Thursday, July 25, 2019

Failing To Innovate


Companies that want to innovate often invest millions of dollars in expensive labs, dedicated departments, and funding for new initiatives. They make these investments because they genuinely want to empower their companies to drive break-through change.

These efforts are to be applauded, but the fact is that many innovation initiatives fail; and their failure isn’t discussed enough. Learning from failure is just as important as trying to replicate success. As head of Innovation, I’ve worked with a diverse group of industry leaders across IT, product, and technology. I’ve observed the wins and the losses; both have been great teachers.

The Basics of Failing.

It’s generally known that new companies fail at a high rate, but Startup Genome gets specific about the casualties, estimating that as many as 90% of startups fail. This astronomical failure rate is due to a variety of factors spanning business ideas, products, and organizational structures.

According to the National Venture Capital Association, approximately 40% of investments fail—the same ratio return their investment and only one or two out of ten have a great return.

Organizations that are serious about innovation need to have a portfolio-based approach to their innovation initiatives. Though many organizations want to start out by merely dipping their toes in the water with one or two things, this can send false signals to internal stakeholders based on one project. It’s the old expression of putting all your eggs in one basket, only you can’t spread your risk if you only have one egg.

Larger enterprises that are spinning up an innovation lab should consider how they can take a more diversified approach to innovation, and then track the progress of that portfolio over time along with its long-term impact on the central business.

Protect Innovation or Embrace It.

Companies that want to innovate struggle with where to place it in the organization. If you protect your innovation division, you may shelter them away from the overall corporate structure and politics. This has the advantage of allowing teams to move quickly, but can lead to failure when teams are unable to demonstrate the value of their innovations because they can’t integrate them within the core business.

On the other hand, making innovation part of the organic structure of the organization can also lead to failure because having to work at the scale and complexity of an enterprise can slow down your ability to get ideas to market quickly.

The reality is that innovation success is built on a combination of both protection and integration. Your innovation projects should cause as little disruption as possible to your core business, but you should regularly (perhaps on a quarterly basis) explore ways to integrate innovation projects, prototypes, and new ideas into regular business operations.

Startups protect their innovation activities by scaling with their customers—Sell to a small organization, then grow features and functionality to larger and larger customers. Within an enterprise, scaling is harder because you’re often serving only one very large customer. It’s important to give innovation efforts enough protection to allow full exploration, but then gauge their success based on the relative impact as a percentage rather than a specific dollar figure Put another way, an innovation project that has large percentages impact needs to be protected more than those that offer incremental enhancements on enterprise-scale problem. Larger-company economics would have you kill of the small but impactful ideas in favor of short-term incremental wins.

Do I Disrupt the Core Business?

When Blockbuster Video was trying to figure out how to enter the streaming business, they needed to evaluate how much the new disruption would cannibalize their core rental business. Like Blockbuster, most organizations tend to have a bias toward protecting the core business. This is understandable, but if can effectively kill the very thing that made a new idea innovative in the first place.

If you aren’t willing to cannibalize your own business, prepare to get comfortable with someone else doing so. If it is organizationally difficult to adopt more risk-friendly approach, you may want to set up a separate spin-off with its own leadership who can provide added autonomy to make the right decisions. If you choose this path, be warned that there will be a strong pull to incorporate the core-business mechanics from procurement, legal, IT, etc. While such overlaps can provide operational efficiencies, they may also inhibit the true ability to disrupt the core business in a positive way.

In contrast, consider how efficiently Netflix moved out of the DVD business and intro the streaming business, or how Coca-Cola self-cannibalized the soda space by growing its water, juice, and coffee business.

Your Size Is an Advantage and a Curse.

Large organizations have many efficiencies at a national and global scale. Distribution networks, economies of scale, and complex distribution and business agreements create a positive momentum that protects and keeps larger businesses going. However, these enterprise-level systems can also create friction that inhibits a culture of innovation.

Organizations are inherently designed to protect the core business, and specific global and regional roles are put in place to keep the trains rolling on time. Any change to process, tools, or execution has ripple effects that touch different areas throughout the organization and can slow down approvals for and the implementation of new ideas.

In a smaller organization, a new idea can often move forward after an informal huddle and a thumbs up. But a larger organization requires an impact analysis, a budget meeting, a cost-benefit assessment, and a supply chain conversation—any of which may kill a good idea before it has half a chance to get off the ground.

One way larger organizations get around this is by empowering their global and regional leaders. Certainly not everyone is an Elon Musk, Ginni Rometty, or Steve Jobs, but having empowered leaders who can selectively cut red-tape to get shit done allows some organizations to move significantly faster when they need to.

The Culture of Innovation.

Not every organization is ready to say YES all the time or even most of the time. Certainly not every division/department should be a YES division all the time, but building a culture around positivity and exploration creates the space new ideas need to incubate and form. Simply changing the language you use to describe and talk about new ideas can be a catalyst for change:

No → How could we?What if we?
We have no budget → How could we pay for it?
That’s not my job → Who could help us get there?
Our policy doesn’t allow that → What will it take to change the policy?

Changing language creates a sense of psychological safety, which gives people permission to genuinely explore ways to make the company better without the fear of being instantly rejected. Taking this to the extreme, employees in one organization I worked with literally had no paper or pens because they were afraid of their procurement expenses would be rejected. Another large company I worked with had no-wifi for anyone—including employees!—and it had been this way for so long that no one knew why. Talk about being stuck in a rut.

Innovation doesn’t always have to be about big ideas. It can be about the subtle cultural improvements that create a more positive environment in which to innovate.

Incremental, Not Bold and Visionary.

Each of us is on a mission – a mission to get to the moon, to organize the world’s information, to cure cancer, to create an interplanetary community. These are bold and visionary goals and they inspire people with a larger and greater purpose. Innovation needs the forcing function of a greater purpose, a larger and more challenging goal that necessitates new technology or a new way of thinking. This is how you get leap-frog innovations and not just incremental work.

Sometimes bold ideas fail, but lacking a bold vision is a more consistent path to failure. Bold and visionary attracts the best people and improves your likelihood of achieving the breakthrough innovations that will change your world and the world at large.