A Return to the Power of Ideas

The array of charismatic CEOs who have begun to give up the reins of blue-chip corporate America fall into several distinct genres. There are the savvy dealmakers like GE’s Jack Welch, IBM’s Louis Gerstner and Citi-group’s Sandy Weill, leaders who deferred innovation and charmed Wall Street. There are the rogue, self-styled serial acquirers, like Tyco’s Dennis Kozlowski, WorldCom’s Bernard “Bernie” Ebbers and Global Crossing’s Gary Winnick, executives who ignored innovation and indulged in corruption. Then there are the faux inventors and pitchmen of the new economy like Webvan’s George Shaheen, whose pretensions to innovation were little more than vaporous self-promotion.

Taking their place is a new breed of CEO that, despite paying respectful homage to their predecessors, largely eschew the mantle of the dealmaker and the brazen swagger of the salesman. Instead, they are focused on creativity and innovation and on reviving and polishing the legacies of their enterprises. This new “new thing” is really a return to the spirit of the titans of the old economy —leaders like GE’s ingenious Thomas Edison, IBM’s visionary Tom Watson Jr. and MCI’s entrepreneurial Bill McGowan — and a revival of such lost legacies as that of Polaroid’s Edwin Land, RCA’s David Sarnoff, Xerox’s Joe Wilson, Hewlett-Packard’s David Packard and Westinghouse’s George Westinghouse. Although these leaders varied greatly in their professional backgrounds, they were of one mind when it came to their ideas about enterprise building. As Edison, who held 1,093 patents, famously put it,“Genius is 1% inspiration and 99% perspiration.” Land, second only to Edison with more than 500 patents, once told me that beyond his filtration-of-light instant photography, his proudest creation was Polaroid Corp.’s collegial, knowledge-seeking corporate culture, which he termed a “noble prototype in industry.”

That kind of thinking — the emphasis on invention in all its forms — has always been revered by entrepreneurs. Steven Jobs credited Land’s inspiration for the early culture of Apple Computer Inc. Michael Dell launched a computer company in his college dorm room and quickly invited 70-year-old technology visionary George Kozmetsky, Teledyne Technologies’ former CEO, to sit on his board. Kozmetsky’s hands-on, continually self-evaluative style remains instilled in Dell’s company to this day. Bill Gates, too, is renowned for his efforts to spark redefinitions of Microsoft Corp. at least every three years to ensure that the company stays relentlessly on the edge of innovation. Now, however, the leaders of blue-chip corporate America increasingly seem to be adopting the same philosophy that has inspired generations of entrepreneurs. CEOs such as Pfizer’s Henry “Hank” McKinnell Jr., IBM’s Sam Palmisano, GE’s Jeff Immelt and MCI’s Michael Capellas have focused on rediscovering the roots of invention and ideas in their companies.

The recent news over MCI’s approved reorganization, for example, has allowed it to escape the WorldCom cloud of scandal. The firm’s maverick image has been burnished through reference to the pioneering marketing and technological innovations sparked by former CEO McGowan 20 years ago when he led the fight for consumers against the anticompetitive practices of AT&T Corp.’s monopoly. In fact, critical to its reconception, renaming and rebranding, the company has consciously drawn upon its legacy of telecommunications inventions, such as the ability to receive and send e-mail from any computer in the United States, high-bandwidth networks and optical networks. Indeed, MCI’s pioneering Internet scientist Vinton Cerf is still active in the firm and is prominent in key research and strategy roles.

In response to some positive signs of cyclical economic recovery, IBM Corp.’s Palmisano announced in October 2003 that IBM plans to hire 10,000 workers over the next year — a refreshing break from the obligatory pronouncements of retrenchment that CEOs have offered over the past decade as a badge of strength. Such business-building confidence is typical of Palmisano. From the beginning of his tenure, he has sought to return IBM to the greatness of the Watson era when the company was a beacon of technological foresight, the epitome of prestige and a magnet for employee loyalty —when, as he has said, “We stood for something.”

As soon as he took control in January 2003, Palmisano sought to stoke the fires of invention. He dismantled the venerable but bureaucratic 12-person executive committee that filtered out fresh but risky ideas and elevated three companywide teams in strategy, operations and technology to surface such new ideas. He put famed computer scientist Irving Wladawsky-Berger in charge of a $5 billion launch of an “e-business on demand,” an initiative designed to help companies standardize their computing needs. The hope is that this project, which reaches into every IBM division, may ultimately be as significant as was Tom Watson Jr.’s “bet the ranch” launch of the famed 360 mainframe computer, which introduced compatibility between machines, printers, drives and other peripherals in 1965. “Creativity in an organization starts where the action is,” Palmisano has said. “Either in a laboratory, or in R&D sites, in a customer’s place or in manufacturing.”

Palmisano’s sentiments are shared, almost verbatim, by General Electric Co.’s new CEO Immelt, who harkens back to when, through the commercialization of Edison’s inventions, GE opened the doors to a vast new industrial frontier in the fields of electricity, appliances, entertainment and communication. Now, however, Immelt contends that too many companies have lost the ability to innovate because they have become “business traders” rather than “business creators.” GE is not a conglomerate, Immelt told an MIT audience: “I’m not a deal junkie. That’s not the essence of GE.”

Accordingly, he has hastened to explain his acquisitions of Vivendi Universal S.A.’s entertainment division and a medical instrument company, among others that may total $15 billion for the year, as an effort to sharpen GE’s innovative capability in the media and medical sectors. In the meantime, despite four consecutive quarterly downturns in profit, Immelt has boldly worked to create a hothouse of R&D at GE, hiring engineers and spending $100 million to renovate the company’s Global Research Center in Niskayuna, New York, while building up research activity in Germany, China and India.

Immelt’s former GE rival Jim McNerney, now CEO at 3M Co., has also sought to enhance his new company’s R&D legacy while commercializing great ideas sooner. Founded in 1902 as a manufacturer of industrial abrasives, the company has evolved to produce tapes, adhesives, lubricants, air filtrations, fabric protectors, reflective sign coatings and office supplies, readily embracing serendipitous discoveries such as Scotchgard and Post-it Notes. McNerney has worked to focus the $1 billion dedicated to research on those ideas having a potential of $100 million or more in annual sales. With 148 plants in 60 countries, 3M has an estimated 1,500 new products in development at any given time.

E. I. du Pont de Nemours and Co. (DuPont) is another company that has kept alive its strong emphasis on invention and innovation. Having created such branded breakthroughs as Corian, Nomex, neoprene, spandex, Lycra, Teflon, nylon, Dacron and Kevlar (the fiber used in bulletproof vests) over its 200-year existence, the company recently won the National Medal of Technology for developing alternatives to chlorofluorocarbons, following a scientific consensus that they deplete the protective ozone layer. The company has 75 R&D centers in 35 countries with 2,000 scientists. Its research continues to lead to discoveries in agriculture, nutrition, electronics, safety coatings and performance metals. Commenting at the centennial of the company’s 150-acre Experimental Station in October 2003, CEO Chad Holliday Jr. cogently connected DuPont’s research heritage with its current mission: “One hundred years later — in the midst of our third transformation — we are a global science company that puts science to work, solving problems in ways that make people’s lives better, easier and safer.”

Similarly, Pfizer Inc.’s CEO Hank McKinnell Jr. has purposefully drawn on the company’s history of innovation to shape its current mission. Founded in Brooklyn, New York, in 1849, Charles Pfizer’s company was the first to discover the germ-killing properties of penicillin and other critical antibiotics. Today with over $7 billion spent on research, Pfizer has such blockbuster drugs as Zoloft, Celebrex, Lipitor, Norvasc and Viagra, with many others in the pipeline. The company now has 10 products each with more than $1 billion in sales, and it owns the rights to eight of the 25 best-selling drugs with some 165 million people worldwide taking its medicines. Since taking over as CEO two years ago, McKinnell has divested Pfizer of 18 side businesses, including Schick shaving products, Coty cosmetics and a food-science company. At the same time, Pfizer’s R&D activities have been integrated with those of Pharmacia Corp. and Warner Lambert Co., creating new units combining research and manufacturing, whereas its competitors like Merck & Co. Inc. and Bayer AG have had drugs stalled in development. All this prompted McKinnell to proudly proclaim at a recent analysts’ meeting that “research is back.”

Many of today’s emergent corporate leaders, like the legendary standard bearers of invention, emphasize technological engineering over financial engineering, product over marketing and real science over junk science. That does not mean that they are — or need to be — technologists. Neither Sam Palmisano nor Tom Watson Jr. was trained as an engineer. Bill Gates and Michael Dell, like Edwin Land before them, were college dropouts. The critical elements of their leadership are an unrelenting drive for self-improvement, an overriding interest in learning, an appreciation of a motivated work community and longer time frames than those dictated by today’s stock price. For the new breed of CEO, the art of the deal is fading, and the value of the idea is once again on the rise.