Gerard J. Tellis: An interview by Bob Morris

TellisGerard J. Tellis is Director of the Center for Global Innovation, Neely Chair of American Enterprise, and Professor of Marketing, Management & Organization at the Marshall School of Business, the University of Southern California, Los Angeles, CA. He specializes in innovation, advertising, global market entry, new product growth, and pricing. He has published over 100 papers and five books on these topics. His latest book is Unrelenting Innovation: How to Build a Culture for Market Dominance, published by Jossey-Bass/A Wiley Imprint (2013). His papers have appeared in leading scholarly journals. His articles and books have won over 20 awards, including four of the most prestigious awards in the field: the Frank M. Bass, William F. Odell, Harold D. Maynard (twice), and the Marketing Science Long Term Impact Award.

Tellis is a Senior Research Associate of the Judge Business School, Cambridge University, UK; and a Distinguished Professor of Marketing Research, Erasmus University, Rotterdam. He has also been a Visiting Fellow of Sidney Sussex College, a Visiting Chair of Innovation, Marketing, and Strategy at Cambridge University, a Trustee of the Marketing Science Institute and a Treasurer of Informs Society of Marketing Science. He is an Associate Editor of Marketing Science and the Journal of Marketing Research and has been on the editorial review boards of the Journal of Marketing Research, Journal of Marketing, and Marketing Science for several years. Previously he worked as a Sales Development Manager for Johnson & Johnson. He earned a Ph.D. degree at the University of Michigan.

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Morris: In recent years, there has been criticism, sometimes severe criticism of M.B.A. programs, even those offered by the most prestigious business schools. In your opinion, in which area is there the great need for immediate improvement? Any suggestions?

Ellis: Encouraging students to be embrace risk, come up with ideas and solutions, and experiment with them.

Morris: When and why did you decide to write Unrelenting Innovation?

Tellis: My research suggests that due to rapid and constant technological change, unrelenting innovation is an imperative. The enemy of innovation was not shortage of funds, lack of talent, lack of patents but the culture within.

Morris: Were there any head-snapping revelations while writing it? Please explain.

Tellis: Organizations are in greatest danger of failing when they are at the peak of their success. Market dominance can be a curse that blinds organization to the next big innovation on the horizon.

Morris: To what extent (if any) does the book in final form differ significantly from what you originally envisioned?

Tellis: Not much.

Morris: Why do so many (if not most) incumbent organizations fail to innovate continuously, if not relentlessly?

Tellis: They fail to innovate because of a focus on the current instead of the future, a resistance to cannibalize successful products, and an aversion to risk that comes with innovations. I call this “the incumbent’s curse.


Morris: What do you mean by “preeminence of culture” with regard to building a culture with innovation that achieves a dominant competitive advantage in its marketplace?

Tellis: The enemy of innovation is within. It is the culture of complacency or arrogance that leads a firm to think it is doing well rather than on the threshold of failure and death.

Morris: Culture is a “primary explanation” of what?

Tellis: The culture of the incumbent’s curse is the primary explanation of lack of innovation. The culture of relentless innovation is the means of success and market dominance.

Morris: I endorse strategic and selective cannibalism of products and/or services. In your opinion, by what specific process should those decisions be made?

Tellis: Current successful products are a firm’s cash cows. In general they should be protected by all means. However, a firm should be ready and eager to cannibalize them with radical innovations, should the opportunity arise.

Morris: As I read Chapter 2, I was reminded of Joseph Schumpeter’s concept of “creative destruction.” You seem to be suggesting that a status quo must be replaced by a focus on the future, embracing risk, and a willingness to cannibalize products, services, policies, procedures, etc. as when Reggie Jones told his hand-picked successor as chairman and CEO, Jack Welch, to “blow up” GE.

Is that a fair assessment?

Tellis: Yes. Firms need to maintain a culture of impending disaster if they stick with the status quo. They will disappear in a few years if they miss the next big innovation.

Morris: In one of his books, Marshall Goldsmith alerts his reader, “What got you here won’t get you there.” My own opinion is that whatever got an organization “here” won’t even allow it to remain “here.” What do you think?

Tellis: Technological evolution is occurring at an ever-increasing rate. The tools, processes, and products of the present get quickly obsolete. Firms have to invent the future.

Morris: You examine four biases in Chapter 4. Please explain what each is and how to avoid or overcome it. First, Availability

Tellis: Availability bias is the over-valuing of current products over future ones because of one’s involvement in the current. To overcome this bias try to identify niche markets of today and explore how they might become mass markets of tomorrow.

Morris: Next, Paradigmatic

Tellis: Paradigmatic bias is to think that other world-views are flawed or bad because they are different from one’s own. To overcome this bias, identify different and especially minority world views and think how and when they would become mainstream.

Morris: Then, Hot-hand Telis: The hot-hand bias is to think that the trend in the past will succeed in the future: for example, Growth of current products will continue at the same rate or the flat sales of a new product will continue in the future with no takeoff. To avoid this bias try to 1) identify and predict the mass markets of tomorrow that will obsolete today’s growth products and 2) the point at which todays innovations will takeoff in the future.

Morris: Finally, Commitment

Tellis: Commitment bias is the reluctance to kill a bad product or idea because of the large amount invested in it in the past. The way to overcome this bias is to 1) predict the performance of various competing technologies one to five years in the future 2) predict the year of takeoff of new innovations

Morris: What are the most significant advantages and disadvantages of [begin italics] traditional [end italics] incentives?

Tellis: Traditional incentives are tied to seniority or rank. Even when tied to performance, traditional incentives they provide weak rewards for success and strong penalties for failure.

Morris: What are the most significant advantages and disadvantages of [begin italics] asymmetrical [end italics] incentives?

Tellis: Asymmetric incentives provide strong rewards to success and weak penalties for failure. These incentives encourage employees to experiment and innovate by the firm assuming the risk of the employee’s failure.

Morris: I think some of the most valuable material is provided in Chapter 5, “Incentive s for Enterprise,” when you discuss five exemplars. What is the most valuable lesson to be learned from each? First, IBM

Tellis: In mid 1990s, IBM was at risk of imploding because of its stultifying self-centered culture of rules and regulations with entitlements to all employees irrespective of performance. Lou Gerstner radically changed the culture, making it performance based and focused on customers.

Morris: Google

Tellis: Google’s CEO Larry Page realizes that Google’s greatest enemy is Google. He encourages innovation by allowing all employees to spend 20% of their time on innovation, putting talented employees in charge of important innovations even if they are young, and assuming all risks of failure. Employees who fail are encouraged to learn and move on.

Morris: General Motors

Tellis: General Motors declined and collapsed into bankruptcy by rewarding employees on rank and longevity rather than performance. It invested a massive amount of resources on job guarantees rather than on risky innovations of the future.

Morris: 3M

Tellis: 3M allows employees to spend 15% of their time as and when they choose on innovations of their own choosing.

Morris: How best to establish, develop, and manage internal markets?

Tellis: The best way to manager internal markets is to have teams of innovators compete against each other in every stage of the innovation process: generating ideas, funding, research for innovation, developing prototypes, testing innovations, and commercializing innovations.

Morris: What are the most important do’s and don’ts to keep in mind while doing so?

Tellis: Allow peers, outsiders, and managers to judge the contests. Have clear winners. But let losers share in some of the spoils of victory just for participating

Morris: What does it mean to [begin italics] empower [end italics] companies?

Tellis: To “empower” means to transform people from being dutiful, law-abiding employees to being original thinking champions of innovation who love to be different and experiment with new ideas and gadgets.

Morris: By what specific process should innovation “champions” be empowered?

Tellis: Innovation champions can be empowered by offering asymmetric incentives, providing time off to develop innovations, supporting competition among innovators, and encouraging mavericks.

Morris: Based on what you and your associates have learned from more than 20 years of research, which of various theories (both micro and macro) – those claiming to explain what drives innovation – seems to be the most sound? Why?

Tellis: The least talked about and the soundest theory for explaining innovation is the theory of culture

Morris: In your opinion, what is the most important question yet to be asked and answered insofar as culture’s relationship with innovation is concerned? Please explain.

Tellis: The greatest question to be asked is: Does the firm realize that it’s greatest enemy and its greatest strength is within?

The greatest question to be answered is: How is the firm implementing the three practices for innovation?

Morris: Let’s say that a CEO has read and then (hopefully) re-read Unrelenting Innovation and is now determined to establish cultural values at all levels and in all areas of the given enterprise that enable innovation to thrive. Where to begin?

Tellis: The first place to begin is with incentives. Offer asymmetric incentives with strong rewards for successful innovations and weak penalties for failure. Eliminate incentives for seniority and rank. Second, empower all employees to innovate with offering them time, resources, and incentives. Third, encourage competition for innovation through idea fairs, funding contests, prototype races, competing divisions, or skunk works

Morris: For more than 25 years, it has been my great pleasure as well as privilege to work closely with the owner/CEOs of hundreds of small companies, those with $20-million or less in annual sales. In your opinion, of all the material you provide in Unrelenting Innovation, which do you think will be of greatest value to leaders in small companies? Please explain.

Tellis: Small companies face a paradox. If they innovate, they may become large and successful. But that success brings them the incumbent’s curse.

Morris: Which question had you hoped to be asked during this interview – but weren’t – and what is your response to it?

Tellis: Here are two:

“What was the most surprising finding from your research?”

Organizations are in greatest danger of failing when they are at the peak of their success. Market dominance can be a curse that blinds organization to the next big innovation on the horizon. Often these innovations arise deep in the bowels of the organization but are drowned out by the hoopla of profits from the company’s current products. Kodak, HP, Nokia, Research in Motion, General Motors, Xerox, all suffered from this Incumbent’s Curse. It led them to reject their own path breaking innovations, allowing competitors to bring them to market first and race ahead.

“Why do established companies have a much harder time at unrelenting innovation than startups?”

Established companies suffer from three biases that blind them to game changing innovations: First, a focus on current products instead of the future; second, a resistance to cannibalizing current successful products; and third, an aversion to risky innovations. Startups, without a stream of successful products, have not much to lose. So they are more willing to gamble on innovations than established firms.

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Gerry cordially invite(s) you to check out the resources at these websites:

His home page

His faculty page

His Amazon page

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