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56 November/ December 2014 BizEd research USC Marshall's Gerry Tellis discovers what factors drive the efforts of the most innovative organizations. WHETHER IT'S APPLE or Google, Amazon or Netflix, innovative companies establish practices that break the mold of traditional business models. But what drives these companies to be innovative, when so many oth- ers miss the mark? That question is central to Gerry Tellis' scholar- ship. As the Jerry and Nancy Neely Chair in American Enterprise and professor of marketing at the University of Southern California's Marshall School of Business in Los Angeles, Tellis became interested in organizational innovation while he worked to identify the characteris- tics of successful, long-established firms. "I found that market share, advertising, and order of market entry weren't the key factors of long-term success," says Tellis. He next discovered that suc- cessful companies define themselves as pioneers, but that being a pioneer itself doesn't safeguard a company against disaster. In fact, Tellis says, "most pioneers fail because they are so happy with the results of their first entry into the market, they don't innovate anymore." Tellis' research eventually led him to this conclusion: The biggest determinant of long-term success is relentless innovation. In his 2013 book Unrelenting Innovation: How to Create a Culture for Market Dominance, Tellis discusses ill-fated companies such as HP, which intro- duced an e-reader in the mid-1990s, and Kodak, which developed the first digital camera in the mid-1970s. Instead of focusing on these inventions, HP and Kodak abandoned them because they refused to undermine their old models. "Their prior success caused a blind- ness to future innovation," says Tellis. He calls this failure "the incumbent's curse," which arises when companies possess three unfortunate The Ingredients of Innovation traits—they focus on the present rather than the future, they insist on protecting suc- cessful products from cannibal- ization by new products, and they possess a systemic aversion to risk. According to Tellis' research, organizations that avoid these traps share three traits of their own. First, they establish incen- tives for innovation and reward new ideas—even if those ideas cannibalize other successful products. "These companies have strong rewards for success and weak penalties for failure," he says. "They encourage employees to take risks." Second, they empower employees at all levels with the autonomy to experiment. By contrast, in many risk-averse companies, hierarchical structures require all decisions to come from the top. Too often, "only the mundane survives" in such cultures, says Tellis. Finally, innovative companies encourage individuals within the firm to compete to produce new innova- tions and prototypes. "Google, Amazon, Samsung, and Apple are prototypical relentless innovators," says Tellis. "They don't just strive to innovate every year or every quarter—they're doing this on a daily basis." For his next book, Tellis is exploring the role of innovation not just in organizations, but in entire civi- lizations. "I believe the rise and fall of civilizations is FOCUS ON FACULTY "The rise and fall of civilizations is due not to wars, leadership, or a change in environment, but to the adoption of formative innovation." Gerry Tellis I NG R E DI E NTS: J U PITE R I MAG ES/TH I N KSTOCK; B USI N ESSMAN: FUSE /TH I N KSTOCK

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