Building a Growth Factory—Summary
Even the best-performing companies eventually stall. Sustaining momentum — and remaining a great growth company — takes a system. This system is what the authors of this HBR Single call a growth factory, and it makes innovation repeatable and reliable. I think it’s a very practical guide to building growth and innovation units within an organization.
If you like it, you can buy it on Amazon.
Notes:
key components of growth factory
- growth blueprint: growth types, goals and guidelines
- production systems for transforming ideas into growth businesses
- governance and controls that help the factory function at scale
- leadership, talent and culture — right people in the right roles doing and saying the right things
desired states of some of these components:
production systems > idea supply chain: mechanisms to source internal and external ideas at or beyond the fringes of the company or industry
governance and controls > resource allocation systems: dedicated pool of human and financial systems for innovation, with allocation reviewed regularly
governance and controls > continuous improvement systems: small teams that innovate the innovation process itself spotting and removing bottlenecks
growth types
before starting a growth factory, a company must clearly define the growth types it is looking for.
for P&G:
- commercial: increase usage of existing products. ex: using old spice marketing campaign
- sustaining: make existing solutions better, faster, cleaner, cheaper, ..er
- transformational: step changes whose dramatic improvements reframe a category
- disruptive: new brands or businesses that win through simplicity or affordability
citi group:
- core: improvements to existing products in existing markets or process efficiencies (ex: improving service levels or security)
- adjacent: extend existing product to new markets or use existing capabilities (assets, relationships) to bring new solutions to market.
- disruptive: new to the world innovations that reframe markets and create new ones
growth goals
different levels of targets:
- overall company targets — short term and long term
- specific targets for each growth type — how much they contribute to overall targets
- operational targets: split out growth goals by business units or geographies
- list of strategic opportunity areas that offer the most growth potential (customer segments, big problems to solve, critical tech to pursue, game changing regulatory developments)
this also helps define what areas not to target.
citi defines strategic opportunities based on trends like globalization, social media, consumerization of IT.
after setting goals, do share goals throughout the organization so there is a shared understanding of it. make a simple doc summarizing strategic choices and measures used to track progress.
portfolio tracking system to monitor the right things and course correct and review at the right time — might identify focus on too many small things, nothing big. or trying things too long into the future etc. tracking systems help identify gaps in the current pipeline.
growth guidelines
it’s tough to map out future market with precision but have a set of guidelines on what opportunities to pursue, which ones to prioritize and which ones are completely off the table so nobody wastes time.
identify relevant dimensions that define new growth opportunities — type of target customers, distribution channels, target geographies, brand strategy, annual revenues and profit margins required from any new initiative, speed of execution, organizational fit, risk tolerance.
and then write down: obvious yes, obvious no and what’s under management consideration.
disciplined innovators are more explicit about what they won’t do than what they will do.
growth guidelines are not easy to put down but well worth the time because they define resource allocation, identify capability gaps that need addressing etc.
innovation process
multiple steps with decision gates in between:
- spot opportunities: from market or an engineer.
- design solutions. great innovators design solutions that address entire customer experience and design a business model around it that satisfies the customer’s needs.
- test and learn. any idea will be partially right and partially wrong. test and experiment — the most critical uncertainties first.
- scale.
p&g — men’s market vexed them for long. with broad target market in mind, spent more than 2000 hours in the marketplace to understand the unique realities of the target customer and then introduced a product that was uniquely suited to the audience.
robust innovation processes should be:
- explicit. written down in detail or culturally ingrained.
- gated. from one stage to next, killed or go back to a previous stage.
- customized. different growth types will all follow the above 4 step process but customized for each growth type. disruptive growth type will lean towards more market learning than other growth types.
- flexible. different growth types might need several loops for a particular stage or more intensity for a particular stage.
- integrated. the steps are not discrete. when identifying opportunities, you are also thinking solutions and implementation. that’s completely fine.
idea supply chain
steady supply of high potential ideas from a broad set of sources.
common problems with idea supply chain in companies:
- ideas in company stagnant. people coming up with same idea again and again.
- company tapping only a fraction of collective creative potential.
- good ideas don’t get funneled to most appropriate place for incubation.
mechanisms that help with these:
- hunt at the periphery — evolving customer needs and emerging disruptive solutions.
- crowdsource and collaborate.
companies need to have a way to get outside their industry domain to immerse themselves in an external ecosystem of innovators and entrepreneurs.
p&g conducts more than 20,000 market studies a year.
citi ventures team met with 600 startups in 2011 and invested in 8 of them.
corporate collaboration mechanisms should:
- allow more employees to participate
- improve quality of ideas
- pathway for small ideas that otherwise would not get implemented
citi ideas has time bound challenges for this — suggest new ideas, build on existing ideas and rate the idea of others. 265,000 of its employees participated in its first global idea challenge in 2011.
maximizing success for these programs requires:
- active leadership engagement
- clear problem definition. vague problems get vague difficult-to-implement suggestions.
- defined and ready path to execution. cynicism sets in if ideas don’t get implemented. have a predetermined execution vehicle.
such a system also reveals different pockets in an org working on the same problem who can then collaborate.
a good idea repository includes ideas company decided to shelve with a clear why. also later you can look back at it and see if anything has changed to make that idea more exciting now (a lot of ideas are just ahead of their time)
larger companies also have a physical presence to tap into industry innovation hotspots and teams to hunt for ideas.
also have externally focused activities for idea sourcing as close to the market as possible as opposed to being in the HQs.
- a growth group should have some degrees of separation from the core — geography, processes, talent and resource allocation systems — otherwise it will churn out same ideas and products as core business.
- but still have purposeful linkage with core business otherwise when you toss over a growth idea to core business to scale, the not invented here syndrome can come in or a lot of the knowledge earned will get lost.
- a growth group should draw more of its energy externally.
example of rapid prototyping of an idea
p&g was developing a probiotic supplement to alleviate irritable bowel syndrome — 30M people in US alone have it.
high potential but also big investment and risk since a new brand and also technical kinks.
but critical success factor in market research was whether consumer would take the supplement everyday?
during research, consumers said they would not — but because they hadn’t experienced the benefits, reasonable chance their predictions weren’t accurate. launched controlled pilot by offering it in a few cities online — asked some salespeople to push people towards it — and pilot worked out well.
[random note: p&g’s baby care HQ contains a room with oversized items so innovators can have a toddler’s perspective]
experimentation has to be done very scientifically. develop a hypothesis, define structured experiment to test it, analyze the results. there will also be dozens of micro adjustments a day to maximize learning creatively overcoming obstacles or finding scrappy ways to solve problems.
experiments often surface unanticipated learnings — there should be knowledge management systems to record this otherwise soft learnings are very easy to lose.
have mechanisms to place little bets in the market — learnings from market facing activities should always be given more value than academic learning from historical analysis
governance and controls
four systems for this:
- idea governance systems — distinct management and measurement approach for different types of ideas.
- portfolio tracking systems.
- resource allocation systems. between projects and broader growth types.
- continuous improvement systems to remove innovation bottlenecks.
hitting growth goals requires both predictable success and larger ideas.
the best innovators follow a disciplined approach. p&g even has a manual for transformative/disruptive ideas. overarching principles as well as detailed procedures and templates to describe opportunities, identify requirements for success, monitor progress, make go/no go decisions.
IBM has a new growth group whose milestones are based on learning and assumption management than RoI.
good idea governance systems answer:
- what metrics determine whether to fund an investment proposal?
- what is the decision making mechanism?
- how is funding managed?
do not have the same group evaluate all kind of ideas and definitely not during a single meeting. cannot flip filters to evaluate fundamentally different ideas.
ideal groups are:
- not a replication of the executive committee (so it’s not a replica of the core business thinking)
- at least one outside representative
- one representative with experience of investing in low knowledge, high assumption circumstances
- small group to facilitate quick decisions
idea governance systems work best when different budgets for each type of growth.
do not have overly data driven approach for new to the world ideas because they are filled with assumptions
portfolio tracking systems
- comprehensive, cover all growth projects.
- real time data, so timely information to make decisions
- key quantitative and qualitative data
- at least somewhat automated so updated with intervention.
value they provide:
- ensure company’s growth strategy matches resource allocation
- identify projects requiring course correction earlier. the first and the right plan bear little resemblance.
- get the right resources to the right projects. a lot of resources stuck because of zombie/walking dead projects — transparent tracking systems help redeploy those resources or accelerate higher potential effort.
p&g has sophisticated portfolio systems — projections for every active idea, estimates of financial potential and the human and capital investments that will be required.
actively prune projects — make shutting something down unemotional and ensures resources remain focused on higher potential activities.
leadership, talent and culture
- lean forward leaders — role models of desired behavior
- innovation talent with the right experience in right roles
- measurements and reward systems that support risk taking
- development programs to teach enabling mindsets and spread common language
senior leader needs to demonstrate their intent with words and actions.
a purely rational approach to innovation is self limiting. needs to be an emotional component as well that makes them contribute in ways far greater than themselves.
continuously communicate and demonstrate how each innovation fulfills your purpose to movie continued effort.
jeff stibel created a failure wall in his company. memorable quotes about failure with personal examples describing individual failures and lessons learned — he himself supplied 3 of these and signed his name on them. set the culture to be failure-tolerant. these symbolic gestures go a long way.
you cannot expect your core operators, the ones you have counted on to always deliver results, to build new growth businesses.
behaviors of successful innovators:
- associating. seeing connections between seemingly unrelated ideas.
- observing the world intently to gain insights about new ways of doing things.
- questioning the status quo.
- constructing and executing experiments to surface unexpected insights.
- networking to discover diverse ideas and perspectives.
innovation capabilities follow a power law distribution — substantial gap between average and above average performers, and even greater gap between elite and above average. sufficient talent density can come from just a few elite innovators or from broader group with less experience but capable of being developed.
facilitate intersections where different disciplines and mindsets collide — people from diverse backgrounds. citi has people from target, apple, eBay, EA etc.
have small teams so they focus on a few but the most promising initiatives.
Penrosian slack: strategy doesn’t drive resource allocation in the way that resource allocation drives strategy. slack capacity always gets filled. company’s strategy gets pulled by the activities to fill the slack capacity.
if often plagues innovation efforts. a legal representative with time on his hands identifies regulatory and IP related areas, QA QA related areas — nobody is doing anything wrong but working on so many simultaneous things slows progress to a crawl.
members with innovation experience can make sound judgment calls when data is inconclusive or absent.
rewards don’t have to be monetary: novel career paths with a failure tolerant culture. in fact some research shows tying monetary benefits negatively impacts the work.
for innovation, instead of tracking results, track behaviors because you can do everything right but still fail — examples of behaviors:
- quick and cheap ways of address critical assumptions. progress trumps perfection in innovation.
- developing fresh market insights especially for small sample but high impact approaches such as ethnography
- innovation bipolarity — from passionate advocate of idea to offering realistic viewpoints of the challenges in the way of success.
- finding the best resource to solve a problem, whether under the company or not.
- simplifying complicated ideas to build broader buy in
- showing skills in selling ideas to stakeholders, colleagues and customers
- regularly seeking intersections or interacting with people of different perspectives
- demonstrating a bias towards creating data rather than getting it
- trusting intuition to make decisions when data is unclear
- demonstrating willingness to pull plug on a flawed idea early
public recognition
most of p&g’s innovation related rewards are soft. inclusion to a society/fellow.
a media company has an academy award style award ceremony where people celebrate internal success story
do not have an over reliance on micro incentives such as $500 for submitting an idea
innovation doesn’t only come from scientists and engineers — in fact most powerful forms are business model innovations — new ways to create, capture and deliver value. Apple — iTunes, app store.
holistic or integrative thinking critical for successful innovation.
Liked the summary?
If you liked this summary, I have put together an eBook with summaries from 27 different books I have found most valuable on the challenges faced by leaders in growing companies — managing teams, organizational design, strategy, goal setting frameworks and creating repeatable innovation models. Some of them come from well known classics like High Output Management and Good Strategy Bad Strategy, most of them relatively lesser-known like Growth Factory and Ten Types of Innovation. You can get your copy here.
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