The day after the lights went down on the World Business Forum 2009, the lights went up on an all day seminar with Gary Hamel across the street at the Time Life Building. It was great to be able to get down to the next level of detail below the talk that Gary gave at the World Business Forum 2009.
My day with Gary Hamel began with a discussion of the accelerating pace of change and how:
“While we are in here bullsh**ting about strategy, something is happening out there.”
Gary spoke about how the biggest thing that may limit organizational success most going forward is our organization’s ability to evolve their management models. But an even bigger handicap to future success may be the fact that our management models were not built to manage innovation but precision, stability, discipline, and reliability. So how do we create organizations that are great at efficiency but also incredibly adaptable?
Capable of transcending the inherent tradeoffs?
- Coordination without centralization
- Scale without inflexibility
- Leadership without formal hierarchy
Our organizations need to move from building competitive advantage to building evolutionary advantage over time, because no matter how good your strategy is, strategies die.
For the first time in the history of the world, each new generation is born into a new world with new technologies, new preferences, and new ways of communicating.
- Difficult for organizations to stay relevant
- Coke was late to sports drinks, late to new age drinks, late to water products
- Microsoft has been late to several markets as well
Gary spoke about the evolution of companies and how they start as attackers, then they grow, and if successful they become defenders. Usually when companies start playing defense, they’re in trouble. There is no alarm bell to let you know you’ve crossed over. By this point the organization has become highly optimized for exploitation and doesn’t spend enough time on exploration. And if the company enters a decline, remember, usually the first rats off the ship are the best swimmers. And, when a company has a crisis and loses its momentum, it takes about a decade to recover it – if you can recover it at all.
“Innovation is born out of a gap between ambition and resources.”
Organizations get into trouble when they don’t change their offering as fast as the needs of their customers have changed. This is true for churches just as much as it is for companies. Often it is too painful to make management change so companies don’t (i.e. GM’s 20 years of benchmarking Toyota or Nokia’s resistance to moving from candy bar phones). But, the longer you delay change, the more painful and expensive the change will be. Some key points:
- You have to seek out the dissidents and test and explore their hypotheses – Are you really open to change?
- Strategies die because they get imitated, they reach a natural limit, or customers destroy them
- Once you recognize potential problems you have to create options for strategic renewal (see Michael Raynor’s great book “The Strategy Paradox” for more on this topic
When it comes to innovation, companies aren’t comfortable with the venture capital model of it taking 1,000 ideas to identify 100 experiments that might yield 10 workable projects and only one big winner. But this is often what the pursuit of innovation requires. For example, Google runs 50,000 search experiments a year and about 500 of the ideas get implemented.
“Getting pregnant is considered a big success despite the millions of wasted sperm – so what’s your corporate sperm count?”
Once you know which innovation ideas you are going to pursue, the biggest challenge is to realign talent and provide capital. Most organizations are so lean that there are no slack resources and among managers, to lose resources is to lose status. Another big limiting factor to innovation is that inside organizations ideas can only be sold up the chain of command – intrapreneurs only get one shot to sell their idea, unlike the outside world where an entrepreneur might get turned down 8-9 times before getting funded. For innovation to really work in organizations we need to create a network of internal angel investors to provide intrapreneurs more than one funding source.
“You have to combine scale with the spirit of small” – Audience member
Preparing to Change
Ultimately inflexible mental models are more of a problem than inflexible assets. People have the opportunity to choose either positive change or negative change, and often resist change out of fear. So, to make change happen, we should seek to create an opportunity for positive change so people will be excited about the possibilities and make the changes in spite of their fears.
Speed is important, but it is not everything. Keep in mind that if the first mover does it right, you’re screwed as a fast follower. Better to be a smart mover. Move as fast as your knowledge allows and faster than competitors. Microsoft went from fast follower (aggressive) to slow follower (weak).
“People who have a stake in the old, will rarely embrace the new.”
Three questions to determine whether something is an innovation:
- Does it have the power to change customer expectations?
- Does it have the power to change industry economics?
- Does it have the power to change the basis for competition?
Keep in mind that innovation is not always risky and it is not always fast. It took JVC 20 years to build a VCR that they could sell for $500 instead of $50,000. It took 20 years for the world to accept Australians’ theory that bacteria could cause ulcers. Five years passed between the opening of Pret a Manger’s first store and the opening of its second store (it was a new concept, lots of learning needed). Nespresso started getting patents back in 1970 (it was a 40 year overnight success). We must distinguish between how innovative an idea is and how risky an idea is.
“While imagination is not evenly distributed, it is widely distributed.”
So, how can you increase the chances for innovation?
- Challenge unexamined orthodoxies (Umpqua Bank, Pret a Manger, SAAS)
- Challenge business model components
- Exploit unnoticed trends (Nokia phones, Disaggregation of TV – Hulu, Blinx, Youtube)
- Leverage unseen capabilities (Amazon’s WebStore and other cloud apps)
- Serving unarticulated needs (What does customer experience or life feel like?)
Innovation is just another skill. Companies train thousands of people in Six Sigma, why aren’t we training people to be business innovators? We have prizes, solicit ideas from people, and don’t train them?
When it comes to innovation, organizations have to be more open. Your job is to build a magnet that pulls in the best ideas, the companies that win wi
ll figure out how to build the biggest magnet and persevere (building innovation strategies, processes, incentives, management, etc.).
- View everyone as a potential partner
- What external capabilities can you leverage
- Example: Ice cream bar partnering with Colgate to have a toothbrush-shaped stick inside with the Colgate brand on it
“If people will laugh abut the current reality, there is an opportunity for innovation.”
Keep in mind with your innovation ideas that it is never clear whether it is a marathon or a sprint. Keep in mind the question – Will increased investment make it happen faster? If you miss the window, increased investment won’t let you catch up.
Jeff Bezos is committed to the Amazon Kindle and with each failure, the team asks themselves if they still believe, and if they do, then they have the energy to keep going.
Gary Hamel made it very clear several times during the day that he doesn’t feel like he has the answers, but he wants to stimulate people to start thinking about how they could try and realize some management innovation in their organizations and to start experimenting.
“More and more of the work of managing will move to the periphery and we will have fewer and fewer managers.”
Leading the Way
A leader doesn’t tell people what to do. A leader helps people understand what needs to be done and brings the people and resources together to make it happen. To truly unleash human capabilities, we must focus on injecting a sense of:
- Freedom – Loosening the reins of control
- Community – Increasing the sense of belonging
- Purpose – Investing work with meaning
“We need to try and put Dilbert out of business.”
So how does one go about trying to become a management innovator?
- First – Be Bold
- Raise trust and reduce fear?
- Second – Challenge Dogma
- What crazy assumptions do we see as sane?
- Challenge the orthodoxy of executives being the only ones to think strategically
- Challenge the orthodoxy of a crisis being needed to provoke change
- Concentrating strategy at the top helps to cause this
- Challenge habits, artifacts, and conceits
- We’ve separated people from customers, colleagues, the broader overall view, and leadership
- We’ve turned employees into children
- Hierarchical organizations move slower
- It takes time to aggregate, sanitize, and communicate up
- We need to give people the information they need to make the necessary tradeoffs
“If life developed on earth according to six sigma principles, we would all still be slime, but damn good slime”
In pursuing innovation, we need to pursue it under the theories of biology and variety, while also employing the power of markets to allocate resources more efficiently than hierarchies. At the same time, we should consider having co-sponsors on idea submissions as a way of weeding out the stupid-stupid ideas. We need to be more democratic, even though democracies may not always be the most efficient systems. They do however allow for change to start from the bottom up. Thriving democracies tend to have a large number of activists. Why don’t companies teach people to be activists (or entrepreneurs for that matter)?
Diversity and connectivity help to create innovation. So why do most companies have beige walls and create teams of people with similar backgrounds and ways of thinking? Why do organizations engineer out diversity? We need to learn from the positive deviants in organizations and create organizations that have:
- Variety (look to biology or life)
- Flexibility (look to markets)
- Activism (look to democracies)
- Significance (look to faith)
- Connectedness (look to cities)
Amongst other things we need to also find a way for people to choose what to work on, in order to avoid the frequent mismatch between passions and responsibilities. And from a workers perspective, as the labor market becomes more open, what happens when your vocation is competing against someone’s avocation?
As you can see the day ended with more questions than answers, but often it is having the right questions in your head that allows to ultimately find the solutions that are appropriate for your situation. So, are you ready to try and create the positive change you would like to see in your organization? Are you ready to advocate for better innovation conditions in your organization? Are you ready to conduct management experiments in your organization to find the management innovations that will work for your organization and create evolutionary advantage?
Well, are you?
Braden Kelley is a popular innovation speaker, embeds innovation across the organization with innovation training, and builds B2B pull marketing strategies that drive increased revenue, visibility and inbound sales leads. He is the creator of the Nine Innovation Roles Group Diagnostic Tool and author of Stoking Your Innovation Bonfire from John Wiley & Sons. He tweets from @innovate.