Nurturing Loonshots — The physics of innovation management
I really enjoy reading history and technology. There’s nothing like understanding the depth of a story to demystify it and learn from it.
Mental models help us retain these stories and their lessons, and, like poetry helped people in the middle ages remember and share stories, mental models help us share social sciences and life lessons.
Flat organisations. Small, autonomous, full-stack teams. Zero tolerance for politics; Stock incentives. If you are in tech, startups or VC, this will ring the bell. It probably sounds like management 101 to you, but not to others. Older generations think some of these management properties are millennials’ fixations. People in other industries may think this is all startup bullshit, or useless waste of time and money.
You may understand the expected results of managing an organisation this way, but this knowledge seems to be empirical to most people, it seems to be something you learn on the ground, with little academic background. Life and business lessons. Good practices. But how do they truly work and articulate? how does one manage an organisation that is innovating? What levers can you pull to manage the deployment of innovation?
Safi Bahcall makes a strong argument explaining that corporate culture may contribute to building innovative organisations, maybe by accident. Structure, on the other hand, is a necessary condition to make them work. Finally someone with a contrarian view on corporate culture and the many books written on it.
Loonshots and franchises.
A quick definition on what a loonshot is, straight out of the book. I also included the definition for moonshot, which is a more commonly used term.
A loonshot is a neglected project, widely dismissed, its champion written off as unhinged. A moonshot is an ambitious and expensive goal, widely expected to have great significance. A moonshot is a destination (for example, the goal of eliminating poverty). Nurturing loonshots is how we get there.
All business gurus have a two dimensional matrix. Safi Behcall uses this wonderful model developed by Vannevar Bush.
The author describes two types of leaders: soldiers, who run organisations pulling levers that will deliver predictable results. From what I understand, these are the individuals in the field who know the industry well and run organisations based on the existing knowledge in an industry.
Artists are the other type. Individuals who develop the innovative product or feature. They think divergently, many times are regarded as crazy — they are most of the times — but can bring new information into an industry and have a transformative impact. An organisation will only be able to deploy innovation to the world if:
a) An organisation is split nicely into two groups: the soldiers and the artists.
b) There is continuous exchange of information and permanent feedback of information amongst the two groups.
I’m being simplistic here and I hope this opens your appetite to read the book. There’s a few hundred pages of history and very specific stories of famous entrepreneurs who have failed multiple times at building these environments.
A clear example might be Steve Jobs, who spent years loving his artists and ignoring — and even insulting — his soldiers before he became a well known leader. He was a great product guy, but only after he learnt to run his franchise products-, he became the leader we know today.
This structural balance is known as the Bush-Vail Balance, developed by Vannevar Bush (head of what became the Office of Scientific Research and Development) and Theodore Vail (head of what became the Bell Telephone Laboratories). More on them and their story in the first few chapters of the book.
What makes a company or ecosystem transition away from nurturing loonshots?
Building an ecosystem that can nurture this sort of innovation is expensive, takes time and talent. History is full of examples of organisations which did get there, but eventually lost their capacity of staying innovative and began rejecting loonshots. IBM, Panam, AT&T, Polaroid are some great stories which Behcall dives into.
The short answer is scale. Another answer which sounds like common knowledge to most of us. Larger organisations struggle to innovate as their teams have too many incentives to stick to the plan, and exploit their franchise businesses. Managers develop aversion to pursue loonshot projects because they will very likely move them away from climbing the corporate ladder. But what does this mean and how can an organisation manage this challenge?
Behcall’s answer is the magic number: organisation size. The maximum number of people that can work on a loonshot nursery with the capacity to digest them and introduce them to the world. This number magically matches 150 in many occasions, a figure many successful entrepreneurs at companies like Facebook or Quartz have recognised as a barrier in headcount scale.
Oxford University evolutionary psychology professor Robin Dunbar has theorised that humans can only maintain personal relationships with 150 people. He found this seemingly magic number “in the typical community size of hunter-gatherer societies, in the average village size in county after county in the Domesday book, as well as in 18th-century England; it is the average parish size among the Hutterites and the Amish.” Dunbar’s number also is found in the size of military companies, and was the basis for the social network Path to limit any member’s sharing to 150 people.
How to define your organisations’ magic number
This figure of course can be engineered. Nations and regions, not only companies, have developed ecosystems that have spurred innovation for decades and they were of course, not composed of less than 150 people.
An organisations magic number is essentially a function of the level of politics in the organisation. The higher the return on politics, the less energy the team invests in the project, and the more likely it is that promising loonshots will be rejected in favour of the wrong interests.
Leaders can increase their magic number essentially by:
G: Progressively lowering the salary growth rates of promotions in the organisation. The idea here is to keep people focused on building, rather than climbing the corporate ladder. Providing salary incentives to climb it will increase the return on politics
F: Increasing project — skill fit. Making sure the right people are working on the right project will reduce return on politics, and of course encourage performance among peers. We all love to work close to people who excel on what they do, it motivates others to do the same.
S: Increasing management span — the number of employees per manager — reduces return on politics thus increases M. This one may appear a bit counterintuitive initially, but the harder it is for an individual to compete with one or two peers for a promotion, and the less management time they get, the more they will dedicate to project work. It turns out flat organisations aren’t just cool, as some old school managers think. Large groups reduce possibility for politics and encourage peer review and healthy competition and experimentation among team members.
E: Increase equity fraction. Get the team heavily involved in financial rewards tied to project performance. Stock and stock options. This is not only about tying an individuals incentive to the project. It’s about tying everyone’s incentive to the project, as this increases M.
Organisations who fail to scale their teams to have innovation come from their teams fall into what Behcall calls the Moses trap: when an all-powerful leader becomes judge and jury deciding the fate of loonshots.
It’s easy to understand why organisations get to this point. Teams which focus on politics and climbing the corporate ladder stop focusing on building. Managers — even successful innovators — stop seeing results and take it upon them to decide what is a good project and what is not. Which on its own generates even more politics and reduces M further. It’s a self fulfilling prophecy.
How to manage organisation scale in loonshot nurseries?
Under Behcall’s model, the loonshot leader now has a goal. Increase the number of individuals who can productively contribute to a loonshot nursery without killing innovation. What are the best tactics? There’s plenty, experienced by many of us. The key is to know where the politics excess shows up and what lever to pull to fix it. Here are the authors’ key take aways:
Reduce return-on-politics: Make lobbying for compensation and promotion decisions difficult. Decentralise these decisions and make them objective. Behcall shares great examples from McKinsey, or DARPA (U.S.A. Defense Advanced Research Projects Agency). Expiring positions is maybe the most extreme example. The idea of your job expiring in four years and having to leave the company or change project may some day be a not so crazy policy in some companies. Co-design and open innovation with customers is a common way to evaluate design decisions in teams.
Use soft equity: Find non-financial rewards that make a big difference to the team and implement them appropriately. Peer recognition — inside or outside the organisation — is a powerful one.
Increase project-skill fit: Help managers develop their teams, increasing the fit between team members and their projects. Facilitate team member transferability to other projects when things don’t work out, or even out of the company in an extreme case. Train and coach your teams.
The take away
Many of these management tips and tactics are regarded as culture twitches by managers and employees, probably because thats how team members perceive them. “This is how things are done here.”
The idea that they are really structural setups which target results is a much better mental model for managing innovative organisations and making sure they remain innovative. Someone has finally challenged the endogamic belief that culture is the leaders’ ultimate tool for managing an organisation.
Maybe structure ends up eating culture for breakfast.