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Archive for the ‘Innovation’ Category

Scott Anthony

A story last week about the Obama administration committing more than $3 billion to smart grid initiatives caught my eye. It wasn’t really an unusual story. It seems like every day features a slew of stories where leaders commit billions to new geographies, technologies, or acquisitions to demonstrate how serious they are about innovation and growth.

Here’s the thing — these kinds of commitments paradoxically can make it harder for organizations to achieve their aim. In other words, the very act of making a serious financial commitment to solve a problem can make it harder to solve the problem.

Why can large commitments hamstring innovation?

First, they lead people to chase the known rather than the unknown. After all, if you are going to spend a large chunk of change, you better be sure it is going to be going after a large market. Otherwise it is next to impossible to justify the investment. But most growth comes from creating what doesn’t exist, not getting a piece of what already does. It’s no better to rely on projections for tomorrow’s growth markets, because they are notoriously flawed.

Big commitments also lead people to frame problems in technological terms. Innovators spend resources on path-breaking technologies that hold the tantalizing promise of transformation. But as my colleagues Mark Johnson and Josh Suskewicz have shown, the true path to transformation almost always comes from developing a distinct business model.

Finally, large investments lead innovators to shut off “emergent signals.” When you spend a lot, you lock in fixed assets that make it hard to dramatically shift strategy. What, for example, could Motorola do after it invested billions to launch dozens of satellites to support its Iridium service only to learn there just wasn’t a market for it? Painfully little. Early commitments predetermined the venture’s path, and when it turned out the first strategy was wrong — as it almost always is — the big commitment acted as an anchor that inhibited iteration.

These ingredients are a recipe for sustaining thinking — trying to leap-frog over existing incumbents with cutting-edge technologies. Research shows that market leaders tend to beat back these kinds of attacks, resulting in a lot of squandered resources.

So what should leaders do?

Be frugal with financial resources but generous with human resources. What holds disruptive innovation back in most organizations isn’t a lack of money. It is a lack of committed people, a surplus of inappropriate mindsets, and a whole series of standard operating procedures that run counter to the fast-cycle decision making, in-market learning, and iterative approach to strategy required for disruption.

Freeing people to fully engage in this problem, and having leadership focus their energy on helping to ward off what I call the “sucking sound of the core” can be critical to success.

In an interview with Innosight, Intuit Chairman Scott Cook said that in his experience, the most successful disruptive teams have “an executive that is rooting for them, cheering them, mentoring them, actively spending time with them every week and protecting them from the antibodies of the rest of the companies that are trying to love them to death, or, exterminate them.”

Signing checks is easier than spending time. If you are truly committed to innovation, though, spend less money and more time. You’ll end up making substantially more progress.

Vijay Govindarajan

June 24, 2009

I recently spoke with MIT Sloan Management Review senior editor Martha E. Mangelsdorf on the topic of innovation, the recession, and preparing for the future.

Excerpts appear in this Wall Street Journal Executive Briefing.

Here are a few takeaways:

- As a response to the economic crisis, many companies focus almost exclusively on the present, focusing on cutting costs and neglecting the future.

- Expansion always follows recession—and the expansion lasts longer and is more robust than the recession.

- A recession fundamentally changes the competitive landscape in most industries. There are new winners and new losers.

- The best time to prepare for expansion is during a recession, because during a recession, assets are cheaper and talent is cheaper and more available.

- In normal times, I say spend about 50% of company resources on the core business and about 50% on adjacency and breakout innovation—perhaps 35% on adjacency innovation and maybe 15% on breakout innovation. But during times like this, the percentages shift. I would shift to spending more like 70% on the core business and perhaps 25% on adjacency innovations—and maybe 5% on really breakout innovation. Why? Because companies cannot afford to make a serious mistake during this recession.

- There’s a big difference between planning for the future and preparing for it. Preparing for the future simply involves asking what the broad trends are. If people in your organization can at least have a shared perspective on some of the big, nonlinear shifts that may happen. Prepare for 2025 in 2009.

Professor Govindarajan is widely regarded as one of the world’s leading experts on strategy and innovation.  More information about his speaking availability can be found at Speakers.com.