Most companies sabotage their own innovation processes without meaning to. I've noticed five tell-tale signs of this syndrome, which I recently described during a talk to the Columbia Media Forum.
1. Innovation is episodic. We've all seen this movie: A few people in the organization have a burning desire to foster more innovation, or a different kind of innovation, so they invent a new process. If they are more junior, they might create a small team that, working around the typical organizational barriers, explores new opportunities. If they are more senior, the impulse may become formalized in a skunkworks, or even a New Ventures Division. For a while, things move along: people make interesting discoveries, and find new places where the company's capabilities might be relevant.
All too often, however, the initiative ends badly. Sometimes it's because the senior sponsor moves on. Sometimes it's because the ideas didn't work out: innovation, after all, is an uncertain process. Sometimes the company faces a cash or a profit squeeze, and the folks with budget scalpels go looking for something to cut. (It's easy to ax innovation. Potential future customers can't scream about not getting a product they don't know they would love.) So, the innovation efforts get shut down.
More tragically, the group has actually come up with something powerful and novel, but — whoa — someone senior realizes that this could have a disruptive or cannibalizing effect on existing cash cows. The innovators get squashed and the idea is shelved.
What to do? First, remember that innovation, like any other important organizational process, can be managed. Don't reinvent the wheel — there are good resources that can help you build a repeatable process. Second, recognize that on-again, off-again innovation is worse than nothing. It sends the signal that these are not the projects that people should bet their careers on. So, make it continuous and systematic. Set aside a regular budget. Build it into good people's career paths.
2. Resources are held hostage by incumbent businesses. If you want to understand the most significant lever for generating change in a large, complex organization, you need to understand the resource allocation process. Resources flow where there is power; they signal what is important. Unfortunately, the resource allocation process in most complex organizations is not innovation-friendly. Rather, it's a throwback to an era when the importance of a business was directly correlated to the people and assets it had under management. Makes perfect sense in a world of steady-state production. It can be lethal to organizations trying to be more innovative.
Most people who manage powerful businesses believe that it's not in their personal best interest to contemplate shrinking that business or redeploying its assets and capabilities. So resources shore up the position of businesses that are starting to fade, eking out a little more time for the managers in charge. This creates two problems: first, valuable assets are being tied up in a business that doesn't represent the future. Second, the resources that might be used to fund growth are held hostage.
The only time I've seen a company neutralize this problem is when very senior managers are charged with extracting resources from established businesses and re-purposing them to fund growth. This is not easy stuff. IBM had to re-invent its entire innovation process, creating an "Emerging Business Opportunity" model where a senior-level executive watched liked a hawk to be sure that the people and assets allocated to innovation didn't get sucked back into the existing business. Ivan Seidenberg of Verizon was criticized by many — even his own people — for re-purposing the cash coming out of land-lines and phone books to support moves into wireless and entertainment businesses. The core lesson is that, if you allow the existing businesses to determine where people and funds are allocated, you won't get innovation.
3. You're trying to fit innovation into the structure that you have. Brad Anderson, the very wise recent CEO of Best Buy, made an observation that has stuck with me. "Organizations have habits," he said. "And they will stick to their habits even at the risk of their own survival." Nowhere is this more evident than when organizations try to make innovations fit into the structures that they have, rather than creating new structures that better support them.
That's true partly because today's structures exist to solve a problem that presented itself in the past. Many organizations were once structured to ensure that each function operated with maximum efficiency ... then re-organized into strategic business units to be more outwardly focused ... then re-organized to capture core competencies ... then reorganized because this left them vulnerable to disruptive innovation ... then — well, you get the idea. The main lesson here is that an innovation probably won't be well served by the organizational structure that supports the existing business.
As Nancy McKinstry, the CEO of Wolters Kluwer, observed, "Organizational structures have a short life. ... [N]obody likes to reorganize, and you always run the risk that you distract your employees and lose focus on customers. But if you don't do it, you lose your competitive edge."
4. Too little diversity of thought; too much isolation from customers' experience. It never fails to amaze me. Companies whose customers are predominantly female leave innovation decisions to men. Organizations serving college students have an average employee age of 48. Mobile phone operators make sure their executives never deal with the dropped calls and poor reception that bedevil their customers. These examples show that executives are seldom challenged by the actual experiences of their customers. More deeply they reflect a dangerous lack of diversity.
I'm not talking about diversity in the politically correct sense. What matters is that there is enough bandwidth in the decision-making roles to appreciate the importance of new developments, and to support those whose ideas might better get traction with new target customers. This is harder than it might appear: people tend to be most comfortable with those who are similar to themselves, and challenging conventional wisdom often means that you'll be branded as a poor team player.
It's worth considering whether your organizational systems allow different perspectives and voices to be heard. There is, for instance, some heavy-duty evidence that companies who have more women on their boards than the norm tend to be higher-performing. It's not clear whether they're more open to new thinking, or whether greater diversity yields better results. What is clear is that, when confronted with complex systems, a team with a broader range of potentially relevant experiences tends to do better.
5. Treating assumptions like knowledge. Never, in my entire career of studying innovation, have I observed a project, initiative, or idea that worked out as planned. Moreover, the great ideas that did work often started as something entirely different. And yet, when many companies try to do something innovative, they expect the same reliable, predictable results that they'd get tweaking something minor in the core business. The consequence, unfortunately, is that many innovation leaders find themselves defending assumptions they made at one point that didn't end up being the way the world worked. Even worse, because budget and planning processes place a premium on being "right," there is often no incentive for an innovation team to admit to having made a guess that doesn't pan out — at least not until substantial expense has been incurred.
So I worry when managers of innovation are rewarded for being "right" when the easiest way to be right is to take very few risks. Indeed, if you take a quick trip through the file in my office in which I document the brief and often costly histories of major corporate innovation flops, a common thread is treating assumptions as facts and failing to provide adequate tests prior to making major financial commitments. It is far better to recognize that in an early-stage venture, most of what you are working with are guesses. Some will be right on. Some will be wrong, but will generate useful knowledge. No matter.
So, there you have it. Five patterns of behavior that should be early warnings to any executive serious about the innovation process, and some suggestions about avoiding them. The good news is that there is a growing body of knowledge about innovation that can help make the whole endeavor less fraught, more reliable, and even more fun.
Rita McGrath
http://blogs.hbr.org/
1. Innovation is episodic. We've all seen this movie: A few people in the organization have a burning desire to foster more innovation, or a different kind of innovation, so they invent a new process. If they are more junior, they might create a small team that, working around the typical organizational barriers, explores new opportunities. If they are more senior, the impulse may become formalized in a skunkworks, or even a New Ventures Division. For a while, things move along: people make interesting discoveries, and find new places where the company's capabilities might be relevant.
All too often, however, the initiative ends badly. Sometimes it's because the senior sponsor moves on. Sometimes it's because the ideas didn't work out: innovation, after all, is an uncertain process. Sometimes the company faces a cash or a profit squeeze, and the folks with budget scalpels go looking for something to cut. (It's easy to ax innovation. Potential future customers can't scream about not getting a product they don't know they would love.) So, the innovation efforts get shut down.
More tragically, the group has actually come up with something powerful and novel, but — whoa — someone senior realizes that this could have a disruptive or cannibalizing effect on existing cash cows. The innovators get squashed and the idea is shelved.
What to do? First, remember that innovation, like any other important organizational process, can be managed. Don't reinvent the wheel — there are good resources that can help you build a repeatable process. Second, recognize that on-again, off-again innovation is worse than nothing. It sends the signal that these are not the projects that people should bet their careers on. So, make it continuous and systematic. Set aside a regular budget. Build it into good people's career paths.
2. Resources are held hostage by incumbent businesses. If you want to understand the most significant lever for generating change in a large, complex organization, you need to understand the resource allocation process. Resources flow where there is power; they signal what is important. Unfortunately, the resource allocation process in most complex organizations is not innovation-friendly. Rather, it's a throwback to an era when the importance of a business was directly correlated to the people and assets it had under management. Makes perfect sense in a world of steady-state production. It can be lethal to organizations trying to be more innovative.
Most people who manage powerful businesses believe that it's not in their personal best interest to contemplate shrinking that business or redeploying its assets and capabilities. So resources shore up the position of businesses that are starting to fade, eking out a little more time for the managers in charge. This creates two problems: first, valuable assets are being tied up in a business that doesn't represent the future. Second, the resources that might be used to fund growth are held hostage.
The only time I've seen a company neutralize this problem is when very senior managers are charged with extracting resources from established businesses and re-purposing them to fund growth. This is not easy stuff. IBM had to re-invent its entire innovation process, creating an "Emerging Business Opportunity" model where a senior-level executive watched liked a hawk to be sure that the people and assets allocated to innovation didn't get sucked back into the existing business. Ivan Seidenberg of Verizon was criticized by many — even his own people — for re-purposing the cash coming out of land-lines and phone books to support moves into wireless and entertainment businesses. The core lesson is that, if you allow the existing businesses to determine where people and funds are allocated, you won't get innovation.
3. You're trying to fit innovation into the structure that you have. Brad Anderson, the very wise recent CEO of Best Buy, made an observation that has stuck with me. "Organizations have habits," he said. "And they will stick to their habits even at the risk of their own survival." Nowhere is this more evident than when organizations try to make innovations fit into the structures that they have, rather than creating new structures that better support them.
That's true partly because today's structures exist to solve a problem that presented itself in the past. Many organizations were once structured to ensure that each function operated with maximum efficiency ... then re-organized into strategic business units to be more outwardly focused ... then re-organized to capture core competencies ... then reorganized because this left them vulnerable to disruptive innovation ... then — well, you get the idea. The main lesson here is that an innovation probably won't be well served by the organizational structure that supports the existing business.
As Nancy McKinstry, the CEO of Wolters Kluwer, observed, "Organizational structures have a short life. ... [N]obody likes to reorganize, and you always run the risk that you distract your employees and lose focus on customers. But if you don't do it, you lose your competitive edge."
4. Too little diversity of thought; too much isolation from customers' experience. It never fails to amaze me. Companies whose customers are predominantly female leave innovation decisions to men. Organizations serving college students have an average employee age of 48. Mobile phone operators make sure their executives never deal with the dropped calls and poor reception that bedevil their customers. These examples show that executives are seldom challenged by the actual experiences of their customers. More deeply they reflect a dangerous lack of diversity.
I'm not talking about diversity in the politically correct sense. What matters is that there is enough bandwidth in the decision-making roles to appreciate the importance of new developments, and to support those whose ideas might better get traction with new target customers. This is harder than it might appear: people tend to be most comfortable with those who are similar to themselves, and challenging conventional wisdom often means that you'll be branded as a poor team player.
It's worth considering whether your organizational systems allow different perspectives and voices to be heard. There is, for instance, some heavy-duty evidence that companies who have more women on their boards than the norm tend to be higher-performing. It's not clear whether they're more open to new thinking, or whether greater diversity yields better results. What is clear is that, when confronted with complex systems, a team with a broader range of potentially relevant experiences tends to do better.
5. Treating assumptions like knowledge. Never, in my entire career of studying innovation, have I observed a project, initiative, or idea that worked out as planned. Moreover, the great ideas that did work often started as something entirely different. And yet, when many companies try to do something innovative, they expect the same reliable, predictable results that they'd get tweaking something minor in the core business. The consequence, unfortunately, is that many innovation leaders find themselves defending assumptions they made at one point that didn't end up being the way the world worked. Even worse, because budget and planning processes place a premium on being "right," there is often no incentive for an innovation team to admit to having made a guess that doesn't pan out — at least not until substantial expense has been incurred.
So I worry when managers of innovation are rewarded for being "right" when the easiest way to be right is to take very few risks. Indeed, if you take a quick trip through the file in my office in which I document the brief and often costly histories of major corporate innovation flops, a common thread is treating assumptions as facts and failing to provide adequate tests prior to making major financial commitments. It is far better to recognize that in an early-stage venture, most of what you are working with are guesses. Some will be right on. Some will be wrong, but will generate useful knowledge. No matter.
So, there you have it. Five patterns of behavior that should be early warnings to any executive serious about the innovation process, and some suggestions about avoiding them. The good news is that there is a growing body of knowledge about innovation that can help make the whole endeavor less fraught, more reliable, and even more fun.
Rita McGrath
http://blogs.hbr.org/
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