Strategy Talk: How Can I Make My Company More Innovative?
Dear
Ken,
I see
companies trying more and more approaches to innovation, such as venture
capital arms, incubators, university partnerships, online crowdsourcing, global
hackathons, and more. It’s all a bit bewildering, and I don’t know where to
start. As a newly appointed CEO, I recognize the importance of innovation, but I
worry about doing a bunch of stuff just because others are doing it. Indeed, I
wonder if it’s even possible for large companies to be innovative, or whether
that’s the job of entrepreneurs and small businesses working outside the
stifling walls of giant corporate bureaucracies.
—Inquisitive Innovator
Dear
Inquisitive,
You are right to be wary of initiating a slew
of innovation activity. It could very well be a giant waste of money, time, and
energy. But you are also right to recognize the importance of innovation. It is
the lifeblood of all companies. Without it, they get stuck in a zero-sum game,
in which their gain can only be another’s loss. Fortunately, it is possible for
big companies to be more innovative, if they instill three essential behaviors.
1.
Start with specific problems that demand novel solutions.
Every
day, thousands of entrepreneurs pitch their startups to venture capitalists.
Almost always, the first question the entrepreneurs hear is: “What problem does
your new business idea solve?” This is because venture capitalists know that
all innovations are born as a novel solution
to an important problem. But this is true for big
companies, too. For example, Ford’s moving assembly line solved the problem of
how to democratize the automobile; the iPod and iPhone became the unexpected
answer to making Apple’s iMac the center of consumers’ digital lives; and the
first cloud computing service solved the problem of how to generate profit from
Amazon’s huge army of servers supporting an unprofitable e-commerce business.
Too
often, however, large companies start innovation in the wrong place, with big
mandates (“We will become more innovative”), stretch goals (“20 percent of our revenues in X years will come
from new products”), new techniques (design thinking, open innovation), new
roles (chief innovation officer, chief design officer), or new departments (an
innovation center or corporate ventures unit). This creates aimless activity
because it is not grounded in how innovation actually happens. And that creates
a black hole where resources go in with little real innovation coming out.
2.
Make innovation the job of every leader.
I am
often asked, “Who are the most innovative companies?” And I always start my
answer by saying that people innovate, not companies. Then I ask them to look
at companies with leaders who get their hands dirty when it comes to
innovation. Consider the examples above: Actively involved leaders at the top
of large, established companies gave us the first moving assembly line, the
iPod and iPhone, and the first cloud computing service.
But it’s not just leaders at the top who need
to be innovators. A good rule of thumb is that anyone in a leadership position
should be responsible for finding innovative solutions to problems that fit his
or her pay grade. For example, product heads should be responsible for finding
innovative solutions to specific product challenges, not the product
development team. Functional leaders should be leading functional innovation
efforts, not the operational excellence department. If you have business units,
their leaders should be in charge of innovating their strategies and business
models, not corporate planning. And yes, the CEO needs to be front and center
in driving enterprise-level innovation, not just the chief strategy or
innovation officer.
A related issue at many large companies is
that people are asked to innovate for problems that are above their pay grade.
This creates a situation in which ideas are coming to, rather than from, the
leaders who are ultimately responsible for implementing those ideas. And that
dooms your company to incrementalism, because it’s only natural for a leader to
want proof — financial, market, or otherwise — that someone else’s idea will
work before they agree to support it. Knowing that, people will bring you only
those ideas for which doing NPV analysis or customer research is possible.
These might include a better car, but not an entirely different way of building
it; or a better MP3 or mobile phone, but not one that changes the way music is
bought and sold; or how to make your server farm more energy-efficient, but not
how to turn it into a profit-making juggernaut. None of these innovations could
have been proven with financial analysis, market research, or anything else.
3.
Replace the call for ideas with a hunt for precedents.
If
true innovation is novel solutions to specific problems, new ideas are its
feedstock. And ideas are inspired by precedents that are connected to the
problem you are working on. For example, by offering monthly subscriptions for
movie rentals by mail, Netflix solved the problem of customers having to run to a
store or else pay a penalty for late returns. The idea was sparked by the model
of monthly gym membership fees. Likewise, Google’s PageRank cracked the problem
of how to show the most relevant online search results first. It was inspired
by the protocol of ranking academic publications based on their number of
citations.
The
more precedents your leaders have to work with, the more likely they’ll find
the ones that lead them to new thinking, novel ideas, and breakthrough
innovation. You can find precedents by looking into
your own experience or doing research or by asking colleagues, your
organization, or a “crowd.” Whatever your source, instead of calling for ideas,
present the problems that frame your innovation needs, help people think about
those problems in the broadest possible way, and ask whether they know of
anyone who has ever solved any part of these problems. They may have to search
far and wide, but chances are, there are highly relevant precedents out there
that will help your leaders innovate.
These three behaviors are more natural in
startups and small companies. In large, complex organizations, such behaviors
can be difficult to sustain — and that’s why so many big companies struggle
with innovation. As the CEO, it’s up to you to instill and reinforce the
behaviors in everything your company does to be more innovative. Whether it’s a
venture capital fund, accelerator, new product process, or anything else, focus
everything it does on helping your company find new solutions to big, specific
problems that demand innovation. Be sure that every problem has an accountable
leader, and that it matches his or her pay grade. And ask your leaders to
generate their own ideas by hunting for precedents that are connected to the
problems they are working on.
Ken Favaro
https://www.strategy-business.com/blog/Strategy-Talk-How-Can-I-Make-My-Company-More-Innovative?gko=3cf06&utm_source=itw&utm_medium=20170706&utm_campaign=resp
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