Column : Cerebral energetic officer

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: The recent election of Barack Obama raises the question: can a single individual make a difference to how a large group such as a nation thinks and acts in the long term? Or, in the more modest context of business: can a CEO drive the employees of a firm to become more innovative and perform better over time? Corporate culture plays an important role in making firms more innovative, but does the individual at the head of the firm have a role to play in all this?

Common sense would suggest that the people who lead companies have an important role in driving innovation within them. Anecdotal evidence would support such a view too. CEOs like Andy Grove at Intel and Steve Jobs at Apple have been widely acknowledged for promoting innovation in their firms.

Surprisingly, academic literature presents a mixed view on the subject. Some authors suggest that CEOs might actually be bad for innovation. They may be so steeped in the past, or so swamped by their day-to-day activities, that they fail to recognise how the technological or market situation has changed on them. Here too examples are easy to find.

One need only think of Ken Olson, the CEO of Digital Equipment Corporation who, as late as 1977, decreed that “there is no reason anyone would want a computer in their home” and proceeded to forbid his employees from using the words “home computer” or “personal computer” within the firm.

Other authors have argued that CEOs are simply not very relevant in driving innovation. Or else, this effect is only at the project level, via support for individuals and teams working on individual projects. The legendary Andy Grove seems to hint at something like this at Intel: “Over time, more and more of our production resources were directed to the emerging microprocessor business, not as a result of any specific strategic direction by senior management but as a result of daily decisions by middle managers?”

To better understand where the truth lies, I conducted, along with Manjit Yadav and Rajesh Chandy, a study of the US retail banking industry between 1990 and 2004. To measure the CEO’s role, we analysed 876 letters to shareholders from 176 public banks between 1990 and 1995, the years that just preceded the advent of Internet banking. To assess the impact on innovation, we measured the time these banks took to 1) detect the new technological opportunity of the Internet by registering a domain name and 2) develop an initial transactional Internet banking service. We also measured how sophisticated the Internet banking service of these banks was by the end of 2001.

We found that banks with CEOs who focused on the future more were faster at detecting the Internet opportunity, faster at developing an initial Internet banking service, and superior at deploying their initial banking service. This was true even when the target of CEO attention was not innovation per se, and even when the innovation outcomes occurred several years later. We measured CEOs’ focus on the future by exploiting a quirk of the English language: future-oriented sentences are likely to include “will”. The number of such sentences in letters to shareholders indicated attention to the future.

Long ago Gary Hamel and C.K. Prahalad warned: “Senior management devotes less than 3% of its energy to building a corporate perspective of the future.” In our study, only 9.21% of all thoughts (sentences) were future-focused and the percentage of future-focused thoughts among CEOs varied from 0 to 20%. Implication: CEOs can influence innovation in their firms simply by spending more time attending to the future.

Leadership can make all the difference to the innovativeness, success and longevity of a company. CEOs would do well to remember these lessons, as would Obama as he struggles with the many challenges facing him and the US in the weeks and months ahead.