A successful innovation is a little like an iceberg: Look under or behind the innovation and you’ll see the smart practices, processes and structures that supported the success of the innovation. Herewith, six practices to avoid, and that are sure to compromise the chances of success
Strategy is undergoing a sea change. For many years, the ultimate goal of strategizing has been to create a ‘sustainable’ competitive advantage. Economists and practitioners alike developed tools and processes that worked well – as long as things were relatively stable. However, in increasingly larger parts of our economy, it is starting to become obvious that competitive advantages and business models are transient. Even in industries that we used to think of as relatively long-cycle and slow moving, unexpected competition and dramatic changes in the operating environment are causing those who develop strategy to challenge their fundamental assumptions. For example, within 48 hours last week I had calls from strategy people at a mining company and an energy utility, both of which reported that within the last year unexpected challenges had emerged for which they felt their leaders were woefully ill-equipped. These industries have been thought of as relatively slow moving, yet they are experiencing the sting of competitive advantage that was temporary and had become unsuitable for the times.
When competitive advantages are short-lived, one needs to think in terms of developing and managing an entire pipeline of advantages in order to survive. This suggests, among other things, that a robust process for generating new business models through innovation is essential. And yet, when one looks at what is actually going on in many organizations, it is clear that the innovation function, in most companies the starting point for creating new advantages, is broken or even dysfunctional. This situation persists despite a truly vast amount of talk about innovation. In many organizations, the basic building blocks of an effective innovation process are simply not in place.
I group the warning signs that the innovation process doesn’t work well into six categories. In this article, I will describe each of these categories and offer suggestions for what managers can do to fix what is wrong in each case.
Innovation is episodic
The first indicator that the innovation function in an organization has become dysfunctional is that it has become an on-again, off-again process, dependent on the whims of senior people or small groups.
Innovation can be said to begin when the innovation impulse begins to percolate in an organization. This could be because company leaders recognize that the existing business has started to become commoditized, or worse, that it is in full-scale competitive retreat. Only very occasionally it means that far-sighted leaders have recognized that they can’t simply continue to exploit their existing advantages and that they need to refresh them.
The innovation thrust can take a number of forms. It might be a small group or team who gleefully go behind the typical organizational rules to explore new opportunities. It might take the form of a skunkworks, or even a whole New Ventures Division. For a while, things seem to be going along just fine, as the people engaged in the innovation process make interesting discoveries, find new places where the company’s capabilities might be relevant, and come up with new ways to serve customers.
Unfortunately, the efforts, all too often, end badly. This could be because the parent company faces some kind of cash, profit or numbers squeeze, and the folks with budget scalpels go looking for something to cut. It’s easy to ax innovation, as in the early stages these ideas have few real constituencies – after all, a potential customer can’t scream about never getting a product they didn’t know they would love. More tragically, the group has actually come up with something powerful and novel, but – whoa – someone senior in the organization suddenly realizes that this could have a disruptive or cannibalizing effect on existing cash cows. The innovators get squashed, the idea is shelved and the old battle-axes live to fight another day [see “Civil War Inside Sony,” Rose, F. (2003). The Civil War Inside Sony: Sony Music wants to entertain you. Sony Electronics wants to equip you; Wired Magazine. Issue 11.02]
The innovation team, dispirited, disbands and its members move back to the established businesses, or frequently end up leaving the company. Innovation, after all, is uncertain and many things will not work out as planned. In fact, most things will not work out as planned. But this, of course, has not solved the company’s fundamental problem – the lack of a sustained commitment to innovation –which is eroding competitiveness in the core business. So, new ventures re-appear after some months or years when someone else gets the innovation urge (see Kodak ventures, Xerox PARC, the Nokia New Ventures Organization and Lucent Ventures).
On-again, off-again innovation is worse than doing nothing. It sends the signal to good people that these are not the kind of projects they should bet their careers on, and it wastes resources. If you want to get it right, innovation needs to be continuous, ongoing and systematic. Set aside a regular budget for it. Make it part of good people’s career paths. Actively manage a portfolio in which innovations are balanced with support for the core business. And build it into the organizational processes that sustain anything else that is important in the company.
The innovation process is invented from scratch
To fund innovation systematically, the resource-allocation process needs to be designed to divert or extract resources from established businesses and re-purpose them to fund growth. This is not easy stuff. IBM had to re-invent its entire innovation process to tackle the problem, coming up with what they called the “Emerging Business Opportunity” model, in which a senior-level executive watched people and assets allocated to innovation like a hawk, to make sure they 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 businesses like land-lines and phone books – to support Verizon’s moves into wireless and entertainment businesses more broadly. At Lego, the CEO pulled resources from all the sister businesses and forced his team to agree on which innovations would be supported by the freed-up funds. The core lesson is this: If you allow the existing businesses to determine where people and funds will be allocated, you’re not going to enable and support innovation. Rather, you’re going to get more of the existing businesses.
Or consider the very definition of failure. In an established business area, the rate of failure really matters because missing targets can mean damage to one’s brand, thus disappointing customers and leading analysts to view one’s activities with alarm and a host of other ills. In a new venture, it is normal to have things not go as planned. Indeed, absent the ability to test hypotheses and gather new information by trying and failing, ventures are highly unlikely to make much progress. With a new venture, product or service, the goal should be to test as many hypotheses as possible in rapid succession and to learn as quickly as possible what the true opportunities are.
Reprint from Ivey Business Journal
[© Reprinted and used by permission of the Ivey Business School]