INNOVATE OR PERISH: LESSONS
FOR DEALING WITH HARD TIMES
Donald Tosti, CPT, PhD
One of the most important variables in the success of a business over time is the extent to which the
organization develops innovative business strategies and has an agile culture that supports such
innovation. This article describes ways of accomplishing both requirements.
COMPANIES ARE INCREASINGLY FINDING themselves facing a volatile and often harsh environment.
Many have felt the impact of difficult economic trends.
Others in highly competitive businesses need to respond
rapidly to technological change as well as changes in customer buying habits and perceived needs. The first reaction to crises is usually a hunkering down, in which
people or product lines are eliminated. But in the long
run, most organizations find that they must become more
innovative if they are to survive the turbulence in their
business environments.
Innovation may be defined as “doing things in a new or
different way to create new sources of value.” New ideas,
products, services, or processes all may have potential,
but if they fail to create value, they are not considered
innovative.
The most important variable in the success of a business over time may be found not on the balance sheet but
be derived from the way people in the organization conceive of their business. Specifically, it is the extent to
which the organization has an innovative business strategy and a supportive and innovative culture. Among the
few safe predictions is that there will be change and that
organizations with rigid, bureaucratic cultures will find it
difficult, even impossible, to be successful over time. One
has only to look at the number of major corporations
cited as “ideal” or “excellent” by writers only a few years
ago that are now struggling because they lack a culture
and strategy that would have allowed them to innovative and adapt to today’s market conditions.
The natural tendency seems to be to concentrate exclusively on strategy. There are several new approaches to
this issue, such as Kim and Mauborgne’s (2004) “blue
ocean” approach, but we have found that focusing first on
the culture is generally a better way to go. I recall
oneclient saying, “We have lots of great ideas; our problem
is implementing even one of them.”
So innovation requires two critical elements: an agile
and innovative culture and an innovative strategy. In our
consulting work, we find we usually must deal with both.
Since it is less familiar to managers, I will primarily focus
on the cultural issues in this article but will also summarize tools for strategic issues.
CREATING AN INNOVATIVE CULTURE
The first conclusion is probably one that most people can
accept: The capacity to adapt to rapidly changing business conditions lies primarily in an organization’s people,
not in its resources, products, or even technology. The
second conclusion is less widely held: While processes,
skills, and competencies are important to fostering
successful change, the practices and behaviors that make up
the organization’s culture are of even greater importance.
Coming up with new ideas is not enough. The old
adage, “Invention is one part inspiration and nine parts
perspiration,” emphasizes the point that creativity is only a
small part of the inventive effort. The same is true of
innovation. The term perspiration, however, is slightly
misleading. In the innovative company, it is not a matter
of working harder; it is a matter of working smarter.
MEASURING INNOVATIVE POTENTIAL
Our experiences with organizations that have been successful in volatile environments led us to begin developing
an instrument that would measure corporate innovation
potential in a way that would provide actionable
feedback.
Performance Improvement, vol. 49, no. 1, January 2010
©2010 International Society for Performance Improvement
Published online in Wiley InterScience (www.interscience.wiley.com) • DOI: 10.1 002/pfi.201 20
3
9
In designing our research, we did our best to avoid
imposing a single bias by using a wide variety of sources to
supplement our own experience. We deliberately avoided
trying to assess any single position, such as determining
what constitutes a “learning company,” as described by
Senge (2006). We went through various sources as well as
our own work to identify performance practices that
appear to characterize adaptive companies and found that
eight principles accounted for most of the items:








Commitment
Creating value
Initiative
Support for change
Leadership
Learning
Openness
Respect and challenge
To construct an initial instrument, we chose six practices
for each of the principles. The items were reviewed by
people in 15 companies with substantial experience of
innovation; practices were rated as to the degree of
importance for their innovation efforts.
The results were a bit surprising at first, but on reflection they make sense. For example, the single most
important practice was related to understanding how
one’s job contributes to the organization’s success.
Neither we nor any of the gurus we consulted gave this
kind of item top billing, but all made some reference to it.
It’s something that everyone agrees is important but that
is seldom dealt with well.
THE INNOVATION SCORECARD
Here are the top 10 cultural practices, in order of their
perceived importance to implementing innovation:
1. People see their job more in terms of the value they
create than the task they perform.
2. Our people show a sense of personal urgency and
energy about achieving results.
3. We are willing to make significant change in the way
we do things now to better provide value to the customer and the company.
4. We are more concerned with doing what’s right for
the customer and organization than we are doing
only what the boss wants.
5. People in the organization have a clear understanding of
how their efforts affect the satisfaction and retention
of customers.
6. Meeting the needs of the business and customer is
2 www.ispi.org • DOI: 10.1 002/pfi • JANUARY 2010
seen as far more important than conforming to
bureaucratic and administrative requirements.
7. We see ourselves as able to influence events, not as
victims of circumstances.
8. People feel encouraged to make on-the-spot decisions
when necessary, without waiting for full approval
from higher management.
9. At the conclusion of a project, we regularly look for
lessons learned.
10. Once we have made a commitment to change, we
have a sense of urgency and a high level of resolve to
follow through.
The fact that successful adaptation depends on several
factors may also help to explain why single-focus
approaches do not seem to work in the long run.
Top- 10 lists are always popular and provide a good
place to start, but a more comprehensive approach is necessary to provide a base for making solid recommendations or taking action. As a first approximation, however,
one might ask, “Would people respond positively to these
10 items in my company?” If the answer is no, perhaps an
investment in creating a more innovative organization is
appropriate.
DATA REVIEW
Review of the data gathered in our research showed that
four of the innovation support categories accounted for
most of the variance in the ratings. We have tentatively
labeled these the core four: commitment, creating value,
leadership, and initiative. The other remaining four areas,
while still rated as important, are not seen as having the
same level of impact on the organization as the first four:
A key element in commitment is understanding how your efforts can contribute to the success of
the organization. Surprisingly, relatively few people really
understand what drives the businesses they work in. And
all too often, senior management attitudes seem to
say, “Why do they need to know that?”
1. Commitment:
People in innovative organizations tend
to look at their jobs in terms of the value they create
rather than just the tasks they perform. This view of the
work helps build motivation to improve, work with
others, and find new and better ways of working.
Creating value means getting people to think about what
is right for the business and operate from business
priorities rather than personal or political pressures.
2. Creating value:
3. Initiative: The practices relevant to innovation are not
just empowerment warmed over. Initiative comes from
individuals, not their bosses, and it is based on both
self-confidence and the opportunity to take action. It is
not enough for the boss to give permission to act; people
must believe that there is genuine support so that they
can give themselves permission to act.
4.
Leadership: In organizations that handle change
well, people are typically comfortable that top
management is scanning the environment for possible
opportunities (or threats) and making the effort to keep
them up to date. Leaders also encourage everyone in the
organization to make, or at least help make, tough
decisions and take appropriate actions.
The following four areas were less critical to the support
of an innovative culture but still were important:
5.
Support for change: An organization’s history of
dealing with change affects how it will approach change
in the present. For example, has the organization dealt
successfully with change in the past? Do people have a
sense of continued commitment, or do they see a series
of “flavors of the month” initiatives?
6.
Openness: Key impediments to openness are the
sense that communication upward is blocked or that
certain issues are out of bounds. In innovative
organizations, there is little protectiveness of
information and few, if any, sacred cows or difficult
points that cannot be questioned or openly discussed.
7.
Respect and challenge: Richard Pascale (2000)
said that one of the differences between companies that
continue to succeed and those that do not is the extent to
which they have legitimized challenge. A key factor is
behavior that clearly demonstrates respect and recognizes that people can have legitimate reasons for
opposed views. Innovative organizations tend to treat
people as adults who are capable of taking responsibility
and thinking for themselves.
8. Learning: The learning organization is one that is genuinely focused on learning as an organization, not just
supporting the learning and development of individuals. A key element is the habit of looking first for lessons
learned when things go wrong rather than searching
for where to assign blame. Searching for who is at fault
will quickly suppress the very information needed to
make constructive change.
Does innovation matter? The Economist in 2007 quoted
a study done by McKinsey Global Institute (2007) that
shows that it was “competition and innovation that led to
the extraordinary productive gains seen in the 1990s.”
But innovation is still seen as a fuzzy matter by most
organizations and even by most experts in the field. It
neednot be. Defining organizational practices that
underlie accepting and executing new ideas that result in
creating new sources of value is possible, and providing a
management system that fosters and maintains such a
culture is also possible. This most often means a need to
legitimize challenge within the organization to help
maintain its innovative power. This is difficult for many
companies. Although some bureaucracies have legitimized
challenge, many are strongly hierarchical in nature and
almost forbid it. The question too often is, “What does my
boss want?” not, “What’s right for our business today?”
Many companies have tried to “buy” innovation. Since
they cannot seem to do it internally, they acquire smaller,
more agile companies that have developed innovative
products or services. This is often done at a very high
price and with mixed results. One problem is that most
often the culture of the parent company clashes with the
innovative company and the people who were most
responsible for the innovation leave, particularly the best
managers.
Culture Is Often the Key to Success
Culture makes an important difference even in good times.
Research done by Harvard professors Kotter and Heskett
(2006) on companies matched on all factors except culture
found that adaptive cultural differences had a twelvefold
impact on growth and profit over a 9-year period.
What is important in good times is often a matter of life
or death in hard times. A small investment in creating a
more innovative culture can produce significant returns.
But beware of the many so-called culture programs based
on normative benchmarks. What we are advocating here is
an approach that focuses only on cultural practices that are
important for innovation.
Some Thoughts on Creating an Innovative
Strategy
An innovative strategy is important because customer
value is generally increased by creating elements that the
industry has seldom, if ever, offered. Innovation should
embrace the entire spectrum of a company’s activities.
SIX INNOVATION TOOLS
Tool 1: Conducting a Customer Value Analysis
of Existing and/or Potential Value Factors
The functional benefits or qualities of a product or service
count for only part of the customer value. For example,
recent research indicated that the sales experience itself
accounts on the average for half of a customer’s overall
loyalty. In addition, the impact of factors like costs and
recovery must be considered as well as benefits.
Performance Improvement • Volume 49 • Number 1 • DOI: 10.1002/pfi
3
Vanguard Consulting has developed a performance
model to analyze customer value. It looks at 10 dimensions
that can affect customer value and, hence, purchase and
retention, and examines them in three categories: benefit
factors (benefits include both functional and sales
experiences), cost factors (costs include price and effort),
and recovery. These dimensions are used in the example
that follows of determining the customer value focus for
Sitting Duck Wines.
Benefit Factor Examples
ings; problems derived from having to choose from a
wide range of offerings.
8. Later effort—May require special storage.
These cost questions can be asked:
 How hard are we to do business with?
 What does everyone else in the field do to differentiate
themselves? At what cost?
 How does this appeal to noncustomers?
 If we did more of this, would we attract more noncustomers?
1. Product functionality—Taste, nose, and other wine
attributes.
2. Product behaviorally—Status snobbery, fun, sex appeal,
excitement.
 What would happen if we eliminated a feature or reduced it and lowered our price? Would we lose or gain
customers?
3. Provider functionality—Some wineries provide wine
store personnel with guidance tools to aid a purchaser’s decision and enhance the sales experience.
Recovery
9. Recovery process—Does the company provide for
returns?
4. Provider behaviorally—Some wineries provide a training video for wine store employees emphasizing positive support for uncertain customers.
10. Recovery experience—How are customers made to
feel if they return the item?
These specific benefit creation questions can be asked
(adapted from Kim and Mauborgne [2004]):
After this analysis Sitting Duck’s innovative strategy
focused on four areas of customer value:
 Product function—Provided a softer tasting wine and
 What do most people (customers and noncustomers)
watch, drink, eat, smell, travel in, do their hair with,
and so on [appropriate verb for your industry]?
 Is there a difference in these popular activities between
those who are and are not customers?
eliminated the need to acquire a taste for it.
 Product behavioral—The advertising campaign
emphasized a sense of fun and adventure.
 Initial effort cost—Made selection easier by offering
only three choices.
 What do these popular things have in common?
 What do our competitors do differently with these
popular things than we do?
 What would make it easier for our customers to watch,
drink, and so forth?
 What would make it cheaper for our customers to
watch, drink, and so forth?
 What might make our customers watch or drink more
often or longer?
 Recovery process—It made this pledge: “If you don’t
 What else could happen as our customers watch or
drink to make them feel good?
 What is the best thought people have when they experience a product or service in our industry area?
 What is the worst thought people have when they
experience a product or service in our industry area?
Cost Factors Examples
5. Purchase price—Wide range of pricing.
6. Maintenance price—Suggestion that customers provide for further aging after purchase.
7. Initial effort—Limited distribution of particular offer-
4 www.ispi.org • DOI: 10.1 002/pfi • JANUARY 2010
love it, bring it back, and the merchant will replace it
with another wine of comparable cost at our expense.”
Tool 2: Using the Innovative Action Matrix
The matrix is used to answer these questions:
 What benefits can be raised well above the industry
standard?
 What benefits can be created that the industry has
never offered before?
 What “costs” taken for granted can be eliminated?
 What costs can be reduced well below the industry
standard?
Tool 3: Developing an Innovative Strategy
Blueprint
This is accomplished by putting together a list of benefits
and features that are considered to already add value and
brainstorm those that could potentially add value taken
from a customer value analysis. All strategies are multidimensional and, hence, are almost impossible to reduce
to a set of numbers. An effective way to illustrate a strategy is to use a diagrammatic structure. The strategic blueprint using variations of the Vanguard Customer Value
model combined with the Action Matrix is an effective
way of doing this.
spite of fads and fashion, people have some core needs
and ways of acting. There are certain fundamentals that
can’t be ignored. These are usually biological and social.
As the dot-com fiasco showed most clearly, we must avoid
jumping on any bandwagon that seems to violate underlying principles of business and people systems. Avoiding
getting stuck in today and instead looking across time is
more difficult and probably has higher risk than most of
the other strategies identified in this article.
Tool 4: Taking an Innovative View

It is not what we do; it is what they want. Are we
too technology or product driven and not sufficiently
customer driven? For example, the view of service is
often quite different in Europe than it is in the United
States. Much of European service can be characterized
as: “Service is what I do. You can take advantage of it or
not; it’s up to you.” In contrast, businesses in the United
States tend to look at service in terms of what the
customer wants. Are you in tune with what people really
want if they had the choice?
Conventional boundaries of competition may be seen as
fences that constrain actions. Moving beyond existing
market boundaries to create opportunities requires new
perspectives. Consider these to get new perspectives:

Look over the back fence. What are the
neighbors doing? Most organizations look at what their
competitors are doing and focus on doing the generally
accepted practices within their industry. An alternative
is to look at what people in other industries that have
similar customers do. For example, if you are a business
selling luxury items, you might look at how companies in
different industries sell their luxury items.

What other ways do the neighbors do it? Describe
in general what your customers do with your product or service (e.g., sit on it, read it, get warm with it, pay with it).
Then ask:
 What other ways do people do similar things? In other
words, you’re looking for alternatives.
 What are some of the features that people like about
these alternatives? Are they more convenient or cheaper,
for example? If so, can you provide these benefits?

Remember, “It’s the whole experience, stupid.”
This really encompasses two opportunities: to add more
value to what you do by managing more of the
customer’s experience and to find ways of serving
customers at more points within their entire experience.

Don’t get overly focused on today’s “weather.”
Several years ago Peters and Waterman (2004) called IBM
an “excellent company” in their groundbreaking book In
Search of Excellence. It was for its marketplace at the time,
but even then the days of the mainframe were numbered,
and when the market changed, IBM didn’t. Its road back to
success was long and hard, and almost ended up in
bankruptcy.
Things are always happening. The railroad tycoons in
the 19th and early 20th centuries thought railroads would
be a king industry forever, and they generally ignored or
discounted newfangled means of transportation. But
then airplanes took their passengers and trucks their
freight business. Soon railroads, at least in North
America, became a minor industry.
One basic fact seems to always befuddle innovators: In
Tool 5: Identifying Factors That Inhibit
Developing a Successful Innovative Strategy
Beware of these factors:
 Too much focus on the competition—benchmarking
the competition rather than the alternative offerings.
 Overdelivery––providing features that customers do
not recognize or value.
 Incoherent strategy—no logic or coherence of
approach to customers or a vague or hard-to-understand business model that makes achieving effective
internal collaboration difficult.
 Strategic contradictions—for example, narrowing the
offering to provide higher-quality delivery.
 Too internally focused.
 Focus on meeting internal goals and internal customer satisfaction rather than on business results
and external customers.
 Focus on output rather than valued results, for
example, manufacturing or technology driven
rather than market driven.
 Describing activities in jargon rather than in customer experience terms.
Marketing experts often point out that even if you are
the leader of the pack, you are still part of that pack, and
someone is always trying to take over your position.
Tool 6: Performance Alignment
Ideally, organizations should be aligned to deliver customer value in terms of both processes and practices.
Performance alignment actually consists of a set of tools.
Performance Improvement • Volume 49 • Number 1 • DOI: 10.1002/pfi
5
Since these tools are more tactical than strategic, they may
be considered optional, but they are often quite useful.
In our consulting efforts to aid in creating innovative
organizations, we use several performance alignment tools.
Two of these we have developed ourselves: the TostiJackson
Organizational Alignment Model (Tosti & Jackson, 1994)
and the SCAN model (Amarant & Tosti, 2006). Other
useful alignment tools are Rummler’s Performance
Anatomy Model (Rummler, 2007) and Heskett, Sasser, and
Schlesinger’s Service Profit Chain Model (1997).
THE FINAL REALITY
References
Amarant, J., & Tosti, D. (2006). Aligning the human performance system. In J.A. Pershing (Ed.), Handbook of human
performance technology (pp. 1190–1223). San Francisco:
Pfeiffer.
Heskett, J.L., Sasser, W.E., & Schlesinger, L.A. (1997). The
service profit chain. New York: The Free Press.
Kim, W.C., & Mauborgne, R. (2004). Blue Ocean Strategy:
How to create uncontested market space and make competition
irrelevant. Boston: Harvard Business Press.
No one has figured out how to predict change in the marketplace very well. What we can predict, however, is that
the pace of change will continue, even under good economic conditions. Organizations that are likely to do well
over the long term will be the innovative organizations
that create and deliver a winning strategy. The economic
meteor has struck, and most organizations are probably
dinosaurs.
So how do organizations avoid this fate? Size is no
guarantee.
We
have
already
seen
many
brontosaurus-sized companies go extinct. But using an
approach similar to the one described here provides
some hope:
Kotter, J.P., & Heskett, J.L. (2006). Corporate culture and
performance. New York: The Free Press.
1. Examine your strategy using the six tools presented.
Rummler, G.A. (2007). Serious peformance consulting according
to Rummler. San Francisco: Pfeiffer.
2. Modify it as needed.
McKinsey Global Institute. (2007, October 20). Financial
globalization’s new power source. The Wall Street Journal,
p.A2.
Pascale, R. (2000). Surfing the edge of chaos: The laws of nature
and the new laws of business. New York: Three Rivers Press.
Peters, T.J., & Waterman, R.H. (2004). In search of excellence:
Lessons from America’s best-run companies. New York:
HarperCollins.
3. With the new strategy in mind. conduct an audit of the
innovative practices of your organization’s culture.
Senge, P.M. (2006). The fifth discipline: The art and practice of
the learning organization. New York: DoubleDay Publishing.
4. Focus on those that are not sufficiently demonstrated,
and give people feedback on their and their team’s
performance.
Tosti, D., & Jackson, S. (1994, April). Organizational alignment: How it works and why it matters. Training, pp. 58–64.
And have lots of luck.
DONALD TOSTI, CPT, PhD, is the founding partner of Vanguard Consulting. He has an extensive
and varied background in management and for three decades has been a recognized expert in
performance-based approaches to organizational effectiveness. He has received ISPI’s top two honors:
Member for Life and the Thomas F. Gilbert Distinguished Professional Achievement Award. He served as
ISPI president in 2004–2005. He has been involved in a wide range of organizational alignment and
change programs for companies in the United States, the Middle East, and Europe. His consulting
activities include work in leadership, management, culture change, strategic alliance, training, and
internal marketing. He has also written numerous book chapters and articles on human
performance technology and its application in today’s business world. He may be reached at
Change111@aol.com.
6 www.ispi.org • DOI: 10.1 002/pfi • JANUARY 2010