Would you rather be the disruptor, or the disrupted ? (Image via Splashbase)

Disruption and The Sacred Cow

The tricky thing with innovation is that its a very non-specific return on investment, which makes it really hard to justify to executives. You might hit a home run, or you might strike out. When you compound this with the ‘sacred cow’ problem most companies face, the road to innovation is steep.

So what is the sacred cow ? Its best qualified as the dominant product in a company. Sometimes this product may be 50% of the revenue, other times it may be 90% or more. The importance of this product (or team) distorts and influences the ability for other products and teams to succeed by blocking innovation, siphoning capital and having a ‘pull’ on talent and brain power.

There are a few ways to help mitigate the risks affiliated with these sorts of scenarios. Two good approaches to copy can be taken from modern software development teams (Agile) and how angels and silicon valley (SV) funds invest.

Angels and SV funds invest in a broad number of companies not because they want them to all succeed, but because they expect many of them to fail but they only need a handful to succeed to see a positive ROI. Likewise one of the biggest benefits of Agile is breaking down work into smaller chunks so you are distributing the workload effectively and working around risks and blocking issues.

Hedging your bets across lots of small projects is safer than pooling your time and capital into a small number of large investments / projects.

Many traditional businesses don’t understand this at an institutional level. They expect, plan, steer and budget for everything to succeed, and dump endless additional resources into course corrections and unplanned work. This is a mindset failure. We all know there is no such thing as “100%” successful, especially at a large scale.

So if you know its impossible to achieve 100% success and the big-bang approach is bad then where should you put your time and capital to get the best value (or ROI) ?

Its easier to start by discussing where you shouldn’t put it. Pet projects that are driven by risk management are a categorically poor strategy (at least for technology). Also you should aim to avoid having a risk averse attitude / strategy, not because its out of style, but because it makes your business or team ripe for disruption by external factors.

On a recent a16z podcast (replaying this StartupGrind interview), Clayton Christensen and Andreesen spoke about disruption. Some of the more interesting things that come from Christensen’s work is that it can be applied to highlight a lot of the challenges in the enterprise technology market, especially around the ‘sacred cow’ and innovation problems that the larger players are facing.

Well run organizations get disrupted.

The “all hands on deck” big-bang approach occurs all too often in large organizations and this is where most companies start to fail. Investment and focus is internal, usually focused on the ‘sacred cow’ and share holder value. Companies and agencies attempt to deliver on these objectives using a small number of large projects and predictably any correction based on external factors is usually too late and requires a huge investment and mad scramble.

The traditional ‘well run’ company invests this way because they are risk averse with capital and put everything they have into sustaining the ‘sacred cow’ (eg the “known quantity”). This was the problem Microsoft suffered under Ballmer — inward focus, ignoring external trends and not innovating.

At a macro level everything was about Windows. Windows was their sacred cow, and while it was highly valuable the rest of the world innovated past the era of tightly coupled dependencies. Those dependencies are what determined the value of Windows and helped define it as Microsofts sacred cow, the market moved and Microsoft failed to innovate.

When large projects fail, there is a huge impact.

Assuming that you are interested in driving innovation in a larger company or government agency. There are a couple of approaches that Chistensen has spoken about that can be implemented. Efficiency Innovation, Sustaining Innovation and Disruptive Innovation (sometimes called “Empowering”). The last is usually a large strategic investment in a new direction or product. Often this is a big-bang approach and is incredibly difficult to get approved and supported through completion in large companies, and it also has a fairly high chance of failure.

The other two (Efficiency and Sustaining) offer safer approaches for most large corporations and agencies. The implementation of either could be done by copying the process / strategy that the software development world has shifted to (smaller components) and what the VC’s and funds in Silicon Valley are doing (smaller investments) — Basically you push lots of smaller projects, producing smaller changes across the enterprise which would be deployed to the market faster. Know that some percentage of these small projects will fail and hedge your bets.

Instead of the 2–3 large projects typically underway in your average organization there would be 25 or 30 smaller projects. Smaller teams (3–5 people) would be used on these smaller projects which could adapt quicker, struggles with blocking events due to resource and timeline conflicts decrease in frequency, projects become easier to resource with outside help or to staff with new hires, and you achieve the all-important faster (incremental) time to market.

Reinvesting into innovation is the key to building the forward leaning culture required to adapt to external forces

You then take the savings and culture you built by leveraging Efficient or Sustaining Innovations and invest back into Disruptive Innovation projects. I can’t speak for Google’s exact model, but it is telling that they spend $3.5Bn USD annually on “moonshot” (Disruptive) projects. That can only happen if you are efficient and/or sustaining with a forward leaning (not risk averse) culture.

The mindset change that must occur for this to be viable for your team is two fold. First the expectation of 100% success must be abandoned. Second the act of trying to innovate by itself should be valued, including failure.

All projects produce value, either as a result of their success or from the knowledge gained while failing.

The real objective with innovation is to produce value. This could be efficiency with capital / time or service and product elements including improved quality, lower time to market, less friction or higher revenue generation but the higher level objectives are usually earned over time and often take many false starts and pivots to achieve.

You will need to use the small successes and lessons to build up to a larger strategic theme / objective and that larger objective will vary by market and company, and possibly team to team. There is no magic “one size fits all” approach here.

Understanding the ‘sacred cow’ problem and if it applies to your team and using the ‘go small’ strategy outlined here will help inform you of how to best make decisions about allocation of resources towards innovation initiatives. Also make sure to evaluate the market situation your company or team is in, because even if disruptive elements are not readily apparent they may be on the horizon, around the corner or lurking under your bed.