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Activision Blizzard CEO Bobby Kotick: How To Be An Innovator

David M. Ewalt
This article is more than 9 years old.

Bobby Kotick is one of the biggest figures in the video game business. He's beloved by investors for taking over Activision Inc. in 1991 and turning it into a huge success; his most hard-core customers are sometimes less fond, demonizing him for focusing on blockbuster franchises and extracting profits.

Either way, you can't argue with Kotick's success: In July 2008, Kotick became Chief Executive Officer of Activision Blizzard following the merger of Activision and Vivendi Games. The company is now the largest video game publisher in the world, responsible for some of the biggest games in the business, including World of Warcraft and the Call of Duty series. In 2010, its revenues were more than $4.4 billion.

I spoke to Kotick earlier this month for the latest issue of Forbes, which ranks the world's most innovative companies, and asks key innovators about the tools and techniques that give them their edge. The following excerpts from that conversation are edited for length and clarity.

David Ewalt: What's the most important thing that you do to encourage innovation at your company?

Bobby Kotick: The most important thing we do to encourage innovation is give people the freedom to fail. And I think you can articulate that and establish that as a value in a lot of different ways. I don't want to say celebrate the failures, but in a lot of respects it's sort of that.

We have what we call the post mortem process, really evaluating what is it that caused an outcome not to be aligned to the original expectation. And sometimes it's not even like an abject failure, if the game just doesn't sell, sometimes it's a game that doesn't sell as well as you would have expected, or in some cases more importantly, if it doesn't feel like it meets the expectations of the audience.

In This Story: Encouraging Innovation | Finding The Right Idea | Rewarding Innovators | The One Best Thing

One thing that probably is unique at Activision is that we really spend a lot of time up front with our audiences, and in big quantities and with a very thoughtful process, to really try and draw out from them what it is that they would like to play. So we have a pretty good sense going in what the expectation of the audience is. And if we disappoint that expectation, I think we are a very good learning organization, really digging deep into understanding why it didn't work.

Can you give an example of a game that didn't meet expectations, and you re-evaluated and learned something?

I can give you a great example. Guitar Hero.

So Guitar Hero has had enormous success --we didn't start the company that made Guitar Hero, we bought it after it started, it put the first one in the marketplace. We had a view that this was something that had much more broad appeal, and that because it's a manufactured product, being efficient in the supply chain could get the manufacturing costs down. We thought our relationships with the music companies would be more valuable than a small startup company could ever develop on their own. So we bought the company, and after a few iterations of the game it became one of the most successful games of all time.

And then we didn't really take the time that we usually take to understand audience behavior. It was one of those things where we were resting on the idea that one of the essential fantasies of video games is to unleash your inner rock star. And it didn't really matter how you did that, but as long as you were allowing people to unleash their inner rock star fantasies, you'd continue to be successful. So we went off on a passion project that had a point of differentiation --which is called DJ Hero.

And in hindsight, if you step back --and it really would have been a simple thing to do-- we should have said, 'Well, how many people really want to unleash their inner DJ?' And then out of the people who do want to unleash their inner DJ, how many want to do it in the context of a game where you earn points, versus just taking a DJ deck or tools on their Macintosh and actually being a DJ? And it turns out it's a very small market.



Next: Finding The Right Idea

When you have to reinvent a product like that, how do you jump start the process, and bring back innovation?

We do a couple of different things. We have a business intelligence group that will go and spend a lot of time with our audiences that we already have...  we have a very defined over 20 years process, because it's one thing to ask a customer to give you some feedback on a product, it's another where you're trying to glean insights into a future direction for a franchise. And so it's a very rigorous process, but we  spend a lot of time talking to different customers in different customer ranges and different demographics, different audience interests, and that process takes a little bit of time.

Then we also let the studio --there's a studio that's now assigned to this project-- we let them explore technology pathways, and so they'll do a variety of different prototypes.

When you're talking to consumers how do you tease out innovative ideas? What if they think they want more of the same, because it's the easy answer --but then when the product comes out it flops, because the market actually wanted a different experience?

Well [in the case of DJ Hero] they didn't want what we gave them. We pushed it down their throats.

A long time ago we brought in people from traditional package goods companies, and one of the reasons is we wanted to make sure that we had a framework for listening to our customers. And they do that in a really sophisticated way. Granted, they're very different products and it's not entertainment, but there was a lot that we've been able to modify from those processes, that really provides great insight, and is very useful in this process.

The way it's come to work best is, rather than say 'Would you like to share your ideas for the game?', we share different ideas --and you know we have 7,000 people, we have a lot of really great ideas. We do some of this online, we do some of this quantitatively through focus group testing or concept testing,   but we'll put ideas down, our concepts down, or even show prototypes . And then you can get dialog and discussion. You have to do it in a lot of different geographies, and you really need to be incredibly disciplined about adhering to the process.

In the case of Guitar Hero, we did the research and it was very clear people didn't want more 80s heavy metal music. But what they wanted was very difficult for us to get from the music companies. I'll give you an example: The number one thing that our audiences wanted in Guitar Hero was Led Zeppelin. But we couldn't get Led Zeppelin to consent to give us the rights. And there were a lot of instances of that, a whole host of artists who just didn't want to give rights to Guitar Hero, and it was hard to get around that. And then there were other things... we put things out there that were not ready for prime time and that today actually would resonate very well with audiences.

How do you find and retain innovators in your company? How do you identify people that you know are going to innovate as opposed to just manage or maintain a brand?

I think we generally try and promote from within. You know, we have really really long tenure, the people who come to Activision generally stay for a really long time. So we have a long history of seeing who's performed and who's been successful in developing new innovative ideas, and we would generally try and promote from within.

Sometimes we need some kind of a specialized skill --like right now there is a lot of work being done on Facebook games. We've always been a platform agnostic company, we've always said, if you have a platform and you have a big enough installed base of that platform we'll evaluate it as an opportunity to make games on. And Facebook, with 750 million users, clearly has enough of a platform. The  challenge always is, can you deliver a shareholder return by investing in said platform, and in the case of Facebook we think we can.

But the skills that are required to do social games on a Facebook platform include analytical skills that are different than what we have in our business intelligence unit today. So we've had to go out and find people who have these unique kinds of skills --and there are very few of them that actually have proven their skills. So you have to find people who have the characteristics of being able to develop systems to analyze game play or game behavior.

At the end of the day, a lot of these games are resource management games, which were very popular 15 years ago. So we've been able to draw some people who had experience with research management games with the company or other companies, and bring them back in, and assess whether or not they really are the analytical minded people that you need to do this.

I think a lot of the time we end up taking people who --and this is sort of a big cultural advantage at Activision-- we find people who are have a graduate degree of some kind, mainly it's in the sciences, and they are in jobs that would never suggest that they were working for anything game related, but that they're passionate gamers. And they're really bright and well educated, so we'll bring them in and train them.

So a lot of our leadership are people who've come 15, 16, 17 years ago, who started out as production coordinators or production assistants or in quality assurance, but are super bright, super well educated, passionate gamers. And that works really well.

Next: Rewarding Innovators

Do you have internal processes that encourage the development of innovative products?

We have a "green light process," and it's evolved over a very long period of time. But it's a pretty exhaustive process, very milestone based, and there is a whole process of peer review where you'll come in and show a prototype or a game concept. Now actually includes all the marketing, because the marketing is so integrated into the game experience. The green light process has evolved to include all the marketing materials, the marketing schedules, the marketing vehicles, to be creative.

But that's a regular organized process that evaluates a) does the research confirm what your original insights about the game were, b) are you on schedule, c) how's the budget doing against your original expectation, and then some more macroed to our business things, like are there any competitive products that have emerged or that we've learned of, that you might need to have a point of differentiation or might affect your schedule. So that's a very regular and disciplined process.

Do you have any company-wide initiative to reward innovative behavior?

Yes, because ultimately everybody directly participates in the P&L's of the games that they're responsible for, in a big way. So if you create a great game like Modern Warfare 3, which is coming out this fall, or Call of Duty: Black Ops, the entire team will make tens and tens of millions of dollars. And then the head of the studio that made the game gets to determine how to allocate the rewards,  there's a big pool that comes to them, and they allocate to the rest of the team members. One of the criteria that they're going to use to make those allocation determinations is who came up with a great new idea.

And I as the CEO have a separate, few million dollar fund that I can use for a spot bonus, to reward a really great idea.

Can you give me an example of when you've used that fund to reward or promote innovative ideas?

There's a lot of them I can't share because the products haven't come out... but I can give you an example...

I was taking a tour of one of the studios, and they had just moved into a new building, and there was a group of five people in a pod. In this case they were doing cinematics, and cinematics is a very visual part of what we do. I went into their little cube area, and said, 'What are you guys working on?', and they showed me what they were doing on a little 18-inch monitor.

And they had their cubes --everybody gets to decorate their environments however they choose-- and their cube was set up with a fake fireplace that had a little gas fire, and had a couch and a coffee table, and I was sitting there and I said, 'You're really missing the big screen TV, it would go well with the décor, but also to show people cinematics, you really want a big screen TV.' And they were like, 'Yeah, we haven't gotten to that yet.' So the next day I sent over a big 65-inch flat panel TV. Even though we can do the spot bonuses for innovation, those kinds of things sometimes have more of an impact on people than a reward for a specific technology.

Next: The One Best Thing

Many executives and professionals complain about having "no time" to innovate. How do you find the time to be innovative yourself, and encourage yourself to look at things in a different way?

I would say this: I don't think that there's a burden on my time that way, but remember a lot of my time is spent on human development. The organizational development process I'd say is about a third of my time and it's a very organized rigorous process --we actually adopted a lot of approach from GE.

I have had the great fortune to spend time with Jack Welch and another guy he had who ran human resources when he was the CEO of GE. And the way that they went about the evaluation and development process at GE was a very personal process where Jack himself would go and see 50 or 100 general managers of businesses, have them present their business plans and their businesses to him. He would get to really engage them for a day and with their teams and people, and you learn so much about those people and those businesses and their potential.

I spent a lot of my time doing that and I think it's the most important time that I spent. And then we have two principal business units, Activision and Blizzard, and the CEOs of both of those businesses spend an awful lot of time doing the same thing.

And so I would say, it's one of the things over the next five to ten years I actually want to even do better. We grew so quickly and we brought so many people into the company over the last ten years, sometimes you end up giving people sets of responsibilities that they weren't ready for, but they had potential to be ready for. But we didn't have enough of a development capability to get them up to speed quickly. And a lot of the time when you grow the way, you get people who are clearly not the right people to take on those responsibilities, but it's expedient, so you give them responsibility that is actually inappropriate for their skills and frustrates them.

I'll give you a great example: A world class programmer who has no aspiration to manage programmers, but he does such a good job programming, that you say 'We're going to give you the opportunity, you're now going to become a VP and you're going to lead the programmers.' There's more compensation that comes with that, and bigger bonuses and more responsibility. And very few people are going to say, 'Well, I recognize my own limitations and that's not the right thing for me.'

But if you give them the opportunity, you've just taken a really fantastic programmer and put them in the completely wrong job for them. And then often it's impossible to recover.

I think that's the responsibility of the CEO and the CEOs below me to make sure that we're constantly putting people in places where they have the opportunity to develop into those careers, but also having a rewards and recognition system that allows a great programmer to stay as a great programmer.

Is there a common failing, a mistake you see managers make repeatedly in their approach to innovation?

Yeah, there definitely is. I think there's a difference, I call it the institutional imperative, it's a Warren Buffet phrase, but you know the institutional imperative, especially in public companies, largely is coming from the perception of institutional investors and sell-side analysts. For whatever reason, the institutional investor is always thinking about the next thing that's somehow going to improve your business or transform your business or where a business competitor can come from the outside.

And so there's been a whole history of these, and the most profound I think was in 1999 when everybody said the era of the console video game is no longer going to exist, the internet is going to take over all video gaming, and consoles won't be successful in any way, shape or form, and they're going to disappear and everything is going to be digitally distributed. At the time you had many companies in our category that basically embraced that... you just see it time and time again. Public companies I think are more susceptible than private companies, but they all are responding to institutional imperatives and sort of traveling hopefully for the new business model, instead of paying attention to the businesses that they could actually be successful with.

What's your number one piece of advice for other CEOs? What's the one best thing they can do to encourage innovation?

You just said it. One best thing. I'm such a big believer in that: Do the one best thing you know and you may fail in it, but focus on the one thing, don't get distracted.

Over the years we've pared down the number of titles that we make to allow for focus. And last year I can tell you that we cancelled two really big projects and delayed one project for a long time, and it was all about the commitment to excellence.

In one case we were doing a game that was more of an open world Grand Theft Auto style game, something that our company had aspired to build just a little bit more audience friendly, not as violent as Grand Theft Auto, but more focused on the driving and the fighting, and less about the profanity. And so it wouldn't have been as controversial content, but really great dynamic in the game play. And we recognized that after giving it a good college try for three years we didn't have the skills at the company to do that type of game, so we canceled it. And I think that it was a demonstration to the organization that focus is going to get rewarded, and that if you can't after a sustained period of time get to that level of excellence, then we're going to have to make a change.

But even then, it was not in a way where it didn't encourage the risk taking. People had other opportunities to move on to different things --sometimes we do that with an outside developer where it's going to be less consequential to the company, because it is harder to take a development studio that's been going in one direction that you own, and move it in a different direction.



