“Your company exists because it’s an execution machine, executing on known business models.” – Steve Blank, Stanford Univ. Assistant Professor of Entrepreneurship, author of The Startup Owner’s Manual
“Large organizations are designed for predictability and ongoing operations. Wall St. rewards us for ‘closest to the pin.’ Not too far over or under expectations.” – Deborah Arcoleo, Director, Innovation Center of Excellence, The Hershey Co.
“Every successful businessperson must learn to say no.” – Joe Rotman, benefactor of the Rotman School of Business at the University of Toronto
Corporations extoll the virtues of focus, drive, discipline and predictability. This ethos allows them to scale established businesses and optimize ongoing performance. So it is no surprise that when nascent strategic innovation opportunities are contemplated they encounter fierce resistance and often suffer premature deaths. These opportunities are seen as distractions to the core “performance engine” and as unacceptable risk-reward propositions.
Apple, Amazon and Virgin succeed repeatedly at strategic innovation, but they are edge cases among the Fortune 500. Most large companies simply cannot overcome the inertia of the performance engine, commonly displaying two key behaviors in the face of new business opportunities:
- Fear-based resistance:
- Fear of cannibalizing established businesses
- Fear of distraction from the preferred focus on short-term objectives
- Fear of hurting one’s career on risky, failure-prone projects
- Bad decision-making, leading to:
- Blocking opportunities on the basis of poor or incomplete information
- Operational leaders, with strong instincts from running the performance engine, asked to make “go/no go” decisions about creating new businesses outside the core
- Use of traditional financial metrics (ROI, NPV, ROCE, etc.) to measure the attractiveness of early stage opportunities when there are still too many unknowns for these metrics to give useful information
- Preference for information that confirms current paradigms and belief systems (confirmation bias)
- Preference for opportunities presented by people who are known and respected and against those presented by people who are relatively unknown (contagion bias)
So how do established, successful companies overcome these cultural barriers and become strategic innovators? There are two approaches: (1) change the culture first and then pursue strategic innovation and (2) change the culture WHILE pursuing strategic innovation.
The former approach sounds nice in theory but is unworkable in practice. One cannot change culture by executive fiat, by studying the theory of strategic innovation or by reading about successful case examples.
Instead, innovators must shape the prevailing culture while in the act of creating and pursuing strategic opportunities. In other words, it helps to use the discovery process itself and real, live opportunities as the crucible to create understanding and cause real change.
As you might imagine, this approach is not without its challenges. How can you successfully pursue strategic innovation in the face of these cultural obstacles? The good news is, you can.
How employees act starts with how they think and how they think comprises culture. The prevailing culture can be described as the mind of the company. The challenge for companies is knowing what employees are thinking in a way that is indicative of how they will act. To understand how employees think about strategic innovation, you have to “catch them in the act” by exposing their mindset, opinions and feelings during the process of creating and pursuing real opportunities.
This can be done through the combination of individual, private opportunity voting events and group dialogue and debate. The voting events record how individuals honestly think, apart from the influence of others in the organization, thereby exposing the true degree of alignment or misalignment in the organization. The group debates resolve these differences. The end result is an organization that has learned from itself about what is possible.
Core project teams established to generate new strategic business opportunities tend to be split off from the performance engine of the organization. This gives the core project team space to freely explore alternatives that would quickly be shot down as “not what we do” or “out of our wheelhouse” by the performance engine. Strategic innovation opportunities may be very compelling to the project team but, when presented to the performance engine for approval, prioritization and funding, are too often perceived as risky distractions. The solution is to involve the performance engine directly in the learning and discovery process through the voting events and subsequent dialogue and debate forums.
These voting events and the ensuing discussions and debates touch a wide swath of the performance engine, engaging a significant portion of those employees who have the authority to make or break opportunities. By also collecting individual voter profile data, such as function, level and business unit, we can generate individual and group voting results that reveal the organization’s biases regarding specific opportunities and types of opportunities.
Analyzing the voting results in various ways reveals:
- By individual => Gaps in information that need to be addressed for the opportunity to advance
- By organization level => Gaps in understanding of the business or innovation strategy; differences in the tolerance for risk between frontline employees and executives
- By function => Gaps in understanding of the degree of difficulty of pursuing opportunities (e.g. commercial voters might underestimate technical difficulty and technical voters might underestimate go-to-market challenges)
- By business unit => aps in understanding of the degree of difficulty of pursuing opportunities that come from one’s proximity to the technical, commercial or operational requirements to successfully pursue opportunities
By engaging key influencers from the performance engine in the discussion and debate of the voting results, we begin to break down the barriers and create real possibilities for the company. In doing so, we accomplish two important objectives for the company:
- Exposure of critical barriers to opportunities that might otherwise be latent so that they can be addressed and, very likely, resolved.
- Learning about what the company could and should reasonably achieve in strategic innovation activities. In essence, we define for the organization its strategic innovation capacity – beyond what the performance engine thought possible but not beyond the limit of feasibility.
This mind of the company approach has been successfully used over many years in the context of opportunity creation programs. These tools not only socialize the new concepts being considered, they educate, involve and leverage the core performance engine in strategic innovation activities. Given the persistent difficulty of doing so in any large and successful company, it is one of the most effective elements of an opportunity creation toolkit.