In my travels and speaking engagements, I am running across an increasing number of mid-cap organizations that are looking to become innovative – however, senior leadership feels they’ve “sold out” all their resources to support their existing businesses. To be clear, these are very successful firms – all with good market share and highly focused operations – that spin off great returns for their stakeholders.
These firms have also been very transparent with analysts and are concerned with spending resources on innovation that will be seen as a negative by the Street. The truth is, however, that unless they show up with a growth story soon, the Street will start downgrading them for standing on their gains.
This tension is not a new phenomenon – this long / short planning tension has been present for decades. Yet, we’re now at an inflection point where firms that have mastered innovation will be absorbing those who continue the operational efficiency strategy driven by 2008.
This viewpoint is driven by fear – fear of activating non-value added activity that will be a drain on earnings, rather than a boost to the long-term returns of the firm. The truth is, however, that all firms that thrive over the long term put capital at risk in a disciplined way – and are rewarded handsomely for it.
Making the investment case for innovation to the analysts can be hard work, but is doable. When innovation is pursued within a tranched, disciplined structure, the balance between confidence and confidentiality can be achieved.
These innovation muscles are present in all organizations, and in fact, when I get with the middle management team, and trust has been built, I am usually presented with multiple options for great projects that have been put in the bottom desk drawer for some time.
What is needed is a way to call these programs forward in a disciplined way, and avoid the “1,000 flowers blooming” approach that is the outcome in many firms that try to pivot without a plan. Like getting ready for intense athletic events, stretch training, followed by consolidation, is key.
I will tackle these items in more detail in later posts, but for today, let me line out the macro approach to this dilemma.
4 Steps to Disciplined Innovation
Step Zero: Get very (very) clear on where you are
Celebrate the victory of building a great operation and cash engine post 2008. Then, get very clear on your current business model (as well as your partners’ and customers’ business models) and the pressures you all face. This research will allow you to have a meaningful 360 degree dialogue with your investors, customers, partners and employees in an effort to develop a very realistic view of growth and related investment for the core.
Step One: Develop specific alternatives for investment
This is the time to harness your best big-thinking internal talent, as well as some outside resources, to scout out ideas that will unlock value for you, your customers and your partners. Take your business model work from step one, and look for innovation ideas you can borrow from other industries and organizations outside your own sphere. As you do this, you’ll want to map your business model against core shifts in technology, demographics and economics.
Tips to keep in mind:
- Make sure to look deeply inside, as organizations regularly suppress key insights simply because they are not looking for them. Go talk to customer service, marketing and quality, paying particular attention to outliers and changes. Be inquisitive about the quirky calls or literature requests: what off-the-wall applications or services have been asked for?
- Keep in mind that M&A ideas can be part of this, as well. This should include investments in IP, Technology and Process Know How. Many times confidentiality precludes an out in open dialogue, but a surrogate can often be included that allows debate to occur while still maintaining the Chinese wall.
- Lastly, make sure you use a balance of internal and external perspective in this step. External-only resources will not have the pathway to implementation background that your internal team has. Conversely, internal-only initiatives will miss key trends and ideas that are suppressed in your current culture and viewpoint.
Step Two: Stack rank the alternatives & resource the most promising
This is an intense time when you need to force the ideas to land in a matrix that allows clarity and insightful decision making. Remember that financial forecasts are only one of the metrics to be used in the process and that every idea has both facts and fiction associated with it at this point. Give people room to give voice to both what they know and what they don’t know.
Tips to keep in mind:
- Use a Monte Carlo down select process made up of your management board and at least one independent expert who has a solid basis of expertise to speak to your team.
- Commit to funding and moving at least one of the initiatives forward. Building this into your regular investment-planning cadence, updates to shareholders will begin to remove fears associated with bringing ideas forward, and go a long way towards building culture in the firm.
Step Three: Activate the program in a disciplined way
There are two steps to activating your selected strategy:
- The first is to validate that the selected approach and project can achieve the projected results. Specific work streams must be commissioned to work on the fiction in the business model and to move the confidence of success at scale to a high level. Once these teams have completed their work, a scaling and implementation team can be activated.
- The second step is to do a proof of concept at scale. Pick a bounded portion of your business to make sure the core program scales. This can be a geographic boundary (one region), a customer profile boundary (one or two friendly accounts), or a market or technology boundary (consumers who use high-end services).
Step Four: Scale and repeat
Once you have built the process within your organization, you’ll find the next cycle to be much easier. Scaling a pilot to the rest of your organization will send a message to the enterprise that you are open to, and not afraid to drive, innovation.
Summing up…
Now you are ready to start communicating with your stakeholders. Socialize your plans in layers with your key communities – employees, customers, partners and investors. Early on, you can share your process, followed by results, as they are ready to be made visible.
It takes planning and courage for firms to make this transition, and it’s not for everyone. Firms that build the leadership muscle and internal processes to allow business model agility will have cumulative returns far exceeding any operational strategy – for more information on this, see the “Ten Types” study by Doblin.
I’m always happy to hear from you – either via email or Twitter. What are your experiences in developing innovation in highly resistant, but high performing cultures?
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