How to do innovation
Every company — big and small — talks about “innovation” these days.
Everyone seems to want to be “innovative”. It’s become yet-another-buzzword just like many before it: cloud, mobile, social, collaboration, entrepreneur, disruption, etc.
But what is innovation and how can organizations innovate?
First off, I think innovation is as much cultural is it is the processes or the products that are built. Innovation is as much about people as it is anything else.
Bigger companies think innovation is a “thing” — something that you can budget for or build a group around. You’ll often here things like “we need to be more innovative” or “we need an innovation group”. Of course, you probably do need those “things”.
But innovation starts with building a culture around being innovative. To be innovative, you have to take (calculated) risks and you have to try new things, do things differently, be bold. Without an innovation culture, I don’t believe you can truly innovate.
Most organizations don’t like to take risks. And most cultures don’t like to do things much differently than they’ve done before (because, they cause risk). And the larger you get, the harder it is to cultivate a culture of innovation.
Think about it: as you scale a company, a lot of what you add to the organization is designed to remove risk (or at least significantly reduce it). The CFO. HR. Legal. IT. Project Management. Security. Each new type of “role” or “department” that the organization adds as you grow is designed specifically around the removal or reduction of risk. And that’s OK. That’s just their job. But what often happens is that the balance of risk taking tilts (initially small, eventually very large) towards zero risk tolerance. And, you don’t want your controller innovating with revenue recognition, right?
But as I stated above, innovation is more than products or processes. Innovative is cultural. It’s a way of thinking. It’s a value system. It’s something that you need to use across-the-board as you continue to build your organization. It’s not something that you carve off to a separate department (although a specific dedicated organization is often required which I address below).
Innovation starts by looking at everything you do — every day — as suspect. It’s assuming that what you are doing today is not the best thing anymore. It’s recognizing that other companies — your competitors — are not standing still and have the same opportunity to get better that you have.
Innovation cuts across all parts of the organization. Innovation is simply assuming you’ll be dead in the future if you do not change — if you don’t get better. Innovation assumes the world can and should be a better place — and that you can change it.
I believe the technological revolution we’re in demands of us that we have to look at our business different than those in the previous revolutions did before (industrial, agricultural, etc). The top 20 companies today will not be the top 20 companies in the next decade (and certainly, they weren’t the same during the previous economic revolutions). The deck will shuffle. Just because you’re on top today doesn’t guarantee you’ll even be alive tomorrow.
Innovation applied
I think most companies (at least the ones that are no longer “startups”) tend to totally miss innovation. So, let’s examine how you can apply innovation to your organization.
First, the CEO and the executive team have to be totally committed to innovation. But, not the buzzword version, the cultural change one (yeah, the hard one). Innovation means we’re going to give the organization permission to take calculated risks. To speak freely. To encourage healthy debate. To not be satisfied with the status quo. To assume that if they don’t change, to get better, that they will be severely, if not irrevocably, dead in the near future.
This is hard (and in some cases, impossible) for most companies. At the top, things don’t feel that bad most of the time. Great group of people. Things are moving and the “teams are collaborating”. Everyone is busy busy. We’re making progress. It just takes time, we’ll get there…
But the top of the organization has to be pepertually unsatisfied with the progress. Your people are (and if they’re not, you’re really screwed) unsatisfied. The leadership team needs to be completely focused on empowering everyone else to “fix it”. In most organizations, the employees know what’s going on and in almost all cases, know how to fix it. They just don’t feel empowered. Or worse, they feel like there is no upside to trying anymore. Most organizations like to talk about it — but immediately add the yolk of “we can’t do that” to the necks of their employees. There’s too many boards and executive teams that are comfortable, thank you very much, with their current plans.
Second, assuming the CEO and the executive team (and board) are committed to change, it takes a lot of doing, not telling. It’s easy to talk about stuff, it’s much harder to put talk into practice. I always tell people: “look at their actions, not their words”. Words are cheap. Action is expensive. And budget is the clear indication on the fuel that will enable words to be converted into action. How we organize our spending (money, time, attention, tradeoffs) is a direct reflection of our values — both personal and professional. It’s often that we want to make change and we even want to empower people for change, but things then fall flat when the rubber meets the road. Real innovation is hard because it requires change and with change, comes prioritization and risk taking.
Third, assuming you have an aligned organization and you’re committed to innovation beyond “powerpoint, bumper stickers and BBQ”, the real work begins. The organization needs to be setup for failure. Yeah, failure, not just success. Success is easy. Everyone likes success. Nobody likes failure. But you need to first fail — often times, over and over — before you finally succeed. In bigger organizations, remember, failure is not conducive to staying around and “moving up the ladder”. But, your organization needs to learn to fail and fail as fast as possible. You need to institutionalize how to take more risks, how to identity failure as fast as practical and then how to re-priortize around success (so that things that aren’t working don’t continue to get a fair shot at resources over things that are working better). And you need to start quickly — such that your culture will believe that you’re serious. You need to convert the raw natural skepticism around your commitment to a serious belief system. And it takes time. But once the flywheel starts, you’ll start to see positive change.
Fourth, celebrate your successes and your failures. Early on, your culture will be relucant to take risks . Mostly because in 99% of larger organizations, there is almost no upside to risk taking. People lose their jobs in most places if they take a risk and it turns out to be a failure. You’ll need to quickly show the culture that you’re committed to learning. And real learning means you’re going to sometimes fall down and fail. A really good batter in American baseball hits .300. In fact, Ty Cobb was ranked the best at .3664. The best batters take way more swings and miss most often. But if they didn’t swing the bat, they would never hit the ball. We need to help the culture of our organizations swing the bat more often. Like in baseball, you don’t just swing at balls way outside “the box”. And in business, you want to try and swing at the balls we think we can hit. But more often that not, we’re going to strike out. And that’s just OK. We’d rather be swinging the bat for the opportunity to get on base, than waiting for the perfect pitch to hit the grand slam. Most companies cannot hit grand slams. Most things happen in life by just getting on base and staying in the game.
Fifth, you need a way to measure outcomes over the short and long period of time. But be careful you don’t turn your innovation culture into one that only rewards innovation that drives revenue alone. Find ways to measure “early wins” that are meaningful even when they don’t standalone drive short-term revenue. Be careful to prioritize these outcomes equally with short-term revenue pressures. If short-term revenue pressures break every single tie then you’ll only ever achieve short-term results. Building an innovation culture requires that you co-equally consider innovation and revenue together. This is very hard. But once you have wins and create an innovation culture, it will become undisputed. Find ways to capture the strategic importance of making lots of small and big changes along the way and celebrate change.
What about innovation organizations or innovation leadership?
Assuming you have the above (and sometimes, in parallel with it), you can and probably should have an organization and people dedicated to the topic of innovation — especially on the product / technical side. This is similar to the point above about budget. If you dedicate your resources to something, it will have a much better chance for success than if you don’t.
There is absolutely nothing wrong with an innovation organization. In fact, an innovation organization can help catalyze a culture and help companies teach their culture about innovation and prioritize it. The innovation organization can be empowered and entrusted with being the thought leader — both internally and externally — around the organization’s direction and how to capture the innovation value. These organizations, if setup correctly, can assist other parts of the organization in how to “do innovation” as well. The innovation organization should be a force multiplier.
But, if the organization is not willing to make the cultural changes, the innovation organization will simply be another “appendage” that will not be core to the future growth. In fact, at best, it will be a “research lab” with no ability to convert learnings into tangile business opportunity.
What are some examples of companies doing innovation well?
I think there are several examples. I’m a total outsider at all these companies so I have no “inside knowledge” — I’m only looking as a casual observer.
Alphabet a.k.a. Google
Google isn’t just a pioneer in innovation through search and online advertising monetization — but just about everything that they have done has been about converting business model disruption risk into opportunity. And they invested while they were on top (and still are). One could look at many of the projects that Alphabet has embarked upon and say they are distracted. Or, you could see that Alphabet is ensuring their own survival and ability to thrive by assuming their core business will be disrupted soon. Even more recently the entire structure of the company was refactored to take into account all the various changes happening inside Google proper and admiting that they needed a better organizational structure to empower themselves to be better and scale faster.
Google today is a counter example to the Microsoft of past (I would argue Microsoft today is in the midst of a major cultural shift with the leadership of Satya Nadella). The Steve Ballmer era of Microsoft was very much a case in the innovators dilemma. Amazing research was conducted at Microsoft in their R&D Labs — of which very little was ever commercialized. Microsoft saw the Internet and then mobile and the cloud come many years before and they didn’t capitalize on either until it was too late.
Another company I think is following closely (not surprisingly) in Alphabet’s footsteps is Facebook. Mark Zuckerberg (founder, CEO) seems to have a very clear vision of where he is taking the company and has very strong alignment with his board and shareholders. He also is able to organize Facebook in a way that extracts the most value for key people that will make his company better than he started. I mean, how else do you keep a legend like John Carmack (founder and creator of Doom, CTO of Oculus) motivated to stay at Facebook? How does Kevin Systrom stay on running Instagram as the CEO under Mark’s leadership?
IBM
IBM is another company that is trying to constantly re-invent itself (it must) in an ever shifting technology landscape. I remember growing up in the 70s and my great-uncle ran an IBM shop in my hometown of Gainesville, Georgia. IBM typewriters and tabulator machines. Yeah, that IBM. IBM is one of those legendary companies that has actually been around a very long time and that keeps innovating its way to the “next big thing”. And if you look at what it’s trying to do with Watson you’ll see that it’s not my great-uncle’s IBM. In a company the shear size of IBM (379,592 employees), it’s amazing. And at IBM, innovation is clearly deliberate and cultural. It’s not by accident that the company has so far successfully navigated each major platform shift in the past 5+ decades.
So what do you want to do? Innovate or die. Ultimately, it’s your choice.
