The Skills, the Wills, and the Bills
Why doesn’t the Corporate Innovation scale?
A shorter version of this article was first published in Forbes.
Part of my job is to meet new, promising startups that want to work with us in Switzerland. Another part is working with the corporate innovation practitioners coming from different parts of the world.
One of the biggest problems we discuss is how to make the corporate innovation project scale. How to cross the internal chasm between a cool project and a successful product on the market.
The issues of scaling crystalized into three categories:
Skills, Wills, and Bills
Let me walk you through this concept, starting with the first one.
This is the usual suspect for failure. And in many cases for a good reason.
Every new technology brings its own paradigm of skills.
The way we build and use it requires different architecture, different type of performance, different tradeoffs. All these new skills make the old practices obsolete and are usually seen as heretic or plainly ridiculous.
Here lies the skills gap — you have to attract and keep new knowledge even if it is fought by the expert in the company.
This is also the most researched and discussed topic. I will not get too deep into it as there are hundreds of books and articles about the proper skills and organizational setups for successful innovation.
It basically boils down to — get together the skillful and curious people. Make them question the status quo and learn with them.
I will focus more on the second category of issues, holding back the customer innovation.
This is the category about the hidden motivations and incentives in the organization. The goals and metrics, the will to change. Or the desire to slow down the change. Some of them are part of the vaguely defined company culture.
Take a look at the picture.
The innovation project is the sprout coming from the seed. There are four “domes” above it. In order for the innovation project to scale the team should be motivated and all the four domes need to be open. Even if one of the domes is closed the stem of the innovation will be crushed.
Let start with the innovation team. Do they really want to scale?
The teams face a type of innovator’s dilemma:
- If the project is successful, they might get a small bonus, but their job will become more routine.
- If the project scales and fails, they risk their reputation and maybe their job.
This high-risk, small-reward deal makes people keep themselves busy with “innovating” for as long as possible, not willing to scale up or shut down. Some may even leave and start their own companies.
To fix the dilemma, work with management to provide an attractive path for innovators to do their best work, and keep them with the company.
Above the team there are the domes of doom:
The other Business Units
The first dome is the other business units. Usually, they are not incentivized to support innovation projects of other teams. They don’t want to share their budget, focus and scarce resources for risky endeavors. If the new project fails — which is highly possible — they don’t want to be associated with it. If the project is successful, their own product might be disrupted, and they could be fired. Either way the verdict is No.
What can the management do about this?
If there are expectations of support from other units, they have to be accounted for and properly incentivized. Set common goals, share credit, provide training and offer transition paths for employees. Be sure to give incentives for collaboration, or else keep the units fully separated. You should also be on the lookout for acts of sabotage between the different teams.
The management should understand and resolve this discrepancy between the company best interest and the business unit interest.
The second dome is formed by the big, powerful customers, partners and suppliers whose interests might be affected if the innovation succeeds. They can influence people in charge to slow or shut down the internal development. They can threaten to hurt your business if you step on their feet by canceling a big deal, or deprioritizing of your shipment, or pulling off a big co-investment.
To overcome this threat the management should be extra clear about the company strategy and priorities. Some of the big online retailers regularly step into the business of their suppliers. This irritates the suppliers, but, as it is in the companies’ best interests, the retailers keep doing it. Work with your team to set clear priorities, and keep them focused on their strategy. If a partner is really important, you might stop the project, but make sure it is in the company’s best interest to do so.
The opposite can also be true — one company started developing their backend with open-source components just to make their vendors more collaborative. They had no real intent to grow this project further, but it gave them a stronger position at the negotiation table.
The company Leadership
The third dome that can prevent the scale of innovation is the leadership of the company. The threat comes from a misalignment of priorities and a lack of commitment.
It is not enough if they support innovation in general. They have to support aligned efforts. Technological innovation takes time and money. It could take three to five years before they see any return on their investment. It is the famous J curve. Without a commitment and an alignment of goals, the priority of the management changes at the dip and positive results never come. Before starting a project, think what you will do if it succeeds. Are you ready to double down on it or not?
The fourth level is the most critical — the company owners and their representatives in the board.
The top dome is the shareholders. What kind of strategy do they support? Are they looking for a short-term or long-term return? How much risk do they want to take? How they measure the performance of the leadership?
These questions are answered at the very top level and rarely come down to the innovation teams.
Try to make sure that there is an alignment of the innovation activities and the owners’ strategy. Sometimes there is a discrepancy between the short-term goals of the investors and the long-time, dedicated employees who care for the future of the company.
Corporate innovation serves many goals — building an innovative culture, increasing the engagement of the employees and collaborating with the ecosystem. But its most important role is to create new revenues. This is the bill the innovation needs to fill.
Let’s be honest, some projects should not be scaled (some could not be stopped soon enough). In many cases the company needs a new revenue of hundreds of millions a year, and the innovation team comes with a project that in the very best case will bring fifty thousand. It simply does not fill the bill.
Many times, the management expects to see a few big, wonderful projects — ones that use cool new technology, solve world problems and bring good margins. In reality, the innovation portfolio consists of a bunch of small, hairy projects with bizarre business models, high risk and puny margins.
Try to address this gap between expectations and reality up front. A magical grassroots innovation that can transform the company doesn’t happen. It requires well-defined and communicated strategic intent, clear financial goals and commitment from the whole company.
To summarize, dedicate a team of skilled and motivated people, and get the management aligned and committed to strategic goals. Communicate clearly across all levels. Learn, adapt and stay on the course.
And may the innovation force be with you!