The survival of large enterprises calls for innovation. It requires continually creating a new set of businesses to sustain growth and profit. Guest author Avner Mor identifies five crucial ingredients that senior management should use to succeed in their innovation program recipe.
Innovation exists in the form of ideas, innovation leaders and teams. Everyone talks innovation. Yet we see more and more opportunities missed by large enterprises to leverage their enormous assets – technologies, brands, relationships and routes-to-market – within their internal innovation programs. Innovation programs are constantly being established and funded, but months pass and success is often not materialized. I have seen quite a few testaments to this through my years at several global corporates and startups.
I believe it possible for these large enterprises to transform innovations into sustainable future businesses. But only if senior management enables the right conditions for the innovation leaders, the expert starters, to get off the ground and to prosper with their program.
Large enterprises are good in producing more of the same, or at best, continually improving current products and processes. Leapfrog innovation calls for a fundamentally different structure because the existing corporate culture and practices are destructive for internal innovation programs.
Throughout my working experience in the past 12 years, I have singled out five crucial ingredients that senior management should use to succeed in their innovation program recipe.
1- Free the corporate clock
[tweetable]Enterprises have their own corporate clock for tracking and measuring progress[/tweetable]. The corporate clock conducts periodical reviews of operations and financial KPIs (key performance Indicators) to evaluate success. We are all familiar with the concepts of strategic planning, market research processes, quarterly forecasts, roadmap and the infamous 3-year business plan. The innovation program leader is buried under the corporate clock: meetings, worksheets and slides upon slides. She is constantly facing operational managers who are excellent at KPIs measurement but do not necessarily have the know-how on the relevant market; neither do they have the ‘innovation spark’.
Furthermore, the innovation program doesn’t know yet how its product will look or who it’s the target customer is. So how can such a program provide a breakdown of its future products sales, margins and profits for the next 3 years? Strategic planning, an 18-month roadmap and market research analysis will not – and cannot support – an internal innovation program. If the market research already exists, the opportunity is already lost. Following the corporate clock, common practice analytical methods, and KPIs to manage innovation will destroy the business, not revive it.
It is true that process and management are musts for the internal innovation program. For that, the senior management should design new methodologies, to release the innovation program leader from the corporate clock and allow her to iteratively experiment, seek customer input and adjust the product and go-to-market route at every step. As Mason Cooley said, “to be fulfilled, a prophecy needs lots of flexibility”
Eric Reis in the “The Lean Startup” captures it concisely – “I believe a company’s only sustainable path to long term economic growth is to build an ‘innovation factory’ that uses Lean startup techniques to create disruptive innovations on a continuous basis…breaking down a business plan into its components parts and testing each part empirically.”
2- Reward making mistakes and risk taking
Paving the way for the internal innovation to become a commercial product and a sustainable business is all about small steps and experiments. Each experiment provides a new insight on what is the right way to go to market or what are the most valuable product features. Each experiment faces uncertainty and reflects risk. The correlation between taking risks, making mistakes and achieving success is obvious. At the same time, another correlation exists: when you take risks, you expose yourself to unforeseen opportunities to get to non-incremental results. The only people not making mistakes are ones playing their game without taking any risks – and without making progress.
Large enterprises are intolerant of mistakes. A manager is subject to be burned out if she presents an idea, a strategy, or a direction and then changes it. The change, even if can be is clearly justified, stands out as a failure. The innovation program leader is stained with a failure to plan or a failure to deliver.
If the enterprise cannot accommodate, and or even reward failure, then in the long run, it cannot succeed in building sustainable a business out of innovation programs.
3- Unlock access to the enterprise assets
On the surface, having an innovation program within the enterprise can outcompete most start-ups. The innovation program can tap into years of know-how and enterprise assets, including technologies, brands, relationships and routes-to-market. This aggregate Intellectual Property is a gold mine for the corporate innovation program. These already existing elements are invaluable. They can provide a competitive edge in product value, product cost and in time to market.
At the same time, established enterprise assets are owned by other divisional units – units and managers that have goals, budgets, target revenues and profits. Units and managers that are struggling to achieve their quarterly KPIs. Will they allow an unknown, zero revenue intuitive to mess with their goals? Well, good luck with that.
How do you get access to assets controlled by divisional units? The answer your ‘re likely to get is: “sorry, it’s not within our strategy”; “are you trying to compete with us?”; “give us 5 headcounts and $500K to adapt the interfaces”; “we will consider it on our roadmap planning for the next 18 months” or “you can get it, but this is the ‘transfer price’ for using our product”. Summing it all up: good luck.
The result will probably be, either that the enterprise innovation program waives off using the already proven company asset or that it goes to buy it from external companies (sometimes it is easier to engage out of the family).
Either way, the innovation program losses the potential edge of either valuable, low-cost product or time to market.
[tweetable]Enterprise is not a ‘free market’. There is no place for Adam Smith’s “invisible hand”[/tweetable]. A self-regulating behavior is wrong here.
The senior management plays an important role: finding the balance between the ongoing mainstream businesses and the innovation programs.
At a minimum, the senior management should:
Guide the divisions to produce their functionality together with a simple service that any other group in the company could reach. In Jeff Bezos, Amazon, CEO famous memo (https://plus.google.com/+RipRowan/posts/eVeouesvaVX): “All teams will henceforth expose their data and functionality through service interfaces; Teams must communicate with each other through these interfaces; Anyone who doesn’t do this will be fired.”
Guide the divisions to hide all internal transfer prices and remove internal margins on their assets’ internal usage. Thus allowing the innovation program to introduce a market-competitive price for its product.
Define certain innovation programs as corporate priorities and embed them within the KPIs of the annual unit managers.
Closely manage an innovation “speed boat” process that circumvents the company roadmap process
4- Clear the road to customers
[tweetable]Any innovation program must strive to get its first customers[/tweetable]. The value of the first customers is unparalleled: product feedback, business model validation and your first revenue. Yet, most often the enterprise innovation program cannot reach the enterprise’s existing customers. You see, customers are owned by the enterprise sales force. The sales force is struggling to achieve its own goals for numbers of new customers, deals and actual revenue. Their focus is on short-term results. Why should they allow access to their customers to an a tiny new division with zero revenues? Again, as an innovation manager you‘re on your own.
Here too, when the innovation programs approach the sales force to get access to their customers, the answer typically is: “My quota is $100 million this year, the most you would accomplish for me will be a few thousand”; “I am not going to risk the relationship with my customer for an unknown, low-quality product”; “you are competing with me on the same deal” or “wait for 12 months until I get that big deal”.
Again, the senior management plays a crucial role here. Regulation is required to make innovation programs a success. If the sales force is acting upon its quota, then that quota should include the innovation program’s KPIs for revenue and new customers. The sales and the business development people should be aware that their annual commission is dependent, also, on the low numbers of the innovation programs.
5- Support and protect from the inside
In the 1970s, Henry Kissinger, the US Secretary of State, made this observation on Israeli political culture “Israel has no foreign policy, only domestic policy”. Isn’t this just like corporate life? How many times do we make decisions and take actions due to internal sensitivities? Managers in an enterprise are busy making alliances; striving for consensus and trying hard to please their managers, their peers and the functional units – whether it’s HR, financial, legal or procurement. Haven’t we all seen misuse of power within an organization for the pursuit of agendas and self-interest without regard to their effect on the organization’s efforts to achieve its goals?
Managers learn to ease into situations with caution, picking battles wisely, and adjusting their approach if things are not working. Working this way is inevitable, and at times, exhausting. Extreme effort must be made in order to simply interact. Asking this from the innovation program leader means that her success depends on to her ability to navigate the company corporate policies, personnel and processes to get things done. This means pushing the program to uncompetitive compromises or even jeopardizing its success to begin with.
The senior management cannot help here with any guidelines or regulations. I would recommend matching the innovation program leader with a sponsor in the company, an executive who can navigate the corporate culture and create the conditions necessary to protect the innovation program leaders. A sponsor that can provide the innovation program with a seal of ‘corporate importance’,.establish an ‘island of freedom’ and alert before conflicts arise.
You also need to take special care in nominating the leader of the innovation program. She needs to show personal resilience and perseverance when standing in front of internal power struggles – gossip, manipulation, or informal information sharing. She should be proactive in expressing her views and leading to a solution; show conviction and have clear influence on her internal/external peers. She should be assertive and stand for her opinion in the face of disagreement and confrontation. Clearly, not every manager has these qualities.