A conversation with Dr. Min Basadur, Founder and President of Basadur Applied Creativity Inc. and The Basadur Centre for Applied Creativity about innovation and recession.
Interviewed by Paul Almas, V.P., Design & Development, Basadur Applied Creativity Inc.
Paul: Min, two predominant and seemingly paradoxical ideas, innovation and recession, are front and centre these days. Is it possible to find resonance in this perceptual paradox?
Min: For sure, innovation tends to occur when there's a real need for innovation. People will often relax and just live with the status quo and even become complacent when things are going well. When things are not going so well, it provides a real opportunity for innovating. If the organization is loaded with a wealth of talent and knowledge in their people, unfortunately a lot of organizations don't know how to leverage this wealth of talent and knowledge and thinking power. What they tend to do when bad times arrive in a recession and sales are down, they try to take a short term approach and look at cutting people and getting rid of salary and reducing costs. That leaves very little time for innovation to occur and so there's a double hit here. You have less people to do what you normally do and there won't be anything new coming out of the organization.
The other way to go at this is to say, how might we leverage or engage all of our people at every level in using their ingenuity to come up with brand new ideas of doing things differently, doing things faster, better, quicker, coming up with new ways to attract customers, new ways to save money. All that has to happen is for a strong leader to engage his people in this way. It requires the setting of a goal, sharing information with people at all levels as to what the business need is to get them engaged in finding good problems all over the organization to solve. We view innovation as an organizational process which continually engages its' people in finding good problems (opportunities) to solve and implement.
At the Frito Lay Corporation we launched just such a program. The company had been suffering inflationary cost increases. Their costs had been going up to the tune of about 240 million dollars a year which was 8% of 3 billion dollars worth of sales at the time. The organization was simply accepting these costs; “Pricing in Advance of Inflation,” was their motto, raising the price of their potato chips and corn chips etc. to preserve their profit margins. What the senior management group began to realize was that if this continued, they would lose customers because of the increased price and they had to do something. What they decided to do was to engage people all over the organization in finding good opportunities - good problems that could be solved that might make an impact which could reduce the cost of doing business. They prepared a bulletproof business case for why this was important and it was obvious to virtually everybody in the organization what it meant to them individually - such things as everybody's profit sharing pension plan was based on profit. They realized that new plants could be treated with more sales and healthy growth so they got everyone understanding what the issue was – what the goal was and made it a personal goal for everybody.
They began to form inter-functional teams starting at the highest level, cascading downwards to other teams and getting them to learn – getting them some training in how to solve complicated problems together and they began to spawn projects all over the company. They calculated a goal of 500 million dollars in savings within five years and they were able to achieve this goal in four years. What happened was many, many opportunities were found for improving things such as, it used to take thirty-six months for a new packaging idea to get implemented and sometimes along the way the process would restart because a better idea would come from a supplier and they would start all over again. We were able to reduce that to nine months instead of thirty-six which was a great efficiency improvement.
So the concept was not how to cut costs but how to improve costs and as a result, not only did the company achieve and maintain its profit goals but people got very excited about learning new skills in thinking innovatively and creatively which serves the corporation well in the long term. The Frito Lay Company put that costs savings as a goal of their strategic plan of how they are going to make their profits. So that's an example of how you can engage people in recessionary times to boost profits, not just suffer through an reduce revenues and sales.
Paul: Good example – in fact the question I had going through my mind when you were relaying that story was that, in that particular situation, how did they come to the conclusion that they had to respond simply because they had problems. What we see today is Governments in panic making rash kinds of responses to a problem they haven't really defined. A lot of panic in the market and when that trickles down to individual companies, we have CEO's scratching their heads saying what should we do? How does a company begin to develop that sense of a problem solving culture within so they don't reactive negatively, instead they respond positively?
Min: Well, like most things, its' a question of leadership. At Frito Lay, we were fortunate to have leaders who knew – who were skilled not to leap to the first solution that came to their mind and that was to cut people. In fact, they were able to spot the opportunity which they roughly called, accelerating productivity and were smart enough to throw this out as a fuzzy situation to the management team, wondering if any of them would be interested in finding different ways in which such a broadly defined task could happen. The senior leadership team, rather than just jumping into solutions did quite a bit of fact finding to try to find resources throughout the world, people who might know how to go about such a task. So they were able to look at other ways of coming at this task, rather than just jumping to a solution and they discovered an approach that did have the concept of engaging people and they liked it and saw the extra benefits of going in this direction. The extra benefit included the fact that the company was quite functionally strong and they saw an opportunity to get functions learning how to work together better as a side benefit out of all of this – so it was an enlightened senior management.
I think what we have now is that we lack those enlightened leaders. We all know the stories about CEOs taking the golden parachute after running the company into the ground and getting out. Our MBA schools have historically turned out people who really can't think about handling complex problems like this. They have been taught growth methods of improving costs that are very simple minded and the concept of creativity has for them been relegated to creativity in new products, but what about creativity in management?
It requires creative thinking for people at senior levels to come up with unique solutions. At any time, but especially in recessionary times how to multi-task, how to reduce cost, maintain a competitive edge in the long term, short term, keep people excited and working hard and motivated. This requires more than just a quick accounting or finance calculation that says if we cut staff by 10% we'll be able to keep our profit margins up. So I think it boils down enlightened management and I think what we need to do, as innovation and managing creativity and innovation courses enter our MBA schools is to start broadening that perspective that they are teaching not just how to get new products out, but how to manage in an innovative way and engage people in using their creativity an tap it.
Paul: That insight is interesting because we now see the curriculum in the business schools changing to integrate creative thinking. The design thinking that has always been present in the training of designers is now finding its way into the business schools. This is good, but what I think is interesting is that some people in the international business community were forecasting that this current financial meltdown could possible come – it wasn't completely unforeseen, yet we find that the chaps on Wall Street didn't pick up those vibrations, and to a large measure, many people in Government didn't either, so we have what we've got. That reminds me that when we talk about problem solving we start with the fuzzy situation –symptoms of something amiss but it's not well defined. Could you speak, just for a moment how problem solving really needs to start at problem definition?
Min: We tend to teach people how to manage for efficiency in our MBA programs and we glorify people who are quick at flexing to meet unexpected needs but we have not yet realized in MBA schools, there is another characteristic effect on organizations which is called adaptability. In my teaching, there has been excellent research that indicates that more effective organizations not only understand continuous improvement and efficiency but they also understand something called adaptability - the ability to anticipate problems and opportunities well ahead of time, stay in tune to trends in consumer preferences, market trends, economic trends and identify opportunities for problem solving well in advance of them happening and having good solutions available when they occur. Some of the best managed companies I have been able to research with, have this is built into their corporate fabric – we call it problem finding as opposed to problem solving. Efficiency is all about problem solving – making things better, to see things we are doing better. Problem finding is discovering new problems to solve and this leads to innovation.
At The Toshiba Corporation in Japan new engineers and scientists when they are brought in to join R & D are not permitted into R & D for two years. They are sent to the sales department to learn that innovation starts by discovering the problems of the customer. They want their engineers and scientists that innovative products are the result later of first being first to discover problems that customers can't solve. By solving those problems comes the new products and services. This is built into the culture. There are other corporations that are known to teach their employees that problems are golden eggs and finding good problems to solve is the way to innovation creativity and organizational effectives.
This is a new level of thinking that is going to dominate the 21 st century. Organizations who get their people to understand that finding new problems is more important than getting good solutions. It is critical to stay ahead and have competitive edge.
Lets see…there is something on that that I would like to talk about…We have fostered a culture in the last 10, 15 or 20 years of short term profitability, trying to make every quarter's sales look good and we all know that that has lead to some creative accounting and some basically criminal acts, but beyond criminality, we still have people who get signed on as the CEO or on the management team and the idea is partly selfish, “How can I get myself out of here with a few million dollars,” and partly non-thinking, “How can I quickly make a turn around and get rid of people. One of the most famous stories about this involved Donald Rumsfield – when he became the CEO of Aspertame, he sold it and gave away the company's most wonderful asset to boost profits and stock price – he just got rid of it. A lot of people think he did a great job creating profits but he got rid of the company's best asset – short term efficiency stuff.
So the concept of adaptability requires a much higher level of thinking. It's more ambiguous. It requires spending time and money and resources to be looking for opportunities that are arising. Not more than three months ago, the big car companies began to talk about stopping production of their gas guzzler SUVs and all of a sudden they are shutting down plants all over. Would this not have been obvious that this was the direction we were going with the green movement and the price of oil - could have been seen three, four, five six years ago. Of course it could have been but they were not taking their time to do that. They could have had many things ready and available at this time. Companies like Toyota have demonstrated the innovative advantage by putting some time into the long term discovering new problems rather than just talking about how we make profits in the next 10 days or the next quarter.
Paul: That's insightful. I think we're talking about CEOs making poor choices and poor decisions for wrong motives. What is interesting is the same principles that apply to decision making in large corporations can apply to small and medium sized businesses as well
Min: Absolutely, absolutely, yes, they sure could….
Paul: And the idea that principles you have just been talking about are not just broad corporate policy type principles, they actually can become the principles for individual decision making….
Min: Yes, absolutely - individual decision makers. That's really good. What's going to define leadership in the 21 st century is leadership that can drive change. I was at a CEO panel recently where we had the Proctor and Gamble CEO, the General Electric CEO, the Ebay CEO and the 3M CEO, and when asked that question, “What is leadership in the 21 st century?” they all agreed that it is driving change. And driving change means bringing on other managers that can drive change, but also realizing that adaptability is the key. Its'finding new problems and solving them quickly, which means you have to re-invent yourself continuously as you're going along.
And so its' getting people organized to drive change. Now little companies are more vulnerable than big companies. A quick change in the market or the environment can put a small company out of business, whereas a big company can weather the storm and get into a new thing belatedly and so hold. But small businesses who have had success for a long time in a certain area could be severely damaged by a new technology that comes along…for example if you run a little book store, I'm sure that the Amazon.com revolution has, if you're still in business, made you think about different approaches to keep your business running.
So I think that small and medium sized businesses definitely are more vulnerable than anybody else in being able to look ahead and understand their customers better than ever before and find out what their customers problems are so they can move into new areas. And also find out what problems are going on internally so we can continue to revamp and renew what we do. That means rewarding people who are at the far end of the chain, the sales people selling and the manufacturing people producing, as well as other people in the earlier part of the creative process or the production process – rewarding people who are finding new opportunities and places to go and giving them the resource they need to drive some of their ideas through to fruition.
It is very difficult to get an organization to move to the level of adaptability - driving change and deliberately disrupting what they do and disrupting the environment around them in terms of the competition. It has to be a goal set, just as Frito Lay did – the company set the goal that they were going to offset inflation in five years and put a number on it. 3M has a world famous goal that says every five years thirty percent of their products must be new. That immediately starts people deliberately working towards that goal – in P& G we called it deliberate change, deliberately making change, not reactive change but proactive change.
Paul: The great economist Joseph Schumpter popularized the phrase, “Creative destruction,” to explain what primes the engine of capitalism – violent market upheaval. New products topple mature ones, decaying old companies give way to young innovators. If the business stands still, capitalism will soon sweep it into the dustbin of history. Quite an interesting quote –safe to say that Schumpter would find the current business environment challenging. We have an interesting lab that we have been able to observe in our lifetime and that is Research in Motion. Here are two fellows, one out of a university setting, very close to where we are here, and they have gone through the process of creative innovation, being a small business, being a medium sized business and now a large international corporation, yet they continue to demonstrate innovation and they consistently place themselves in the front of the pack. I think it's because of innovation. Would you comment on that?
Min: I think what they have seen, what has got them to where they are is innovation – coming up with something new and they just continue saying we're just going to continue to innovate. I wouldn't be surprised that a few years from now that the Blackberry as we see it now will be a relic of the past and it will have morphed into something quite different and quite more powerful and I think RIM will lead that – they won't wait for somebody to scoop them. And as their competition comes along, the i-pods and things like that, whatever they are, cell phones, what are they called…the new i-phones Blackberry will continue to one-up them and continue to build.
Paul: It would almost indicate, if Schumpter's insight is really true, that these crises that come along from time to time in the global business community in some ways have a therapeutic effect – do you think this is true?
Min: Yes, the thing is, a good company isn't afraid of crisis generated by market adjustments. A good company makes those happen and when there are economic upheavals, they are quick to figure out a way to take advantage of them. This is where we understand the famous Chinese symbol for crisis. In a crisis situation there is always danger but also there's opportunity and whenever there is a crisis there is energy.
Right now there is a huge amount of energy in the world to do something which we would have done nothing about – we can make some very positive changes in how we run our world based on this great crisis that has occurred. If we put our innovative thinking hats on and are able to get our world leaders to think innovatively. Some leaders area coming forward like Brown in England who are coming up and doing things that are new and different which will strengthen things greatly so out of this problem we have right now, we are going to have a much strengthened world community, unified in solving problems of a financial nature together – new ways will come out. It never would have happened unless we had the upheaval that we have had.
But good organizations don't wait for the upheaval, they start making changes ahead of time and obviously what happened with the companies in New York, they were feasting so heavily on the good things that were happening they were ignoring problems all around them and they let them just captivate them. But I think there obviously are …I'm thinking about one company, Southwest Airlines– when 9/11 hit they were ready for it. They didn't know it was going to come but they were so well managed that they just took that in stride, where everybody else began to cut flights etc. Its amazing that the airlines in our lifetime have just gone boom and bust, boom and bust, boom and bust and they cry. They know there's a business cycle but they don't know how to anticipate and be ready and make a competitive edge for themselves.
So the cards are being dealt all the time and there's always a new deal of cards coming out. But it's those CEOs of those companies and those small businesses who see the deal of cards coming out not as a threat to them but something they can grab faster than somebody else who will excel in recessionary times.
The neat thing about change is that is continually occurring – it always occurs, it's been going on forever and that means there's always a new deal of cards which means there's an opportunity for everybody to grab that new deal of cards and not be afraid of the new deal of cards but to take advantage of it. That requires that we build in a consistency of adaptability into our everyday life and to everyday life in our organizations. What new problems can we find that are worth solving, get ‘em solved and implement a change which will be a new product or a new service, a new way to make money, a new advertising slogan, a new way to improve internal efficiency but its continually getting into a mindset of looking for those golden eggs, looking for the problems and rewarding people who are good at finding good problems to solve.
Paul: Well Min, thank you. I think really captures this whole idea that innovation and recession are, in fact, not a paradox and difficult times do not necessarily have to spell panic. That there not only is a way through – it's not just light at the end of the tunnel, we can actually come out of this experience very strong.