Journal of Business Strategy

Emerald Article: Five competitive forces of effective leadership and

innovation
Charles McMillan

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To cite this document: Charles McMillan, (2010),"Five competitive forces of effective leadership and innovation", Journal of
Business Strategy, Vol. 31 Iss: 1 pp. 11 - 22
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Five competitive forces of effective

leadership and innovation
Charles McMillan

Charles McMillan is
Professor of Strategic
Management at York
University, Toronto,
Canada.

Introduction
How do organizations innovate? Are the main drivers the external environment impacting the
organization, or a set of practices and processes within the organization? The
unprecedented change in the global environment affects both organizational survival and
managements capacity to innovate. Climate change, the war on terrorism, digitization of
production, global information flows, and the rise of new competitors such as India and
China add to the mix of uncertainties, which Peter Drucker presciently called The Age of
Discontinuity.
Organizations can apply uncertainties, some predicable or relatively probable, into their
decision models, but most do not. Corporate managers take seriously the five competitive
forces leading to organizational rivalry first articulated by Porter (1985) and widely adopted
in corporate management and investment analysis. Despite the application of competitive
forces and calculations for industry positioning, other factors determine corporate survival
and success. Indeed, as long as firms focus on competitive rivalry, there may well be an
economy of focus on organizational processes. What often separates many firms bordering
on the precipice and those that innovate constantly stems from internal configurations of
decision processes and design. This paper sets out a model of corporate innovation and the
implications of the management processes of innovation.

The basic model

Organizational innovation forms the core metric of both organizational efficiency (more
outputs from fewer inputs) and organizational effectiveness, i.e. long-term survival. In
general, there is a difference between invention, the discovery of an idea, or innovation, the
exploitation of ideas into organizational practice. The distinction between invention and
innovation is similar to primary or basic research (carried out in government or university
laboratories by scientists and engineers) and applied research, usually carried out in
business firms (Simon, 1983). In reality, there is a basic continuum between many aspects of
invention and innovation.

The author would like to thank

David Hickson, Gerry Mahar,
and Rodney Schneck for
comments on an earlier draft of
this paper.

DOI 10.1108/02756661011012741

In general, innovation comes from more than technological applications, even relatively
simple ones like camera functions in a cell phone, or placing toner in a cartridge for a
photocopier or printer. Indeed, innovation may be rarely detected by consumers or the
public. It may be embedded in the product, or form part of the innovative processes within
the organizational structure. Japanese firms, once seen as copiers and imitators, were true
innovators because they took basic products or processes and made fundamental
changes.
What are the internal competitive forces that foster innovation? Within organizations,
competitive forces imply resource rivalry for personal attention, either for the parochial good

VOL. 31 NO. 1 2010, pp. 11-22, Q Emerald Group Publishing Limited, ISSN 0275-6668

JOURNAL OF BUSINESS STRATEGY

PAGE 11

of the individual, or for the good of the organization. Internal forces affect the core values of
the organization, its DNA, through the social psychology of its members, the processes of
decision flows, the formal and informal role sets of individuals and groups. Such issues
impact how incentives are skewed towards executive advantage versus organizational
advantage. By its nature, innovation is a process and a design change from one state to
another, involving a range of social and behavioral process, from surprise, disruption, grand
leaps, to the unknown or unforeseen.
The basic model is set out in Figure 1. The five forces of effective leadership are:
1. core organizational skills and competencies;
2. institutional capacity to listen, via institutional study and analysis of decision alternatives;
3. capacity to learn from history of former decisions, alternative practices, and multiple
sources of ideas and outcome analysis;
4. capacity to mobilize the organization, not only from motivating people with clever
incentives, but projecting a clear picture or vision of the organization; and
5. the capacity for organizational innovation, which is impacted by the previous four drivers.
Innovative organizations often display a unique characteristic: they have a history of
innovation, where the adaptive processes are built into the role sets, authority systems, and
decision processes. Constant innovation stems from an organizational culture where
experimentation, playfulness, and a sense of achievement are constantly rewarded. Money
rewards are rarely the issue, nor are myths like unionization, government regulation, or forms
of ownership. Innovation comes from a configuration of reinforcing drivers like strategies,
structures, decision processes, and incentives.
By contrast, low innovation cultures are driven mainly from a single cause: management. The
CEO and senior executives set the tone, the climate of decision-making, and the reward
structure, but also by their own example. They provide soft signals that often unwittingly get
recognized by staff and workers, which establish the emotional DNA for the entire firm.
Arrogance, executive ego, hubris, an imperious style, and a host of personal foibles
reinforce the culture of the organization that can impede learning. A Reporters notebook
(International Herald Tribune, 2007), discussing the problems of the Big 3 manufactures in
Michigan neatly captures the essence of the challenge: I remember when GM shut down 11
plants, some of which were in the Great Lakes region. They said, We cant afford to keep
Figure 1 Five competitive forces of effective leadership

Capacity
To Listen

Skills &
Competencies

Organizational
Innovation

Capacity
To Learn

PAGE 12 JOURNAL OF BUSINESS STRATEGY VOL. 31 NO. 1 2010

Capacity
To
Motivate

 Internal forces affect the core values of the organization, its

DNA, through the social psychology of its members, the
processes of decision flows, the formal and informal role sets
of individuals and groups.

doing business like this. But do you know what happened at the upper echelon of GM? They
got six-figure bonuses at the end of the year. Its really hard to feel sorry for a company thats
lived so high on the hog.
Consider the discrete elements of the model in Figure 1.
Skills and competences
Innovative organizations have managers and leaders who collectively and individually
combine a skills set widely accepted by organizational members, including a cross-section
of key stakeholders. Corporate strategists understand that an organizations competitive
position centers on a configuration of unique competences and relationships. The task of top
management is to adjust and reconfigure resources and relationships as external conditions
change or erode competitive positioning.
Distinctive competence is a theory refined and elaborated by such extensions as
capabilities, competences, commitments, sunk-costs, first-mover advantage, knowledge
base, intangible assets, intellectual property and decision opportunism, implying that all
organizations have a core competence. In fact, many do not. What they often have in
common is a location advantage in a market space, often protected from competition by
geography, governments, idiosyncratic behaviour (live and let live), or unattractive
features for direct rivalry (e.g. low investment returns, family or community issues, low public
esteem, and the like).
CEOs and senior managers, in their attention spans, in their attitudes, and in their respect for
their employees reflect an understanding both of the past and of the future (Cyert, 1990).
Innovative decisions require managerial judgment, and empty rhetoric and slogans are seen
for what they are. Intelligence and wisdom can give way to a form of anti-intellectualism,
frivolous action and a lack of deep thought, and a high-handed disregard for others.
Successful innovators place great stock on a portfolio of attributes, from intelligence and
experience, to a quickness of mind, verbal communications, and a recognition of
iconographic symbols and compelling narratives. Corporations and other organizations
follow a similar mind-set, where senior executives, often highly educated in a formal sense,
lack common sense and true judgment. It is prudent to consider the wisdom and nobility of
Tennysons Light Brigade, as it charges futilely into battle: Theirs but to do and die. It is
better first to reason why.
Organizations build core competencies from new discoveries or breakthroughs, new
technologies, or new processes. Studies of leadership err with a focus on the great man
theory, pervasive in historical biographies, the CEO or the man (usually) at the top that gets
all the credit. A second error comes from the classic Max Weber model of a top-down,
rules-oriented bureaucracy, with professional norms and knowledge residing at the top, and
workers and staff operating below from strategic orders centralized in executive ranks. As
Wheeler et al. (2007) note, the effectiveness of leaders depends, more than is generally
realized, on the context around them. Over time, the leaders capability is shaped by the top
teams quality, and by the capabilities of the full organization. These can either provide
invaluable support for the changes a leader wants to make or render those changes
impossible. Hence the best leaders pay a great deal of attention to the design of the
elements around them.

VOL. 31 NO. 1 2010 JOURNAL OF BUSINESS STRATEGY PAGE 13

Senior managers set the basic decision premises (assumptions) for organizational
decision-making. Strategic decisions flow from institutional and organizational processes,
embedded in formal rules, the organization chart, formal and informal lines of authority,
budget allocations, informal perks and rewards, office location, and access to strategic
information. Successful organizations are the ultimate team sport, where leadership and
change are institutionalized at all levels, focusing on a careful blend of new ideas, routines,
and incentives for three key stakeholders:
1. customers;
2. the workers; and
3. shareholders.
A bias towards one, without the other two, is a potential signal of failure.
Organizations embody decision-makers where creativity stems from the ability to achieve
sudden insights into situations by recognizing familiar features in them depends on having
stored a great deal of knowledge knowledge about the familiar patterns that can be
recognized and knowledge of the cues for recognition. Indeed, taking cues from grand
master chess champions and child prodigies, familiar decision configurations and familiar
patterns require single-minded devotion to a core of knowledge expertise: knowledge and
persistence do seem to be pre-requisites to high-level performance (Simon, 1983, p. 4570).
Facing uncertainty, CEOs concentrate power and coordination mechanisms at the center,
not at first because they want to, but because they become firefighters to meet routine daily
crises. The natural impulse to centralize power around the executive office spills over to a
range of issues, from budget control to communicating with the outside world. Without
counter-checks, the executive office unknowingly becomes the center of organizational
dysfunctions.
The CEO, reacting to external issues, fails to communicate with insiders. Time pressures,
often because of poor scheduling of decisions, leave little room to explain in advance, but
repeated use of crisis decision-making takes away the competence legitimacy of senior
executives. Insiders both managers and workers fail to learn the rationale for the
decision premise (Cyert, 1990). Fellow managers and workers make a psychological retreat
to accepted norms or organizational rules. At best, staff and workers reinforce these
decision dysfunctions, by confirming the mental short cuts into their own decisions, through
the pattern of daily heuristics, i.e. the current rules of thumb and behavioral actions that lead
to a culture of the status quo, or a bias towards past actions, because the mental
uncertainties are less.
As Henry Mintzberg (1973) first articulated, organizations face the potential for
communications dysfunctions, as senior executives perform multiple roles at once, and
concentrate on decision uncertainties on a regular basis a daily balancing act between
integrating and coordinating to exploit efficiencies, rather than differentiating and innovating
to adapt to external pressures. Too often, top executives, making decisions because of
external forces, also fail to communicate with the organization. Workers and staff heed the
norms of certainty, and based their actions on existing routines, incremental conduct, and
the recipes of acceptable action. Presidential advisor Ted Sorensen (1963) describes the
challenge: The most rational, pragmatic-appearing men may turn out to be the slave of his
own private myths, habits, and emotional beliefs. Increasingly firms only exploit their
behavior from existing products and services, and fail to take action on new or novel

CEOs and senior managers, in their attention spans, in their

attitudes, and in their respect for their employees reflect an
understanding both of the past and of the future.

PAGE 14 JOURNAL OF BUSINESS STRATEGY VOL. 31 NO. 1 2010

decision steps. In short, managers fail to recognize the differences between exploitation of
present action and exploitation of new strategies and behavior.
Complex technology and novel routines require multiple feedback mechanisms, at times
leading to loosely coupled or tightly-coupled design, and rules-based or people-based
means of coordination and communications. Uncertainty informs management not only
about individual processes, from information flows to work practices, but forms of dissent,
choke points, and needless interruptions. Effective managers focus on the weaknesses in
the value chain, predicated on the premise, familiar in team sports, that sub-unit
performance is only as strong as the weakest link. Growing inter-dependencies within the
firm require this perspective. It means assessing and challenging the interdependencies
and coordination the organization, including the barriers (information and workflows)
between and among departments and functions, and past misjudgments and
miscalculations.
In reality, do managers actually focus on these critical issues? Organizations and their
managers can institutionalize decision dysfunctions by protecting weak managers, stifling
dissent, ignoring failures and defying adverse feedback. Too often, managers tend to
preserve their status reputation by avoiding what they dont know or wont admit to,
independent from performance or refusing to admit incompetence. CEO communications
may eschew honest reflection and espouse recipes of indifference, decision avoidance, or
even calumny by shifting to rhetoric rationalizing past mistakes. Workers and staff respond in
kind with only minimal accepted standards of behavior, while making minor improvements.
In these cases, there is a bias towards traditional habits and the status quo. The
consequence is that executive communications becomes an organizational dysfunction.
The five competitive forces of effective leadership are shown in Figure 2.
Capacity to listen
Rational theories of decision-making dictate that managers seek out a wide range of
alternative forward paths, increasing their search behavior with solid information and
intelligence, and debating strategic options and alternative time pressures. Notwithstanding
such norms, daily life exposes how many organizations operate with measures of
Figure 2 The five competitive forces of effective leadership

Capacity To Listen

Institutional Conflict

Organizational Memory

Data Informs Analysis

Organizational

Prudence & Judgment

Skills & Competencies

Core Abilities

Ego vs Talent

Demonstration Effect

Communications

Manages Weaknesses

Capacity To Motivate

Multiple Incentives

Vision Future

Honesty of Purpose

Performance-Oriented

Collective Rewards

High
Organizational
Innovation

Capacity To Learn

Kaizen

Bottom-Up Decisions

Multiple Feedback

Teaching Culture

VOL. 31 NO. 1 2010 JOURNAL OF BUSINESS STRATEGY PAGE 15

 . . . managers fail to recognize the differences between

exploitation of present action and exploitation of new
strategies and behavior.

group-think, incremental decision-making, little questioning of basic assumptions and often

failing to foresee the obvious. Truly rational decision-making is heavily constrained. Built into
many organizations are personal values, organizational processes, and task uncertainties
that actually narrow decision options. Examples include too many layers of management, a
strict hierarchical or rigid rulebook, the personality attributes of senior management, the lack
of both role divergence and personal diversity, and a decision system that has extremely
weak feedback mechanisms. The organizational response is a decision culture that
reinforces conformity and traditional routines.
In theory, organizations take steps to avoid such incremental behavior: independent boards,
management of diversity through selection and hiring practices, effective links between
executive pay and performance, and financial transparency the prototype for the
innovative organization. Often, management becomes prisoners to past decisions, where
first decisions impact subsequent decisions, and decision processes generate commitment
to existing beliefs, and precedents establish normative routines. These issues explain the
enormous interest in the Cuban missile crisis of 1962, because President Kennedy, as a
student of presidential decision-making, fully understood the impact of organizational issues
like prior commitments, time pressures, position status, intelligence and its limits,
independent judgment, and institutional conflict (Sorensen, 1963).
Presidential histories and business case studies show confusing external and internal
signals, where organizational architecture allows institutional conflict, dissent, and normal
deviance, and compels executives to explore serious alternatives, and second-order
effects, including the decision to do nothing. Institutional conflict applied to decision making,
especially where goal setting is unclear or where formal rules are uncertain, is the practice of
allowing a devils advocate role, to allow individuals to articulate thoughts and positions
outside mainstream thinking and conventional wisdom. The aim is to widen organizational
search procedures, to see unlikely consequences of established positions, and to avoid the
distraction problem of decision-making.
Organizations have institutional memories, a recording of past events and processes, as
well as diverse personalities, status, cognitive maps, and social behaviors. A library
performs a memory, a repertoire of choices, and a guide to current decision alternatives, but
it may distort as well as inform, or instill too much information (information overload), not too
little. How organizational data should inform decision-making is dependent on institutional
conflict, what Winston Churchill called creative tensions as a principle of organizational
decision making, the fostering of rivalries among government servants to generate energy
in the examination of problems and the keenest critical response (Keegan, 2004,
pp. 270-1).
Organizational intelligence differs from info and data, because it focused on the meaning,
sources, and interpretations. Quality intelligence is a process of checking, interpreting, and
verifying decision premises and decision assumptions. By nature, this process is a
multidisciplinary activity, requiring people with diverse backgrounds, education, and
experience. Ample anecdotal history illustrates the problems of similar people coming to
similar conclusions. The basic conclusion of David Halberstams opus, The Best and the
Brightest (Halberstam, 1972), is the saga of American involvement in Vietnam, where a long
series of decisions were fundamentally flawed because they had the wrong assumptions.

PAGE 16 JOURNAL OF BUSINESS STRATEGY VOL. 31 NO. 1 2010

Hypocrisy is a neglected topic in organizational studies. Ineffective organizations abound

in this dysfunction. Hypocrisy, the feigning of belief systems that allow a personal
inconsistency between public expressions and actual behavior illustrates the goal
divergence between leaders and followers. Fernandez-Revuelta Perez and Robson
(1999) define organizational hypocrisy as inconsistencies or disjuncture when (a) talk
results in informal agreements; (b) decisions result in formal discussions or policies
which are recorded within the organizational hierarchy and usually enacted through
written documents, including plans and budgets; and (c) actions where organization
actors do as opposed to what they have formally agreed or informally said that they
would do. Leadership hypocrisy, overtly communicated to the organization, diminishes
novelty and experimentation and allows organizational members to conform to
rules-based behavior.
The inconsistency between talk, actions, and organizational goals often reflects multiple
and perhaps contradictory messages (Fernandez-Revuelta Perez and Robson, 1999,
p. 389). Over time, leaders who display acts of a hypocrite not only conceal their real beliefs
but communicate confusion of motives, real virtues, and false intentions. The leader who
espouses that the most important organizational asset is the workforce but proceeds to
severe cost cutting and laying off workers, while comfortable with organizational perks, is too
often a familiar case study. Applied to decision-making and innovation, hypocrisy illustrates
this divergence of organizational goals, raising the level of interpersonal tensions, and
reducing the legitimacy of informal supervision, thereby suspending a rational approach to
means-ends thinking, and team work towards playful experimentation. In time, leadership
hypocrisy leads to lower participation and psychological exit from key decisions.
Various personality characteristics cleverness, personal will, self-confidence, mental
fluency, hypersensitivity may enhance or impede managements capacity to listen.
Everyday experience illustrates how executives and senior managers have a preference
for similar thought processes, for liking to breed liking, or similarity breeds attraction.
Leaders with low self-esteem are attracted by people who provide high need for
appreciation, applause, and similarity in attitudes. By contrast, to cite an example,
Horatio Nelson, perhaps the greatest admiral ever, displaying what historians call the
aces of leadership, using his diverse band of brothers, made decisions with
inspirational powers of leadership, lightening tactical verve, ruthless determination in
battle, incisive strategic grasp and a revolutionary capacity for operational innovation, all
combined with complete disregard for his own personal safety in any circumstances
(Keegan, 2004).
In truth, many organizations fail to build a true library to understand institutional memory: the
bias of executives is towards conventional accounting systems, every day routines, and
limited intelligence analysis.
The five competitive forces of ineffective leadership are shown in Figure 3.
Capacity to learn
It is almost a truism to say that organizations are adaptive mechanisms, learning from past
behaviors and external threats. History suggests otherwise. GE is the only business firm that
survives from the Fortune 500 list of firms in 1912. By contrast, leading universities in Europe
Krakow, Oxford, Bologna date from 1,000 years ago, and Harvard since 1636. The

. . . leaders who display acts of a hypocrite not only conceal

their real beliefs but communicate confusion of motives, real
virtues, and false intentions.

VOL. 31 NO. 1 2010 JOURNAL OF BUSINESS STRATEGY PAGE 17

Figure 3 The five competitive forces of ineffective leadership

Capacity To Listen

Strong Hierarchy

Group Think

Data Determine Analysis

Organizational Paralysis

High Hypocrisy

Skills & Competencies

Longevity

Yes Men Culture

Top-Down Bureaucracy

Bias towards the Past

Celebrates Executives

Low
Organizational
Innovation

Capacity To Motivate

Pay Incentives Only

Day-to-Day Actions

Strong Rumour Mill

High Psychological Exit

Work to Rule

Capacity To Learn

Single Loop Decisions

Budgets Determine Action

Strong Rules Culture

Short Time Horizons

Catholic Church, truly one of the worlds oldest and most successful institutions, is a leading
survivor, dating from more than two millennia ago. Other organizational pressures are at play.
External forces are indeed important, and so are demographics, more than most managers
assume. Clever benchmarking, a process to assess internal processes against best
practice, as well as market research, is a useful tool to monitor external signals.
Organizations age, just like people, as the median age of both the workforce and
management rises. Aging begets a natural rhythm of conformity as the natural order of
things and the approval of the status quo. Indeed, in many organizations, as the relationship
between income (revenue sourcing) and expenditure (who controls real costs) conditions
and reinforces executive power, forms of decision leverage, and forms of search behavior
through formal planning.
The capacity to learn relates to decision processes, communications flows and bottlenecks
in organizational design. Classic, top-down organizations rarely have the leadership to
install mental maps and communications chokepoints that allow reflection, imagination, and
inquiry. Design issues go much deeper, into issues of power relations, authority systems,
and use of resources and control over organizational slack. Decision-makers often disallow
playful behavior the deliberate relaxing of organizational rules thinking outside the box
in common parlance.
Organizational design impacts learning through flexible, open authority structures, upward
communication, and long time orientation. Curiously, abundant information, the spread of
knowledge, or the distribution of information necessary for specialized sub-units in
dispersed locations or multiple networking technologies can lead to limited feedback
mechanisms, executive secrecy, and even systematic censorship. These dysfunctions can
lead to restrictions of info flows, obstacles to interpretation (connecting the dots), stifled
debates, and reliance on spurious signals. As Vaughan (1996, pp. 250-1) notes, secrecy is
built into the very structure of organizations [. . .] obfuscation parades as clarity: they
produce too much, obscuring rather than enlightening. To assess a situation, [decision
makers] rely on familiar cues and signals readily observable characteristics so that they
can turn their energies to other matters.

PAGE 18 JOURNAL OF BUSINESS STRATEGY VOL. 31 NO. 1 2010

Capacity to motivate
New employees know that high performance breeds not only more success, but that
success radiates confidence in future progress. Despite antagonistic statements on the
vision thing, organizations need an organizational vision that encapsulates the reality that
organizations have multiple goals, carried out over multiple time frames, by a coalition of
multiple actors or stakeholders. GEs mission to be No. 1 or No. 2 in an industry, or Toyota
Lexus mission the relentless pursuit of perfection neatly capture the direction of these
organizations, and also communicates the direction to multiple stakeholders. Organizational
leadership focuses attention on these purposes, by establishing a corporate culture that
reinforces roles and responsibilities across the organization that measures and rewards
action against concrete benchmarks.
Motivation factors are a function of mission statements and a sense of purpose. A winning
football team, an election victory, a stunning technological breakthrough are examples of
this phenomenon. Perhaps the best mission statement ever stated was Churchills House of
Commons speech in 1940 that mobilized the nation: You ask what is our aim? I can answer
in one word victory. Victory at all costs, victory in spite of all terror, victory however long and
hard the road may be; for without victory, there is no survival. Drucker (1977) notes that
business mission statements are much neglected: Business purpose and business mission
are so rarely given adequate thought is perhaps the most important cause of business
frustration and failure.
Corporate mission is the embodiment of organizational purpose and behavioral standards,
recognizing emotional commitment as an intellectual contract between employees and
managers. Clearly, motivation factors come from a sense of organizational mission, but also
from dramatic changes in markets, product choice, and incentives that alter personal
satisfaction. It is often useful to heed the aphorism of Miles Law: where you stand depends
where you sit. Authority, incentives, organizational perks, and decision streams vary across
the organization, within sub-units, and between similar functions.
In most respects, decision systems are culture-free but best practices may differ. Contrary to
many myths about Japanese consensus decision-making, business organizations foster a
corporate culture towards innovation with concrete, operating actions, tolerating dissent and
behavior, mostly through teams and learning tools. Not only are the benchmarks reasonably
high, they are reinforced by management actions that celebrate success, and recognize
individual and team contributions, both formal and informal. Employee loyalty is not taken for
granted, but is earned by the same behaviors and concrete measures that earn product
loyalty from customers and external stakeholders.
Leaders focus attention on informal and formal communications, applying symbols,
informal gestures, and mechanisms allowing employees to break the rules, to explore new
techniques. They foster service quality even with simple gestures and small examples.
Innovation illustrates the kaizen principle of constant improvement, because the onus is
not on dogmatic attention to the past, reinforced by rigid role behavior or the
dysfunctional nature of rules, games, and formal procedures. In this sense, past work
practices get embodied in a set of core values and competencies that slowly and
inexorably change to core rigidities, without reference to external best practice and
competitive benchmarking.

GE is the only business firm that survives from the Fortune 500
list of firms in 1912. By contrast, leading universities in
Europe Krakow, Oxford, Bologna date from 1,000 years
ago, and Harvard since 1636.

VOL. 31 NO. 1 2010 JOURNAL OF BUSINESS STRATEGY PAGE 19

Leaders recognize that, in the age of the internet, only good products and services can be
branded. Great names like Proctor and Gamble, Toyotas Lexus, or Apple disdain the
salesmen folly of creating organizational myths that can haunt the customer low quality
and real value. Brand image, like employee loyalty, is not a gilt-edged guarantee of success.
Management consultants and business gurus herald the need for product champions to
overcome resistance for change. In one sense, this is one of the themes of the American
study, In Search of Excellence: We expect our champions to be irrational!

Innovation drivers
Increasingly, all aspects of organizations, i.e. the entire value chain from suppliers to
customers and beyond (what happens to products when they are disposed), are subject to
new and potentially radical technology processes, where products can become obsolete
overnight, or they can be transformed by incremental, constant improvements. The
managerial challenge is to understand the linkages between competition and innovation,
between technological innovation and organizational rigidities, between management
inertia and the need for organizational change. Organizational rigidities, as depicted in
Table I, get built into enterprises at different levels. Corporate change, in new strategies and
in innovation, is a form of rebellion against the status quo, against familiar routines and
cognitive maps. Past performance and old assumptions often guide organizational
decision-making, and these rigidities can lead to decision paralysis and organizational
pathologies.
Organizational innovation, especially for business firms, faces a constant process of shifting
cost curves, where fixed costs of a given output combines with marginal costs that can be
next to nothing. Technology, or knowledge, has the unique feature that once it has been
created, the use of it does not preclude the use of it by another. Widespread use of a
technology, as history shows, impacts an infinite range of models, applications, and
company-specific advantages. Organizations thus vary tremendously, from being industry
(or global) leaders, to being laggards and followers, or positions in between (Figure 4).

Summary and conclusions

Thomas Carlyle, the nineteenth century Scottish writer who coined such iconographic
phases as the dismal science and captains of industry believed in heroes, and great
men. The history of the world is but the biography of great men, wrote Carlyle. Today,
business writers, biographers and the media follow this tradition, and apply descriptive
adjectives for them: entrepreneurial, charismatic, bold and audacious, risk taking,
hardworking, decisive, and visionary. Such terms all invoke theories of effective
leadership, ignoring how leadership and innovation are bounded in organizational reality
and complexity of everyday decisions. As Porter (1985) notes, the five-forces framework
does not eliminate the need for creativity in finding new ways of competing in an industry.
Table I Patterns of organizational rigidities and cognitive traps
Internal myopias

Blind spots

Enabling corrections

Executive ideologies

Yes man mentality

Cognitive simplicity
Indecision
Historic determinism
Not invented here
Competency traps
Closed system framework
Incomplete structure
Performance as decision premises, silo models
Vertical models

Change decision model

Institutional conflict
Change leadership
New ventures
Open systems thinking
New decision routines
Customer focus
Reorganize incentives
Inter-divisional teams, experimentation
Horizontal tools: alliances

Technology fixation

Organizational impediments

PAGE 20 JOURNAL OF BUSINESS STRATEGY VOL. 31 NO. 1 2010

Figure 4 Organizational innovation

Capacity for Innovation

High
Low
Strong
Corporate
Culture
Weak

Industry
Leader

Imitator

Selective
Segmentation

Followers &
Laggards

This paper defines leadership and innovation as organizational processes embedded in

decision streams. Five forces of leadership and innovation provide a model of decision
processes:
1. skills and capabilities;
2. capacity to learn;
3. capacity to listen;
4. capacity to motivate; and
5. innovation.

Keywords:
Innovation,
Decision making,
Organizational culture,
Intelligence

In this sense, organizations, facing massive uncertainties external and internal vie for
certainty, like a sailboat in a storm, employ known techniques, routines, and time-honored
habits, based on a leaders experience and rulebook, but guided by the quality and training
of the crew. Decision making comes from unconscious processes based on past experience
and present perils, where calm deliberation gives way to team work, trust, and gut instinct.
Innovation comes from irregular and idiosyncratic structures and behaviors. In uncertain
times, managers need imagination and creativity, not old routines and dated measures of
innovation performance. Real leaders know the difference in measures like gallons per mile,
not miles per gallon, or increasing computing power at lower costs, not more computing
power per machine.

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About the author

Charles McMillan, a Professor of Strategic Management at York University in Toronto, is the
author of nine books, including The Japanese Industrial System and The Strategic
Challenge: From Surfdom to Surfing in the Global Village, and has published in journals such
as McGill Law Review, Academy of Management Journal, Sociology, Organizational Studies,
Ivey Business Journal, and California Management Review. Charles McMillan can be
contacted at: sgi@rogers.com

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