Thoughts in Progress — Want to be an innovative organisation? Innovate your organisation!
Many businesses want to be “innovative”, and almost all claim to be that on their website (in some cases, to a laughable degree). It’s the new “must-have” item in business fashion, the trendy word you cannot be seen without! No matter how you use it: as a ‘value’, a ‘core principle’, an ‘about us’ feature, a ‘key differentiator’… Organisations are very innovative in their ways to plug in the word innovation in their communication!
More often than not though, businesses associate ‘innovation’ with product or service innovation as in “we deliver new stuff for people” (or stuff with new features). But actually, there are different ways to be innovative. 10 types, even, according to research by the innovation consultancy Doblin (who spent decades working in that field and analysed blablablabla… long story short, it’s pretty solid).
There’s a lot of great stuff in their research, and one of the highlights in my perspective is the fact that while a large majority of investment goes into innovating on product offerings, that’s where the return on investment is lowest. You get the most bang for your buck when you innovate on the ‘edges’: your configuration, and the experiences you deliver. You’d think that’s pretty useful knowledge, wouldn’t you? Somehow, the shiny “new stuff” (product offering innovation) still gets the limelight.
Innovate on your configuration, and on the experiences you deliver…. Cool, cool. Let’s push that a bit further though shall we?
What I’ve learned, from both practical experience and various academic research papers, is that while organisations want to be innovative, they are rarely designed to be innovative.
They start out by innovating, for sure: that’s how a start-up survives, exploring the market needs to create new value for customers. But then, they start shifting from exploring and innovating, to exploiting and scaling. Roger Martin talks about the ‘knowledge funnel’ (in his book The Design of Business) where businesses go from solving mysteries to creating heuristics (rules of thumb) to solve those mysteries, then systematise their solution into an algorithm where efficiency is the name of the game… and then the organisation stays stuck there, unable to pursue the next mystery.
Why are organisation unable to keep innovating?
In a word: investors. Yeah, counter-intuitive right? Investors would probably want to invest in an innovation power-house, able to come up with the next big thing, and then the next, and the next…
So, what’s happening there?
- Organisations, once established, start to have investors who want to see a return on their investment. Yes, early investors tend to take bets on an uncertain return (90% of start-ups fail) and that’s when the organisation is at its most innovative… when it can fail! Once a start-up scales and becomes public though, there is an expectation for predictable and increasing return, year on year. Wait, why go public? Well, that’s the much-awaited ‘point of liquidity’ for early investors and founders, who make a mint when the company stock goes public (except when you run a scam model like WeWork, but that’s another story right?). So. Public market, investors, predictable results expected.
- To deliver that predictability, organisations set themselves to meet the market’s expectations. Miss a quarter, the stocks go down, and with it your ability to borrow cheap capital from banks. Also, you may lose your job as top dog if investors think you’re not able to deliver on expectations, or be subject to a hostile take-over. Doesn’t sound fun. So execs work hard to keep the organisation humming and delivering what’s expected.
- To set expectations, businesses determine a budget for the year and then try to stick to that. How are budgets (and most KPIs) determined, more often than not? Look at what happened next year, and aim to do the same but a bit better. Simple! (and ridiculous). Cut a bit of cost here, generate a bit more sales there, and boom. A budget. Don’t laugh, I’ve seen this done exactly that way and you probably have too (except if you’re lucky, some organisations run a smarter budget planning process).
- To deliver on that plan or incremental improvement, the organisation becomes a ‘performance engine’ (as described by Vijay Govindarajan and Chris Trimble in their awesome book The Other Side of Innovation). Everybody, everything is focused on doing what’s planned. Oh, wait. Innovation. Ah yeah, is that going to work nicely according to plan… but planning innovation’s results is asking people to predict the result of something that’s never been done before! How do you know in advance how much it will cost to explore new territory, or how much revenue it will generate? Do you stop when your budget runs up, even though you may be 90% there? Meh. That’s rough. Sounds risky. I don’t want to lose my job trying to uphold that. Let’s stick to running the algorithm based on what we did last year.
So, you want to innovate now?
Look at the picture above and figure out how the organisation is going to deal with people who want to put time and money into a project that has highly uncertain gains. At the risk of repeating myself, you can’t predict innovation outcomes by looking at the past.
Let’s assume these people who want to be all innovation-y have positional power or a whole lot of ‘idiosyncratic points’ (as Adam Grant puts it in his book Originals) to push their innovation project, and don’t get simply brushed aside as ‘agitators’. They still need:
- To unlock some budget to fund early exploration work (or manage to do that under the radar to start building their case)
- To get support to test and prototype solutions of how this innovation could deliver value (you’re out on a limb here)
- To get top-level support to implement this innovation in the business (that’s the number 1 factor predicting innovation take-up, according to research)
- To navigate internal collaborations to implement an innovation that risks disrupting the ‘performance engine’
Yay. Walk in the park.
One of the saddest things here is that it starts from the assumption that you have lots of sway in the organisation already. So effectively, you’re barring yourself from the smarts of many, many people working in the trenches and who (hang on to something) have a brain! Yes, I know. Crazy. People in the frontline who have NO positional power and NO influence may actually have great ideas. Point to research and the value of diversity, and blablabla (and I mean that beyond guy/girl diversity, that’s really ground 0…). Yeah, crazy stuff again, turns out that people with diverse thinking styles and experiences etc can collectively come up with better ideas than an army of clones led by a supposedly smarter-and-stronger-than-everybody leader. Take that, Star Wars.
Can’t it be easier to innovate?
Glad you asked. Of course it can. To become a real innovation power-house, start by innovating… how your organisation works. You could do worse than starting with a few questions:
- What are the roadblocks to innovation in your organisation?
- How can you free up budget for teams to explore new things you have no way of predicting when planning next year’s budget?
- How can you consistently learn from that exploration at a team and whole organisation level?
- How can you bring issues and opportunities to everybody’s attention instead of burying them down under the rug of “busy-ness”?
- How can you bring passionate people together to work on these issues and opportunities, regardless of their role or reporting lines?
There are many big questions, but one thing is clear to me. Having an organisation where people are hired for a specific role leads to fear that they need to ‘defend’ this role against threats of becoming not needed (and hence lose their job). If you are given a little box to work in without looking at the big picture, you will look inward and build your little empire with high walls and shoot cannonballs to whoever tries to make changes to your nascent kingdom.
Give people a clear purpose, confidence that they are not hired for a role but for their skills, and give them the room to try new things: you may start to see innovation emerge. But that requires changes to how you organise work and manage people. And that requires leaders to make those changes happen… (more on that in another post)
So next time you think about calling your organisation innovative, start by designing it to innovate rather than to pump out predictable same-same stuff.
Thoughts In Progress are brain farts that need fleshing out… I write for myself to get these ideas out of my head (as the saying goes “How can I know what I think until I read what I write”), but feel free to read and comment so we can refine these thoughts together!
Note: this article is written based on many many readings and I’m super-lazy so am not putting all the references there (yet) since it’s a work-in-progress… but if you feel like it, add references you know of in the comments and let’s make this article better together ;-)
