Day 22
Embrace Selective Scarcity

Here’s a quick question—why didn’t former Apple CEO Steve Jobs come from sub-Saharan Africa? Thinking about that question leads to an interesting discussion about scarcity, abundance, and innovation.

There is a general viewpoint that constraints and innovation tend to be friends. Plato, after all, said something that morphed into the aphorism “Necessity is the mother of innovation.” Heck, one of the core themes in my last book (The Silver Lining) was that constraints imposed by a downturn would help innovation: “Tough economic times are going to force innovators to do what they should have been doing already.”

It’s close to perceived wisdom that abundance can weigh down innovation. My former colleague Bradley Gambill and coauthors James Clayton and Douglas Harned wrote an excellent McKinsey Quarterly article that summed up this viewpoint nicely with its provocative title, “The Curse of Too Much Capital.” The article proposed that corporations would often crush innovation by providing it too much capital.

So back to the question that started today’s tip. If constraints unleash innovation and if abundance inhibits it, why didn’t Steve Jobs come from sub-Saharan Africa? Why are the most innovative companies in the world resource-rich? Why do the most successful start-ups largely come from the richest countries?

Of course, the answer is that it’s pretty hard to develop a new-growth business when you have to spend all day working to make sure you can feed your family. Abundance can certainly run amok—you wouldn’t pick someone who is morbidly obese to win a marathon. But scarcity can, too—the marathon prospects of someone starving are pretty poor.

The best way to encourage innovation is to embrace selective scarcity, where you place limits on three factors whose abundance can in fact crush innovation.

The first constraint is time. If you accept the premise that the only thing you can be sure of in the early days is that your first strategy is wrong, create a forcing function to stop you from going in the wrong direction for too long. Venture capitalists will interact with early-stage companies on a weekly, if not daily, basis. They are trying to help the entrepreneurs make sense of the latest data they have received and make real-time decisions about their strategy. Thirty-or forty-five-day review windows are fine. Anything longer than that is very, very dangerous because it can lead a team to overthink issues, to analyze when it should be doing, or to make things overly complicated. Strategy can’t be scheduled. Setting what seems like absurdly tight deadlines can motivate progress.

The second constraint relates to where you focus. The absolutely worst thing to do is treat innovation like an unbounded exercise. When the answer to the question of “What have you taken off the table?” is “Nothing,” nine times out of ten, the effort will go nowhere. Letting chaos reign is a good recipe for … chaos. Consider the thought experiment posed by Chip Heath and Dan Heath in the book Made to Stick. The brothers Heath suggest spending fifteen seconds writing down all the items you can think of that are white. Good job. Now, spend fifteen seconds writing down all the items that are white and that can be found in a refrigerator. If you are like most people, the second, constrained, task was much easier than the first, unconstrained one. Be very clear about the definition of success and acceptable and unacceptable tactics. Make sure the unacceptable list is longer than the acceptable one. You might think that you are shackling innovation, but in reality you are enabling it—and being honest about things that will ultimately get in the way of success. Innosight uses a tool called goals and bounds to help innovators clarify what specific options they are taking off the table.

Both of these constraints—time and narrower focus—are meaningful whether you are on your own or in a large organization. The last constraint—the number of decision makers—is specific to people working inside corporations. Innovation is not done best by committee, because it’s almost always easier to find flaws in an idea than to see its beauty. Almost every project I’ve seen that has multiple stakeholders ends up like many things that make it through most legislative processes. It’s acceptable to everyone and delightful to no one. As the old saying goes, “A camel is a horse designed by committee.” Of course, many companies will say that they have a sole decision maker for an effort, but that’s rarely the case. Just about everyone who is senior in an organization is used to having suggestions acted upon, and quickly. And just about every midlevel employee is used to jumping when someone up the chain makes an offhand comment. It requires fierce discipline to be clear that there is one, and only one, voice that truly matters for a project. And sometimes that voice could be different from the person with the “biggest title.”

There are other areas where abundance is less troublesome. If you are tight enough about time, financial resources take care of themselves. It’s hard to blow too much money in tight windows, and careful oversight from a single decision maker helps to make sure that nothing too wacky takes place. And it is actually pretty bizarre for big companies to be too frugal with their innovation spending. After all, one of their key sources of competitive advantage is a core business that provides sufficient capital to reinvest in innovation. Those resources coupled with unique market knowledge should enable corporations to do what entrepreneurs cannot.

I once had a problem with large teams, because I’ve seen too many large teams get caught chasing their own tail (there’s even a wonderful phrase to describe this—Penrosian slack). I’ve come to the conclusion, however, that the root cause of the chase-your-tail phenomenon is a lack of clarity about whose voice really matters. If your team has five people who all answer different masters, you have a recipe for swirl. If you have fifty people who have a clear view of whose voice matters and whose voice can be ignored, you will get the benefits of extra arms and legs without the swirl.

Selective scarcity (or careful constraints) can enable innovation. Going overboard can cripple it.

HOW-TO TIPS

1. Give yourself a twenty-four-hour deadline on a task to see what happens with forced focus.
2. Identify the most successful innovation efforts in your company over the past few years.¹ What did they have in abundance? What was scarce?
3. Create a list of activities on which you or your team is currently working. Identify the decision maker for each activity. Once you get past five decision makers, admit you have a problem that needs to be addressed.

Day 23
Amplify Your Resources

While day 22 emphasized embracing selective scarcity, you of course need some resources to drive innovation efforts. That was the intention behind a question I received from a workshop attendee in the Philippines: “All this sounds great, but we don’t have enough resources to pull this off. What should we do?”

It is a common, and important, question. I was feeling in a pop culture mood that day, so my answer was “Under the Dome, Zombieland, and Honey, I Shrunk the Kids.”

Even though Filipino audiences generally are attuned to U.S. culture, that response drew some blank stares. I went on to explain.

Under the Dome is a 2009 book by noted horror author Stephen King. The book describes the impact caused by a dome’s sudden appearance over Chester’s Mill, a fictional town in Maine.² The dome lets in enough air to let people live, but blocks out everything else.

People too frequently approach innovation like the residents of Chester’s Mill. That is, they feel as if they have to do everything themselves. But the best innovators are constantly looking to connect with outside resources. Break free of the dome, and find outsiders who are keenly motivated to help you.

For example, consider Howard M. Stevenson and Jose-Carlos Jarillo Mossi’s “R&R,” the quirky Harvard Business School case study that has opened the Entrepreneurial Management class at the Harvard Business School for years. Where most HBS cases are open-ended, with the protagonist ending the case looking out the window and pondering some tough decision, the authors describe how an entrepreneur named Bob Reiss seized an opportunity he saw in the toy industry.

In the early 1980s, Reiss saw that the board game Trivial Pursuit was catching on in Canada. His industry experience (he had previously worked in the toy industry) told him that there was an opportunity to introduce a similar style of game in the United States. He worked with a slew of partners to quickly introduce a TV Guide board game.³ If you review the case and break out your calculator, you will see that Reiss turned an investment of about $50,000 of his own money into a cool $2.2 million in about twelve months.

The case is a great workshop tool, because a good fifteen-minute discussion unearths a simple but powerful point about the relationship between risk and innovation. I will ask people, “So what did Reiss do?” Usually at least one attendee will say, “He didn’t do anything! His partners did all the work.” And that’s the point. Reiss found the best people in the world to handle particular parts of his business. People often think that entrepreneurs consciously seek out risk. Most don’t. Rather, they smartly manage risk.

Sometimes innovators seem to think they get extra credit for doing things themselves. In fact, the best innovators have a degree of humility in that they recognize their own limitations. They implicitly follow the philosophy of Chris Killingstad, the CEO of Tennant, a $500 million cleaning solutions company. Killingstad tells his company to “do what we do best, and partner for the rest.”

The resources at your disposal need not end at your floor, building, or (if you are in a large company) department. The world can literally be your oyster, if you look at it in the right way.

Breaking free of the dome can help you extend your resources. The next two references help you make sure you focus your resources in the right way.

Zombieland was a gory but enjoyable 2009 movie starring Jesse Eisenerg, Woody Harrelson, Emma Stone, and Abigail Breslin—and a great cameo by Bill Murray. My point when I mentioned this movie to the Filipino audience had nothing to do with the movie’s plot, but did reference zombies, the walking undead.⁴ If you look closely enough at the way most companies approach innovation, you see a surprisingly high number of zombie projects. That is, projects with little hope—some of which have even been officially shut down—that linger on. Individuals suffer from the zombie project problem as well. Ask how many items on your to-do list really matter. Time management experts suggest that you probably are working on too many things that seem urgent but really aren’t that important. So start by cutting the roughly 30 percent of things that are shuffling zombies.

If you are a senior leader in a large corporation, you have to look for zombie divisions or product lines, too. Innovation master Richard Foster’s research shows that companies that outperform the market are good not just at creating new businesses, but in shutting down or spinning off old businesses. For example, in the early 1980s, Procter & Gamble was an unsexy provider of consumer staples. Thirty years later, it had powerhouse beauty product lines like Olay, Pantene, Wella, and Cover Girl, and a multibillion-dollar fine fragrances line that managed perfumes for high fashion brands like Hugo Boss and Dolce & Gabbana. That transformation involved a healthy dose of creation, but it also involved selling off or shutting down long-term standouts like Jif peanut butter, Pringles potato chips, Crisco food shortening, Folgers coffee, and Spic and Span household cleaners.

Honey, I Shrunk the Kids sticks in my memory mostly because I had a major crush on Amy O’Neill, who played one of the teenagers inadvertently shrunk by Rick Moranis’s scatterbrained scientist. It also serves as an apt metaphor for the second way to find resources for innovation—cut the size of the nonzombie project teams by 30 to 50 percent. Why? Small teams almost always move faster than large teams. Well-oiled teams with a single master can be powerful, but they are the exception. Most companies have overly large project teams.

These efforts to reduce the team size allow you to increase focus and financial resources on high-potential ideas that are getting close to a major inflection point or on new initiatives. You aren’t magically creating more resources here—you are just making sure that you get the most of your resources by organizing appropriately.

One place where you shouldn’t compromise—having a full-time project leader. It’s possible to be a valuable part-time contributor to a project. And it’s possible to play a vital part-time role in any project that closely conforms to a company’s core processes or business model. But part-time business builders don’t work. There are simply too many challenges that require constant attention. Remember, most start-up businesses fail, and that’s with diligent, minute-by-minute attention from the founding team. Some things just take time and dedicated focus. As the old saying goes, nine women can’t make a baby in a month.

All of a sudden, resources don’t look like much of a problem, do they? Escape the dome, kill the zombies, and shrink the teams, and you are on your way!

HOW-TO TIPS

1. List all the activities on which you are personally working. Any zombies on the list?
2. Create a list of every innovation project currently under way at your company, including those that aren’t on an official plan but take up people’s time.
3. Document three things that you are doing yourself that an outside specialist could do quicker, cheaper, or more effectively.

Day 24
Break the Sucking Sound of the Core

One of the most powerful—and most dangerous—management concepts introduced in the last fifty years was contained in “Core Competence of the Corporation,” a 1990 Harvard Business Review article by Gary Hamel and C. K. Prahalad. The concept is powerful because it has helped hundreds if not thousands of companies become very clear about what they can do that makes them special. It is also very dangerous, because the more a company focuses on what it perceives as its core competence, the more it risks running into what we’ve termed the “sucking sound of the core.”

I put my grandfather on the Mount Rushmore of Innovation to serve as a reminder of the double-entry notion of corporate capabilities. Remember, every corporate capability has a corresponding disability. This is why it is so important to remember innovation master Vijay Govindarajan’s advice of forgetting some core capabilities and learning new ones.

The more successful you are, the greater the pull of the core. As a simple analogy, think about learning a new language. When my family and I moved to Singapore, my then four-year-old son started taking immersive Mandarin classes every afternoon for an hour. He quickly picked up the language, because he didn’t have to unlearn complex grammatical rules. It is much harder for me to get his level of proclivity, because I have to work to unwire a lifetime of grammar lessons.⁵

Breaking the sucking sound of the core is hard, but it is possible. One great example is Dow Corning’s Xiameter.

I love the example because the story isn’t widely known, even though it has appeared in a number of Innosight-authored books (the best detailed example is in Seizing the White Space). Further, it provides rich instruction on how to break the sucking sound of the core.

Dow Corning epitomizes the Midwest of the United States. The people are smart, unfailingly polite, and passionate about the production and distribution of silicone-based products. These products are used in thousands of applications, ranging from personal-care products like shampoos to sealants on the space shuttle. Dow Corning is one of three major employers in Midland, Michigan (The Dow Chemical Company and Chemical Bank being the others), and it plays a critical role in the town.

In the early 2000s, Dow Corning identified a threat that keeps many Western executives up at night—the specter of commoditization driven by Chinese competitors. The company saw that it was losing market share in the least demanding tier of its industry. Dow Corning historically competed by having scientists who would work alongside its customers to tailor-make its silicone products for their specific needs. While the firm’s large volumes made it the industry’s low-cost producer, the overheads involved in its basic model rendered Dow Corning noncompetitive against pure price-based competitors.

To its credit, Dow Corning recognized the threat. It also recognized that responding to the threat would require a combination of organizational and business model innovation. It formed a team under the guidance of then controller Don Sheets. The team’s charter was to find a way to flip the commoditization threat into a growth opportunity.

The model Sheets and the team developed involved, in essence, a new sales channel. Instead of having a direct, consultative sales process that required high-cost scientists, customers go to the Xiameter Web site and order chemicals online. Instead of ordering any amount of chemical, customers could only order in bulk. And instead of having complicated price negotiations, Xiameter customers would get market-competitive prices. The business was a massive commercial success for Dow Corning, quickly returning the company’s initial capital investment and helping it grow both its low-end and its high-end business.

Reviewing the case history helps to highlight four elements that helped the team ward off the sucking sound of the core:

1. Active senior leadership: Sheets eventually rose up to be Dow Corning’s chief financial officer. The project was started by then Dow Corning CEO Gary Anderson. Stephanie Burns, who replaced Anderson in 2004, actively championed the effort.
2. Not the usual suspects: Sheets sought a specific type of team member, one that wouldn’t be afraid of doing things differently. He had an interesting approach to recruiting Dow Corning people to the team. When he met a prospect who seemed to have potential, he’d offer the person the job on the spot. Those who took it had the ability to follow the adage of Facebook CEO Mark Zuckerberg: “Move fast and break things.”⁶
3. “Safe space”: Dow Corning intentionally kept the Xiameter effort largely separate from the core business, which allowed it to “forget” key elements of Dow Corning’s core capabilities.
4. Smart borrowing from the core: Xiameter had a new logo, sales channel, order flow, and so on. It did utilize the same enterprise planning system that the core business used, because it found that the rules embedded in this system enabled its business. The team followed Govindarajan’s advice about borrowing—instead of looking for cost savings, they looked for things that would provide competitive advantage.

The last point bears repeating. Instead of looking for cost savings, they looked for things that would provide competitive advantage. Capabilities are double edged. Every asset has a corresponding liability. And nothing is free. Borrowing a core brand means adhering to whatever guidelines exist around that brand. Borrowing the financial tools from the core business means taking whatever implicit assumptions lurk beneath that model.

I’ve seen the sucking sound of the core derail a number of promising growth ventures. The right leadership actions, however, can let a venture break free and realize its inherent potential.

HOW-TO TIPS

1. Create a detailed blueprint of what you should borrow and what core capability you absolutely must forget.
2. Identify two historical efforts that succumbed to the sucking sound of the core and subsequently had less impact than they would have otherwise.

Day 25
Manage the Interfaces

The previous three days’ tips should have been useful for all readers. The next two days more specifically focus on some of the particular challenges facing large corporations. Hopefully, these tips will prove interesting to individual innovators as well.

The sucking sound of the core is a powerful force. It takes new growth initiatives that look to be set up for success and slowly and surely transforms them into things that bear a striking similarity to the core business. The result is rarely the intended outcome, and it’s often disappointing. A great example of this was described in Robert A. Guth’s 2009 Wall Street Journal article, “Microsoft Bid to Beat Google Builds on a History of Misses,” which detailed how Microsoft had all the pieces to create Google—and blew it.

First, a short primer on Google. While many people consider it a technology company, its real magic is its business model. It allows companies to “buy” keywords, so that when an individual searches for a term, he or she sees an advertisement tied to that term. Companies only pay if someone actually clicks on an advertisement. Google has a dynamic system that prices keywords in real time according to demand. This advertising program, called AdWords, has been the driver of Google’s ascendancy.

It turns out that Microsoft was working on an eerily similar solution in the early 2000s. There was no individual decision that doomed these efforts. Instead, a series of subtle decisions led to Microsoft’s missing the opportunity. For example, Microsoft wanted to test search-based advertising on its MSN portal. But the portal’s business leaders worried that the advertisements would draw users away from the banner advertisements that served as a lucrative source of revenue, so they made the search results hard for users to find. Disappointing test results were at least one factor that led Microsoft to deprioritize the opportunity.

Avoiding this pitfall requires thoughtfully managing the interfaces between the core business and the new business. Of course, the simplest answer is to completely spin off the new business and make it a stand-alone entity so there are no interfaces between the core and new businesses. Department store retailer Dayton Hudson followed this approach in the early 1960s, when it set up a separate subsidiary to go after the emerging discount retailing opportunity. That subsidiary—Target—now represents that company’s core business. Spinning out a new business indeed gives that business the freedom to follow whatever course it desires, but it also limits the degree to which the new business can benefit from the skills or other assets of the core business.

Beyond spinning out, three mechanisms can help you manage the interface between the core and the new business.

First, create a specific mechanism to manage potential points of tension. For example, back in 2003, Cisco Systems purchased Linksys for $500 million. The express reason why Cisco made the purchase was to get Linksys’s business model. Cisco’s historical strength was in the enterprise market. Key elements of its historical business model were high investment in research and development (R&D) and a direct sales force. Its gross margins averaged about 70 percent. Linksys had almost no R&D investment and sold to large retailers like Best Buy. Its margins averaged about 40 percent.

Cisco was worried that it would unintentionally destroy the very things that made Linksys unique. For example, if Linksys used Cisco’s rigorous strategic planning process, the acquired company might begin to adopt decision rules honed for Cisco’s existing businesses. To avoid this problem, Cisco appointed a team of “blockers” to guard the interface between Cisco and its new division. This approach helped to minimize unintentional pollution.

Similarly, at an Innosight CEO gathering in 2007, then Best Buy CEO Brad Anderson explained his golden rule for capability-based acquisitions. He was describing how Best Buy managed to turn the tiny (less than $10 million) acquisition of a local support company called Geek Squad into a $1 billion offering: “From the beginning, we viewed Geek Squad as having acquired Best Buy, not the other way around.” The golden rule meant that Geek Squad could ask for anything it wanted from Best Buy, and Best Buy could ask nothing in return.

The second approach is to bring in select outsiders. Online video provider Hulu is a rare example of a traditional media-backed start-up (key investors include Disney, News Corp, and NBC Universal) that has created a viable, growing, disruptive business. One thing Hulu’s parents did right was hiring Jason Kilar, who had experience in the online world at Amazon. Outsiders can spot points of tension that insiders might otherwise miss—and outsiders can often address that tension more aggressively.

More generally, an outsider acts as a conscious ward against the sucking sound of the core. Day 13’s training described how Amazon has almost effortlessly introduced a range of innovative business models over the past decade. In an interview with Innosight, Jeff Bezos succinctly summed up his view on innovation: “If you want to really continually revitalize the service you provide the customer, you can’t stop at ‘What are we good at?’ You have to ask, ‘What do our customers need and want?’ And no matter how hard it is, you better get good at those things.”

The final approach is to be very precise about who has decision rights around specific processes. Many global enterprises are structured as complex matrices with specific owners for regions (e.g., Southeast Asia), functions (e.g., marketing), and product lines. This approach has operational benefits, but often places stress on innovation efforts. Innovation integrates parts of the matrix, leading to slow decision making. More critically, not every leader will be deeply intimate with the unique needs and opportunities of the new venture. Without that understanding, leaders often default to core behaviors without even realizing what they are doing.

Clear decision rights can address this challenge. Map out all of the processes involved in the innovative venture, such as marketing, distribution, production, and post-sales support. Identify who has the final say on critical decisions related to each process. There should be one decision maker. Then list all the people who should feel free to provide input but who aren’t the decision maker. Tell them that that is their role. Typically, this exercise is very illuminating, because many of the input givers would otherwise assume that their input was an order.

Managing interfaces is one of the trickiest challenges facing the corporate innovator. Invest time early to get it right, or you are very likely to experience the power of the sucking sound of the core.

HOW-TO TIPS

1. List the processes involved in your business. Identify three processes in which there will be tension with the core business.
2. Research your company’s historical growth efforts that failed. Assess whether using any of the approaches in this day’s training would have helped them succeed.

Day 26
Reward Behaviors, Not Outcomes

A few years ago, we were approached by a media company that had been on a fifteen-year tear but whose growth was starting to slow. It wanted to set up a new growth engine. The effort involved forming a small team to explore new market spaces. The group reported to the CEO and had a multimillion-dollar budget.

The company appointed an up-and-coming manager to run the growth engine. Over the next eighteen months, the manager and her team explored numerous market spaces and selected ten new business opportunities to pilot. Each venture received a small amount of seed capital to test key assumptions. Most of the pilots were shut down within six months of funding, but two demonstrated solid long-term potential, even if near-term revenues remained small. Even better, the company was developing a capability to learn about new business opportunities quickly and cheaply.

Had the growth engine leader done a good job?

Before you answer that question, consider Charlie Careful and Holly Hunch, two blackjack players you observe in Las Vegas. You watch Charlie and Holly play two hands. Miraculously, they are dealt the same cards. Each decides to bet $50 per hand. Figure 8-1 shows the action each decides to take.

You have $1,000 in your pocket and can sponsor one of these players over the next few hours. Whom would you pick?

Before you answer, let’s see how the game played out (figure 8-2). So, who gets your $1,000?

If you look at the results, you would pick Holly. She trusted her instincts, made two gutsy calls, and earned $100. However, she was incredibly lucky. The expected value of her two choices was –$58. The expected value of Charlie’s was –$15.⁷ Charlie appears to have followed the right decision-making process. Assuming his behavior came from an understanding of the game of blackjack, he would be a far better investment of your $1,000.

So, had the growth engine leader who had no significant commercial success done a good job? The answer is, of course, it depends.

If the assessment criterion was, “Did the manager follow behaviors that are consistent with innovation success?” the leader would have appropriately earned rave reviews. She followed many of the behaviors described in this book. She cost-effectively tested a range of ideas, developed a portfolio of interesting businesses, and learned a substantial amount about a range of markets.

Company management clearly took a different perspective—one Friday in 2009, it shut down the group and fired the manager. The reason? The assessment criterion that management used was, “Did the growth engine leader deliver tangible results?”

Most corporate readers are probably unsurprised by this outcome. Almost everyone knows that the best way to get promoted or to earn that big bonus is to hit your numbers. This approach certainly makes sense in some circumstances. A leader in a well-understood, mature business in a stable market can be safely castigated when results disappoint. It is safe to judge a worker performing a routine task according to measurable results.

But the inherently risky nature of innovation means that companies can’t reward innovation efforts the way they reward core activities: an innovation team can do the exact right things and still fail, or succeed in spite of doing the exact wrong things. Worse, remember that when it comes to innovation, perceived failure is often an important step toward ultimate success. A seminal study in the mid-1980s found that that many new product “failures” were critical milestones that often presaged future successes. Typically, valuable insights came in the form of direct feedback about the viability of technology, consumer acceptance of features and pricing, and how to target new consumer segments and geographic markets.

Look again at the face of Thomas Edison on the Mount Rushmore of Innovation. Remember that it took him a thousand experiments to find an acceptable filament for the incandescent lamp. The thousand failures didn’t deter Edison. “I’ve gained lots of knowledge,” he said. “I now know a thousand things that won’t work.” Naturally, punishing well-considered risks leads up-and-coming managers to play it as safe as possible to maximize their chances of long-term success.

This isn’t just a corporate problem. Consider what quickly became known as Belichick’s blunder. The title refers to a decision that New England Patriots football coach Bill Belichick made in a Sunday night game in November 2009. The Patriots were beating the Indianapolis Colts by six points. There were two minutes on the clock. It was fourth down. The Patriots had the ball on their own 28-yard line, two yards short of a first down that would have undoubtedly sealed the victory.

Conventional wisdom suggested a punt, but Belichick decided to go for it. The Patriots failed to convert the first down, and Indianapolis got the ball, marched into the end zone, and celebrated a stunning victory.

While pundits jumped all over Belichick, statistical research shows that Belichick actually increased the chances that the Patriots would win the game.

Belichick had a strong enough reputation to withstand the firestorm, but other coaches surely would hesitate before taking such a “risk” in the future. One study showed that the average professional football coach makes decisions that cost his team one win a year.⁸ That’s a phenomenally high number in a sixteen-game schedule!

Companies seeking to become world-class innovators have to change an often-unstated orthodoxy that pervades many corporations. They have to stop only rewarding results and start rewarding behaviors and mind-sets.

A metaphor from the quality movement helps to further illustrate this point. Companies used to spend a substantial amount of time and money conducting quality control at the end of a production process. The process was inherently unpredictable, they believed, so the best they could do was catch errors after they occurred and fix them. This was expensive and time-consuming. The quality movement showed that the right place to focus attention wasn’t at the end of the process but at the beginning. If that process was set up in the right way, you could predict its results quite accurately.

Similarly, instead of looking at the end of the innovation process (results), look at the inputs into that process (behaviors). Look to see whether your managers are following behaviors that are consistent with successful intrapreneurs who skillfully blend principles of entrepreneurship with access to all the great resources inside large companies.

Also, look for ways to celebrate learning that comes from unsuccessful efforts. For example, Bessemer Venture Partners’ Web site details its “anti-portfolio”: all the great deals Bessemer missed. One opportunity was a “pre-IPO secondary stock at a $60M valuation” that a Bessemer leader called “outrageously expensive.”⁹ Thirty years later, the company—Apple—was worth more than $300 billion. Bessemer Venture Partners is refreshingly candid and self-effacing on its Web site: “Bessemer Venture Partners is perhaps the nation’s oldest venture capital firm, carrying on an unbroken practice of venture capital investing that stretches back to 1911. This long and storied history has afforded our firm an unparalleled number of opportunities to completely screw up.” Similarly, the Mayo Clinic—perhaps the world’s most highly regarded medical institution—gives a “queasy eagle” award to employees who take well-thought-out risks but fail.

Even though innovation is better understood than it was a generation ago, substantial risks remain. Individuals need to recognize that failing is a critical part of their growth process, and companies need to be comfortable taking well-thought-out risks.

HOW-TO TIPS

1. Trace the “lineage” of three successful innovation efforts inside your company. Identify past failures that were springboards to success.
2. Send out an e-mail within the next thirty days, highlighting someone who took a risk that didn’t pay off.

Day 27
Get Quick Wins

In early 2010, some Innosight colleagues and I were meeting with Colin Watts, the chief innovation officer of Walgreens, a $65 billion chain of U.S. drugstores. His team’s mandate was to find new avenues for growth beyond Walgreens’ basic strategy of spreading its stores across the United States. During the meeting, we listened as Watts described some of his efforts, and it just sounded so familiar that I had to stop and tell him, “Let me tell you about how your group could get shut down.”

I told him about a financial services company Innosight had served a couple years earlier. We were working with the company’s nascent innovation team. The company had formed the team about eighteen months before our engagement, and in that short period, the team had achieved a lot. It had facilitated a number of innovation workshops and helped to cultivate a portfolio of interesting growth ideas.

We helped the team further bolster that portfolio and formulate plans to implement structural changes that would help allow innovation to spread throughout the company. The ideas continued to show potential, with a reasonable estimate suggesting that they could provide more than $2 billion in revenue in just a few years.

Then, one Monday in January 2008, I received an e-mail from our main client contact: “We were fired this pm. The rest of the team will be fired tomorrow. Our boss is ‘taking this in a different strategic direction.’”

At first glance, this seems ridiculous. Developing a massive portfolio in two years is an incredible accomplishment.

The team’s problem was quite simple. While the team members had helped nurture ideas with a tremendous amount of potential, they hadn’t affected near-term performance. And when the financial services company (correctly) saw that its base business faced impending difficulty, it was easy to chop the innovation team.¹⁰

In financial terms, the company’s leadership team decided that the rate at which it discounted future, uncertain dollars was infinite. In simple terms, the leadership would prefer to have a certain amount of dollars today over any amount of dollars in the future.

Innovation master Clayton Christensen describes this concept as the “ticking clock.” You never know quite how fast the clock is ticking, or when the alarm is set, but you can be darn sure that at some point, it will ring. The proverbial clock always strikes midnight. If that moment comes and all you have is potential, you’d better start polishing your résumé.

Watts is a smart guy, so he instantly understood the implications of my story. “I better get some quick wins, huh?” he said. As we talked about it further, we thought it made strategic sense to redirect some resources focused on an exciting but uncertain project into something that would generate immediate results that would benefit the core business. Specifically, Watts picked up an effort that had been on the corporate to-do list for a decade. Implementing this project would, when the ticking clock struck midnight, protect Watts by generating powerful proof that this “innovation thing” could have positive impact in the company.

If you are an innovation leader inside a company, think about how you can accelerate the path to get “points on the board.” Is there a project that one of the established parts of the organization is struggling to get done? Is there an agreed-upon strategic imperative that has languished for years? Could you push one of the ideas you are working on to get to market sooner, even if it means making it smaller? Is there a small deal you can strike with another company to do something as simple as cobranding a product or service? If you are working on an individual effort, can you do something in thirty days that builds your own confidence?

It’s unlikely that these kinds of efforts are the sorts that will land you or your organization on the front page of the Wall Street Journal or TechCrunch.com. They will, however, provide “air cover” to support more expansive efforts and build confidence in the long-term value of further investment.

HOW-TO TIPS

1. Identify an effort that could produce results that leaders in the core business would consider positive in the next six months.
2. Identify a thirty-day milestone that would demonstrate the value of further investment.
3. Survey a handful of core business leaders to find out what’s keeping them up at night to identify potential “quick win” opportunities.

Day 28
Practice Makes Perfect

Innovation is a discipline. Individuals can get better at it. Corporations can systematize it. The final day’s training describes how to strengthen your innovation muscles.

The innovation sin of lust detailed in chapter 4 detailed how Willy Shih cautioned us about the “bright, shiny object problem.” Shih taught us another important lesson that day. He asked us to list the important initiatives that Innosight was undertaking. He then asked us to create a separate list of the important initiatives that Innosight was undertaking and that we individually were working on.¹¹ Some of the so-called important initiatives were on none of our lists.

“Where you spend your time is a reflection of your priorities,” Shih told us.

Remember, innovation is a skill. And like all skills, the more you practice, the sharper the skill. If innovation is important to you, your department, your group, or your company, you have to dedicate the time to get better at it.

The best innovators train. Much of this training is subconscious. We all have read stories of the “serial entrepreneurs” who bounce from one opportunity to another. Along the way, they are learning what works and what doesn’t work. I tell consulting teams that every project we do should be our absolute best project, because we can draw on accumulated knowledge that the teams before us could not access.

Training can be conscious as well. Specifically, look to put yourself in circumstances that force you to exercise core innovation skills.

Consider the example of Fred Brushley.¹² I first met Brushley in 2005, when he was an up-and-coming middle manager inside a pretty large global company. He had two distinct jobs within that company. One job involved managing one of the company’s core product lines. The other job involved heading up new business building activities inside one of the company’s large business units. He and his small team had responsibility for identifying and developing new ideas that would otherwise fall between the organizational cracks.

On a daily basis, Brushley was telling the teams he oversaw to be more entrepreneurial, to be more innovative. He thought to himself, “I can’t give this kind of advice if I haven’t lived like an entrepreneur.” So he and his brother formed a small side business—an online venture that provided packaged deals for experiential tours of California’s wine region. Brushley made sure that the outside venture didn’t affect his “day job,” and the experience gave him direct exposure to the common challenges of growth and innovation, increasing his ability to give cogent advice to his teams.

You don’t have to start a new business to brush up against entrepreneurialism. Close to 10 million people in the United States alone are self-employed. Find a friend or family member who is going at it alone, and see if you can’t engage with this person to learn about the challenges he or she is facing. For example, I have learned a tremendous amount from watching, and too infrequently participating in, my sister’s efforts to start her own businesses.

Of course, one of the best ways to train is to try to teach someone a concept. Pay careful attention to questions from “students.” Great questions will help you connect concepts in different ways and put your antenna up for pertinent case examples or research. I estimate that about 50 percent of my blog posts come from questions posed by audience members at speeches or workshops.

Read as much as time will allow. Look for stories describing new product launches or strategic shifts where some of the approaches described in this book might provide insight. Jot down a few thoughts about what the models let you see. It’s just another way to work that innovation muscle. Similarly, consider forming a lunchtime (or virtual) discussion group where you and your colleagues discuss relevant innovation topics. Spend time discussing the latest hot start-up. Do a Lincoln-Douglas style of debate, in which you develop arguments for why a company will succeed and why it will fail.

People who are hungry for even more suggestions should turn to the research of Jeffrey Dyer and Hal Gregersen. The two professors have spent years decoding the innovator’s DNA. Their research and writing provide dozens of practical suggestions for how people can become better innovators. One of my favorite pieces of advice is to find ways to “consciously complicate” your life. For example, pick up a magazine in a field with which you are unfamiliar. Or attend a trade show that seems to have nothing to do with your job. Keep forcing yourself to seek the intersections between the new experience and your current challenge. The professors also cite research that shows how people who spend a substantial amount of time living in a foreign country are notably better innovators. Any form of ex-pat assignment has its challenges, but it also exposes you to stimuli that you could not otherwise experience.

Some of the guidance here might sound daunting because it involves reshaping routines and seeking out new experiences. But no one became great at anything without substantial work.

HOW-TO TIPS

1. Make a list of everyone you know who is self-employed or working at a company with fewer than ten people. Send an e-mail to see if any of them could use free advice.
2. Clip two stories out of a newspaper or magazine where the concepts described in this book let you see something that was otherwise hidden.
3. Create a thirty-day innovation training program.

Week 4 Wrap-Up

The focus of week 4 was moving forward in your innovation journey. You should have answered four questions:

1. How can I use selective scarcity and external resources to accelerate innovation?
2. What should I borrow, and what should I forget?
3. How can I block the sucking sound of the core?
4. What can I do to improve my innovation capabilities?

More broadly, remember three critical phrases:

1. Selective scarcity: Intentionally imposing constraints can enable innovation.
2. Sucking sound of the core: Left unchecked, a company’s core business or your core skills can unintentionally limit an idea’s potential.
3. Behavior, not results: The uncertain nature of innovation means that rewards should focus more on the behaviors innovators follow than the results they obtain.