With political gridlock and economic malaise troubling the U.S., Europe and China, the buzzword for this year’s World Economic Forum in Davos is uncertainty. Who or what will spur the innovation that leads to jobs and growth? Our roundtable discussion on Jan. 23, hosted by TIME and moderated by Jim Frederick, editor of TIME International, included John Chambers, CEO of Cisco; Walmart CEO Mike Duke; Anand Mahindra, managing director of Mahindra & Mahindra; Martin Senn, CEO of the Zurich Insurance Group; Harvard Business School professor Clayton Christensen; and Bain & Co. chairman Orit Gadiesh. Their view? In this difficult economy, even the meaning of innovation remains unclear.
— Roya Wolverson
(PHOTOS: Are Today’s Business Leaders Too Afraid of Risk?)
LEADING THROUGH RISK
Are leaders too risk-averse in their efforts to bring the economy back on track?
JOHN CHAMBERS: In our industry, my competitors from 15 to 20 years ago are all gone. And by the way, Cisco could get left behind in the same way. So if you’re in an environment where you don’t take risks and don’t push innovation, you will get left behind very quickly.
ORIT GADIESH: But there’s a difference between being risk-averse and what I would call unfamiliar risk. A lot of what we think is risky is actually unfamiliar. For example, cash used to be hoarded because it was scarce. Not anymore. Cash is actually abundant and is likely to be so for a while. And skills — especially in engineering, science and so on — are scarce today, to the tune of 10 million open positions that cannot be filled in the world. Not moving because of something that is uncertain is never a good thing. Not moving because things are unfamiliar and you haven’t bothered to learn how to operate on them is really a crime.
MARTIN SENN: Before anyone takes any risk, you have to have a reasonable expectation on the return you’re going to generate. We have at the moment not enough clarity as a function of the economic crisis on what return you could expect. It is very, very difficult to be gutsy about it.
CHAMBERS: The best return for companies is when things are really going the wrong way and you’re willing to go against the tide.
FINDING ROOM TO INNOVATE
I want to go to Clayton because we’ve had some ideas here about innovation. You have a couple of lenses through which you look at why companies are or are not investing in certain areas.
CLAYTON CHRISTENSEN: There are really three types of innovation, and each poses different levels of risk: Empowering innovations can transform products that historically were so complicated and expensive that only the rich had access to them. The Model T was one of those. The personal computer was one of those. The smart phone is this again. These kinds of innovations create jobs. The second type, which we call sustaining innovations, make good products better. They don’t create new jobs. The third, which I’m calling efficiency innovations, help us make the same products cheaper, and they reduce jobs in the economy.
Over the last 20 years, executives and investors have stopped investing in empowering innovations, because they pay off in five to eight years, and instead invest in efficiency innovations, which pay off in one or two years. We are awash in cash, and yet we continue to invest as if capital was scarce. And so we’re not investing in the kind of innovations that would create growth. Does it demand courage on the part of executives? Absolutely.
MIKE DUKE: Efficient innovation is really a lot about our business model. We often call it the productivity loop, and it’s really operating with lower expenses, more efficiency, lowering prices for our customers and as a result having more customers, which allows for more efficiency.
I’ve seen two areas of our company that I think have had a lot of empowering or disruptive innovation. One has been in the area of sustainability. Another area of empowering or disruptive innovation would be the area of e-commerce, using technology today. I don’t visit a store today anywhere in the world without seeing customers using technology on the floor, communicating online and shopping using what I see as more-empowering technologies.
ANAND MAHINDRA: We’re on the cusp of what I think is a major uptrend in innovation. Even the world of academia has been very obsessed with this phenomenon of frugal innovation coming out of Asia. Even Apple is facing the rise of companies like Samsung that are doing more for less.
What I think is going to happen is that we’re going to see cutting-edge innovation is required. People like us from India and China are not going to be able to get to our aspirations simply by doing more for less. We have to be able to do pioneering, cutting-edge innovation. But I think we’re now at the cusp of a boom where people like you will figure out where in your network in the world I can get the more-for-less DNA but still do pioneering innovation and come out with a grand synthesis.
CHAMBERS: The way you win as a company is thinking five, 10 years out, and those companies who think one to two years out will get into trouble.
duke: It’s not just how boards evaluate CEOs. It’s also how we evaluate management within our companies. We can be guilty ourselves of evaluation of management on short-term cycles and not really looking closely enough at the longer-term metrics of what we create in our own environment.
GADIESH: There’s an old Arab saying that anybody who’s ever been bitten by a snake is going to look at a rope and be afraid of it. That is actually what we are. There are many ropes out there that we treat as snakes. The uncertainty — yes, there is a lot of it, but there are certain things that are just unfamiliar, and we need to start managing that way.
SENN: There is going to be much more need for a balance in leadership, both political leadership and business leadership, as leaders have to show that they truly understand the risks we are facing. That is something that has been totally underestimated.
MAHINDRA: When I went back after business school to India, all I found was certainty, because we were a regulated economy. You hunger for uncertainty because that’s what you were taught to deal with in business school. All this talk about uncertainty — I thought that was our profession. We have to deal with that. Please don’t look for certainty. It’s regulated, autocratic economies that look for certainty. I want no part of it.
CHRISTENSEN: Just as I’m listening to the team here, I understand the problem facing Harvard Business School a lot more strongly now. What is really hard for us to do is to look down at the bottom of the market and see a business model coming at us — which is, we don’t need M.B.A.s anymore. Companies say, Come work for us; we’ve created GE Crotonville, Goldman Sachs University. It’s a different business model. This, I think, Orit, is your point. It has nothing to with “Do we have the courage to do this?” Somehow what is not known about a different business model just makes us scared to death.