A Conversation with Dr. Jay Rao, Professor of Strategy & Innovation at Babson
This is part of my series on thought leaders in the innovation space. Check out the other articles here.
“Failure is my middle name,” says Dr. Jay Rao. That designation certainly doesn’t fit this professor from Babson’s MBA and Executive Education programs, who has consulted for companies around the world such as Medtronic, Novartis, Ocean Spray, and BAE Systems. However, Jay wears that “failure” badge as a badge of honor. By his estimation, he failed at being a naval architect, a mathematician, and at three start-ups. “I’ll probably fail again, but I’ll kick myself if I don’t try. It’s better to try and fail than not try at all. And hopefully the next time I will make fewer mistakes.”
In addition to his teaching and work with executives, Jay’s research has appeared in The Sloan Management Review, Journal of Innovative Management, The European Business Review, and others. He is the author of the book “The Discipline and Culture of Innovation” and he currently sits on the Innovation Advisory Board of Bancolombia (Colombia), and on the Flavor Advisory Board of Firmenich (Switzerland).
Lessons from Naval Architecture
Jay began by studying naval architecture in undergrad. However, he quickly decided it wasn’t the career for him after spending a summer in a sweltering shipyard, braving 100-degree temperatures with 90% humidity. While he didn’t continue down that path, his experience in engineering is linked to his current work in innovation: “I think engineering gives you a very structured way of thinking or problem-solving.” Similarly, Jay is a strong believer that innovation is about problem-solving, and not about idea generation, as is often thought.
“What I bring to innovation for companies is very structured problem-solving. It’s not about ideas.”
He also went on to expand on his definition of innovation: “Innovation has a very specific purpose. Innovation should change the dynamics of competition in the market. It should help you either capture or grab market share, or it should create some new value to society that did not exist before. Otherwise, it’s purely catching up to industry standards or the rest of the world. In which case, the word innovation is meaningless.”
To sum it up, innovation comes when there is a gap that needs to be filled in the market: “At the heart of it is, there’s a pain or an opportunity and how do I go and take advantage of that and help change the competitive nature in the market?”
Innovation is Not Magic
In addition to not being about ideas, Jay stressed that innovation is also not about magic or luck. (Perhaps something that gets forgotten in our cultural focus on a handful of start-up ‘unicorns’.) “Innovation is a discipline, like finance, like marketing. It’s a field of study, it’s a body of knowledge. People have to learn the tools and the techniques and the methodologies. So you have to approach it as a science.”
Jay works with companies and executives and brings this very thoughtful, very disciplined approach. And, it all starts with strategy for him: “Innovation always has to be in service of the strategy of a company. You can’t really separate out innovation and strategy because both of them are about growth.”
“You can’t really separate out innovation and strategy because both of them are about growth.”
Jay also talked about the need for companies to have the right processes to ensure innovation. It’s only after companies have put the right strategy and processes in place — over five to ten years — that you get an innovation culture. “Innovation culture is an outcome because you have a strategy: you approached it as a science, you put in resources, you selected projects carefully, you put in processes to scale, and you were able to measure the success of all your efforts. That’s culture.”
“Most executives approach it as: ‘I want you to be innovative, I want you to be creative, I want you to be thinking out of the box. I want it for free.’ I always tell them, if you want it for free and you want it tomorrow, go to Las Vegas.”
The Building Blocks
Jay created a framework that he calls the Six Building Blocks of an Innovative Culture. The simple, but powerful, idea is that an innovative culture rests on a foundation of six key things: resources, processes, values, behavior, climate, and success. It’s been a very successful and oft-cited model, as Jay has found that executives can really wrap their heads around the pillars and see their organization in them.
I loved learning how Jay uses this framework in practice with companies. He doesn’t always talk about it or question around these six areas overtly, especially at first: “It has to emerge. It has to be organic. I ask things like: ‘How do you describe your company to others?’ Those are the kinds of subtle prompts I give them. Based on their responses, I organize according to these blocks without them knowing about it. Then I bring those building blocks alive. People immediately jump on it, and say, ‘Oh my god. That’s us. That is who we are!’”
How to understand company culture
Another insider tip I learned from our conversation is Jay’s tactic for getting a realistic, non-candy-coated view into a company’s culture. Especially in large companies, Jay believes in going directly to the project management office.
“When you go and talk to people in the project management office, you learn a lot about the company’s culture, because that’s how they get things done. That’s how they prioritize their opportunities for the future. It’ll tell you all the bureaucracy that’s inside the organization. It’ll tell you what metrics they’re using to evaluating people and projects. It will reveal your culture. It’s a backdoor way of understanding culture.”
This more intuitive way of understanding a particular organization’s culture is smart; people don’t always tell you how things really are when asked directly, but they will show you how things are if you observe and ask other important questions. By coming at things from an angle, Jay uncovers critical learnings about corporate culture.
Jay and I talked a bit about how companies can structure successful innovation programs. As well as innovation that is deeply connected to strategy, Jay pointed to leadership as key. In particular, he talked about the need for entrepreneurial leaders, which he defined as people who are “very focused on the future, not just the current.”
“All enterprises have a scarcity of uncertainty navigators. All big corporations have an abundance of risk managers.”
“In every organization, there are risk managers and there are uncertainty navigators. Risk managers are managing the current products, current markets, current technologies, current business models. This is about current cash.”
He continued: “Uncertainty is about the future products, future customers, future business models, future technologies. You don’t have data, and you have to make investments and decisions with very minimal or limited data. That’s uncertainty. All enterprises have a scarcity of uncertainty navigators. All big corporations have an abundance of risk managers.”
Walk, Not Talk
This idea of leadership links back to culture, which, for Jay, connects with values. “Our values are not what we speak. Values are how we spend our time and money. That shows up in our behaviors, how we spend our time and money.”
Values are a matter of a company “walking the walk.” It’s about doing what they say they believe. He gave Wells Fargo as a timely example of a company not necessarily living their values: “Wells Fargo had amazing things in their value statements. But they were totally rubbish. The way they defined success was very clear: cross-selling its products.”
He continued: “You can look at Wells Fargo through the lens of the six building blocks, and you can almost predict disaster. Or you can predict Netflix, how they have a very strong way of protecting these six building blocks.”
When you are looking to measure the success of a particular innovation program, Jay does not think there is one way to measure it. (“Does it change human behavior? Does it add significant value to a segment of society? Can it get people out of poverty?”) Instead, he believes in measuring success from multiple angles, through what he calls input, output, and process metrics.
“R&D budget is an input metric. It’s not an output metric. An output metric would be something like what 3M has had for a long time, the new product vitality index. What percentage of our revenue is coming from products, services, and markets that did not exist three or five years ago?”
“Output methods are: how fresh are our products? How many products have we introduced in the last five years? What is our profitability linked to these new products that we are creating?
“Good companies are measuring all three: input, process, and output methods.”
He also urges companies to track process metrics. “Process metrics are: ‘How many projects are we running? What are we learning? What experiments are we doing? What new capability did we create that we didn’t have before?”
Gorillas, chimps, and monkeys
One of the courses that Jay teaches at Babson is called “Leading Innovation: Gorillas, Chimps & Monkeys.” The course title is based on a concept from Geoffrey Moore’s book Crossing the Chasm. Jay explained: “[Moore] talked about the concept of gorillas, chimpanzees, and monkeys: large companies, medium companies, and small companies. How do they approach innovation differently? They approach it very differently: your budget allocation is different, your project choices are different, your target segments are different.”
Jay sees this model as a helpful way to understand how different-sized companies tackle innovation and what mistakes they make based on their size and particular challenges.
For example, with small companies (aka “monkeys”), Jay sees that: “innovation dies because of starvation. In a large gorilla, innovation actually dies because of obesity. They throw too much money too prematurely, and if you spend too much money too early, the finance people will expect very fast returns.”
Speaking of monkeys and small companies, Jay had some thoughts that I think are sage advice to those entering the start-up world. And, surprisingly, that advice is not to dream big.
“Everybody wants to become an Insta-billionaire, but the fact of the matter is that it took 20 years for Pixar to come up with their first movie. History is irrelevant for most people because you’re asked to dream and dream big. You have to think big. You need to go big or go home. That’s the most bullshit advice that most people give, once they’re successful.”
He continued to talk about how the media doesn’t help this “dream big” attitude; Silicon Valley is fetishized when, in fact, the possibility of making it “big” is extremely rare. “Everybody wants to be Silicon Valley. Out of the six million companies that were born in the U.S., in the last 10 years, only 14,000 of them got some kind of external funding. That’s .2% of all companies that are born in the U.S. And, there are only 4,000 publicly traded companies out of six million companies in the U.S. That’s .07%. So 99.8% of companies that are born in the U.S. don’t get funding or don’t become publicly traded.”
The lesson here is not to discourage start-ups or innovations, but how you approach it. As Jay says: “You have to start incredibly small. All great innovations start incredibly small.”
If you want to read my other articles about innovation experts and practitioners, please check them all out here.