6

The Innovation Mindset

One is fruitful only at the cost of being rich in contradictions.

—Friedrich Nietzsche¹

Several years ago, we helped an executive who faced one of the most dreaded tasks in management: Announcing the shutdown of several plants and telling everyone they would lose their jobs. Worse, he had to ask the outgoing employees to help him—not just to close the plants but also to turn them into bigger moneymakers until the scheduled shutdown. And he was in Europe, where he couldn't shutter the plants any sooner than three years after the announcement.

Jack, as we'll refer to this head of sourcing for a U.S.-based maker of consumer products, came into this position after his company bought a much smaller business in Europe. He was charged with cutting manufacturing costs, consolidating operations in cheaper countries, and complying with demands by regulators to reverse quality snafus that had led to several manufacturing recalls.

Workers reacted with anger, of course—and initial indignance at the idea of helping the company do anything. Jack's request seemed irrational. How could he kick employees in the face one day and ask them to boost quality and productivity the next? Jack spoke first with the plant managers. He asked them to visit each other's plants to see how they could work together. After a few weeks, they returned with what they believed would be an acceptable way to proceed.

Appealing to their sense of pride in what they had accomplished, Jack asked plant employees to work “to become world class in their facility before it closed.” The company could then meet its needs for improved quality and productivity, and the employees could put themselves in a better position to find new work, their résumés buffed up by having worked in a plant with a world-class reputation for quality and production.

The assumption Jack made was that motivation was complex. Employees would be frustrated and disappointed, but they would also be driven by pride in what they had accomplished. The employees swallowed their anger. Irrational or not on the surface, the solution to the paradox at hand had its own logic. The plants would ramp up production and deliver superior products even as they phased themselves out. Once the employees understood their situation, they decided that customers should not be punished as a result of their anger. They agreed to commit themselves to a range of actions essential to the company: completing production schedules, transferring production lines to other manufacturing sites, ramping down and then closing production lines, and even helping with shuttering the plant.

Innovation is the third mindset for managing paradox, and Jack tapped its potential not only to resolve a dreaded task of factory consolidation but also to find a creative way to act. He could have responded with either/or thinking: Either we keep the plant open and raise quality or we essentially mothball it now. Instead, he chose to work with others to search for a both/and solution. He showed that when you face a powerful contradiction you can come up with an inventive right course of action. Of course, Jack had to make trade-offs, but he showed that in the midst of losses, you can win surprising gains.

This illustrates that at times you will find that the standard equations of business can be turned inside out. You can invent new ones to solve paradoxes with win-win solutions. And you can do this in situations that seem to offer nothing but win-lose outcomes. Unacceptable and irrational approaches morph into acceptable and unorthodox ones.

Jack went beyond the calculus of conventional management in a risky gambit. Ironically, in his case, the paradox posed both the problem and the stimulant for a fresh solution. And the outcome was better than many expected. Because of their association with a highly regarded facility, many employees found work with other companies. All felt they were well treated and took pride in their part of the shutdown, even though they wished the plant could stay open.

Outlining the Mindset

0When you believe innovation may be the key to resolving a paradox, you can invoke the innovation mindset just as you did the mindsets for purpose and reconciliation: Investigate essential questions. Test multiple frames. Clarify assumptions and values. More than ever, you have to loosen your grip on control and accept inconsistency. As you jump over the line to a place where you accept that you cannot come up with a single right answer—as clearly Jack could not—the innovation mindset will offer a range of fresh solutions.

Essential Questions

Whereas the purpose mindset asked “why?” and the reconciliation mindset asked “how?,” the innovation mindset asks “what else?” With reconciliation, you work inside the box of existing options. With the innovation mindset, you usually work outside. What's a new way to accomplish the purpose? How do you invent new ways to deliver premium results?

Multiple-choice tests list four possible answers often followed by a fifth: none of the above. You may be reluctant to respond with “none of the above.” You may feel more comfortable choosing a definitive answer—one that helps you control the future and act consistently. After all, who wants to go into unknown territory for no good reason? But when it comes to managing multiple paradoxes in a complex and ambiguous world, opting for none of the above often produces the right action.

Steve Jobs is the best-known modern leader to have staked his career on the none-of-the-above answer—not just once but many times. His ability to bend reality to reframe his view of the world is now legendary. He faced daunting product paradoxes: form (focusing on aesthetics) versus function (focusing on computing power, speed, and other features); moving from the computing to the music business; selling through branded retail stores rather than just existing retailers; changing his profit model from selling only products to products plus applications, music, and service. He showed he was not an either/or decision maker. He was a both leader.

Formulating the essential question with an innovation mindset calls on leaders to focus above all on both—and to do so uncompromisingly. Jobs early on asked, How do you create products that embody a belief in open computing yet are closed to competitors and nonApple developers? At the time, it must have seemed self-destructive to create products that embraced both open and closed computing philosophies, yet Jobs had the mindset to live and work with such a paradox. Later, he became known for insisting on both for solving a range of paradoxes. Three of them: the rebellious image versus the corporate image, design versus engineering, and art versus technology (at Pixar).

Jobs was also famous for espousing the view “never ask the customer for what they want . . . because they don't know what's possible.” He said customers could not know they wanted an iPod before it was invented. But once it was created, customers definitely knew they wanted it. In the face of paradox, you often face choices you may not want, but you can use innovation to jump over the line just the same as Jobs—and even go beyond both/and to ask “both—and what else?”

To speak philosophically, when you're using the innovation mindset, you consider not just the thesis, antithesis, and synthesis—not just local, global, and the combined impact of the two—but also something more or entirely different. And what's entirely different can make a significant difference. Or with apologies to Mark Twain, “The difference between the right solution and the almost right solution is the difference between lightning and a lightning bug.”

Take again the question of balancing work and life. You can use a reconciliation mindset to ask, Can I equalize the demands of work and the rest of my life? You can use the purpose mindset to ask, How do I find more meaning in life? You can use the innovation mindset to ask, Should I be doing something entirely different with my work and my family? Purpose might suggest a deeper connection with your current course or choices. Reconciliation might provide a saner balance. Innovation might prompt you to take a break from everyday work and life entirely: Move your family for a sabbatical to New Caledonia to learn French, study tropical plants, and live in a colonial culture in the South Pacific.

The related question of “What does success look like?” takes on an unusual form and importance with the innovation mindset. You don't find success in a storefront along the avenue of orthodoxy. You find it in open spaces and wild lands far from the routine and generally accepted. This is not to say that you won't find innovative solutions while using the purpose and reconciliation mindsets, only that the innovation mindset nurtures outliers.

In Jack's case, success looked like a plant shutdown, upgraded employees, and efficient reallocation of company assets to other uses. This was an innovative both/and solution. Could he have gone even further? What if success required a both—and what else solution? What if the employees got together and bought the plant and ran it themselves? Or used their skills and expertise to start a new and different manufacturing plant? Such solutions sound far-fetched, but breakthrough innovations often begin as inconceivable ideas.

Consumers in 1980 didn't know they needed or wanted a mobile tape player until they saw the Walkman. In 2000, they didn't know or they needed or wanted a device that could play thousands of songs, fit in a pocket, and not use cassette tapes. They were content with choosing between a portable radio and a Walkman. In 2005, they didn't know they needed or wanted a service to stream music wirelessly, until they found Pandora and Spotify. Paradox is often like that—the choices seem fixed until an innovation appears and changes the game completely.

Needless to say, a problem may not require it, but the innovation mindset pushes you to consider the what else. We think it is fair to say that Steve Jobs was not just a both/and leader, but a both—and what else visionary. Leaps in technology don't come from solving technical puzzles. Nor do they come from asking questions that lead simply to clever syntheses. They come from entering new orbits in an expanding universe.

Framing Innovation

The way to frame a paradoxical problem with the innovation mindset starts with asking, What else? In some ways, we are saying, What's the frame outside the frame offered by reflexive thinking? This is a conceptually elusive question. Decision expert Clint Korver answers it with a story we like:

A father had two grown sons who were very competitive. He was troubled by their constant competition and wanted them to learn how to cooperate before he died. Since they were great horsemen, he decided to have a race to see which son would get the majority of his inheritance. But, to teach them cooperation, he told his sons that “whichever horse finishes second, that son will get the inheritance.” One son promptly jumped on the other son's horse and took off.²

As Korver says, the son who took off on the other's horse reframed the situation. Leaving aside whether the solution was fair, the creative son operated from a leap of imagination. That was only possible by seeing the problem in ways most of us would not expect. Putting a frame around the space outside the normal frame is itself a paradox. How do you frame without known borders? This is perhaps why, in new-product-development circles, engineers call the early brainstorming and concept-shaping phases the “fuzzy front end.” Fuzzy and messy and hard to control—and yet still essential even in orthodox settings to create new products.

The scope and scale of innovation varies from incremental to breakthrough. At times, a paradox may require only a small, targeted creative approach—in keeping with the Japanese concept of kaizen (continuous improvement). In others, it may demand major, organization-wide transformation. We highlight this distinction because developing an innovation mindset doesn't mean every idea comes like a brilliant flash out of nowhere that upends your current reality—although in the case of today's technology companies that often is the case. The nature of the paradox will suggest the scope of innovation required.

Assumptions About Innovation

The innovation mindset is no different from the purpose or reconciliation mindsets: You have to clarify limitations regarding timing, people and money committed, acceptable risks, and expected value delivered to stakeholders. You also need to make clear what related decisions remain firm or malleable depending on the demands of the current paradox.

The assumptions you make are much like constraints in other walks of life. In product design, for example, constraints can stimulate creativity. Charles Eames, ranked as the greatest industrial designer of the last century, had this to say: “The sum of all constraints . . . is one of the few effective keys to the design problem—the ability of the designer to recognize as many of the constraints as possible; his willingness and enthusiasm for working within these constraints. . . . I don't remember ever being forced to accept compromises, but I have willingly accepted constraints.”³ Eames produced legendary designs in architecture and furniture by solving design paradoxes.

Paul Stoffels illustrates the importance of clarifying the constraints that come up with paradoxes. Though he arrived at a solution by framing the research challenge in a way that loosened the company's control on compound development, the company retained control of allocating money. In other words, the goals never changed. The targets for drug development never changed. The leaders and vision of scientists serving the market didn't change. Those assumption were made clear.

Whole Foods faces the traditional paradox most companies encounter. On one hand, like all businesses, the company is driven by profit; on the other, it wants employees to be committed, engaged, and actively representing the Whole Foods brand. If the company gives employees overly generous pay and benefits, profits will go down. If it pays people at or below the industry average, it risks high turnover and low morale. As Whole Foods has grown, its practices have gotten scrutiny—its customers and workers have entered the debate about how to address the paradox of profit and people.

Whole Foods CEO John Mackey, author of Conscious Capitalism, recognizes the paradox of profits versus employee compensation. He sees a third approach. Whole Foods compensation policies make clear that Mackey assumed from the start that he would share the profit pie broadly with employees, instead of lavishing extra money on executives. Here are three elements of the company's policy:⁴

• Employees can earn additional compensation based on group performance incentives and receive benefits far beyond the industry norm.
• The CEO's pay and bonus are capped at fourteen times the average employee's pay.
• The company distributes stock options to the majority of employees rather than just the top tier. The top 16 percent of executives receive 7 percent of all options with the remaining 93 percent distributed to employees at all levels after reaching a certain point in tenure.

The apparent assumption in this system? Short-term gains for shareholders may be sacrificed for long-term goals for the company—and profits may shrink owing to a bigger payroll. But the actual assumption is different: The company will make up any deficit through superior customer service, higher morale, and lower turnover. In other words, Mackey is not trying to balance profits versus payroll as a trade-off. He is shooting to achieve both, and the way to do so is to redistribute the rewards pie in an unconventional manner.

Some people might argue that Whole Foods is taking a risk of failing to attract top leadership talent by capping the CEO's compensation and limiting stock options. But you can also argue that this risk is offset by performance-based compensation that gives leaders opportunities to earn additional rewards. It is also offset by operating principles that attract leaders who value socially responsible capitalism.

Values for Innovation

The last part of the innovation mindset is values. Here again the values can help you define the frame. On one hand, you may want to stress one or several values. On the other, you may leave the decision on what to stress wide open, giving yourself and collaborators a broader frame yet one still bounded by the company's basic values. Whereas the purpose mindset stressed higher-order values, and the reconciliation mindset stressed business-oriented values, the innovation mindset stresses values chosen as stimuli for creative thinking.

At Colgate, several years ago, the executive leadership team chose the company's commitment to discipline and focus for rethinking. For nearly two decades, the company had run a disciplined business-planning process. The leaders and teams running each major business would spend weeks generating information on financial and operational performance to share with the senior management of the company in New York. A team of senior leaders would visit the field (that is, the divisions and major markets) to go over every detail in the business review process. This would happen a couple of times a year. The process was demanding and time-consuming. The detail required was endless, the discipline unrelenting.

This process served Colgate exceptionally well for many years. It underpinned its success and contributed to its standing as one of the most outstanding companies in the industry. But as the world became more complex and the future more and more uncertain, top executives began to question whether this approach needed to be changed. They asked: Are we so submerged in the quantitative analytics that we are in danger of missing some of the signals in the external environment that the world is changing in ways that can affect the business? Is the process becoming a sclerotic routine and wasting too many hours that could be devoted to other important business issues? In big-picture terms, the executives wondered if they were managing the paradox of control versus autonomy effectively. Or were they, in effect, acting like inspectors checking compliance with factory specs when they should be acting like leaders checking future business scenarios?

Senior managers decided they needed to change the planning process to make it more responsive to the contemporary needs of the business. They revamped it to create more opportunity for open dialogue between senior management and local leadership. They didn't want to lose the discipline and focus that were hallmarks of their success, but they did want to provide more opportunity to identify (and respond to) big, critical business issues in each of their global markets. So today, senior management asks local leaders to identify what they believe are the most important issues in their markets in addition to providing a high-level view of the most important metrics associated with business performance. They seek dialogue along with presentations. The local teams now have more opportunity to work collectively with senior management to solve issues and to diagnose complex situations and plan effective strategy.

One of the values stressed by many companies today is sustainability. This sets up strong opposing forces—profit versus planet—that often multiply the complexity of paradoxical problem solving. A good example comes from Nike. The company recently grappled with a paradox over a popular line of black athletic pants. Nike has long opted for green-first manufacturing, and it resolved the paradox of planet versus profit by using recycled polyester to manufacture these pants.

In the marketplace, however, Nike found that many customers preferred the black athletic pants sold by a competitor, Lululemon. Lululemon pants were blacker and tighter, in large part because they were made of virgin polyester. This raised the thorny issue of the temporary nature of solutions for paradoxical problems. When you revisit and rethink them, you may come up with a different right solution.

In revisiting its decision, Nike faced a tough choice: stick with its environmental commitment or substitute a virgin material for the pants. Nike leaders knew that taking a step back from its commitment to green-first materials was not only wrong for the environment, it would disappoint many Nike employees and other stakeholders. At the same time, losing market share to an up-and-coming brand like Lululemon was unacceptable to other employees and shareholders. Nike brand president Trevor Edwards was asked to make the decision.

No resolution looked possible. Edwards looked toward Nike's purpose. He reminded the team working on the product of Nike's mission: to “unleash potential through sport” for individuals. When a stark choice emerges between sustainable materials and performance materials, he reasoned, the latter should win because it stays truer to Nike's mission and values. Nike's mission also includes “creating a better world,” which assures the company will revisit the decision again as times change. Without values to guide this decision, Edwards would have been adrift.

To extend our earlier product-development analogy, once a concept moves beyond the fuzzy front end, it goes into commercialization. In new product development, the fuzzy front end does not always deliver a concept that succeeds, so developers remain nervous as it moves into the market. They refer to the transition between concept and commercialization as the “valley of death.” Will the concept get to the valley's opposite side? So goes the uncertainty with concepts you develop with the innovation mindset. They may die en route to implementation. You have to be ready to restart work with collaborators to come up with solution 2.0.

Decision Making with the Innovation Mindset

When you use the innovation mindset to solve paradoxical problems, you end up recasting your decision-making discussions in a new form. You don't try to transcend the issues, as with the purpose mindset, or to negotiate a golden mean, as with the reconciliation mindset. You seek novel approaches. Your decision process resembles the steps in new product development: Identify and listen to customers (stakeholders) who are making claims on the decision. Explore their unmet needs, clarifying the opposing forces represented. Generate concepts for solutions that capitalize on the either/or tensions between the opposing forces, and then screen alternatives, assess risk, build a business case, and take action.

Of course, that's not the way things really unfold, because nobody has found a way to run new product development with the predictability of trains on a railroad. The process is less sequential and more roundabout, more iterative, less definitive. It involves people who brainstorm, float hypothetical actions, and suffer the setbacks of trial and error. They plan, test, back up and plan again, brainstorm more, float an idea, gather more data, plan again, and so on. The solution evolves to something more and better, just as in agile product development.

In other words, instead of running trains on a railroad, you're driving bumper cars in an experimental laboratory. Several factors distinguish decision making with an innovation mindset from the purpose and reconciliation mindsets: considering multiple frames, inventing more and divergent options, and motivating people to create.

Reframe and Reframe Again

From the start, the innovation mindset stresses multiple frames. Interestingly, the limits are not actually known in advance. In some ways, the innovation frame is not a frame at all. It is the unframe. You and your collaborators have to struggle with that old problem: You don't know what you don't know. And that means your route to success comes with experimenting. You've committed to finding what else can work, so how do you come up with the frames to foster that innovation?

We are reminded of poet William Blake's metaphor about “mind-forged manacles.” In framing a problem, your mind's manacles hold you back from taking new points of view. We suggest first fully understanding the complexity of the paradox. Make sure you have really jumped over the line, perceiving and accepting the situation's full range of contradictions. You will want to identify all of the different factors that are under tension—and will always stay that way—almost like the poles of a magnet.

Sometimes the opposing forces are hard to see. As an example, in many industries today, leaders have come belatedly to appreciate the contradictory forces of confidentiality versus transparency. For years, they took for granted that secrecy and proprietary knowledge, knowhow, processes, and plans provided value. The greater the secrecy the better. Steve Jobs believed in this principle until his death—and perhaps that was appropriate for Apple. But today those two forces work in opposition in a way unlike the past. To come up with unique solutions, you may want to frame a problem to encompass those forces instead of separating them.

Take for example Procter & Gamble's open platform for research and development. Traditionally, R&D at big corporations was a bastion of proprietary and secretive behavior. P&G's leaders, though, recognized they were dealing with a series of paradoxes: internal versus external, short-term versus long-term, big ideas versus incremental improvement, security and protection of ideas versus bound-aryless exploration. The explosion of research and the advent of crowdsourcing convinced them not only that many good ideas existed outside P&G but that they would enjoy many benefits from opening up thorny problems to a wider group of thinkers and scientists.

P&G began posting some research and business challenges on the Internet and inviting others to help solve them. Over time, “open source” has become a standard in R&D across large companies. P&G leaders in effect reframed the question of R&D effectiveness to include a new set of paradoxical forces. They then could more clearly arrive at the notion that by making their R&D approach transparent—unthinkable a decade ago—they opened themselves to big gains. They now disclose what they are researching and what they are discovering they need. They also encourage organizations throughout the world to compete to solve the problems they are focusing on. Note how they redefined their own value contribution from originating and controlling ideas to sourcing, sifting, and executing multiple ideas.

Another way you can multiply frames is to broaden the conversation—as we mentioned for the reconciliation mindset—as well as broadening your gathering of information. As Bassen Bitar, the chief strategy officer of Solidere, says, “The less you communicate the more problems you have. The more you communicate, the fewer problems you have. In complex organizations, you have to leverage multidisciplinary teams rather than working in silos.” As with the case of Solidere in Chapter One, an innovative solution to developing Beirut came from embracing the concerns of a broad cross-section of community leaders and groups.

A third way you can multiply frames is to embrace reflection and incubation. In our work, we usually find that reframing comes after travel, either within or outside the company. In fact, travel experiences make up some of the biggest sources of reframing. Consider the experience of one health care CEO who traveled to India and China. For years, his company had run a business making disposable instruments. The CEO saw in his travels that companies in other countries took his firm's instruments, resterilized them, and sold them again. Some instruments turned over fifty times before disposal—without compromising patient care. The restore-and-resell companies were thriving by offering low prices and easy access, just the right approach to win the business of customers who can ill afford high-priced singleuse instruments. The CEO's visits to this vibrant reuse marketplace spurred a reframing.

In the United States, low cost and high sophistication are opposing poles in the health care paradox. You can't have both. But firms in China and India showed that businesses can reconcile these forces. The reframing spurred the CEO to seriously consider new questions: Should the firm cannibalize that market by going into the reuse market? Could it make money on both? He saw in the end that he had no choice. The entrepreneurs in developing countries made the decision for him. The company entered the reuse market, building a new operation for collecting, sterilizing, and reselling used instruments.

Inventing New Options

The innovation mindset stresses divergent thinking, a foundation of creativity. That's not to say that the other mindsets don't encourage the same. But with the innovation mindset, you should champion the creation of dissimilar options, using creative thought to integrate multiple opposing forces for action into a range of rational and right solutions.

We worked with one big retailer that faced a common problem nowadays: How to run both a bricks-and-mortar and a digital store. How can a company that has thrived on big-box retailing thrive on virtual retailing as well? That is, how can both operations win, in such a way that the executives running the digital operation don't profit at the expense of the executives running the traditional one? In retailing, this is the paradox of the decade.

The CEO's team looked at a range of options. One was to split off the digital store and run it as a separate business. Another was to have the digital store report to and serve the bricks-and-mortar operation. A third was to have the bricks-and-mortar operation report to and serve the digital operation. The choices are among those many retailers have looked at, and each forces executives to invent entirely new ways to work together, without allowing one person's operation to cannibalize and shut down the other.

In the end, the CEO left it to his three top people, two from the stores and one from the online operation: Figure out how to work together, he said. Neither operation will report to the other. Neither will go it alone. You will solve the contradiction of turning competing operations into collaborating ones. The outcome remains in the works, but the example shows that success comes from invention, not reconciliation to find a middle way (which has not worked for big-box stores), nor from purpose (which does not directly address the prime operational issues).

In this vein, note that for addressing complex problems, unconscious thought may work more effectively than conscious thought. That is, when you want to do a math problem, choose conscious thought, because the conscious mind is good at following rules. When you face a complex issue, choose unconscious thought—thinking in the shower—because the unconscious is much better at associative, intuitive, and nonlinear thinking. This all assumes you have studied the data first consciously, of course.

In research on this subject, Ap Dijksterhuis and Loran Nordgren cite their “best of both worlds” hypothesis: “Complex decisions are best when the information is encoded thoroughly and consciously, and the later thought process is delegated to the unconscious.”⁵ The two researchers define conscious thought simply as thought with attention. Unconscious thought is thought without attention or with attention directed elsewhere.

Examples of how the unconscious spurs greater creativity appear in Dijksterhuis and Nordgren's extensive experiments, in which they induce unconscious problem solving in a variety of situations. In one of the simplest, when people were asked to come up with new names for pasta, those distracted with another task for several minutes before answering—thus forced to use unconscious thought—came up with much more variety (although the same total number of names).⁶

A separate set of experiments showed that the unconscious appears more effective at solving problems with many variables. When people were asked to choose between four apartments described by twelve traits, the conscious thinkers most often couldn't decide which was the best, even though one was rigged to be clearly better, and one worse, than two middle-of-the-roaders. The unconscious thinkers accurately chose the most desirable apartment.⁷ The data suggest you should engage your unconscious to improve your conclusions on all sorts of paradoxical problems, which typically bristle with variables.

One focus of the innovation mindset by companies today is the concept we talked about earlier, “shared value,” coined by Michael Porter. This remains a big challenge, as indicated a survey by MIT and Deloitte LLP in 2013. Fifty-two percent of firms around the world gave themselves a 3 on a 1-10 scale for “social business maturity,” a measure of essentially running a socially responsible business. Only 17 percent ranked their company as a 7 or above.⁸ Porter and Kramer recognize the complexity by calling into question the traditional capitalist approach of organizations, saying it is no longer viable because it fails to address crucial economic, environmental, and social issues.

Porter and Kramer say the failure of companies to address sustainability has made firms a target of social activists and regulators. It has also alienated various stakeholders. Attacking what they refer to as an overly narrow definition of value creation, the authors integrate the paradox of “making good” and “doing good.” In their view, every major corporate decision that affects profitability should factor in everything from social to customer concerns. Similarly, every significant social, economic, environmental, and stakeholder decision should factor in profitability. They propose a radical redefinition of capitalism in which social policies and moneymaking strategies are integrated continuously and broadly.

Chipotle has done this thinking, maintaining a dual focus on profitability and “Food with Integrity.” According to Chipotle, “Through our vision of Food With Integrity, Chipotle is seeking better food from using ingredients that are not only fresh, but that where possible are sustainably grown and raised responsibly with respect for the animals, the land and the farmers who produce the food. A similarly focused people culture, with an emphasis on identifying and empowering top performing employees, enables us to develop future leaders from within.” Chipotle's innovative “making good” and “doing good” model has paid off. Since first trading publicly, the share price has risen from $22 in 2006 to more than $400 as of late 2013; this is a gain of 1,800 percent in just over six years.

Motivate Through Creativity

How do you motivate people to act on the innovation mindset? Mainly through the power of the creative act to excite people. If the purpose mindset harnesses people's desire to find meaning at work, and the reconciliation mindset channels their desire to earn success and rewards, the innovation mindset capitalizes on the way creativity makes people feel more alive and vital.

Research over the years by Mihalyi Csikszentmihalyi on creativity shows that many people who are acting creatively experience greater well-being or happiness—in his terms, “flow.”⁹ Though the research on creativity reveals a complex relationship between how people feel and how creative they are, leaders can play on the allure of the process of discovery and invention to motivate people to solve paradoxes in a fresh way.

But we offer one major caveat: Turning people's creative juices on demands deft management to remove the typical obstacles that make people cling to the status quo: Performance appraisal systems that reward winning results, not entrepreneurial efforts. Recognition systems that praise short-term results and ignore long-term work on innovation. Promotion practices that raise up people who execute like good soldiers as opposed to people who innovate like entrepreneurs. To succeed with innovation, you have to remove people's fear of failing, fear of looking dumb, and fear of retribution.

A study by Capgemini Consulting and IESE Business School found that, when it comes to innovation, executives respond most to extrinsic motivation—the promise of achieving better results. Employees respond most to intrinsic motivation—the excitement of creating.¹⁰ This poses a challenge if you're leading an executive team in the creation of the innovation mindset: You have to get your colleagues to curb their hunger for results long enough to appeal to their drive to be creative. The innovative thinking that can then take place can lead to rich innovative rewards.

One study of top management teams shows the principal predictor of innovation among executive teams is support for it—in the form of expectations, approval, rewards, and practical assistance. Among a number of factors influencing innovation at this level, such basic support accounted for 46 percent of the variation in overall innovation. This suggests how much leaders can control the establishment of the innovation mindset, even though it may not normally rank as a high priority for people at the top level.¹¹

We were sitting in a top-management meeting several years ago that made this point particularly clear. The CEO and executives were debating how to come up with a better offering of services to complement their offering of products. Like many executive teams, this one was trying to engineer a compensation system to motivate the creation of the right kind of product-development mix. The executives remained divided despite an endless swirl of suggestions. If people follow the money, what's the right way to pay them?

Out of the blue, the CEO announced that, from that point onward, all the executives in the room would be earning the same salary and bonuses. Gone were tailored pay plans. This was unheard of. But the CEO quickly showed what he was about. As if he just turned an ignition switch, his announcement triggered the innovation mindset. The executives, to that point in heated debate, dropped their disagreements. At that moment, the climate of the room changed: The executives worked like a congenial sports team all shooting for the same goal, dedicating to winning together with a new product-service mix. We marveled at the transformation.

Final Thoughts

As our stories show, the head, heart, and guts are all critical to make the most of the innovation mindset. Not just the head as often happens with the reconciliation mindset. And not just heart as often happens with the purpose mindset. But all three—how else can you act boldly to hit the reset button with a bunch of strong-willed executives? How else can you deal with challenges like the “fuzzy front end” and the “valley of death”?

Our client Jack certainly demonstrated he could rise to the occasion. He had the head to provide the intelligence to clarify purpose and strategy. He had the heart to provide the emotional intelligence to lead a diverse, global workforce and to focus relentlessly on talent development. And he had the guts to provide the courage to do the right thing in an uncertain world. Jack gave people a three-year time line, limited funds, and the expectation of defect-free production to meet regulatory requirements and customer demands. He came up with a solution in which people won three years' worth of professional development, even though they lost their jobs.

Of course, a leader cannot rely on mindset alone to solve paradoxical problems. Given the number of facets to paradoxical problems, the number of people with a stake in them, the ambiguity of the future, the wealth of data that bears on them, the conflict they create, and the volatility of events—a mindset is necessary but insufficient. And that brings us to the next part of the book: our shortlist of the most effective tools for solving paradoxical problems. These tools, used along with the mindsets, provide the essentials for the complete leader.