her book Sticky Wisdom. For
example, they have a stimulating life outside of work that triggers cre¬
ativity, they use prototypes to bring ideas into reality, they often “go
their own way,” they communicate and are open to ideas, and they
have the courage to express new ideas (Glover &c Smethurst, 2003).
Some of these observations may be borne out by history. Creative
people such as Edison, Shakespeare, Mozart, Einstein, and Darwin
had wide-ranging interests and ideas that allowed them to innovate
in their fields. They also had the courage of their convictions. They
suffered various failures but eventually brought finished projects to
fruition (Sutton, 2004).
The corporate environment plays a large part in helping people live
up to their creative potential. The freedom to fail without heavy penal¬
ty can, for example, be a powerful support to eventual success. So can
physical environment of the workplace. What If research claims that
the physical environment stimulates eight out of 10 new ideas, with
creativity triggered by something immediately visible to the employee
(Glover & Smethurst, 2003).
Not only do employers need to recruit and retain creative people,
they need to provide training in creativity and set up work environ¬
ments that stimulate creativity in all employees.
Freedom and Risk-Tolerance
The autonomy to work toward goals is an important feature of an
innovative culture. This does not necessarily translate, however, to the
autonomy to decide those goals. Research conducted by Professor
Teresa M. Amabile of Harvard University shows that employees’
creativity is enhanced when their goals are clearly specified but they
are granted freedom to pursue those goals by whatever means they
decide. Too much control can impede creativity and innovation.
Laird D. McLean combed through the research of innovation
experts and concluded that several types of control can inhibit creative
performance. “It could be control in decision making, control of infor¬
mation flow, or even perceived control in the form of reward systems
that put too much emphasis on increasing extrinsic motivation,”
McLean (2005) writes.
HUMAN RESOURCE PLANNING 29.3 15

EXHIBIT 4
Relative Importance of Ways
of Measuring Creativity
and Innovation
Measurement Types Rank
Customer satisfaction 1 The Conference Board survey also found that respondents said
2 measures related to innovations (e.g., patents, R&D spending as
Market share
New products/services/processes produced 3 ures (e.g., sales, market share), process measures (e.g., time to market,
Financial impact of ideas submitted by employees 4
Innovations as percentage of revenues and profits 5 Some experts (Muller, et al., 2005) say innovation should be
Spending on research and development 6
Spinoffs/new operations based on new products 7 and time with factors such as percentage of workforce time
Intellectual property (e.g., number of patents) 8 experience, or percentage of capital dedicated to innovation-
Organizations must also be willing to allow a certain amount of
risk-taking. Risk implies a danger of failure, but innovative companies
know that failure is as essential a part of the growth process as
success. Organizations that understand risk-taking is necessary make
that message come alive through their employee communications,
their idea-sharing and evaluation processes, their recognition
programs, and their reward systems.
Managing employees in a way that encourages innovation requires
leaders to acknowledge and reward risk-taking behaviors, not just suc¬
cessful outcomes. John Sweeney, author of Innovation at the Speed of
Laughter, suggests managers use techniques such as initially welcom¬
ing all ideas without first judging them, creating an atmosphere where
opinions can be freely shared, and reinforcing the value of employees’
contributions by acting on them (“Employee Innovation,” 2005).
Ways of Measuring Results
Innovation and its impact can be measured in a number of ways,
though none of them is perfect. The top-ranked measurement type,
customer satisfaction, is not a major surprise given the high ranking of
customer-related factors in all parts of the AMA/HRI survey. But it is
interesting to see how much more important respondents consider it
compared to measures such as innovation as a percentage of profits or
as measured in terms of intellectual property. On a 1 to 5 Likert scale,
where 5 is extremely important and 1 is not important, customer
satisfaction received a whopping 4.36, compared with just 3.40 for
“innovation as a percentage of revenues and profits” and 3.07 for
“intellectual property.”
It is interesting to see how this data compares with that of other
recent research, which looks less at the importance of innovation
measures and more at their degree of usage. Only about half of the
fast-growing US businesses (48%) have tried to link innovation to
measures of success, according to results from PwC’s Trendsetter
Barometer. Of those that made the effort, the most common measures
16 HUMAN RESOURCE PLANNING 29.3
included overall revenue growth (78%), customer satisfaction (76%),
revenue growth from new products/services (74%), productivity
increases (71%), earnings (68%), recruitment/retention (34%), and
market capitalization (17%) (PricewaterhouseCoopers, 2005).
A 2004 Conference Board study found that to track the success of
employee innovations, respondents used measures such as total
number of employee ideas submitted annually (76%), financial impact
of implementing employee ideas (76%), and percentage of ideas
implemented (56%).
percentage of sales) were the most useful, followed by financial meas¬
fulfillment speed), and people measures (e.g., performance-based
awards) (Troy, 2004).
measured through three different lenses:
1. The resource view, which analyzes inputs such as capital, talent,
invested in innovation, number of employees with entrepreneurial
related activities;
2. The capability view, which measures inputs through a number of
innovation tools, percentage of employees with innovation as a key
performance indicator, and percentage of employees receiving train¬
ing in activities related to innovation;
3. The leadership view, which measures input through percentage
of executive time invested in innovation versus operations or
percentage of management team trained in the use of innovation
tools.
Clearly companies have many options when trying to measure
innovation. Their choices will depend on their industry, their experi¬
ence at using such measures, and their ability to make each measure
as accurate as possible. The literature suggests, however, that many
companies could do more in the area of measurement than they are
currently.
Ability to Balance Incremental and Breakthrough
Innovations
Although radical or breakthrough innovation can reap handsome
financial profits, the largest percentage of revenue is still more likely
to come from incremental innovation. Balancing efforts to capture the
advantages of both can be a wise but challenging goal for organiza¬
tions to pursue.
Some research suggests that executives expect a growing percent¬
age of future innovations to come through breakthrough rather than
incremental innovations (Troy, 2004). That is understandable, given
that companies that can leverage more radical innovations can realize
huge financial gains. Clayton Christensen, author of The Innovator’s
Dilemma, conducted a review of innovations and found that, in 2000,
37 percent of the companies that were leaders in terms of providing a
“disruptive” innovation—such as computing via cell phones—exceeded
$100 million in revenues. In contrast, just 3 percent of organizations
attained such revenue levels if they were in already established markets
(McLagan, 2002).
 As for firms in the high-tech sector, although next-generation inno¬
Motivation and Reward Systems
vations represent only 14 percent of product launches and 38 percent
What are the most effective means of rewarding employees for
of revenue, they still bring in 61 percent of profits, according to a
innovation? The answer is a matter of debate. Some experts argue that
study by the Harvard Business Review. The study also showed that
if companies focus too strongly on providing employees with extrinsic
although incremental innovations account for 62 percent of revenue,
rewards such as bonuses, they risk destroying employees’ intrinsic
they bring in only 39 percent of profits. Gregory C. Tassey, senior
motivation. This viewpoint is based on empirical research showing
economist at the National Institute of Standards & Technology, said,
that “following reward, individuals often spent less time performing
“We should invest more in next-generation technology” (Rovner,
an activity and stated they like the activity less, as compared to a
2003).
control group that performed the task without reward” (Eisenberger
& Shanock, 2003, p. 123). Experiments have shown that this
Leadership and Accountability
sometimes applies to creative tasks.
Not only is leadership crucial to innovation, the reverse is true as
Other social researchers have arrived at contrary conclusions. In
well. Another AMA/HRI survey, the Leadership Development Survey
one case, for example, students who had been promised a reward for
2005, found that the ability to foster creativity and innovation is
inventing creative story titles were found to be more creative than
among the top competencies required of leaders today and that this
those who were given the same instructions without the promise of a
ability will become considerably more important over the coming
reward. Eisenberger and Shanock looked at the research and conclud¬
decade (American Management Association & Human Resource
ed that “encouragement of creativity, in the form of tangible and
Institute, 2005).

Although radical or breakthrough innovation can reap

handsome financial profits, the largest percentage of
revenue is still more likely to come from incremental
innovation.

What are the most important roles leaders play in spurring innova¬
socioemotional rewards, strengthens creative motivational orienta¬
tion? The AMA/HRI Innovation Survey 2005 found that the single
tion” (p. 128). This implies that that employers can effectively use
most widely selected action that leaders take is “developing an
traditional reward systems to motivate employees to act more
organizational strategy for innovation,” followed by “redesigning
creatively in the workplace and that rewards do not necessarily reduce
organizational structure or workflow” and “increasing employee
intrinsic motivation.
involvement.” Leaders are, in a nutshell, expected to shape the
That is good news in light of the fact that many employers engage
organization and the overall management philosophy to make
in some type of reward and recognition system at work. The
sure innovation can thrive. They must set up systems that regularly
AMA/HRI survey found that the most commonly cited forms of
encourage innovation.
rewards are nonfinancial, as Exhibit 5 demonstrates.
Too often, however, leaders have the opposite effect in organiza¬
If companies decide to use financial rewards such as bonuses for
tions, inhibiting or disrupting innovations by setting up bureaucratic
barriers, quashing creative ideas before they are given a fair chance, or
trying to take charge of development teams instead of giving the
EXHIBIT 5
necessary autonomy. The AMA/HRI found that “lack of
leadership/management support” is a significant barrier to innovation,
Reward and Recognition Practices
as are “no formal strategy for innovation,” “lack of clear goals/prior¬
ities,” and, as mentioned before, “insufficient resources.” In each case,
top leaders have the power to build up these barriers or remove them. Type of Practice Percent
Who is responsible and accountable for innovation in an organiza¬ Innovation is not rewarded in this organization 26.0%
tion? Some companies have specifically designated leaders for this. In
fact, about 40 percent of firms have someone to fill the role of “chief Innovation is recognized with nonfinancial rewards 20.9
innovation officer,” though this responsibility may reside with officers
Innovation often leads to more challenging work or 19.3
with a range of titles, from head of R&D to vice president of global
autonomy
innovation (Troy, 2004).
More and more organizations are seeing that creativity and Innovation is rewarded by individual bonuses or 17.6
innovation are not the exclusive province of a small group of salary increases
employees. Many are working to change their corporate cultures to
Innovation is considered in promotion decisions 9.2
make innovation everyone’s job (Troy, 2004). This means finding
ways to encourage innovation and hold people accountable without Innovation is rewarded through team bonuses 4.4
making them risk-averse. Figuring out ways of doing this well is
Innovation is rewarded with larger staff or budgets 2.0
likely to remain a significant organizational challenge in coming years.

HUMAN RESOURCE PLANNING 29.3 17

 innovation, they should recognize that there may be a fine line
between too much and too little. Stanford professor Antonio Davila
says the issue can be controversial. Some experts say that the bonus
can become a larger focus than the innovation itself for some
employees; others feel the absence of financial incentives will damp¬
en motivation. In one survey, Davila found that bonuses averaging
about 30 percent of pay seem to be optimal, depending on the
complexity of the project. All in all, recognition seems to be as
important a motivator as financial incentives when it comes to
innovation (Pomeroy, 2004).
Conclusion
Many of today’s businesses face a conundrum: They are acutely
aware that innovation is a growing imperative but see themselves as
only moderately successful innovators. Among organizations respond¬
ing to the AMA/HRI survey, there is no consensus on how to evaluate
ideas, and nearly half of respondents do not have a clear understand¬
ing about how their companies can become more innovative. Little
wonder, then, that the literature shows most innovation initiatives fail
to attain their goals.
Organizations must gear up for a new era in which they become
much more effective at spurring and managing innovation. Before
they can achieve this, they need to get better at the basics, such as
understanding, communicating, and evaluating innovation. Until they
do, they simply will not know how to allocate the proper resources or
set the best strategies.
United States companies should begin to view innovation as an
initiative that influences every segment of their organizations.
Innovation must be accorded the same significance as other important
initiatives like improving productivity or managing cost control.
Executives need to consider that innovation means more than a new
product or development process. Innovation can flourish across every
department within a company from marketing and customer service
to IT, HR, sales, manufacturing, and supply chain management.
What other actions should companies take? The AMA/HRI survey
finds that respondents all over the world believe that focusing on the
customer is crucial to innovation. Doubtless that is true, especially in
our age of mass customization. Insights from customers as well as
potential customers can lead to great new product lines. But it is not
the whole picture. Long-term sustainability depends on successful
breakthrough innovation, and this is less likely than incremental inno¬
vation to come directly from current customers.
There is no single button to push. This article lays out a variety of
approaches to spurring innovation but recognize no one way is best
for every company. Still, becoming an innovative company usually
requires looking at the whole system, from culture to process to
strategy. Companies must forge an innovation strategy aligned with its
overall strategy, choose the projects with the best value propositions,
manage the system efficiently so it does not waste time or resources,
and commercialize innovations well, with everyone working together
as a team (Jaruzelski, et al., 2005).
Leadership, of course, is critical. Not only can excellent leaders
influence culture over time, they can set the strategies and goals, model
the desired behaviors, demand good metrics, permit smart risk-taking,
reward creativity, cultivate collaboration and teamwork, and provide
enough (but not too many) resources. Innovation requires ambidex¬
trous leaders who can simultaneously control and promote freedom.
The most serious issue identified in the study goes beyond the
companies themselves and applies to the US way of doing business.
18 HUMAN RESOURCE PLANNING 29.3
Investors, senior management and boards of directors need to balance
their emphasis on short-term growth and predictability and help
foster the types of breakthroughs that keep companies growing for
years rather than quarters.
As US industries struggle with outsourcing and other challenges
posed by a changing global economy, innovation cannot be left to
chance. Global competitors have become well informed, well-funded,
and nimble, and are determined to outmaneuver the entrenched think¬
ing of their well-established US counterparts.
US ingenuity has provided the world with many of its most impor¬
tant advancements from electric light to the telephone to emphasis on
quality control. Yet, the United States cannot rest upon its laurels now;
there is too much at stake. Unless US business leaders learn to operate
outside of the comfort zone they currently occupy, they risk being
overtaken by the competition that is closing in from behind.
In the end, innovation means more than just creating new products
and services. It also means considering new management principles
and challenging old orthodoxies in smart, value-added ways. Such
things are always easier said than done, but no one ever said surviving
into the future was going to be easy.
BIOGRAPHICAL SKETCHES
Jay J. Jamrog is the executive director of the Human Resource
Institute and distinguished lecturer at The University of Tampa. As a
futurist, he has devoted the past 20 years to identifying and analyzing
the major issues and trends affecting the management of people in
organizations. Jay is the associate articles editor for the “building a
strategic HR function” key knowledge area of Human Resource
Planning, has had articles published in major business magazines, and
is frequently quoted in business publications and newspapers. He
often collaborates with, and speaks before, other organizations and
associations on major research topics related to the future of people
management. Prior to joining HRI in 1982, Jay held numerous
management positions, including vice president of purchasing for a
large import/export wholesaler.
Mark R. Vickers is a futurist and senior research analyst at the Human
Resource Institute. He has authored many HRI reports and white
papers, is HRI’s former managing editor, and is currently the editor of
TrendWatcber and The Fortnight Report, newsletters published for
HRI member firms. His most recent paper, “Business Ethics and the
HR Role: Past, Present, and Future,” appeared in Human Resource
Planning, Volume 28, Issue 1, 2005.
Donna J. Bear is a research analyst for the Human Resource Institute.
She has a BS degree in business administration and an MS degree in
management and is certified as a Senior Professional in Human
Resources. Her previous experience as an HR generalist/consultant
spans the PEO, corporate, and not-for-profit sectors.
Other Contributors. We greatly appreciate the contributions of the
following individuals to the research that formed the basis for
this article:
Wanda V. Chaves, Ph.D.
Susan Conte, Ph.D.
Donna J. Dennis, Ph.D.
Jack Hippie
Dr. Mary B. Lippitt
Rick Riesenberg, Ph.D.
Dr. Glen Taylor.
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HUMAN RESOURCE PLANNING 29.3 19
 EMERGING INNOVATION CASE STUDIES

McDonald's
"Think Big, Start Small, Scale Fast": Growing Customer Innovation at
McDonald's

Motorola
When Innovation Becomes Efficiency: Motorola's Global Supply Chain Initiative

Health Care Service Corporation

Tomorrow's Customer Service Model: From Representative to Advocate

20 HUMAN RESOURCE PLANNING 29.3

 EMERGING INNOVATION -
“Think Big, Start Small,
Scale Fast”: Growing
Customer Innovation at
McDonald’s
Ed Gubman, Strategic Talent Solutions, and Steve Russell, McDonald’s Corporation
When you feed 50 million customers at
30,000 restaurants around the world every
day, you would think just getting the basics
right would be enough. McDonald’s
Corporation knows that running its core
business correctly is absolutely necessary for
success, but is insufficient to keep it growing.
For that, the Golden Arches is simultaneous¬
ly attending to operating flawlessly while
working hard to innovate to grow its future.
“It’s the paradox of our business,” according
to Steve Russell, vice president for Human
Resources for McDonald’s North America.
Resolving this paradox has its roots in the
business downturn the company experienced
in the late 1990s through the early 2000s.
Results were slowing, competitors were
growing, and people were buzzing about
new, “fast casual” dining options that were
more upscale than McDonald’s and threaten¬
ing parts of its business. In response,
McDonald’s tried lots of things: Buying
Boston Market and Chipotle, new kitchen
systems designed to custom cook orders,
different menu items—not much seemed to
gain traction.
In 2003 the company named long-time
executive Jim Cantalupo chairman and
CEO. He began the turnaround, first by
focusing on getting the basics right, and next
by introducing a string of successful new
products, like white meat chicken and salads.
Today McDonald’s continues its strong
three-year run of growth, demonstrating 5 to
6 percent per quarter sales increases on a
consistent basis—truly remarkable for a
company its size. Its stock trades in the
mid-$30s compared to the low teens in
early 2003.
Cantalupo and his successor, Charlie Bell,
led the turnaround by getting employees and
CASE STUDY
owner-operators around the world to pay
attention to the “5 Ps.” This global mantra
helps McDonald’s understand what to do
and how to measure success through People,
Products, Place, Price, and Promotion. It
continues today, and most McDonald’s
staffers can recite the Ps for you instantly.
It can allow some amount of regional or franchisee variation
to suit local tastes, but cannot dilute its brand—among the
most famous and significant in the world
To Russell, the impact was even greater:
“It caused us to understand that the
customer is key—it all has to center on the
customer.” This contrasted to earlier
emphases on operations, distribution, and
cost, or the late 1990s emphasis on
experimentation. Those things continue to
be crucial, but only in the context of the
customer experience.
Getting Smart about Innovation
Russell describes the Cantalupo-Bell turn¬
around as “stage 1.” Now the company
is well into a second stage in which it is
bringing more discipline and thought to
innovation. Keys to this are involving owner-
operators at every step, bringing discipline to
the innovation process, and re-imaging
McDonald’s as a retail operation to heighten
the focus on the customer. The result is a new
wealth of ideas that are flowing across the
organization, coming from all directions.
Turning those ideas into new products and
processes requires “thinking big, starting
small, and scaling fast,” a concept credited to
Mats Lederhausen, managing director of
McDonald’s Ventures and a leader in the
company’s strategy efforts.
Central to understanding McDonald’s
culture is to remember that approximately
85 percent of the restaurants are owned by
franchisees in the United States. These are
fiercely competitive entrepreneurs, many of
them small business people, who want to do
right by their customers. Yet many have very
different ideas about what this entails, and
changes just cannot move through the
company without their support. Life would
be simpler if you could operate a company of
this scale in a command-and-control way,
which is impossible. The owner-operators, as
the franchisees are called, will rebel.
Moreover, owner-operators invented many
of the biggest successes in company history,
like the Big Mac and Egg McMuffin.
So the challenge is to bring the owner-
operators into the innovation process in
a disciplined way, but one that does not
diminish their entrepreneurial zeal. Their
restaurants represent thousands of mini-lab-
oratories that can try out new products and
processes, but the company has to know
where to make its bets. It can allow some
amount of regional or franchisee variation to
suit local tastes, but cannot dilute its brand—
among the most famous and significant in
the world.
The organization has responded by estab¬
lishing several groups and processes to
create, review, and pilot innovations that
include owner-operators. Jim Skinner,
chairman and CEO, and Mike Roberts, chief
operating officer, champion this work.
Roberts’ view is, “Seven in, two out”: It
takes seven great food ideas to get two
innovations out of the pipeline and into the
hands of customers.
Central to these are the Innovation
Center, the Innovation Council, and the
Strategic Innovation Process. The Center
takes ideas from around the world and puts
them into a restaurant setting. The Center is
a giant warehouse that has several model
kitchens in it. When you change a product,
you often have to change the kitchen to
support it. After testing the new product
and process, the company partners with
HUMAN RESOURCE PLANNING 29.3 21

neighboring restaurants to try the innova¬
tion. It usually takes 50 to 100 restaurants to
see if something will work. This enables the
company to test not only the menu, but also
the operating platform and all the systems in
the restaurant to synch up the changes.
The Innovation Center typically works on
changes that are two-to-five years away. Why
the delay? Mostly, it is caused by the massive
amount of scale required to bring something
to market. When McDonald’s introduced its
apples-and-walnut salads, it became the
largest apple consumer in the world. It had to
create new types of apple growers just to
keep it supplied. The company has not intro¬
duced a shrimp salad to complement its
chicken salad despite repeated customer
requests. Why? There are not enough shrimp
in the world!
The Innovation Council is Mike Roberts’
“noodle team.” It includes owner-operators,
staff members at all levels, suppliers, and
even outsiders to the company, just smart
people who think about the future. Roberts
runs “no stripes” meetings aimed at deter¬
mining where the company needs to head.
The Council is another recognition by the
company that the old mindset of “we have
all the answers” is gone. In its place is a
strong desire to study the customer to find
out what he or she wants, coupled with the
scale-driven need to know what customers
are looking for before they are looking for it.
In the United States, home to 13,000
restaurants, there is a new strategic innova¬
tion process. This is a disciplined, stage
gate process, designed to bring things to the
market faster. The process is more short-
term-focused than the Innovation Center and
provides order to what will stay on or go off
the menu. When you see a new product, like
spicy chicken, it has gone through this
process and passed the more rigorous criteria
and metrics that are part of it. Owner-opera¬
tors are involved in every stage, from idea to
development to pilot to rollout. Involvement
22 HUMAN RESOURCE PLANNING 29.3
goes beyond the traditional, more formal
franchisee councils to participation, informal
interactions and two-way communication.
Innovation and change at this scale, really
at any size, often involves a metaphor or
theme—something people can relate to easily
and use to organize their thinking. At
McDonald’s, that is evolving from the focus
on the customer at the center to conceiving
itself as a retail operation. If McDonald’s is
to act more like a retail operation, it needs to
do more to stimulate and satisfy the whole
customer experience. It can look to other
successful retail operations, like Nordstrom
and Starbucks, to benchmark success. One of
the company’s top executives, Ralph Alvarez,
travels weeks at a time, on his own and in
casual clothes, to study competitors and all
manner of successful retail operations. One
result of this is a restaurant redesign, much of
it coming from France, to deliver a quieter
environment that engages the customer in all
five senses. Think about not only enjoying
your Big Mac and fries, but also doing it in a
relaxed, attractive setting.
Leadership for Innovation
Roberts and Alvarez have been at the
front of this charge toward a customer-cen¬
tered McDonald’s. They have influenced
other members of the senior team with their
vision and brought in some new executives as
well. They have changed some terminology:
The business research function is now
consumer insights, and instead of measuring
transactions (the number of customers) the
company now tracks guest counts.
Conferences on McDonald’s as a retailer, cre¬
ating teams of staffers and owner-operators
across the United States to look at people
strategies and innovation, and other efforts
are designed to help the company change.
To institutionalize some of these changes,
McDonald’s is incorporating this perspective
into its leadership activities. It is changing
one element of its current competency model
EMERGING INNOVATION McDONALD S
from “change orientation” to “leading inno¬
vation and change” to put more emphasis on
the customer. It is bringing innovation to its
leadership development programs in a big
way. The vision, according to David Small,
vice-president of McDonald’s Leadership
Institute, “is to start with taking 20 of our
high-potential officers through a new Global
Leadership Development Program.”
The program is intended to help these
officers learn to lead at the enterprise level.
A big component will be building more
capability to study customers and run the
company through the customer’s eyes.
Participants study a strategic methodology
called value innovation, which is grounded in
seeing the business through the customer’s
eyes and focuses on significantly differentiat¬
ing your business strategy from that of your
competitors. Sub-teams will work on
different growth platforms, developing value
curves and suggesting ways to drive growth
and lead from a customer perspective.
As these ideas are tried at the executive
level, they will be pushed down to the LAMP
(Leadership at McDonald’s Program). This is
a program for high potential managers and
directors that promotes leadership of self,
team, and organization and includes action
learning. Some of the action learning projects
now are heavy on innovation in restaurant
processes. But the emphasis over time will be
to move toward a more customer-centric
focus.
Transformational change often is likened
to changing the tires on a bus while it is
moving. That is an apt description for trying
to feed more than 1 percent of the world’s
population every day, while introducing
customer-focused innovation in a disciplined,
yet collaborative manner.
 EMERGING INNOVATION - CASE STUDY
When Innovation Becomes
Efficiency: Motorola’s
Global Supply Chain
Initiative
Ed Gubman, Strategic Talent Solutions
A New Era for Motorola and its
Supply Chain
When you think innovation at Motorola,
its cool new phones jump to mind. The
MOTORAZR, MOTOSLVR, MOTOPEBT,
and MOTOQ mobile devices have launched
a new era of success for the company.
Motorola has plunged into the waters of
enriching the consumer experience through
fun, elegance, and aesthetics, and its bottom
line is showing the big impact. A Fortune 100
company, Motorola (www.motorola.com)
increased revenues to $35.3 billion in 2005,
After this year’s second quarter earnings were
released, Motorola chairman and CEO Ed
Zander commented, “Motorola continues to
deliver excellent quarterly sales and earnings
growth. With our solid financial perform¬
ance and unrelenting focus on innovation
and customer satisfaction, Motorola is
among the fastest growing large-cap
technology companies in the world.” He
emphasized growth by adding, “In the
second quarter, all of our businesses
improved sales and grew profits sequentially
versus the first quarter.” Specific examples
include the company’s record digital enter¬
tainment set-top devices shipments of 2.4
million, as well as its record handset
shipments of 51.9 million units in this year’s
second quarter.
High-style phones are not the only inno¬
vation going on at Motorola. The company
is working hard behind the scenes to create
the preeminent supply chain organization in
the world. In doing so, Motorola is a great
emerging case study in business process inno¬
vation aimed at achieving breakthrough
results.
When Ed Zander became chairman and
CEO in 2004, he saw some of the same
things his predecessor did: autonomous
business units that collaborated infrequently,
which have been dubbed by some as
“warring tribes.” While Zander pursued his
business strategy of aggressively launching
sharp new products, he also began an
organizational strategy to create “One
Motorola,” designed to integrate the busi¬
ness units more closely and maximize
profitability through operational efficiency.
Key to this organizational campaign is a
relentless focus on improving the supply
chain. In the old structure, manufacturing
and other supply chain elements reported up
through each of the business units. There
they all did their own things. In the new
Motorola, one supply chain organization, on
equal footing with the business units, handles
all procurement, manufacturing, distribu¬
tion, and sourcing worldwide. The early
results have been as startling as the booming
business results.
AMR Research, a supply chain bench¬
marking and consulting organization based
in the United States, uses a rigorous rating
methodology to publish its annual “Top 25
Supply Chains,” which it classifies as the best
companies at supply chain performance.
Previously unranked, Motorola debuted at
number 15 in 2005 and has set its sights on
becoming number 1. As Motorola’s
Integrated Supply Chain climbs the list, it is
driving to achieve two to three points of
gross margin for the corporation.
Supply Chain Transformation
Innovation this huge requires transforma¬
tional leadership. To make Ed Zander’s strat¬
egy come alive, Motorola brought in Stu
Reed from IBM, a 20-year veteran of
Big Blue. Stu was chartered to get to ultra
efficiency in one to two years and he pinned
his success on developing a supply chain
culture of innovation and high performance,
where everyone could get excited about con¬
tributing to dramatic process improvements.
The barriers were enormous. Supply
chain processes had not been integrated, and
in many cases were an afterthought to
product engineering. To make matters even
more complicated, Motorola’s supply chain
had not existed as a unified business
function. Motorola transferred all 20,0004-
procurement, manufacturing, and distribu¬
tion people to Stu Reed the day he arrived
and told him to go fast—very fast.
Stu Reed, executive vice president,
Integrated Supply Chain (ISC), and Arlis
McLean, corporate vice president, human
resources, ISC, quickly partnered with the
entire ISC senior leadership team. Arlis had
been at Motorola for a few years before Stu
got there, and saw the supply chain as a
“once in a career opportunity” to transform
the company. The senior leadership team saw
themselves as the “point of the arrow” in
driving the company to “One Motorola.”
Launching the transformation began with
a message that is continuously repeated even
as breakthroughs occur. Stu Reed and his
leadership group started by painting a picture
for other Motorola leads, as well as supply
chain employees, about what world-class
supply chain performance looks like. Next
they announced six key performance com¬
mitments, centering on execution excellence;
deep supplier relationships; manufacturing
and logistics optimization; quality renewal;
common, leveraged IT solutions; and organ¬
ization efficiency. These commitments repre¬
sent the strategic alignment designed to get
the company to best-in-world performance
by end of 2007.
For the ISC leadership team, these targets
will only be accomplished by the creation of
a sustainable, high-performance/high-inno-
vation culture. That is where both the payoff
and the fun are. So, in addition to these com¬
mitments, they established a supply chain
mission, vision, and values that align with
Motorola’s. Their mission is “Delivering
seamless mobility solutions to our customers
(that’s Motorola’s mission) enabled by a
‘world-class’ supply chain” and their vision is
to be number 1 and a competitive advantage
for Motorola. Stu Reed underscores the need
to help people get the connection between
lower costs and growth. Fast growth with
lower costs frees up more cash that Motorola
can use to accelerate its growth even faster
HUMAN RESOURCE PLANNING 29.3 23

through bigger investments and acquisitions.
Many of the supply chain people had never
heard this rationale.
Supporting these commitments and
cultural markers is a constant stream of
communication to employees that what is
needed from them is:
1. Consistent performance;
2. Results that meet or exceed expectations;
3. A focus on achieving lots of small wins;
and
4. The excitement that comes from pursuing
the outrageous goal of being the number
1 supply chain in the world.
Reed believes that getting his people
“juiced” about the big goal keeps them mak¬
ing their incremental goals along the way.
Sustaining Innovation Through
Culture and Talent
Change towards high innovation begins
with leadership—vision, energy, goals, and
communication. According to Stu Reed,
“Leadership has to be both top-down and
bottom-up, while simultaneously ensuring a
balance of electronic as well as face-to-face
communication.” Sustaining change and
innovation demands participation by large
groups of employees, and that requires
mechanisms and techniques that invite and
reinforce their involvement.
Zander, Reed, McLean, and others have
created regular opportunities for people to
get on board and suggest ideas. Reed brought
in AMR Research and other partners to
teach procurement techniques and supply
chain best practices to employees. “Ask Stu”
is an email account to which employees can
submit questions and ideas. Reed responds to
all of them. He also sends out “Straight Talk
with Stu” email messages to employees and
leads a virtual broadcast twice yearly to
ensure consistent messaging across the
organization. In addition, during his regular
travels, he conducts local town hall meetings
at many of the organization’s major facilities
to stimulate two-way communication, often
spending the bulk of time in Q&A sessions
with employees to get a better understanding
of what is really on their minds.
There are also the usual named initiatives
to organize employees’ efforts, such as
24 HUMAN RESOURCE PLANNING 29.3
“Teaming for Manufacturing Excellence”
and “Rapid Sourcing Initiatives,” as well as
business-rules-driven supply chain processes,
like total order management. Reed likens
these to “causing the ions to bounce around”
so people and ideas recombine in ways that
can be channeled toward process improve¬
ments. Acknowledgement for a job well done
in the supply chain is increasing through
various employee award programs.
Motorola supply chain employees are
now sharing and borrowing from each
other in ways they rarely did. Reed calls it
“stealing shamelessly.” Specifically, he
Sustaining change and innovation demands participation by
large groups of employees, and that requires mechanisms and
techniques that invite and reinforce their involvement.
emphasizes selfless leadership, which
requires employees to accept that others may
do things better than they do. And when they
do, and in the spirit of continuous improve¬
ment, employees willingly adopt the work of
others in order to improve the business.
In Reed’s view, the real breakthrough
innovation is the sustainable culture that
breeds a wealth of ideas and keeps delivering
process improvements to enable the supply
chain to become the best. To do this, he
creates “air cover” by talking about leader¬
ship values and guiding principles, especially
the necessity for being open, the payoffs of
taking reasonable risks and the inevitability
of making mistakes. As Reed says, “We’re
not paying you the ‘perfect’ salary, so we
can’t expect you to be ‘perfect’ or to never
make mistakes. Getting it 85 percent right is
okay because the industry is changing so
fast.” It may be paradoxical, but a certain
amount of messiness is absolutely needed to
create greater efficiency.
Another fundamental sustaining mecha¬
nism is talent acquisition and development.
Remember, the supply chain is not the sexy
part of Motorola, the place where engineers
and designers go to create whiz-bang new
products. Indeed, it is the grind-it-out contin¬
uous improvement arena of day-to-day
operations. At the same time Reed is
EMERGING INNOVATION MOTOROLA
introducing massive change, the supply chain
is also handling fast-growing volumes of
materials and units while trying to drive
down costs. There are challenges aplenty in
building the talent base.
To Reed and McLean, talent development
is the foundation of the sustainable culture.
They have formulated guiding principles
about bringing great talent into the bottom
of the organization, nurturing it so it can
grow and developing the pipelines that will
enable it to surface at the top. They intend
to bring in as few top-level people from the
outside as possible, so opportunities seem
abundant. In this regard, this is consistent
with long-standing Motorola culture, in
which most people have the functional skills
they need, and people with leadership skills
are expected to emerge on top. What is
different today is the size and strategic
importance of the supply chain organization.
Previously the supply chain was fragmented
and opportunities were limited. Now it is big
enough and prominent enough that people
have many more opportunities and much
greater visibility. McLean says that Motorola
now is attracting more top supply chain stu¬
dents from elite university programs and pro¬
viding them big, global learning opportunities.
Next Generation Supply Chain
What comes next after so much early
success? Reed says that after Motorola gets
to number 1, it wants to ensure a sustainable
culture is in place, and the next innovations
will move internal supply chain activities as
close as possible to the customer. In line with
this vision, Motorola recently opened its first
retail store in Shanghai, where mobile hand¬
sets are an advanced way of life. It is easy to
imagine Stu Reed and his team getting
“juiced” about keeping the demanding,
fashion-forward Chinese youth loaded with
mobile options and saving Motorola tons of
money in the process.
 EMERGING INNOVATION -
Tomorrow’s Customer
Service Model:
From Representative
to Advocate
Ed Gubman, Strategic Talent Solutions, and Tom Riley, Health Care Service
Corporation
Health insurance is central to the physical
and financial health, not to mention the
peace of mind, of the lion’s share of the US
workforce. In 2005, 60 percent of all
Americans, about 150 million people,
received health insurance through their
employers. HR professionals and others who
choose carriers and administer insurance
work overtime to select the best combination
of quality, cost-efficiency, and customer
service they can. How those decisions play
out can directly affect employees’ perceptions
of their company.
“In addition to quality and cost, employ¬
ers tell us that customer service is the most
important factor in choosing a carrier,” says
Karen Atwood, senior vice president,
major/national accounts, Blue Cross and
Blue Shield of Illinois. “Many of them have
lean human resource staffs, so they want to
be sure that their carriers’ customer service
staffs manage issues well. They don’t want to
spend their own time dealing with health
insurance issues.”
Health Care Service Corporation (HCSC)
is a non-investor-owned, mutual legal reserve
company, that operates Blue Cross and Blue
Shield plans in Illinois, New Mexico,
Oklahoma, and Texas. HCSC is one of the
largest and fastest-growing health insurers in
the country, serving more than 11 million
members and handling more than 50,000
calls and 550,000 claims per day. Its mission
is to provide accessible, cost-effective, and
quality health care for customers.
HCSC leaders see this mission as a
continual challenge to seek better and more
efficient ways to serve members. As a result,
CASE STUDY
HCSC is involved in a variety of “strategic
vertical innovations” to benefit its customers
and members. Tom Riley, HCSC’s vice
president of eSolutions and Strategic
Relationships, says strategic vertical innova¬
tions mean “looking deep into your business
as a whole and making investments in the
right places to better serve your customers.”
HCSC began building its customer advocate programs by
upgrading and renaming the job title from "customer service
representative" to "customer service advocate."
The New World: Customer
Service Reps Become "Advocates"
Calling customer service at your health
insurer should be like calling a family
member, especially one you like. You should
feel free to call her whenever you have a
question. He might call you on a regular
basis to ask you how you are feeling and
remind you to take your medicine, or take
advantage of some benefits that may be
available to you, such as regular mammo¬
grams or smoking cessation and weight loss
programs. When you have an emergency,
major illness, or surgery, you would have
someone to call whom you know and trust.
That is the vision of Austin Waldron,
HCSC’s vice president of customer service.
For the last four years, Waldron has led
HCSC on a journey away from “transaction-
based customer service,” based on claims
administration, to “customer advocacy,”
which is based on empathy, deep concern for
member needs, and the satisfaction of
helping people. “When you call, the first
question from us can’t be, what’s your social
security number?” says Waldron. “It has to
be a caring response that sets the tone for a
conversation about what potentially could be
a physical or emotional crisis.”
“HCSC sees its role differently, because
we are non-investor-owned. We need to be
different, because we are impacting peoples’
health and lives.” The metaphor that
Waldron uses repeatedly with his staff of
2,000 customer service advocates is family.
“‘Think about your own family. How would
you deal with callers if they were related
to you?”’
HCSC began building its customer advo¬
cate program by upgrading and renaming
the job title from “customer service represen¬
tative” to “customer service advocate.” On a
philosophical level, HCSC moved away from
a “claims processing skills” model to an
“empathy skills” model and began constant
training. Employees who mastered this
philosophy were rewarded. At the same time,
the supervisor role was upgraded to place
more emphasis on relationship skills.
Employees and supervisors who made the
transition successfully were given pay
increases and other incentives.
Performance measures also changed to
highlight the new roles. Because engagement
and retention are so closely linked, supervi¬
sors are measured on retention. Attrition
among HCSC’s customer service advocates
runs at only around 11 percent annually,
only one-third the average 30 percent or
more in the industry. Unlike its competitors,
HCSC does not measure advocates’ perform¬
ance by the number of calls they handle per
day or how long they stay on the phone.
Instead, HCSC measures “call thorough¬
ness” and “problem resolution.” The goal is
first-contact resolution, something HCSC’s
customer advocates achieve more than 90
percent of the time, again significantly above
the industry average.
HUMAN RESOURCE PLANNING 29.3 25

Waldron says this comes about because
they stress “taking the member out of the
middle. If we can bring the other party—the
doctor, hospital, or other payer—on the
phone to solve the problem, we do it right
away. The member doesn’t have more work
to do and is satisfied. When we hang up, the
problem’s solved and we’re done.”
Enabling Personalized Care
Through Technology
Constantly improving technology enables
this kind of advocacy. The biggest technical
advance, and the most unique aspect of
HCSC’s model, is the linkage of the advocacy
side to the medical side. The more advocates
know about members, the more they can
help them. HCSC is beginning to analyze
some of the thousands of transactions it
receives per day to create personalized and
customized member experiences.
Right now, HCSC is analyzing thousands
of transactions to develop segmented,
individualized profiles of its members to
customize its services based on their behav¬
iors. For example, for members who are not
active web users, self-service tools and offer¬
ings are not effective. So HCSC’s customer
advocates call those members and offer to
engage them to better manage their health,
suggesting information they can use or ways
to modify their regimens. The potential
payoffs in increased wellness, disease man¬
agement, and cost efficiency for getting the
right care to the right people are enormous.
26 HUMAN RESOURCE PLANNING 29.3
A Personal Wellness Record
The Bush administration has focused on
the electronic medical record as a way of
lowering costs and increasing quality. HCSC
is trying to go even further. It is conducting a
pilot program of its new “personal wellness
record” (PWR). The PWR is a consumer-
owned electronic medical record, which can
be opened and shared, with the member’s
permission, by hospitals and providers. Two
Chicago hospitals are participating in the
test. The PWR puts members in charge
of their own records, while hastening the
movement of information to providers.
“Think what it would be like if you
didn’t have to give the same information over
and over again when you visited a doctor or
hospital,” says Riley. “This initiative will
help our members in terms of health and
safety, and in terms of convenience.”
Increasing Efficiency
At HCSC, efficiency and care go hand-in-
hand, and the company is deploying a variety
of approaches to decrease costs: A few years
ago, HCSC became a significant owner, with
several other Blues plans, in Prime
Therapeutics. Prime Therapeutics is
pharmacy benefit manager that looks at drug
benefits as an investment in overall health
management, not a cost. How can the right
drug therapies be used most effectively to
treat disease? HCSC uses its data on member
drug benefit usage and its relationship with
EMERGING INNOVATION HCSC
Prime to save money in this part of the
pharmaceutical supply chain. Savings get
pushed back to the owners of Prime, who
actually are its customers—the Blues plans.
Ultimately the savings reach Prime’s 8.5
million members.
Securing Data
Moving more information around quickly
raises the issue of data security. The land¬
mark Health Insurance Portability and
Accountability Act (HIPAA) addressed the
exchange of health information electronically,
but did not prescribe how it should be done.
HCSC is quickly creating new paths for
information, to make it move faster and
more securely. The company is using its
extensive database of providers, payers, and
insurers to create a healthcare yellow pages,
a registry of providers that can enable
doctors and other providers to send encrypted,
secure information across the country. The
goal is for every doctor, provider, and payer
to be able to talk to each other instantly and
confidentially to enhance care.
As Tom Riley notes, when it comes to
claims processing costs, “Electronic claims
a are pennies; paper claims are dollars.”
Anything the company can do to move
claims and information faster slices even
more pennies off of costs, not to mention
time for customers and members. This
creates another solution that is good for the
industry, not just for the company.
SUSTAINED INNOVATION - CASE STUDIES

Whirlpool
Innovation at Whirlpool: Embedment and Sustainability

Timberland
Timberland Invention Factory

Best Buy
Best Buy: Customer-Centric Innovation

HUMAN RESOURCE PLANNING 29.3 27

 SUSTAINED INNOVATION
Innovation at Whirlpool:
Embedment and
Sustainability
Nancy Tennant Snyder, Corporate Vice President, Leadership and Strategic
Competency Development
Reported by Bill Stopper, Current Practices Editor, based on presentations to the HRPS
Corporate Sponsor Forum (2004) and the HRPS Global Conference (2006).
At the 2004 HRPS Corporate Sponsor
Forum, Nancy Tennant Snyder teamed with
Gary Hamel to present the innovation story
at Whirlpool Corporation. At the time, Dr.
Snyder was Whirlpool’s Corporate Vice
President of Core Competencies
Leadership Development and Global Vice
President of Innovation. Dr. Hamel was a
visiting professor of Strategic
International Management at the London
Business School, chairman of Strategos, and
director of the Woodside Institute. In 2006,
Dr. Snyder returned to the HRPS stage, this
time at the Annual Global Conference in
Tucson, Arizona. Her topic: the sustainability
of a large-scale innovation initiative. The
business roadway is littered with stalled proj¬
ects, but Whirlpool is still on the innovation
track—requiring hard work and a huge
ongoing commitment to stay the course.
Whirlpool is the largest worldwide
appliance maker. With 80,000 employees, it
manufactures such brands as KitchenAid,
Whirlpool, Maytag, Roper, Bauknecht, and
is the leading supplier for Kenmore. The
company was most recently in the news for
its acquisition of Maytag. Its 2005 revenue
totaled over $14 billion, with sales up 8
percent over 2004. It leads an $80 billion
industry as number 1 in global share and
number 1 as a global brand.
2004: Beginning and Embedding
Whirlpool’s innovation journey began in
1999 and was driven by the concept of
embedding innovation as a competency
everywhere and in everyone. Company
leaders dedicated themselves to creating the
climate for innovation, and raised their
tolerance for risk, experimentation, and even
28 HUMAN RESOURCE PLANNING 29.3
CASE STUDY
failed initiatives. Dr. Hamel’s experience with
theories and applications of revolutionary
innovation (cf. Leading the Revolution,
Harvard Business School Press, 2002) was
coupled with Dr. Snyder’s understanding of
and the company’s history, culture, people, and
levers of influence—and, most importantly,
and
We now define innovation as any product or service that
creates unique and compelling solutions valued by our
customers, real and sustainable competitive advantages,
and extraordinary value for our customers.
—Snyder and Duarte, Strategic Innovation (Jossey-Bass, 2003)
with her credibility among the senior man¬
agement team, especially David Whitwam,
the chairman and CEO of Whirlpool.
In the two years prior to Dr. Snyder’s
appearance at the Corporate Sponsor Forum,
Whirlpool experienced more innovation in
its products and markets than in its whole
history. New products like the
washer/dryer system, Gator Pak for tailgate
parties, and the Briva double-tub sink with a
high-speed dishwasher on one side were
introduced with wide customer acceptance.
What had been a “white box” company
based on price competition was becoming a
market leader based on innovation in both
products and processes—and, most impor¬
tantly, in the way relationships
customers were formed. Whirlpool put
Hamel’s definition of strategic innovation
into play: The capacity to reconceive the
existing business model in ways that create
new value for customers and stakeholders
and advantage over the competition (Sloan
Management Review 39(2), 1998).
At the heart of Whirlpool’s initiative were
three Innovation Boards (I-Boards) made up
of senior leaders at the regional business
levels of North America, Latin America, and
Europe. Their primary role was to oversee
innovation embedment throughout the
company, principally by setting financial
goals, allocating resources, and reviewing
processes and new ideas for further funding.
The I-Boards were supplemented by some
600 I-Mentors around the world, the innova¬
tion equivalent of black belts in Six Sigma
initiatives. The I-Mentors understood the
tools of innovation and the need to make
knowledge about innovation both available
and palpable.
Over time, the Boards succeeded in
moving the company from a culture of only
accepting big ideas with clearly defined
financial payoffs to recognizing the value of
nurturing a large number of nascent good
ideas (an “I-pipe” inventory) through initial
progressive funding in $25,000 increments.
Whirlpool found that the probability many
of these smaller good ideas would become
big successful ideas was high and the risk of
experimentation relatively low.
The process of embedding innovation in
the company included training 22,000
employees to look for market and in-job
Duet innovations. System changes, organizational
design, customer marketing—all have to
have innovation as a “front-of-mind” dimen¬
sion. Importantly, the process also included
tying short and long-term incentives to the
value of the I-pipeline and the number of
experiments in progress. In 2006, the value
of the pipeline had grown from under $350
million to over $3 billion.
with The innovation effort at Whirlpool in
these early days proved again that nothing of
significance can change in an organization
without top-level leadership. David
Whitwam had a deep sense that he had to
provide stewardship and patience to create
 SUSTAINED INNOVATION WHIRLPOOL

an extraordinary company legacy. He saw the

value of unleashing discretionary energy. He
EXHIBIT 1
saw the power of ordinary people
harnessing their minds to solve problems and
Whirlpool Innovation Embedment Wheel
invest in the future.

2006: Scaling and Sustaining

When Nancy Snyder left the podium in
2004, she remarked that it was too early to
tell whether the innovation effort at
Whirlpool would be sustained. If nothing
else, the retirement of David Whitwam earlier
in the year meant the loss of the pioneering
champion of innovation. Would senior leaders
born into a 100-year culture of concentrating
on efficiency rather than innovation lapse
into more familiar territory? Embedding a
core competency is a long-term value propo¬
sition and marketplace pressures constantly
cry for early and known solutions.
The HRPS audience in 2006 was pleased
to learn that innovation under the leadership
of new CEO Jeff Fettig is alive and well in
Benton Harbor, Michigan, and around the
world. The Embedment Wheel (see Exhibit
1) that Dr. Snyder developed in 2002 to
depict Whirlpool’s systems approach to inno¬
vation is still guiding the process, and the
alignment of individual goals with the vision,
©2002 Whirlpool Corporation. All Rights Reserved.
strategy, and mission of the company is still
holding firm. Dr. Snyder gives credit to a
Stage II: Scale (Input exceeds output.) Stage IY: Sustaining (Output exceeds input.)
robust performance management system that
raises the level and output of performance ■ Leadership support is in place both globally ■ Ownership effectively resides in the
and creates the expectation of breakthrough and regionally. businesses: All functions drive embedment
performance that drives out “diddling” and ■ An operational embedment plan is in place activities with their own resources.
inefficiencies. The mantra “Innovation from and in the process of deployment. ■ Innovation embedment has become
Everyone and Everywhere” is supported by “the way we do our work,” as heroic
■ Pockets of success with adopting innovation
three new imperatives: Reach High, Focus efforts turn into elevated “everyday”
competency are increasing in frequency,
on What Matters, and Do What You performance.
leading to higher levels of adoption.
Commit To.
■ Measurement of effectiveness and efficiency
The S-Curve developed by Whirlpool (See ■ The first signs of embedment are occur¬
ring. has shifted to metrics linked to business
Exhibit 2) shows the path that innovation
outputs.
embedment follows. Dr. Snyder explained Stage HI: Breakthrough (Input equals output.)
each of the five stages of the journey and Stage V: Continuous Improvement (Output
■ Progress is gaining momentum: Most func¬
suggested that although culture and speed far exceeds input.)
tions drive embedment activities with their
may vary by company, others may benefit
own resources. ■ The embedded innovation competency
from applying what Whirlpool has learned
■ Effective and efficient tracking of innova¬ provides the capability to evolve in
along the way.
tion allows employees to see the linkage response to inputs and outputs.
Stage I: Launch (Input far exceeds output.)
between effort and results. ■ Natural feedback and improvement loops
■ Leadership is aligned on the embedment ensure continued sustainability.
■ Innovation embedment has become a
strategy and plan.
self-funding activity. ■ A track record of success permanently
■ Regional support and the leadership links the behavior attributed to this
structure are in the process of completion. competency to the company culture.
■ Metrics have been defined. ■ Innovation truly becomes what employees
■ Embedment is expected to cascade across do every day—“from everyone and every¬
the regions within a calendar year. where.”

HUMAN RESOURCE PLANNING 29.3 29


EXHIBIT 2
Innovation Embedment S-Curve
In the seven years since 1999, Dr. Snyder
believes Whirlpool is somewhere between
Stages III and IV. There is excitement in the
company about being a global leader in inno¬
vation that transcends being a global leader
on the financial dimension only. Some will
argue that the continuous improvement stage
is a danger point and that jumping to a new
S-curve is required to keep ahead in innova¬
tion. That may yet have to be seen in the
Whirlpool case. But what was not lost on the
HRPS audience is that Whirlpool has embed¬
ded continuous improvement in innovation
30 HUMAN RESOURCE PLANNING 29.3
SUSTAINED INNOVATION WHIRLPOOL
Leading Edge Consortium
October 27-28, 2006 • Charlotte
TALENT ATTRACTION,
DEVELOPMENT, AND
RETENTION:
THE LEADING EDGE
The consortium brings together
practitioners, researchers, and
HR executives to examine
emerging talent management
issues and successful methods to
attract, develop, and retain
employees. The unique setting
fosters stimulating dialogue
among colleagues. This program
is presented by the Society for
Industrial and Organizational
Psychology.
Scheduled speakers
Nisha Advani, Genentech
in its culture, which is a step beyond contin¬ Neil Anderson, University of Amsterdam
uous improvement in performance alone. Dave Bartram, SHL Group PLC
The chances are high that the company will Allen Church, PepsiCo
sustain its momentum. Lillian Eby, University of Georgia
Editor’s Note: For a full treatment of the Bob Eichinger, Lominger Limited, Inc,
1999-2003 innovation initiative at Eric Elder, Bank of America
Whirlpool, see Nancy Tennant Snyder and Peter Fasolo, Johnson & Johnson
Deborah L. Duarte, Strategic Innovation: Glenn Hallam, Creative Metrics, Inc.
Embedding Innovation as a Core Brooks Holtom, Georgetown University
Competency in Your Organization (Jossey John Howes, Nike Corporation
Bass Business and Management Series, Leslie Joyce, The Home Depot
2003).
Ellen Kossek, Michigan State University
Bill Macey, Valtera Corp.
Dana McDonald-Mann, Wachovia Corp.
Jeff McHenry, Microsoft Corp.
Peter Ramstad, Personnel Decisions Int’l
Deborah Rupp, University of Illinois
Maura Stevenson, Starbucks Coffee Co.
Paul Yost, Microsoft Corp.
Registration cost is
$495 and includes
breaks, lunch, and
receptions at the
Marriott Charlotte Southpark. Visit
www.siop.org/lec/ or
call 419-353-0032 for
registration and information.
 SUSTAINED INNOVATION
Timberland Invention
Factory
Reported by Bill Stopper, Current Practices Editor, based on a presentation to the
HRPS Corporate Sponsor Forum (2004), and responses to questions posed by Human
Resource Planning (2006).
Doug Clark, vice president, Timberland
Invention Factory, discussed Timberland’s
approach to innovation at the 2004 HRPS
Corporate Sponsor Forum. How the com¬
pany got to the creation of an “invention
factory” turns out to be the middle of the
story. The end is how the company sustains
innovation. Both are covered in this article,
but first, some background
In 2005, Timberland, which is headquar¬
tered in Stratham, New Hampshire, earned
$165 million on revenue of $1.6 billion.
About 40 percent of its revenue comes from
outside the United States. The company is
primarily known for manufacturing and
selling footwear, which accounts for about
75 percent of sales. Production is largely out¬
sourced outside the United States. Over time,
its product offerings have expanded into
apparel and a complete range of accessories,
including packs & travel gear, watches,
eyewear, headwear, belts, and leather goods.
The success of the original waterproof
Timberland hiking boot in 1973 led the
company to change its name from the
Abington Shoe Company to Timberland in
1978. Nathan Swartz, Timberland’s founder,
bought full interest in Abington in 1955, and
the Swartz family, including current CEO
Jeffrey Swartz, controls 70 percent of
Timberland’s voting shares. The company
went public in 1987.
Innovation is an integral part of
Timberland’s history. Thirty years ago, there
was a conspicuous void in the outdoor
footwear market. Most workboots were
designed for use in the outdoors, and made
of leather for durability, but making them
truly waterproof was a challenge. In a
footwear industry first, Timberland tackled
the problem by utilizing injection molding
technology to fuse rubber lug outsoles to
waterproof leather uppers that were impreg¬
nated with silicon for complete waterproof
- CASE STUDY
protection. The result was a guaranteed
waterproof leather workboot. These “yel¬
low” boots became a hit, not only with
outdoor enthusiasts, but also with college stu¬
dents both in the United States and overseas.
But Timberland learned what all
consumer products companies learn: New
ideas have a life cycle, an S-curve of growth
and leveling off. Two things are needed to
sustain category leadership: first-to-market
Invention is essential to starting a new business or introducing
a new product and entails redefining consumer expectations.
Linking a series of S-curve cycles—jumping the curve—builds
sustainable brands.
differentiation and “jumping the curve.”
Invention is essential to starting a new busi¬
ness or introducing a new product and
entails redefining consumer expectations.
Linking a series of S-curve cycles—jumping
the curve—builds sustainable brands.
What Timberland also learned is that the
footwear industry can be out of sync with the
pace of the world. Category invention is
often slow and reactive; consumer accept¬
ance is often random. The process for new
product development has historically been
archaic and inefficient, with too much
reliance on non-value-added costs: labor,
steel, tariffs, and transportation. Few break¬
throughs have been aggressively pursued via
research, new materials, and the opportuni¬
ties to meet real human needs. Footwear has
often been conceived of as:
■ A foot covering rather than human trans¬
port device;
■ Cushioning rather than pressure distribu¬
tion;
■ Stability rather than alignment.
Coming back to S-curves, what is also
known in the apparel and footwear market¬
place is that cycles seem to progress from
extreme to extreme, and new cycles emerge
as consumers search for something new. Mr.
Clark treated the HRPS audience to a view of
the history of pants in the last 40 years:
straight legs, flared cords, bellbottoms,
designer jeans, khakis, baggy jeans, and low
rises. Footwear styles accompanied these
fashion changes: platforms with bellbottoms,
penny loafers with classic fit pants, boots
with baggy jeans. The innovation trick is to
predict the cycles, to build a future and still
preserve the brand heritage. Looking at what
is does not help predict the future. What will
help is looking at what led to what is.
Timberland has determined that it must
compete in this cyclical marketplace along
three dimensions:
1. Invention: Creating something new that
disrupts the current paradigm;
2. Innovation: Improving a product in a way
that is responsive to underserved needs;
3. Iteration: Modifying the current state in a
new way that reacts to market changes.
Timberland recognized that it was good
at innovation and iteration as defined here,
but that a new approach was needed for
creating “new and disruptive” products. The
company needed a strategic way to look at
problems, to discuss “what ifs,” to scope out
the next generation of products, to pursue
new opportunities with breakthrough
advances, but not under the same time
pressure put on innovation and iteration.
Development cycles in the 18 to 48-month
range would be acceptable rather than the six
to 18 months allotted innovation and itera¬
tion. A new organization would be required.
The new organization, named The
Invention Factory, started with the concept
that better ideas would be built through
cross-functional product creation, combining
design, development, and manufacturing.
Current development processes, although
involving some cross-functionality, were
generally functionally oriented and therefore
HUMAN RESOURCE PLANNING 29.3 31
 SUSTAINED INNOVATION TIMBERLAND
primarily sequential. The Invention Factory
was specifically built around being collabora¬
tive and simultaneous and producing
sustainable propositions that delivered on the
brand’s promise. Its team-based intent was to
complement Timberland’s core competen¬
cies, not abandon them. It intended to blend
art and science, to enter into the advanced
materials arena, and stay focused
function, not fashion. For example, The
Invention Factory invested in a biomechanics
lab. It pondered non-obvious solutions like
chicken leather or fish leather alternatives to
leather from mammals; it studied the fine
setae on the toes of geckoes to overcome
the loss of traction of boot soles on slippery
surfaces.
The Invention Factory also adopted an
open market approach to innovation under
three hypotheses:
1. Science is outpacing the growth
business.
2. No single business should expect to com¬
pete using only its own internal R&D
resources.
3. The answer to your question likely already
exists.
Carrying out this approach requires
The Invention Factory to define a problem
clearly, to reach out across industries and
academic institutions for information, and to
negotiate the completion and purchase of the
solution.
The Invention Factory was still
relatively new organization at the time of
the presentation to the FIRPS Corporate
Sponsor Forum in 2004. Human Resource
Planning was interested in learning what
results have been achieved since that time
and the long-range plans for the organiza¬
tion. Mr. Clark graciously agreed to be
interviewed for this purpose.
HRP: Is The Invention Factory still up and
running? After a time, some companies
decide to go in a different organizational
direction. Whafs happened to The Invention
Factory since 2004?
DC: We’re very much still up and running.
Over the past couple of years, we have
increased our team and budget and expanded
our scope. In addition to supporting the
32 HUMAN RESOURCE PLANNING 29.3
Timberland brand with new concepts, we
are aggressively extending our enterprise
by incubating new stand-alone brands and
businesses.
Over the past 18 months, we have suc¬
cessfully incubated and launched two new
standalone brands, Mion and GoLite
footwear, which has whetted the appetite for
on more discrete projects, resulting in a pipeline
of potential new “concept business”
opportunities being nurtured and prepared
for possible market introductions in the
future.
HRP: Our readers will be interested in the
size of the organization and where it
resides in the management structure.
Also its scope: Is it dedicated to footwear
products alone or has its scope expanded
into the other product areas of apparel,
sunglasses, and watches?
of
DC: The department has grown by 35
percent from 17 employees to 23. The team
is still cross-functional, spanning business
planning, research and testing, and product
creation. Four members of the team are
permanently located in China and the rest in
New Hampshire.
We are a discrete department reporting
directly to the COO, and are part of two
cross-functional planning teams: a steering
committee that determines the long-term
development priorities of our Timberland-
branded businesses, and the new business
development team that prioritizes incubation
projects and acquisitions.
a market
At this stage, with 2+ year timelines to
introduce new concepts, we continue to
focus specifically on footwear. It has been
just over three and a half years since we were
established, and we believe there is much we
can do to innovate against Timberland’s core
product category of footwear. Over the long
term, we anticipate expanding into other
product categories.
HRP: For want of a better description. The
Invention Factory represents a classic R&D
approach to innovation. Other companies,
like Whirlpool, have gone the route of
embedding innovation throughout the
organization with all that may mean in
terms of a culture change. What was the
thought behind the more focused approach
you took?
DC: Timberland is a company with an ongo¬
ing, healthy, and profitable core business that
continues to innovate against existing plat¬
forms that define these businesses. The intent
of The Invention Factory is to complement
our established business, not render it obso¬
lete. So for us, maintaining what you would
call a “classic R&D approach” makes sense.
HRP: What have been the major successes of
The Invention Factory both in terms of mar¬
ket success and breakthrough advances?
DC: In the last year and a half the depart¬
ment has won four awards from the
Industrial Design Society of America across
three of our projects. Travel Gear, our very
first project, won silver last year. PreciseFit, a
revolutionary new fit and sizing system that
is being integrated into both our core cate¬
gories and new businesses, won silver this
year. Mion, a business incubated within The
Invention Factory and introduced to the
market this past spring, won both a design
and environmental award.
Our biggest success so far has been
PreciseFit, which not only serves the
consumer with better fitting shoes, but also
substantially changes the economics of the
business, improving the stocking, fulfillment,
service, and turn rates for our customers.
As far as we can tell, Mion was the largest
first-season introduction of a new brand in
the history of the outdoor industry. We
partnered with designer Martin Keen, and
supported him with business planners, go-to-
leaders, product development
support, a partner factory, and research and
testing support, allowing us to incubate and
deliver this highly innovative performance
amphibious shoe concept to the market in
nine months.
GoLite Footwear also deserves mention
here. We initiated this project two years ago
to re-invent what an extreme trail running
shoe should be. This led to the acquisition of
the GoLite Brand, and we have just returned
from a sensational trade launch of this brand,
with high hopes of consumer acceptance.
HRP: Has there been any spillover effect on
the other two product creation areas you
described in 2004: innovation and itera¬
tion? For example, have they become more
cross-functionally oriented?

DC: Some of our projects are intended to
support in-line businesses from the start, like
PreciseFit. This is what we call a “systems”
project, one that can be integrated into any
shoe or any category. In the case of PreciseFit,
the men’s casual team has included it as the
lead story in a line of premium casual shoes.
The sell-in results have far exceeded all of our
initial forecasts, and energized the sales force
with an innovation story into which they can
sink their teeth. It launches in stores this fall.
Many of our “enablers,”—ideas that
were developed as part of a project but could
be separated and used in other products—
have been adopted by in-line teams and
incorporated into the line. Most notably, our
pull-out lining is a process that allows a wet
lining to be pulled out of the shoe at the end
of the day, allowing it to dry six times faster
than if it were cemented into the shoe.
We have helped to introduce some of our
in-line businesses to the concept of “problem
storming.” Different from brainstorming,
problem storming focuses a group discussion
on the specific problems we need to solve and
accelerates the creative process for high
impact/high speed solutions. Usually members
of The Invention Factory team participate in
problem storming sessions of the
in-line teams.
We have also enlisted the help of in-line
designers to define the design platforms for
our new product platforms. We find that
having several creative minds focused on the
same problems at the same time can often
accelerate our ability to get to the best
answer quickly.
SUSTAINED INNOVATION TIMBERLAND
HRP: Tell us a little more about Open The most significant change has been a
Market Innovation. shift to support new business development.
Currently almost half of our resources go
DC: We are slowly and deliberately increasing
into this, whereas two years ago it wasn’t
the number and quality of our key supplier
even on our radar screen.
relationships. Our intent is to establish true
The Invention Factory was built around being collaborative and
simultaneous and producing sustainable propositions that deliv¬
ered on the brand's promise. Its team-based intent was to com¬
plement Timberland's core competencies, not abandon them.
win-win partnerships with suppliers who HRP: As a final question, what is the secret
invest in R&D and are better able to solve to sustaining a business initiative like The
our problems in the subject areas than we Invention Factory over the long term?
would be on our own. The best example of
DC: The secret may be no secret at all. It’s
this is our partnership with Prime Asia, a
what we all know but often fail to do:
leather company. It has hired an advanced
developer, who sits in our building and ■ Maintain commitment from the top.
works on our agenda, but who is funded by ■ Foster a culture that is willing to take
Prime and taps into its R&D capability. risks.
■ Accept failure as part of the learning
HRP: Given the success of the organization,
process.
should we expect to see more of the same or
are you taking The Invention Factory in new ■ Persevere—and be patient!
directions?
HRP: Thanks, Mr. Clark, for sharing the
DC: We believe in continuous improve¬ Timberland story and your insights into
ment—of our process, charter, and scope. By sustaining innovation.
definition, sufficient is never sufficient for
our department. We are still in our infancy as
a working team, so I expect to see continued
evolution and advancement of all aspects of
our department.
HUMAN RESOURCE PLANNING 29.3 33
 SUSTAINED INNOVATION
Best Buy: Customer-
Centric Innovation
John Walden, Executive Vice President, Customer Business Group
Reported by Bill Stopper, Current Practices Editor, based on a presentation to the
HRPS Corporate Sponsor Forum (2004) and an interview with John Walden (2006).
When he presented the Best Buy innova¬
tion story at the HRPS Corporate Sponsor
Forum in October of 2004, John Walden was
executive vice president, Human Capital and
Leadership. In December that same year, he
was appointed executive vice president,
Customer Business Group. Previously, he led
Best Buy’s Internet subsidiary, and prior to
joining Best Buy he was the chief operating
officer of Peapod, Inc., an Internet retailer of
groceries.
Best Buy is the largest technology and
entertainment retailer in the United States.
When John Walden talked about peak
performance, he meant having 790 stores in
North America and net earnings of $705 mil¬
lion on revenue of $24.5 billion. Two years
later, there are 940 stores and net earnings of
$1,140 million on revenue of $30.9 billion.
That is pretty good for a company with a
light and breezy vision statement: “Making
Life Fun & Easy.” The values supporting
that vision show what it takes to be compet¬
itive in a fast-moving, dynamic industry:
■ Have fun while being the best.
■ Learn from challenge and change.
■ Show respect, humility, and integrity.
■ Unleash the power of our people.
Innovation can be built on values like
these because they embody listening to others
and being open to the new.
Best Buy started small. In 1966 it was a
Sound of Music store, selling audio, video,
and car stereo equipment. It grew in the
1980s with the name change to Best Buy and
a penchant for understanding what
customers wanted, carrying multiple brands,
and concentrating on product displays. In
1985 Best Buy went public and, like many
competitors, competed on price. In 1989,
however, the company decided to compete
using a different sales concept: Customers are
in charge; sales is there to help. In other
34 HUMAN RESOURCE PLANNING 29.3
CASE STUDY
pour forth from an entrepreneurial leader
in a startup company. Senior management
recognized that it was neither in crisis nor a
startup. The changes required by innovation
would be difficult in the midst of its success.
It had to create the necessity that would
become the mother of invention.
That necessity came in a concept that
everyone in Best Buy could accept: customer-
centricity. Best Buy decided to move from the
mass market and price formula that animated
much of the strategy of retail chain stores to
a “unique store approach.” Stores would
become “customer-segmented” and be built
words, customers do not want to be sold;
around the unique interests of customers in
they want to buy after they see all the choices
each area. Rather than have a cookie-cutter
and prices. Best Buy took its sales staff off
approach to design and stocking that fit
commission and built bigger and brighter
corporate needs for efficiency and control,
stores to display all the products.
stores would reflect customer needs. More
The concept worked well on the sales
autonomy would be given store managers,
side. In 1995, revenue was $3 billion—but
and technology would be employed to keep
the company was not profitable, and the
on top of customer buying patterns.
infrastructure and its processes appeared not
Processes that were not customer-driven
to support profitable growth. Disciplined
would be driven out: readjusted, outsourced,
store execution of standardized processes
or eliminated.
became the order of the day, along with a
Customers do not want to be sold; they want to buy after they
see all the choices and prices.
drive to increase market share. Through a
Implementing this concept—a true
new subsidiary, BestBuy.com, the company
culture change—was not simple and clearly
entered the Internet arena, and, through the
would not occur overnight. It meant creating
acquisition of Magnolia, it entered the
an owner/operator mentality throughout the
high-end audio-video market. These efforts
company. It meant developing new business
proved highly successful: Best Buy’s market
acumen around segmentation, value
share rose from 11 percent in 2000 to 17
propositions, and financial impact. It meant
percent in 2004, and earnings per share expe¬
empowerment: gaining energy from learning
rienced a compounded annual growth rate of
and personally making change happen. Most
29 percent over the same period. At the same
of all, it meant understanding the customer.
time, its employee engagement scores—based
Who are they? What do they want? Can we
on the Gallup 12-question five-point scale—
deliver it?
increased from 3.79 in 2002 to 4.08 in 2004,
To start, Best Buy quickly refitted five
and customer loyalty—measured in repeat
stores to become learning labs for the rest of
customers—grew from 34 percent in 2002 to
the company. It developed an accelerated
45 percent in 2004. Forbes named Best Buy
leadership development program, using
the Company of the Year in May 2004.
action learning components to prepare both
Best Buy knew it could not bask for long
corporate and store management for the
in the light of past successes. Opening new
change from centralization and sameness to
stores would continue as a path to growth,
decentralization and uniqueness. Operating
but innovation had to be coupled with
plans were designed with more flexibility and
performance if the company was to sustain
scalability. Measurements were established
and increase its position in the marketplace.
to compare store results of similar volume
Frequently, innovation comes on the heels of
stores under the old and new concepts.
a crisis, when the company’s back is against
And the company devoted a huge effort to
the wall. Alternatively, innovative ideas often
communicating with and engaging employees
 SUSTAINED INNOVATION BEST BUY
EXHIBIT 1
Institutionalized Learning Model
in the change. Being closest to the customer,
employees played a key role in make
segmented stores work. An institutionalized
learning model was deployed to move
employee/customer input into execution (see
Exhibit 1).
John Walden closed his presentation by
emphasizing that moving to customer-cen-
tricity is as much a human endeavor as a
strategic endeavor. Customer-centric capabil¬
ities will be the basis for all future growth,
not only incremental store improvement. As
a result, a new human capital philosophy has
been adopted to:
1. Recognize the unique talents of each
employee, and deploy those talents in a
manner that maximizes the employee’s
energy to drive business outcomes.
2. Reengineer the talent system (selection,
performance management, rewards,
development), and develop other HR
capabilities for personalization vs. same¬
ness.
3. Focus HR on strategic differentiation—
transformational company change vs.
support.
4. Assume a leadership role in the transfor¬
mation of the business.
In practical terms, he said that HR is
now in the stores—on the ground to drive
Moving to customer-centricity is as much a human endeavor as
a strategic endeavor.
the transformation agenda, coach store
managers, simplify processes, and share
institutional learning.
In preparation for an interview with John
Walden to find out how the innovation jour¬
ney was proceeding two years later, we read
with great interest the following comments
of CEO Bradbury Anderson in the 2006 Best
Buy annual report:
Customer centricity has been, and will
continue to be, a growth driver for us.
By tuning in customers and employees
more closely, we are being rewarded
with new ideas every day—ideas that
in the past would not have made their
way to headquarters and have been
implemented at other stores ...
Frankly, it is a challenging goal to
become customer-centric, as we
have defined it. Moreover, given that
consumers’ tastes are constantly
changing (as are product cycles), our
goal has become a moving target, forc¬
ing continuous improvement.
John was optimistic about the progress
made, but realistic about the time and effort
that must go into implementing and sustain¬
ing a large-scale initiative like customer-
centricity.
HRP: At the time of your presentation in
October 2004, you mentioned that 68 seg¬
mented stores were in operation with an
expectation that the number would reach
100 in the near future. Where does the com¬
pany stand today on segmented stores?
JW: As of the end of December 2005, we
could count 250 segmented stores. But the
more important news is that we think it is
time to shift our focus. Rather than talk
about segmented and nonsegmented stores,
or about independent implementation, we
now talk about segmentation as the model
for operating all of our stores. There’s
enough traction around customer-centricity,
that all store managers can begin to deploy
segmentation solutions in their stores. There
will still be differences among stores but
everyone will be moving in the same
direction. With over 900 stores in North
America, we knew we couldn’t stay with a
one-by-one model. I remember reading about
death in the middle. There’s great enthusiasm
at the beginning of great initiatives and also
at the end as you see the finish line. It’s in the
middle you tire of the effort you’ve already
expended and lose momentum as you see
how much more there is to do. If we kept
counting segmented stores one-by-one, we
might die in the middle. There’s new energy
now and no one is waiting for segmentation
to come to him or her.
HRP: Judging from the progress made so far,
would you say customer-centricity has taken
hold in the culture of the company?
JW: I’m not ready to declare victory on that
one. Culture change is a multi-year deal, and
while almost everyone gets the idea behind
customer-centricity, I think we have a way to
go before we can say “it’s the way we do
business around here.”
HUMAN RESOURCE PLANNING 29.3 35

HRP: What have been the strongest forces
for positive change during the past two
years?
JW: Examples of success. As our people
see results in customer satisfaction and in
financial returns, they come to appreciate the
value of our customer-centric approach in
our retail business. Nothing helps more than
customers returning to a store to say they
looked elsewhere but Best Buy was best.
HRP: If we turn to the other side, what were
the biggest obstacles you encountered and
how were they overcome?
JW: There have been a lot of obstacles related
to individuals and systems. Perhaps the
biggest obstacle to overcome has been the
history of retail. Over decades, retail
has been the distributor for the industry
(essentially the manufacturers). We put their
products on shelves and sold their features to
our customers. Best Buy has been trying to
flip that model by putting the customer first.
We’re not so naive as to think we’ll change
the industry overnight. We can and do get
customer ideas to the industry, but there’s
little speed or guarantee of success in that.
But what we can and do control is the assem¬
bly and display of products in the store in a
way that best reflects the current needs and
interests of our customers. Williams Sonoma
has been good at this in their catalog and
stores for a number of years: They display a
table setting as it might look in your home.
We’re taking a similar tack, and it’s a big
change for many of us in retail.
Our Geek Squads are a good example of
how we are applying customer-centric con¬
cepts to computer and network support. A
Geek Squad is an elite tactical unit of highly
trained “agents” who offer flat-rate pricing
for everything from setups and installations
to upgrades and emergency service whenever
and wherever the customer wants. The
Volkswagen Geekmobile has become a
symbol of Best Buy customer-centric service.
36 HUMAN RESOURCE PLANNING 29.3
HRP: You mentioned the lab stores. Do they
still operate as part of the experimental step
in your learning model?
JW: Yes, the learning labs continue to be an
important part of our innovation process.
We have five main stores, each concentrating
on a specific customer group. We still exper¬
iment with new ideas and refine solutions in
these stores before deploying them elsewhere.
Solutions coming out of the learning labs
have a high degree of acceptance and of
speedy implementation in our other stores.
HRP: Words like “fast” and “speed” are part
of the model. How do you keep ideas from
getting bogged in the experimental stage or
approval stages?
HR is now in the stores—on the ground to drive the transforma¬
tion agenda, coach store managers, simplify processes, and
share institutional learning.
JW: Not letting that happen is part of our
culture change and takes constant attention.
As part of continuous improvement, we can’t
afford to let systems and processes slow us
down. That’s why store managers have
the latitude to implement many ideas on
their own. And that’s why the learning labs
are dedicated to quick turnaround on ideas
coming to them.
HRP: What are you doing to make sure that
good ideas keep coming?
JW: We know we have to strike the balance
between too much and too little. Too much
would be suggesting anything you want
regardless of cost, relevance to customer
needs, and scalability. Too little would be not
suggesting anything because of inertia, disin¬
terest, or a history of seeing too many ideas
never getting implemented.
SUSTAINED INNOVATION BEST BUY
We start with the theory that all employ¬
ees have something to contribute, and then
we constantly invite them to share their ideas
about how to meet the needs of our cus¬
tomers. We really believe that employees and
customers deserve to know that their ideas
are considered and, where possible, acted
on—first, at the local level and then perhaps
throughout Best Buy. Seeing your idea imple¬
mented is a strong motivator to submit more
ideas. The one caveat that everyone knows
and must abide by is that new ideas must
maintain our brand and what it stands for.
HRP: Sustainability is one of the themes of
this special journal issue on innovation. What
is the secret to sustaining a business change
like customer-centricity over the long term?
JW: I’ll come back to what I said at the begin¬
ning: moving customer-centricity from a
special initiative to the natural way we run
our business. We know there will continue to
be differences from store to store on what
customer-centricity looks like, but everyone
will be operating on the same model. Saying
it is the easy part; making it happen is much
more difficult. The model is backed up by a
lot of work in defining (and redefining) roles,
in revising systems or introducing new ones,
in training our stores managers and employ¬
ees—in sum, in a whole set of reinforcing
actions. We’re very proud of what’s been
accomplished so far, we’re very optimistic
about the future, but we’re also not done.
That’s what continuous improvement is all
about!
 BOOK REVIEWS James H. Dulebohn, Editor
Innovation and
Entrepreneurship: Practice and
Principle
Author: Peter F. Drucker
Publisher: HarperBusiness, New York, NY,
1985.
ISBN: 0060154284
Reviewer: James H. Dulebobn, Ph.D.,
Associate Professor, Michigan State
University
A reasonable question is: “What exactly
is entrepreneurship and what constitutes
innovation?” Peter F. Drucker in
Innovation and Entrepreneurship provides
the answer to this question and delivers
what may be considered a classic treatment
of these concepts. His discussion is insightful,
comprehensive, and provides an extensive
description of what innovation and entre¬
preneurship are. What is most helpful
throughout his book are the many historical
and contemporary examples he presents to
explain the concepts of innovation and
entrepreneurship. Although the book was
first published over 20 years ago, it repre¬
sents one of the most enduring treatments
on the subject.
Drucker begins his book by defining and
describing entrepreneurship and innova¬
tion. He described entrepreneurship as
individuals who exploit opportunities that
change creates (such as in technology and
consumer preferences). He wrote:
Entrepreneurs see change as the
norm and as healthy. Usually, they do
not bring about the changes them¬
selves. But—and this defines entre¬
preneur and entrepreneurship—the
entrepreneur always searches for
change, responds to it and exploits it
as an opportunity (p. 28).
In responding to change, entrepreneurs are
individuals who create something new or
something different.
Drucker describes innovation as what
entrepreneurs do. Innovation represents
“the specific tool of entrepreneurs, the
means by which they exploit change as an
opportunity for a different business or
different service . . . innovation involves,
changing the value and satisfaction
obtained from resources by the customer
(p. 19-33). Drucker argues that there is a
need for constant innovation because of the
challenge of ever-changing customer needs,
technology, and competition.
Throughout his book, Drucker asserts
that the two primary functions of business
are to innovate and to market. Marketing
creates a customer, whereas innovation
involves doing something better to enhance
organizational performance. Clearly
Drucker believes that entrepreneurship
does both and involves doing something
different in order to better utilize resources
and to expand markets. Drucker empha¬
sizes that, at its core, entrepreneurship is
market-focused and market-driven.
One of the examples of entrepreneur-
ship Drucker provides is Ray Kroc and
McDonald’s. Ray Kroc took an existing
product and business and by applying inno¬
vation enhanced organization performance
and created a new market. Drucker
describes this occurrence as follows:
McDonald’s, however, was entrepre¬
neurship. It did not invent anything,
to be sure. Its final product was what
any decent American restaurant had
produced years ago. But by applying
management concepts and manage¬
ment techniques . . . standardizing
the “product,” designing process and
tools, and by basing training on the
analysis of the work to be done and
then setting the standards it required,
McDonalds both drastically upgraded
the yield from resources and created
a new market and new customer.
This is entrepreneurship (p. 21-22).
Throughout his book, Drucker challenges
the notion that entrepreneurship and
innovation are innate or represent person¬
ality-based characteristics or represent the
domain of select individuals or scientists.
Instead he describes innovation and entre¬
preneurship as behaviors that most people
are capable of learning. He wrote:
But everyone who can face up to
decision making can learn to be an
entrepreneur and to behave entrepre-
neurially. Entrepreneurship then,
is behavior rather than personality
trait. And its foundation lies in
concept and theory rather than in
intuition (p. 26).
Towards this end he presents behaviors and
principles of entrepreneurship and innova¬
tion in his book to instruct and assist his
readers.
The McDonald’s example and others
throughout the book highlight that most
new businesses are successful because of
someone’s innovating and doing something
differently rather than because of a major
technological breakthrough. A look at
some successful new businesses that have
been created since this book was written
confirms this point: Dell in its “be direct”
approach to marketing IBM-compatible
PCs or Google in its improvement on
Internet search technology and advertis¬
ing above prior Internet search engine
companies.
In the first section of his book, The
Practice of Innovation, Drucker convinc¬
ingly argues that innovation rarely arises
from “flashes of genius” but rather innova¬
tion is purposeful and involves an organ¬
ized, systematic process of monitoring
these sources of innovation for innovative
opportunities (p. 133). He identifies and
describes seven sources of innovative
opportunity: The Unexpected,
Incongruities, Process Need, Industry and
Market Structures, Demographics,
Changes in Perception, and New
Knowledge. Overall, the seven sources rep¬
resent symptoms of change or “highly reli¬
able indicators of changes that have already
happened or can be made to happen with
little effort” (p. 35). The role of the entre¬
preneur is to identify these changes and
opportunities and respond through action.
The first four of the sources are related to
the enterprise or industry; the second three
are outside the enterprise or industry.
An example of one of the seven sources
of innovation, The Unexpected, Drucker
provides is Macy’s, New York’s largest
department store in the 1950s. Drucker
writes that The Unexpected is composed of
three types of unexpected events: unexpect¬
ed success, unexpected failure, unexpected
outside event. For Macy’s the occurrence
was unexpected success: This signified an
opportunity, but that opportunity was lost.
The chairman of Macy’s told Drucker that
the sales growth of appliances was outstrip¬
ping fashion sales, which was the store’s
focus, and grew to account for three-fifths
HUMAN RESOURCE PLANNING 29.3 37
of sales. The chairman viewed this unexpect¬
ed occurrence as abnormal and made an
effort to de-emphasize appliance sales
while focusing on fashion sales. In
contrast, Bloomingdale focused on the same
unexpected demand for appliances and this
unexpected success, built a housewares
department around appliances, and grew as
a result.
Following his presentation of the seven
sources of innovative opportunity, Drucker
provides a set of principles of innovation
representing what he calls “the hardcore of
the discipline” (p. 134). In this discussion he
identifies things that should be done (do’s),
things that should not be done (don’ts), and
conditions. The first do is that innovation is
purposeful and systematic and begins with
the analysis of the sources of opportunity.
Next comes testing the analysis against real¬
ity. This involves going into the marketplace
and ascertaining customers’ expectations,
needs, and values. Third, for an innovation
to be effective, it must be simple and focused
on a specific need that it satisfies and a spe¬
cific end result that it produces. Related, it
should also start small. Finally, it should aim
at achieving leadership in a given environ¬
ment, market, or industry. The don’ts
include: not trying to be clever, not trying to
do too many things at once, and innovating
not for the future but rather for the present.
The conditions Drucker presents are
as follows. First, innovation requires
38 HUMAN RESOURCE PLANNING 29.3
knowledge and is “focused, purposeful
work making great demands on diligence,
on persistence, and commitment” (p. 138).
Second, innovators must build on their
strengths. It requires a fit with the individual,
the company, and involves applying the
innovators’ abilities. Third, innovation has
to be focused on the market and market-
driven; otherwise, it will not result in
change.
The second and third sections of the
book apply the concepts on innovation and
entrepreneurship to organizations. Through
these sections, Drucker described ingredients
of entrepreneurial management, entrepre¬
neurial business, and entrepreneurial
strategies. He provides a discussion of what
different organizations (established busi¬
nesses, public sector organizations, and new
ventures) need to know and practice in order
to thrive.
In the second section of the book, The
Practice of Entrepreneurship, Drucker focus¬
es on what needs to occur inside an organi¬
zation for it to be entrepreneurial. He argues
that entrepreneurial management is needed
to create an entrepreneurial business. An
entrepreneurial business is an organization
that fosters and exploits innovation. This
type of business and management approach
involves building a culture that encourages
and provides the resources to its members to
be innovative. This must be embedded into
the company’s philosophy and practice;
acquiring another company in hopes of
transforming the parent company into
becoming innovative usually does not
succeed. Examples of companies that are
entrepreneurial and practice entrepreneurial
management that Drucker identifies include
Procter and Gamble, Johnson and Johnson,
and 3M.
In the third section, Entrepreneurial
Strategies, Drucker describes what practices
and policies of entrepreneurship an organi¬
zation needs to practice externally in the
marketplace in order to succeed. These
include “Fustest with the Mostest,” “Hit
Them Where They Ain’t,” Ecological
Niches, and Changing Values and
Characteristics. Each of these strategies is
appropriate in different circumstances, has
advantages and disadvantages, and is not
mutually exclusive but may be combined.
Overall, Drucker provides a thorough
treatment of entrepreneurship and innova¬
tion. This book has been recognized as the
first to present innovation and entrepreneur-
ship as a purposeful and system discipline.
Drucker’s work is thought-provoking and
extremely practical. It is a must read for
leaders and managers who want to practice
innovation, be entrepreneurial, and thrive
and succeed in their particular marketplaces.
The Ten Faces of Innovation:
IDEO's Strategies for Beating the
Devil's Advocate & Driving
Creativity Throughout Your
Organization
Author: Tom Kelley (with Jonathan Littman)
Publisher: Currency Doubleday, New York,
NY, 2005.
ISBN: 0385512074
Reviewer: Michael Moore, Ph.D., Professor,
Michigan State University.
The Ten Faces of Innovation is aimed at
business and organization leaders who are
charged with sustaining and driving a pow¬
erful culture in their organizations. This
book is in the general management rather
than the human resources management
genre. What this book provides is a steady
drumbeat of innovation case histories
nested in Kelley’s conceptualization of 10
roles that, singularly and intermixed, drive
a successful innovation culture and process.
Although none of the cases is HR-oriented,
enough concepts and principles are provid¬
ed that a crosswalk to HR processes and
programs can be made by HR thought and
practice leaders.
The author, Tom Kelley, is the general
manager of the global design and consulting
firm IDEO that was made famous in an
ABC “Nightline” show (1999) for its wide-
ranging processes for approaching tasks
requiring divergent thinking and creativity.
The author’s brother, David Kelley, founded
IDEO in Silicon Valley and also serves as a
professor in Stanford University’s famous
program in product design. IDEO has been
an award-winning firm for several decades
and serves as the source for most of Tom
Kelley’s examples.
This is a credible book by a credible
author. It is not an academic book. The
book is not a compendium of creativity
theory. Lewis’ (2005) description of the
Samsung Corporation approach to creative
product design contains several elements
not mentioned by Kelley. No surveys are
reported; the book is devoid of regression
equations. Its case examples are clearly
described but would fall short of an acade¬
mic’s requirements for grounded theory.
On the positive side, Kelley’s ideas are
easily accessible, nicely supported by cases
and the “ten faces” framework, and pre¬
sented in attractive formats with photos
and lists interspersed with text to add to the
reader’s enjoyment.
The book contains 11 chapters and a
useful index. Ten of the chapters are the 10
faces framework explicated. The 10 faces
of innovation as seen by Kelley are: The
Anthropologist, The Experimenter, The
Cross-Pollinator, The Hurdler, The
Collaborator, The Director, The Experience
Architect, The Set Designer, The Caregiver,
and The Story Teller. His 11th chapter
describes how these contributors to the
innovation process can be profitably
intermixed. But, in many ways, Kelley’s
introduction entitled “Beyond the Devil’s
Advocate” serves as one of the best take
aways of this book.
Kelley begins his book with his concern
that in its first moments, creativity can be
fragile and hard to comprehend. It can be
easily crushed by someone saying “Let me
just play Devil’s Advocate for a minute.”
The 10 faces or personas need time to come
into play and can be easily swept aside by
negativity rather than open-minded explo¬
ration of new ideas. This introduction
clearly sets the stage for the 10 faces or
personas.
The author groups the 10 faces around
the different personas they bring to a firm.
His first group is “The Learning Personas.”
The first three chapters deal with The
Anthropologist, The Experimenter, and
The Cross-Pollinator. These are clearly the
favorites of the author. For example,
anthropologists are seen as using principles
such as the Zen principle of “beginner’s
mind,” being observational not judgmental,
trusting intuition for inferences, looking for
epiphanies in “Vuja De,” keeping “bug
lists” and “idea wallets,” and being willing
to search for ideas in the trash bin.
A continuation of the anthropologist
analogy is the author’s description of
IDEO’s use of a methods deck of 51 tools
to apply to projects with groupings such as
“ask,” “watch,” “learn,” and “try” to
extract nuances of human behavior. One
useful insight for HR is to visit a typical
large city bookstore to tap into the energy
generated by the 7,000 to 8,000 glossy
magazines available to discuss trends in the
diversity of human life. Seeing the complexity
of human interests displayed in glossy
formats serves to help HR practitioners
appreciate the complexity of their employee
customer base.
The Experimenter chapter is fun to read
because it deals with the power of having a
prototype available as a sales or implemen¬
tation tool. Prototypes give a tangible
shape to an idea in a way that PowerPoint
presentations just cannot match.
The Cross-Pollinator chapter talks
about how to create something new and
better by juxtaposing similarly unrelated
ideas and concepts. The classic example is
how pie tins from Frisbie’s pies became the
internationally popular Frisbee. These first
three “learning personas” are brought to
life with 18 photos and dozens of examples.
The next three chapters describe the
“organizing personas” of how organiza¬
tions can diffuse information and move
ideas forward. The personas or “faces”
include The Hurdler, who has a knack for
overcoming obstacles, The Collaborator,
who can bring eclectic groups together, and
The Director, who can cast the right crews
and can spark their talent.
The final chapters of the book introduce
the reader to the “building personas.”
These roles are useful at taking insights
gained from the learning roles and then
channeling the energy of empowered
people from the organizing roles to make
innovation actually happen. These roles
include The Experience Architect, who can
find ways to generate deeper meaning from
commonplace activities. A useful chapter
identifies the work of the Set Designer and
deals with how to design physical work
places that foster innovation. The
Caregiver role deals with how to anticipate
HUMAN RESOURCE PLANNING 29.3 39
customer needs and to create fulfilling
service models. The final persona chapter
is that of The Storyteller, who builds and
reinforces corporate sagas that exemplify
positive cultures and traits. The final chap¬
ter illustrates how certain permutations,
combinations, and mixtures can interact to
drive innovation.
Ten Faces of Innovation is worth read¬
ing. It extends Kelley’s earlier work, The
Art of Innovation, by more fully rounding
out the complex roles necessary for the
diffusion of innovation once the techniques
of brainstorming discussed in the earlier
book are mastered. Kelley expends consid¬
erable effort to help readers generalize from
the unique nature of IDEO’s cases and
40 HUMAN RESOURCE PLANNING 29.3
those of collaborating firms in several
ways. He chooses cases from a wide range
of industries and countries. He discusses
specific best practices in the client organiza¬
tions that facilitate innovation. The book is
not just a story of why Kelley and his
brother and IDEO are so smart. The focus
is on finding principles of creativity and
innovation. Every chapter produces unique
surprises and valuable summaries. The first
three chapters are most engaging.
I recommend this book to readers of
Human Resource Planning. It provides
readers with a state-of-the-art overview
and summary of the realities of driving
innovation in today’s organization. The
principles apply to HR as much if not more
than to any other part of the business. HR
thought leaders and practice leaders need
to be well versed in how to create and
diffuse innovation in today’s organization.
This book fills much of this possible prepa¬
ration gap in a well-written, attractive, and
practical way. I recommend this book to
those HR practitioners who drive the
business agenda through HR roles.
REFERENCES
ABC “Nightline” (1999). IDEO’s Deep Dive (July 13,
1999).
Lewis P (2005). “A Perpetual Crisis Machine,” Fortune
(September 19): 59-77.
 N
7 HRPS Annual Global Conference
30th Anniversary
Mil April 15-18, 2007 • Ft. Lauderdale, FL
%l\\ 1 Marriott Harbor Beach Resort & Spa

The world of talent strategy and management has changed.

What in the world do vou do now?

Watch your mail and email for Keynote speakers confirmed to date are:
2007 conference updates. John W. Boudreau, Ken Freeman,
You can register now at Center for Effective Organizations, Managing Director, KKR,

CEO, Masonite
www.hrps.org Marshall School of Business, and

University of Southern California

L. Ben Lytle,
John D. Hofmeister, CEO, AXIA Health
President and US Country Chair, Management, LLC
Shell Oil Company
Lynda Gratton,
Edward AA. Liddy, Professor of Management Practice,

Chairman and CEO, London Business School

The Allstate Corporation

Frank M. Clark,
Joan M. Crockett, Chairman and CEO, ComEd
SVP, Human Resources,
Pete Ramstad,
Allstate Insurance Company
EVP, Strategy and Finance, PDI

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Editorial Review Board of Human Resource Planning
Michael Beer Mary Eckenrod Edward E. Lawler Carol Schreiber
Harvard Business School Eckenrod Consulting Group University of Southern California Schreiber Consulting

Jim Bowles Fredric Frank Robert Lazer David Schweiger

Cingular Wireless TalentKeepers United Jewish Communities University of South Carolina

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Michigan State University Human Resource Institute The Walker Group EDS

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Cornell University Baruch College, CUNY Metrus Group, Inc. Cornell University

Human Resource Planning Article
Submission Guidelines
Human Resource Planning invites the submis¬
sion of original manuscripts that advance the
mission of the journal and HRPS: to improve
organizational performance. The journal is read
by members of HRPS and other professionals
interested in better understanding the ways in
which informed human resource management
contributes to the achievement of business strate¬
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The journal provides management knowledge
and tools based on recent advances in manage¬
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original research, interviews with top managers
and scholars, articles on trends and techniques,
as well as research briefs and book reviews.
Designed to meet the knowledge needs of con¬
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Contributions
Appropriate subject areas addressed in the jour¬
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knowledge areas: HR strategy and planning,
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strategic HR function. Articles integrating
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encouraged. Content can be submitted as:
■ Articles reporting empirical research results
with direct practical implications
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definite practical implications
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from which guiding principles may be drawn
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Manuscript Guidelines
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regard to format. Regular articles normally run
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San Francisco: Jossey-Bass.
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Planning: Linking Customers and Employees.” Human
Resource Planning, 15(2): 47-62.
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42 HUMAN RESOURCE PLANNING 29.3

 Special Issue of Human Resource Planning
Building the Triple Bottom Line -HR's Contribution

Within the European Union, organizations already report on their sustainable business practices to regulatory groups,
and Non-Governmental Organizations (NGOs) such as Greenpeace are challenging corporations to constructively act
on a greater array of social and environmental initiatives wherever they operate. Such expectations will only grow in the future.
Special Issue Format and Types of Contributions
We are especially interested in the following types of contributions to this special issue:
• Company case studies and stories about what they are doing, how initiated, and the role HR
played in building leadership and workforce involvement
• Interviews with leading business, government, and NGO leaders about the role of business in promoting
the "triple bottom line" and the importance of getting people on board
• Research articles that demonstrate the linkage between social, environmental, and economic performance
• Reviews of relevant books on the subject
Send submissions by email to: fboyd@hrps.org (Lisa Boyd, Managing Editor). No manual submissions will be accepted.
Please designate in your email that this submission is for the Special Triple Bottom Line issue.
Any prior publication or current submissions of the article to other publications must be explicitly acknowledged in the email submission.
To view the complete version of the Articles Submission Guidelines, including the Advice to Contributors section,
please visit the Media Room/HRP Journal at www.hrps.org or http://www.hrps.org/submissionGuide.html
All submissions for this special issue are due by October 9th. The publication timeframe for this special issue is March 2007.

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This the FULL content version of the HRPS electronic newsletter of in-depth and timely reporting on trends,
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imoi , 0 . August 17,2006- Issue #4

HR Strategy & Planning
Human Element Is Key to Strategic Success
To execute well, organizations must understand that people are “both a core component of
risk and one of the principal avenues to risk mastery,” according to Mark V. Mactas, chairman and
CEO of Towers Perrin, in an interview with Leaders magazine. Business risks fare larger than ever as
globalization, technology and demographic changes unite to present organizations with challenges that
require a “far more holistic approach” than the risks of the past, says Mactas. People are at the core of
that approach in this knowledge economy. Talent gaps, insufficient employee engagement, high costs,
turnover and other workforce issues can cause employers to stumble. “Until our technologists crack the
code of artificial intelligence, successful companies will need to depend to a greater extent than ever on
human intelligence, innovation and inspiration,” says Mactas. (Leaders, April 2006, pp. 130-131)

Engage Employees with Strategic Vision

Organizations that have been successful in bringing their strategie
make the strategy meaningful and relevant on the employee!
nicate Business Strategy to Employees, a report from Mejc
cessful firms use have similar characteristics. First
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