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jeff-degraff_1's picture

Why the "Most Innovative Companies" Aren't

Editor's note: This is the first in a series of two blogs on "How Innovation Happens"

“The art of making art is putting it together.”  Stephen Sondheim

Pull out the list of the “most innovative companies” from your favorite business magazine. With the exception of their brand recognition, which is the entry fee for these beauty pageants, they have few innovation competencies or practices in common that would distinguish them from the rest of the rabble—whether unique strategies, unusual financing or novel ways of hiring and staffing.

The fact is that one size never fits all. Checklists are for complex routine tasks and situations that are predictable. Neither are conditions for disruptive innovation.  What makes innovation companies unique is, well, unique. That is they are highly adapted for their specific situation.

Corporations spend billions of dollars on innovation training every year. Take a close look at popular leading innovation programs and you are likely to find a wide array of distinct subjects and approaches—from state-gating processes to creativity methods to open innovation networks.

While important, the problem is that these subjects don’t get at the real issue that stops companies from innovating. It’s connecting the dots that makes enterprise innovation functional. Unlike most other forms of value, innovation happens horizontally. It doesn’t belong to any one department, discipline or region. Ask leaders in five different divisions of your company what innovation is and how it happens and it will become clear that they are not talking about the same thing. You might have tremendous research and development, marketing and logistics innovation and still fail miserably in the marketplace where these individual departmental functions are of no consequence.

Consider the 2010 BusinessWeek innovation survey of thousands of senior leaders in dozens of countries. It identified the following as the greatest challenges to making innovation happen in their companies:

  1. Lengthy development times
  2. Lack of coordination
  3. Risk adverse culture
  4. Limited customer insight

Ironically, during the worst recession in nearly a century, money wasn’t among the top barriers. Similarly, strategy, technology and competencies, the usual excuses for why innovation isn’t happening, were not among the main concerns of these executives. Instead, the primary challenges are essentially leadership issues of coordinating and integrating innovation throughout the enterprise and beyond.

Innovation is typically systemic, solution-based and therefore larger than the sum of its parts. It needs to seamlessly sync up across a labyrinth of boundaries and barriers. In fact, when it’s isolated within an innovation center it often becomes a not-invented-here orphan with little ability to find an operational home where it can grow to scale. While large organizations are designed to compartmentalize functions to optimize efficiency the coffee shop across the street isn’t. That’s partially why inventive work gets done there. It’s not just under the corporate radar, it’s beyond it.

The larger the company, the deeper the orthodoxy. Leaders of complex organizations tend to surround themselves with likeminded people, which reinforces their conventional approaches. At every stage in the life of a new idea or initiative, compliance crushes dissent.

The Point: According to executives the biggest challenge they face is connecting the dots between departments, regions and other companies which is inhibited by organizational design and control-based rules

What to Do: Reverse your field. Start your innovation in the coffee shop and work your way back to the company. As innovations move from the nascent ideation stage toward full implementation they become more convergent and incremental because they must confront the logistical realities of functional viability, funding, and the laws of science and commerce.

It’s easy to make a big idea smaller but making a small idea bigger is a Homeric task. Innovation is organizational treason. Innovators are conspirators connected by their dissatisfaction and sedition. 

Launch your innovation projects off Broadway far away from the watchful eye of the ever-present critics.  Don’t fail in front of your most important clientele. Instead find your own New Haven or Buffalo where you can work on getting your show right before you open in your most important venue.

Remember innovation is a game of attrition. Every venture capitalist knows that you take multiple shots on goal because you never know what project is going to score and what isn’t until you take the shot. So hedge first and optimize later. Forget the 80/20 rule. That’s for efficiency wonks. It has nothing to do with making things amazingly new. Use the 20/80 rule instead. That is, it’s easier to change 20% of your company 80% than it is to change 80% of your company 20%. View your company’s performance on a bell curve and start at the tails where crisis or outstanding performance prevails. These are the places outside the norm where the risk of innovating and the reward of keeping things the same are reversed.

Momentum is the key when connecting the dots of innovation. Find existing projects with lawyers, guns and money and hide your revolutionaries inside these Trojan Horses. They already have political capital and the means for propulsion. Use them to keep moving forward. Work out of sight and prototype your project until it starts to look like something that might actually succeed. Show, don’t tell.

You can find many inspiring and instructive examples of what it means to develop innovation as a deep-seated capability among the finalists and winners of the MIX’s Innovating Innovation Challenge.

Jeff DeGraff is Clinical Professor of Management and Organizations at the Ross School of Business at the University of Michigan.

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_148's picture

This is great. We are getting some debate. As evidence for the existence of bad ideas, I submit the results of a typical company suggestion scheme. There are often many suggestions, but few of them are useful. Mohd, it is good to be positive, but it is also good to be realistic. Successful innovation is rare whether inside companies or in the market place. This is why Jeff talks about 'taking multiple shots on goal'. Most of the shots are bad, but some are good and score goals.

Tathagat, one of the other things I have noticed about the individuals who drive innovation is that they have normally had an experience as some point that has convinced them that their idea or some part of their idea is good. This personal experience is what drives them on. It is what causes the subconscious part of their brain to keep saying "this is good" even when others are pouring cold water on it. It is also for this reason that individuals or small teams are at the heart of most significant innovations. They have a visceral understanding of something that others do not understand.

_158's picture

When of the best posts I have read which points out why large organizations are risk averse or become risk averse as they grow.

@Campbell - Can you define "good" and "bad" idea? Just because they lost money does not mean an idea is bad. Bad and good depends on implementation and lots of external factors, something called luck also plays important role. You are right people do play important role but execution is not enough to tip an idea from bad to good.

tathagat-varma's picture

You are spot on when it comes to 'institutionalized innovation' - something like a committee that decides what shall be the annual budget for innovation and how will we fund those ideas top-down. However, I missed a mention of people factor in this post, and hence sharing some viewpoints.

I think a lot of real disruptive innovation is all about 'individualized innovation' - i.e. an individual(s) comes up with an anti-establishment view of existing products and services being offered, dreams up an idea but is essentially told to shut-up and focus on 'more of same', but nevertheless goes ahead refining it further and socializing the idea with other like-minded folks, and gathers feedback and start with some skunkworks. While this might seem like a very romantic version of the lone but brilliant thinker (and some might say, rather outdated), I think most radical ideas still germinate this way, at least in industries where the cost of innovation has fallen much lower than the cost of engineers. Case in point is software products, especially in internet based software products or services where today anyone with a laptop and a wifi can begin innovating, almost instantaneously. These folks will dismantle every single rule to find a way to keep moving, and come to a point where they will birth their idea into a working prototype, even if rudimentary by all industrial standards. I think at that time the organization must stand firmly behind these inventors and let them have their way. If not, they might simply leave to pursue their dreams, and the next thing you know is that you, the large company, is buying them for 100x the price you would have paid them in the first place (or worse, your competitor buys them out!). We still see examples after examples where startups are becoming the true engines of innovations, and are invariable led by those initial one or two folks who have a bold idea and are willing to sacrifice their personal comforts and career, even invite ridicule, just to pursue their idea - be it inside the organization or outside, if that's the way it is going to be. Surely, from organization's viewpoint, it better be inside. But do out management structures and performance management systems really support whatever it takes for such grounds-up innovation to happen?

So, I think the need is to first create conditions that dismantle 'property rights' that stop people think freely and collaborate in the first place. To me, a few things stand out - first of all, not everyone in the organization is cut out to and will stick out their neck to 'innovate'. Some of us are built to be compliance and efficiency folks, and will do a great job in keeping the engines humming beautifully- and there is nothing wrong about it. And then there are other folks who will think of crazy ideas that will some day be the new growth engine for the company. Question is how are you identifying such folks and letting them experiment and fail. Any top-down company-wide innovation program that 'facilitates' innovation is fundamentally at crossroads to such free-wheeling thinking.

daryl-grace's picture

Property rights is a very broad field that needs to be dismantled into many aspects to cover every division regarding about this matter.
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_149's picture

Nice post. I disagree with Andrew Campbell on a number of his points and have personally experienced many of the things you mention.

Can't wait for the second installment.....thanks for a great first one.....

_148's picture

Oh dear Jeff this is rather old hat thinking. We can all agree that innovation is hard because there are many more bad ideas than good ones. Also, there are many more people with good ideas who do not have the competences to make them work, than there are people with good ideas who do have the competences to make them work.

As a result, if you were able to distinguish good ideas from bad ones and invested in all the good ideas, you would still lose your shirt because most of the people leading the good ideas do not have what it takes to make them work, whatever the organisation does to help.

As every venture capitalist knows, innovation is about people - do the people leading the innovation have the capabilities to get the innovation to work given the environment? It is possible to give them some help, but if they don't have what it takes, no amount of help will bring home the bacon.

In my experience the environment inside most companies is less harmful to innovation than the external environment. The problem inside organisations is that there are too many people leading innovation efforts who do not have the skills to pull it off: we have too many incompetent innovators. Instead of blaming the innovators, many people like you try to blame the organisation. This misunderstands what is going on. In the market place, you may get a slightly higher hit rate. But this is because you have fewer incompetent innovators. Because the conditions are so much tougher, some of the dreamers screen themselves out.