Growth Leaders vs. Laggards: What Makes the Difference?

Firms that are “growth drivers” distinguish themselves from “growth laggards” in the way they attract, nurture and retain “innovation talent” to grow organically, according to Wharton emeritus marketing professor George Day and Wharton adjunct professor of management Gregory P. Shea. The “growth drivers” validate their commitment to innovation with a reinforcing culture and “work systems,” or supportive organizational structures and processes, they say. “Innovation talent” looks for such evidence and gravitates towards such organizations, they add.

Day and Shea shared their insights in a podcast with Knowledge@Wharton. An edited transcript of the conversation follows.

Knowledge@Wharton: How did your collaboration on this topic come about?

George Day: Greg and I had been friends for many years, sharing several diverse interests. One day we were having a conversation about my work on the drivers of innovation. He meshed that with his “work systems model” and we discovered it was a happy, productive and insightful marriage.

Gregory P. Shea: Intellectually, it’s always good when you find a piece of work that comes from a different angle, and that the two pieces of work are complementary and argue in the same direction. There’s a certain kind of validation as a result of that, which is always pleasant to find.

Knowledge@Wharton: When we compare companies that are “growth drivers” to others that are “growth laggards,” what role does talent play in making the difference between the two?

Day: I began by asking a simple question: What is it that distinguishes organic growth leaders? I emphasize “organic,” which is growth that is generated with your own resources. My interest in this question was driven principally by the fact that innovation is the overarching idea behind growth leadership. If we stand all the way back and look at company performance, there are only two things that drive the stock price of a company in a publicly traded environment — their current profitability and their prospects, or the expectations for future growth. That’s why organic growth is at the top of most CEOs’ agendas, or very close to the top.

Over about six years, funded by the Mack Institute for Innovation Management at Wharton, I began to explore the question: What is it that distinguishes growth leaders from growth laggards and average performers? We tested it with 182 senior executives who had high visibility on the culture, the capabilities and the results in their companies.

We tested 18 hypotheses that were in the literature — everything from open innovation to networking to outside-in thinking. We asked 182 leaders of innovation in their organizations and after we started analyzing the data, one variable popped out well ahead of all the others — and that was investments in retaining, developing, and acquiring innovation talent.

Everything else got subsumed under that “talent” umbrella. I described this to Greg, and said, “I’ve tested all of these levers of how you improve performance based upon these distinguishing attributes — particularly the one on investment in talent.” That’s where it meshed so beautifully with his work systems model.

Knowledge@Wharton: Greg, could you explain what the work systems model is and how what George just described fit into that?

Shea: There are two parts of the model. We’ll talk about the second one, which is a concrete conceptualization of the narrative that you to try to create, or the realities you’re trying to create. We label it as a “change initiative.”

There are eight aspects based on sociotechnical theory and systems theory that comprise the work environment. [They include] measurement, rewards and information distribution, and they drive behavior in the workplace. Thinking about systems and trying to make the model accessible, one aspect is what we call the “people aspect,” which includes skills, motivation and the orientation of people. It’s a combination of the attributes that the individual brings in and the system that must [support them].

The talent aspect is clearly important. But it can be squandered easily by not building the other pieces in order to attract, leverage and retain talent. They include: How do you go about setting up the organization? How do you set up measurement systems? What are the things you’re rewarding? Who gets to decide what? What are the information systems? It’s the talent in combination with the way the organization is set up.

“We’re probably in a time where there’s more attention to individuals than there is to the design of systems.”–Gregory P. Shea

Knowledge@Wharton: George, what is “innovation talent?” How do you go about finding these people?

Day: Let me put it in a broader context and build on Greg’s system to continue with how we came to work together. A key part of the work systems model is understanding the narrative. That’s where talent becomes extremely important. I realized that my work on innovation and driving faster growth using innovation fit his model through the narrative part.

As I went back to the companies [in our study], we discovered two broad flavors of innovation narratives. One was growth-affirming, and that would be like the stories people tell about innovation. For example, “If you want to get ahead, build a new business.” Or, “We aim to hire people who don’t need support, and then support them.” That puts talent front and center in the stories that people tell about innovation and organic growth, such as: “Well-intentioned failures are learning opportunities,” and so forth.

By contrast, a growth-denying narrative, which we find all too frequently, sounds like, “Our immediate needs soak up all of our innovation resources. We’re constantly scrambling to meet a customer demand or match a competitor. We start with what’s possible with our technology, not with what our customers want. There are no carrots, only sticks around here. When it comes to innovation, we add initiatives to our operating responsibilities.” You can see these impromptu dialogues subverting innovation.

What struck us in the growth-affirming narratives was the central role of talent. Investments in talent are important because it’s a signal that top management leadership is really committed to innovation and driving growth. [They have] a lot of signaling value.

[What is] perhaps even more obvious is that innovation talent is hugely influential in the success of your innovation initiatives. I was with a software company the other day, where I tested the proposition that a talented software developer is 10 times as productive as the average one. This is true in the innovation space. When we talk about “innovation talent,” we’re really talking about program managers and product development leaders – people who make the magic happen.

Knowledge@Wharton: If you need talented individuals to make magic happen, what sort of a system do you need around them so that their impact can be maximized?

Shea: Those individuals will be hard to find and harder to retain if, upon inspection, they don’t find the kinds of supports we’re about to talk about. So, it’s not simply, “You’ll come, and we’ll work it out.” Senior people can talk all they want about being committed, but it’s about “show me” – right?

Some examples of support include: Are there clear protocols in place that allow one to have the seed money and the seed resources to start an innovative project? Is it managed in a way that allows quick failure and fast learning? Nobody wants to fail, but when there’s failure, does it get debriefed so that learning occurs in the organization? If there’s success, do you debrief to try to improve, as well?

Debriefing shouldn’t be a code word for “We only do it when we fail.” You want to secure the ways that you succeed, as well. If you did succeed, part of the development and the ongoing refinement of protocol is [to ask if you]were just lucky. If you were lucky, that’s probably not reproducible – right? Where were we lucky? We must go back and fix that.

[Also], are they committed to getting their protocols to get things started? Are resources available? Is there ongoing learning which shows that the organization is committed to this? How do you measure the work of people who take the lead in innovative projects? Do you reward in terms of ongoing functions, or do you reward based on innovative prowess? Who gets to see what’s happening or not happening in terms of innovation? How fast and how expedited is the decision-making around these choices?

One might add: Are there resources that are available to people that are built into the organization and are easily accessible? Or, do you have to always scrounge and always look for something? How easy do you make it for people to do that?

“When we talk of ‘innovation talent,’ we’re really talking about the program managers and the product development leaders — the people who make the magic happen.”–George Day

Knowledge@Wharton: When you are looking for talent, where do you find it? Do you look within your own organization or do you go outside? Or is it a combination of both? What did your research show?

Day: Both. What we find often is that the talent is within the organization somewhere. And the question is: How do you identify it? Remember, talent is about getting them in place, developing them, and then — in this era of a war for talent — we’ve got to retain them.

We’ve worked with several companies on the competencies of innovation talent. The approach we used was to take the very best innovation talent within a company and get consensus around the 10 or 12 best innovation leaders, such as group product managers, development leaders, and so forth. We asked them two questions: What was your biggest success, and what was your biggest failure?

Innovative people can talk for hours on both those questions. What we can learn from innovation failures is that these people learn a lot from a failure — or what I prefer to say is a “disappointment.” They might say: “It didn’t work out quite as we’d hoped, but we learned a lot.” These innovation leaders kept coming back to the basic competencies — those that are hard to develop, and those that are easier to develop. That’s where we do the training.

A hard-to-develop skill is conceptual thinking or a focus on end-user needs, or enthusiasm for practical innovation. For example, a successful innovation team leader we interviewed described his project and how he was relentless in communicating why this project was so important to the future of the company. He was a superb conceptual thinker, as he could see his project in a much broader context. He is now a senior vice president because of that. He captured a lot of attention, he got a lot of support, and then he built on those competencies to rise much higher. Innovation leaders are the ultimate general managers, and so it’s a great training ground for senior leadership.

We start by looking around inside for people who demonstrate those capabilities and have a successful track record, and then nurture them. Only then do we go outside to seek talent. It’s seldom that a company that is successful will take on someone just because they apply. It’s more likely to be, “We’re going to go and look at the whole territory of innovation talent in our domain — software, biosciences, and so forth — and figure out who the best people are. And that’s who we’re going to go after.” Now, an organic-growth leader can do that, whereas a company that’s struggling doesn’t have much to offer an outside person who’s already successful.

Knowledge@Wharton: Greg, do you have any examples of companies that are able to nurture innovation talent, as George was just saying, but also have the systems in place that allow these leaders to thrive?

Shea: I would add to what George has said — part of what you’re looking for is passion and curiosity, which is very hard to program in after the fact. It needn’t be an extroverted, jumping-up-and-down kind of passion, but you see — through conversation and through the vetting process — this is somebody who really likes to do this work. So, much of innovation ends up being about being curious. The idea may not come from a particular path. It comes from serendipity, or it comes from another industry. That notion of on-going curiosity is linked to networking.

“Innovation leaders are the ultimate general managers, and so it’s a great training ground for senior leadership.”–George Day

[Such] people spend a lot of time in what [Jerry] Hirshberg, (founder of Nissan’s first design studio in the U.S.) would describe as being “creative abrasions.” They like being in settings when they’re scraping up against other peopleThat requires a particular kind of patience and acceptance on the part of people who are running an organization because these are not necessarily the people you would hire if you’re trying to squeeze the last couple of drams of energy out of a particular line of a product or a service.

[Specialty materials company W.L.] Gore, Google and 3M are places that have continually invested in the ability to form informal groups and to work across silos and break those down — in many ways to keep the passion and curiosity alive for folks.

In Philadelphia, [an example of the]attempt to create an innovative organization [is]Jefferson Health. Steve Klasco, [its CEO], is clearly in love with and [passionate about]this notion of being innovative, of trying to look into the future and saying, “What might it be? Where might we go?”

His actions are representative of those who are trying to get systems established. He includes in his own reward structure a significant piece that has to do with innovation or revenue from sources other than what currently exist. He creates a department for innovation to try to provide resources to the organization. He starts expanding the measurement and rewards to other people in the organization for that type of activity. He puts in place a “hackathon,” which is trying to do problem-solving around multiple kinds of challenges and opportunities, and doesn’t make that just for Jefferson. He makes it a North American event.

This “creative abrasion” has people coming in from many different places. Those [initiatives]are organizational. They include rewards. They include measurement. You work on the information to try to measure new revenue streams, the flow of ideas in hiring people to staff those places, as well as promoting people from inside. There would be clear efforts to institutionalize something that an individual brought in with clear support from the board. It’s not just about him, even as CEO, but rather about building it in in these various ways inside the organization to attempt to turn the ship.

Day: I have admired what Steve Klasco has done with Jefferson. There’s no ambiguity throughout Jefferson about his commitment to innovation, thinking differently and taking risks. You are going to fail. We have lots of data on the rate of disappointment with innovation initiatives, but you want to be able to take those risks, contain the damage, and then learn fast.

This goes back to the talent side of it that we’ve been focusing on here. There’s no doubt in the organization that there’s a commitment by leadership to innovation. That is manifested through an incredible amount of energy being devoted to getting the best people, developing them, and then retaining them, because once you’ve got someone who’s successful, everybody else is going to be trying to hire them away.

“Much of innovation ends up being about being curious.”–Gregory P. Shea

If you’re a growth leader, you have a great story to tell your best people. Why would they want to go to someone that’s struggling? A “growth laggard” is struggling because they don’t have a narrative in place. Their incentives for innovation are misaligned, very short-term cost-oriented and efficiency-directed. That environment is not appealing to the best people. They want to go with winners because that gives them a lot of runway.

Shea: Current management literature often has a big emphasis on commitment and on communication, which I wouldn’t argue with. What often isn’t in there is that people day-to-day pay much more attention to the eight aspects that we talk about in the work systems model than to the words that come out of leadership.

I might simply say “innovation is important,” [while not]creating structural encouragement, bringing in the people, building the protocols, and sharing the information about best practices in doing this. People will soon not believe my words, however animated I am when I speak them. If it’s not built into the system, it will soon lose credibility.

How does one communicate commitment? [Based on] the work systems model, it would be to build the work systems that indicate the commitment to the narratives you’re trying to have unfold inside the organization.

Knowledge@Wharton: If you focus on finding innovative and talented individuals and putting them into situations where they can succeed, is it easier to do this in a startup or in a large, established company? Where are these individuals likely to have the most impact?

Day: That’s an intriguing question. Many of the startup people I know were frustrated in big companies and had an idea that the big company either wasn’t energized or didn’t seize [innovation]as part of their growth path forward. And so, they took off and set up their own company. One could argue that those are exactly the people you’d want to keep and develop within your own organization. Growth laggards and average performers that are very much focused on short-term performance tend not to be able to keep their innovation talent; they want to go off and start their own business.

There are a lot of other reasons why people have this entrepreneurial urge – they want to be their own boss, they have a vision that’s compelling, or they want to transform an industry. But many of those in growth-leading companies stay, and they grow because they’re given a lot of latitude to grow.

Greg mentioned W.L. Gore & Associates. That’s a company that has less than 2% turnover in its senior management ranks — right down to the product specialist level. The reason is that an innovative person with an idea will be able to sell it within the company. Within Gore, the narrative is all about innovation. I have been in many conversations with their people, and I’d say that on average, within five minutes, we’re talking about new business models, innovative applications of their materials science, or new opportunities. It’s just hard-wired into the culture and therefore into the narrative.

“If it’s not built into the system, it will soon lose credibility.”–Gregory P. Shea

Shea: The flip side of your question would be what happens to people who go out to set up those organizations? We know that most of them fail. One of the big reasons that they fail is they don’t know how to build the organization to support the idea that they had in the first instance. It’s two sides of the same coin — how do you do both? How do you end up with [the right innovation]talent, say, in a startup, and build the support as you grow? Or, how do you do it in an existing organization so that the people who are innovative feel supported?

Knowledge@Wharton: Do these ideas that we are talking about apply only to the corporate world or could they also be relevant in other contexts — say, in a nonprofit?

Day: Greg has already mentioned Jefferson Health as a growth leader in the hospital space. The Philadelphia Zoo is another example of a highly innovative organization. I should identify that I’m on its board. Firstly, it has been recognized by its peers as highly innovative. As an example, we have what is called “Zoo 360,” which is the first above-ground trails for animals lacing their way through the zoo. It’s quite marvelous to be walking along, and then look up and see two leopards above you – five feet above.

Shea: Fortunately, enclosed.

Day: I was talking with one of our I.T. people, and what struck me is that he was experimenting with a lot of different software apps. I said, “Why are you doing this? Is this under direction?” And he said, “No, no, I just think it’s something we could do.” When you’re in a culture, you don’t appreciate it. I don’t think the Philadelphia Zoo fully appreciates how innovative it is. One of my opportunities is to try to explicate, explain and diagnose the innovation culture and the powerful innovation narrative that pervades the whole organization, starting with the leadership.

Shea: Part of the struggle in trying to create a culture that’s supportive of this is the word “culture.” Culture ends up being a kind of gelatinous term that covers a whole bunch of things, and not as precisely as George was laying out. In the end, culture ends up being about patterns of behavior and what lies behind those behaviors. Part of our work here is to lay out — how do you drive behavior in a consistent fashion? If you do that, then you end up creating a culture. So, culture influences behavior, but behavior in many ways ends up defining culture.

In terms of NGOs and other types of not-for-profits, certainly health care is an example, particularly in the health care providers’ space. Jefferson [Health] is a good example. Christiana [Care Health System] in Delaware is consciously pursuing alternative revenue streams that are in the provider space because the mainstreams are just under increasingly vice-like pressures. The Hospital of the University of Pennsylvania [has also]made structural commitments to innovation. They’ve made a variety of commitments, including implementation centers.

“Many of those in growth-leading companies stay, and they grow because they’re given a lot of latitude to grow.”–George Day

Knowledge@Wharton: What advice would you offer CEOs and leaders who would like to attract innovative talent to their organizations to drive growth?

Day: By leadership focusing on innovation, they signal to the organization how important it is by the amount of time they spend on recruiting, developing, and retaining people. The very best, fast-growing companies have literally a war room on innovation talent — that is where they keep all the dossiers on the people they want to retain. These are the “high potentials,” or the people they’d like to recruit, because they see that in the future, they’re going to need that kind of capability.

Shea: Leaders especially should check the way they go about attributing what happens in the organization. If they view it simply as about talent, [and say they have]the wrong people, they’re probably not spending enough time doing one of two things. One is thinking about, “How would I design this place?” — back to the work systems model and the aspects represented in that — to drive the kind of behavior that I want. Let’s not just put it on the individuals.

The other piece would be the way they think about their own actions and thinking in terms of innovation. It’s easy to attribute what leads to innovation or not to other factors — particularly to other people. [They have to] take a look at “What am I doing or not doing?” vis-a-vis trying to construct an environment here that encourages and supports innovation. That’s hard work for any leader. The further up one goes, the less one has to do that.