If you’re in an older company suffering from Innovator’s Dilemma type issues, you may have hidden costs beyond what you realize. (If you’re not even familiar with Innovator’s Dilemma issues, then you have hidden costs and major hidden risks far beyond what you realize.)
Over the past few years, I’ve had some interesting experiences interacting with companies attempting various types of innovation strategy that struggle to do so. I’m not talking about my Clients of course. They’re innovating for real. Some of my more negative experiences have been via pitching business or participating in various networking events.
Anyway, here’s some of what I’ve learned about companies that are doing a poor or at least a sub-optimal job of new product development or innovation. (Even if they have so-called Innovation initiatives.)
You Can’t Recruit the Best
I go over a variety of issues regarding recruiting in this post Another Reason You Might Have Trouble Recruiting so some aspects of this section may be a repeat for the two of you that hungrily eat up each and every post.
The short version of that other post is that your company has a reputation and it’s both public and on the whisper net. The whisper network is that cohort of potential employees and recruiters in the industry who talk to one another. For real. As in on the phone; not just via posts on Glassdoor or whatever. They’re networked in ways not always obvious on LinkedIn, but they know the deal at your place. If you have crappy managers or if you talk innovation, but don’t really do it, they know. And they take a pass when the recruiter calls. To get past this, you might need to hire a serious disruptor that’s at least somewhat known in the industry or at least can quickly demonstrate that you’re really going to be doing some interesting things.
This cost to a company may be the greatest ever. Because you won’t be able to get the best people to show up. Or even really good people Without that, how do you produce great new products? And the thing is, you won’t even know this is going on.
You’re Not Really Innovating
Let’s also remember there’s different types of innovation. The cool kids in tech and startup land like to think of themselves as the Super Innovators and think just about anything old school corporate is ripe for disruption. (And ok, a lot of times they’re correct.) But there’s another reality as well. Large corporate does innovate. All the time. There’s a constant flow of new products. And those products come from doing world class core basic research from materials science to semiconductors to whatever. Product ideas also come from piles of customer service information, working with customers and hearing their problems, and so on. Startups likely have a lot to learn from such companies. Just as one of many examples, 3M is what most would consider to be a fairly old guard manufacturing company. Yet, they’re increasing R&D spend to 6% of revenue in 2017. (See Forbes: R&D: One Of The Driving Factors Behind 3M’s Growth.)
3M actually invented the Vitality Index to use as a KPI, and it measures the percentage of sales that are coming from new products. What is “new” in terms of a product and how long something is new might be debatable and different by company. But assume we’re talking about at least a material improvement and within three years. What’s 3Ms current number? It’s a bit over 30% in 2015. I’d argue that in this case, 3M is definitely innovating! Are you? Really? What’s your vitality calculation look like? Don’t have one? Figure it out. If you’re in single digits that’s maybe a problem.
What about you? Are you really innovating? Minor “new and improved” changes are probably not going to take you to the next $100M or beyond. Or maybe they will if your volume is high enough. But will what you’re doing be enough to hold back a true disruptor? Are you listening carefully enough to get a sense that something might be changing in your customers’ needs? Are you trying to do the hard work of changing cultural DNA to include innovation? Or do you have an elite innovation team somewhere? If a team, are they able to get anything done? Or do they face overwhelming pushback everywhere in the organization?
It’s possible you have “Innovation” on some business cards. And a few consultants training some special teams. But if new products or services aren’t being pushed out within months or if none of them are making inroads, chances are you’re not getting new things done very well just yet. This could have a triple negative effect: 1) Cost of the effort resulting in nothing; possibly not even much learning in terms of failure, 2) negative momentum in the marketplace, 3) a feeling that nonetheless you’re doing something even though motion certainly doesn’t equal progress.
- Having a group called “Innovation Group” is a nice start. But maybe not quite enough. Better might be an entire organization infused with the idea of maintaining the current cash cow businesses at high quality while at the same time always looking for the new. Of course, the reality is that most of the time, any core business needs to just go on about its usual day. That’s where the cash is coming in. And there may be no real need to mess with parts of the business that have at least some medium to long term life left in them. Part of the point of an innovation team, though, (hopefully), will be to help any product managers to look around corners to see if there’s risk in the Product Lifecycle Management that others have missed. Now I’m not saying an internal innovation group can’t be absolutely wildly successful! It’s possible. Still, this likely requires some autonomy and risk taking outside what most typical corporate environments allow. So external may be better unless you can truly, (as in for real), overcome any cultural inertia for staying in place.
- Culture is going to matter. Big time. The teams that are managing existing cash cow business not only deserve proper respect, they will ideally be invited to the party when it comes to moving things forward. Some might not want to come along. Someone who’s been running a reporting backend system for 30 years and is nearing the end of their career might want to just finish out their time and retire. (I’ve heard stories of older employees who aren’t even on LinkedIn or online much at all and just don’t care. Just the same as I’ve heard of or know older employees who have more energy, entrepreneurial spirit and the actual skills then any 20-30something.) So you’d maybe be surprised. That older person that faces not so thinly veiled age discrimination may be able to craft the most complicated database queries possible and understand the real depth of the business questions being asked with the same ease that the new kids can slap a MEAN stack onto a dev box and start pounding code. That 30 year veteran of your company that has more implicit knowledge then you’ve been able to stuff into your new expert system might have tech chops that can be re-deployed with something as simple as some coursework in new dev frameworks and one other not so little thing: a chance. An invitation to the party.
Maybe, just maybe, both the young hotshot and grizzled vet employee types have a lot to learn from one another and together could build some amazing value. What happens instead though, (at least sometimes), is a separate internal group that can tend to be overly elitist. This can increase the challenges of getting things done even beyond the usual corporate bureaucracy issues. Pride is good. Team attitude is good. These things build cohesiveness. But if your team crosses the line into arrogance, you’re likely going to face roadblocks. At the very least, recalcitrant resources ‘on the outside’ of the team. At worst, subtle sabotage. Internal competition may have it’s place. But generally, cooperation is going to be how things get done. If managers screw up via lack of Emotional Intelligence resulting in lousy team and cross team dynamics, the outcomes will likely be sub-optimal. And it will be hard to tell why due to the insidious and subtle choke points along the way.
- I’ll break from my generalist rants so far and tell you a real story I once experienced. (No names though.) I was working on a business integration and was on a evangelism meeting at one old guard company’s business units to go over some integration issues. This old-school GM said right to my face, “Listen kid, we were here before, [insert name of new partner], and we’ll be here when they’re gone.” I looked up, closed my laptop, and said, “OK then. Maybe we’re done here. Can we at least talk about what might come next and how we’re going to navigate things? Or should I just see if there’s an earlier flight home?” Over time, we were able to work things out. Slowly. And sometimes painfully. But at least in this case I knew exactly what I was dealing with. I appreciated the candor vs. the surface words that maybe don’t match actions. (Which I’ve also experienced in other situations.)
- OK. Maybe one more real world story. And again, no names. I was with my counterpart team member working with a company where we had agreed to basic terms on a merger type deal. It wasn’t closed yet, but we were clearly trying to go forward. There were significant cultural differences between the two companies even though the strategic fit was right from a product perspective. Here, on the surface, everything was fine. But as I gave a brief speech at one of their company events, I swear I could just feel a cool breeze. Again, in this case things worked out well. But the trust building took awhile. A deal on paper is fine. But written things, as much as they may matter for legal form, really just don’t mean crap when it comes to performance. If the proverbial hearts and minds aren’t in it, all you’ve got gong on is people turning the crank and collecting paychecks. (And maybe sending a brief “Hi. It’s me again.” note to their favorite recruiters.) They’re not going to take you forward.
- One way to avoid all the internal strife is set up a team externally. They can get their own General Manager, there own P&L, etc. Maybe it’s even a separate business entity altogether. This can work. Of course, you lose out on what are likely amazing legacy resources. Alternatively, you acquire a business that’s a strategic fit – for whatever reason – and leave it mostly alone. The relationship is more a matter of balance sheet. Or perhaps as a blocking move. That is, just take out a business growing a new category that’s about to eat your lunch. This might not solve a long term product lifecycle reality, but maybe, just maybe it’ll buy some time to respond to change. (A dubious proposition, but if there’s actual IP and not just market penetration, maybe it’ll hold back the tide for a bit.)
What it really gets down to is where do you want to take your Risk.
Acquisitions Alone Might Not Do It
Maybe an acquisition is the best idea in the world. But maybe not.
- When you buy out an entrepreneurial company, just what are you buying? If there’s customers and real products and protectable Intellectual Property, great. But if not, you’re really buying talent. Now, the primary entrepreneur and founder teams will get the bulk of the cash. Maybe other employees have some stock options that collapse their vesting schedules, etc. But your deal is going to include earn our periods, etc. Still, you just made some people wealthy. And maybe some others resentful. The wealthy ones probably still care about their company’s mission. But they may also be mentally checked out until they can take off. And the workhorse employees? Do they have golden handcuffs? No? What they have is a new resume line item that says they helped build this company that just got acquired. Are they still going to want to work for you? Even if you accounted for this and the deal structure lets you hang on to people because they have some kind of financial constraints, is that how you’re going to get innovation? It could work. But it’s dicey.
You’re Not Bringing Everyone Along
However you’re going about things, there’s nothing wrong with having an Innovation Group. Or New Product Strategy Team. Or whatever euphemism you want to call your Super Duper Future Vision Tiger Attack Team. There is, however, probably something wrong with having this group move attitudinally from beyond Esprit de Corps to elitism and arrogance. More often than not, an innovation team isn’t given it’s own P&L and put up completely on its own in an offsite building. They’re in house. And they often work though existing resources, which means a) horizontal management and b) some form of budget relationship to account for burn rate of shared resources. (And fights over attribution costs and margin from department to department can be tricky.)
While Vision and Mission are great things to have a culture driving towards in theory, people can be not only political, but emotional. An Innovation Team leader may be thinking “I’ll drag everyone right into the future; kicking and screaming the whole way if necessary.” And maybe that’s a great gung-ho attitude. But maybe it’s not the attitude that’s going to work to engage those parts of the company that will be needed to get stuff done.
There’s some aspects of acquisitions that have been written about ad nasueum… an acquisition wasn’t a great strategic fit, an acquirer radically overpays, culture clashes that are insurmountable, usually with the acquired company employees’ becoming second class citizens seeing their upper and middle management replaced, seeing motion alone as progress, and the list goes on.
So What’s the Point?
With the exception of a personal story or two for illustration, much of what I’ve recounted here is old news. What I’m really trying to get across is that beyond the big, obvious issues with both strategic and tactical integration of Innovation groups or acquisition of innovators, there are more subtle issues. If not handled properly the costs go beyond the clear and obvious impairment of an assets and brands. Without clarity of purpose from mission/vision, whatever you want to call it, there’s risk of losing team cohesion and motivation. And that’s hard to measure. There may be some proxy KPIs for this; surveys, turnover rates, etc. But those are usually backward looking descriptive statistics. To correct for this before it’s a company downward spiral problem requires the increasingly known to be important skill of Emotional Intelligence, and just recognizing these possibilities.
It seems as if companies sometimes approach innovation issues as technical disciplines rather than the cultural and emotional challenges that they actually are.