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Tag: Maxwell Wessel

How to Innovate with an Executive Sponsor

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Meaningful innovation requires sponsorship. It always has.

In 1959, one of the most important economists you’ve never heard of — Edith Penrose — pointed out as much by chronicling the nature of firm evolution. Penrose explained that all things equal, a firm’s history determines its future. We seed our organizations with resources — people, capital, and equipment — and those resources have productive value in certain areas. Maximizing their value will naturally lead us to make the next decision and the next decision and so on.

At its core, Penrose’s idea is the reason innovation requires sponsorship. Without the foresight and intervention of senior leadership, the firm will simply concentrate on the opportunities that it was destined to concentrate on. Middle managers with limited resources and set evaluation metrics will simply operate in a predictable fashion. It’s why Christensen’s Innovator’s Dilemma is so difficult to overcome. Firms naturally preserve their margins and satisfy their existing customers, steering away from disruptive opportunities. It’s why Howard Yu’s Deep Dive concept is so sensible. Without a senior executive taking an active role in a project to overcome organizational antibodies, even the most thought-through plans can fail.

Unfortunately, while we in the field of innovation are happy to acknowledge the need for executive sponsorship, we rarely talk about when that sponsorship is needed. We rarely talk about how that sponsorship should occur. And we almost never talk about the consequences of bringing too much sponsorship on, too early.

The difficult truth is that sponsorship as it’s traditionally considered inside of large organizations is a double-edged sword. Sponsorship overcomes organizational roadblocks but often comes with a set of inherent limitations. Senior executives focus on big issues every day, when they turn to innovation they need their novel solutions to be equally as large. That’s because nominally, the execs that matter inside of large organizations are used to moving the needle. So when it comes to innovation, executives are trained to value acquisitions, high profile product launches, and anything else they might use to surprise their analysts; without such surprises they can’t generate unforeseen growth and placate investors.

The problem with this is that many of the most meaningful innovations — the disruptive products, the step-out innovations, the discontinuous changes — have their seeds in very small experiments, rather than large initiatives. As Eric Ries and Steve Blank are so quick to point out, innovation requires iteration. In the process of experimentation and iteration, companies will expose how products and services can come together more effectively. They can develop a better understanding of their value proposition and tailor the business models of innovative offerings before wide-scale launches. Small victories point us in the right direction, and small failures tell us how to change.

But small victories are just that — they’re small. No one notices them initially. They’re generally difficult to explain to investors. They’re often not even statistically significant. So even though small victories are necessary, even though big organizations need small victories (and failures) to get to the large ones, they’re just not interesting to the people who would need to sponsor them.

So the challenge becomes, how can you make your small victories interesting? How can you garner sponsorship but avoid being steered toward experimenting in such a large, public, fashion that failure results in shuttering the innovation effort?

1) Have a grand vision, but a simple plan.
In any situation, getting sponsorship requires the potential to move the organization. What it doesn’t always require is the immediate promise of results. Too often, innovators will try to solicit sponsorship through the promise of a grand vision alone. Executives think they’re buying into that future, and don’t always see the long, arduous path to get there. That’s not the sponsor’s fault.

Innovators hoping to solicit sponsorship and still allow themselves room to pursue small victories need to come forward with a simple way to articulate how their small experiments fit into the larger puzzle. Innovators need a step-by-step plan, in simple language. Playing ‘hide the ball’ does no good for anyone. It simply backs innovators into a corner, forced to pursue the large wins when they’re not quite certain about the opportunity.

2) Don’t pilot, “mini-test.”
When I was at BCG, a mentor of mine used to call small experiments mini-tests. He was adamant that in all materials, we referred to any sort of experimental initiative as mini-tests and nothing else. For years this confused me. Everything we were doing was equivalent to traditional pilot endeavors. We would roll out an experimental system, measure, iterate, and experiment again. But we would never say we were piloting or prototyping anything, we were only mini-testing.

It’s taken me six years and a sustained study of innovation to understand Brian’s genius. By changing the jargon, Brian changed people’s preconceived notions about the test. By mini-testing and not prototyping, releasing betas, or piloting, people didn’t know what to expect. He could experiment and fail and change scale and that was okay.

Managers not only need a simple, manageable plan to get to their grand vision, they also need a way of changing reference points so the types of failures that would normally draw unhelpful attention draw none.

Oh, it also keeps innovators from sticking their feet in their mouths when their hypotheses are wrong. If you end up being incorrect in your assumptions, the small experiments aren’t so public that everyone in the organization realizes it. It adds a bit of humility to the process.

3) Measure, validate, repeat.
Small victories are important in informing innovators how to move forward. But inside of large organizations they’re also vital in getting key stakeholders on board. For intrapreneurs, the information gleaned from small victories can serve as the ammunition for the uphill battle that comes as any group tries to scale a new product inside of a large organization.

The key is understanding what matters to key stakeholders. What information is likely to get them interested in your project? If innovators know what that is, they can experiment, measure results, validate the importance of the initiative, and repeat. That way, when the group tries to scale, it has irrefutable evidence of its importance — protecting the executive sponsor and helping to garner additional sponsors.

These are by no means comprehensive. But hopefully they are helpful.

What do you think? Have any ideas we should include on harnessing the power of small victories inside of large organizations?

via HBR.org http://blogs.hbr.org/cs/2013/01/how_to_innovate_with_an_execut.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+harvardbusiness+%28HBR.org%29

How Big Companies Should Innovate

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Mature corporations are designed to execute on the science of delivery — not engage in the art of discovery. They’re bad at innovation by design: All the pressures and processes that drive them toward a profitable, efficient operation tend to get in the way of developing the innovations that can actually transform the business.

This was the core thesis of the first article in this series. However, I also pointed out a paradox: being bad at innovation and good at execution isn’t necessarily undesirable. Once businesses refine their model as start-ups and move towards mature operations, we as shareholders want them to shift from exploration to efficiency. We want our leaders to push their businesses toward profit generation.

But giving up the pursuit of innovation seems less than satisfying, if not unrealistic. Executives will always look for ways to achieve meaningful growth and engage in strategic renewal. If the odds were 99:1 against breakthrough innovation inside the mature company, we’d still see leaders chasing after that golden ring.

So how do you empower your corporate innovators to bring their ideas to market? How do you avoid wasting millions, if not billions, on projects destined for failure? How do you leverage your unique position to create meaningful returns and capture potential growth?

The answers to these questions aren’t simple. If you’re willing to acknowledge the barriers in your way, there are a few tried and true levers you can pull to ensure your intrapreneurial endeavors are better positioned for success.

Create autonomy. This is one of the most important weapons in the arsenal of new businesses. If the antibodies already exist within your organization to destroy new endeavors, you need to go outside of the organization to overcome them. In his seminal work, The Innovator’s Dilemma, Clayton Christensen made the point that for disruptive innovations to be pursued effectively, they require autonomous business units. He was completely right. What’s more, his solution applies not just in the case of disruptive innovation, but also the business model innovations that we repeatedly fail to embrace. The constant need to drive towards operational efficiency can be avoided through the creation of new organizations.

If Gerber’s failed adult food business had been born outside of its existing organization, would the managers have distributed a product that looked like Gerber baby food? If they’d been able to pay the same amount for different packaging on the open market, what would the outcome have been? Would Gerber own today’s V8? Would they operate smoothie stores like Jamba Juice? Would they have growth rates similar to Innocent, Naked and Odwalla?

We can’t know for sure. But one thing is certain: faced at the onset with internal pressure to drive cost out of production, it was far less likely that Gerber could truly innovate. It could not build an adult food business within its existing structure.

Incentivize for long-term viability. Pursuing innovation inside a big company is a balancing act. The obvious assumption behind all corporate innovation is that companies have assets that can be unleashed to create value. However, in the process of unleashing this potential, leaders must make sure their innovators develop sustainability. Though giving away free support and access to infrastructure is vital in this process, doing too much of this can backfire. Leaders must manage internal transfer pricing to ensure the development of viable business models.

Imagine you want a group inside your company to figure out new ways to sell your excess widgets. To encourage this activity, you give a bunch of your excess widgets to a team and ask that they market them as something new and different. Your team comes up with a model that’s wildly successful; their excess widgets sell like hotcakes. Then, when your team goes to scale up their business, you realize that they hadn’t considered the cost of buying new widgets at market rates. After all, they’d been given all their widgets for free. The business then becomes unprofitable and goes belly up.

This might seem like a far-fetched example, but this type of failure happens more often than you’d think. Free access to salespeople, manufacturing capacity and marketing dollars all can inhibit the generation of sustainable business models. Transfer pricing inside a company is already a complex issue. But when it comes to innovation, it must be approached even more thoughtfully.

Test to learn. Over the past few years, Eric Rieslean start-up movement has gained meaningful traction in the entrepreneurial community. The lean start-up puts forth an ideology of systematically testing your business model against the assumptions you’re making. If you can move from uncertainty to certainty using the fewest dollars and in the shortest period of time, you’re destined for great things.

The foundation of this theory, and others like it, is the scientific method. Questions are asked: Can our new asset offer a solution for our customers? Can it be profitable? Intrapreneurs must then be encouraged to test early and test often. Little by little, they can turn a hypothesis about the market into proven results.

If evidence come back that invalidates the basic hypotheses of the project, teams can cut their losses before they’re too great. Simultaneously, as intrapreneurs test their ideas to gain supporting evidence for their products and services, they can justify requesting funds.

Boston Mayor Thomas Menino has been quite successful using lean operations in his efforts to innovate. A group inside his office, New Urban Mechanics, is charged with coming up with different technological solutions to city problems. Their major constraint, as described to me by one of its members, is capital. The New Urban Mechanics will only, initially, pursue opportunities that can be tackled with a small team and lean software development. By keeping the initial cost of exploration low, the office avoids stakeholder and voter scrutiny. The corporate antibodies, arguably stronger in government than anywhere else, that would normally attack innovation don’t even know change is on its way. And when change does come, it works and is affordable.

Use your brain. Alfred Sloan, the late CEO of General Motors, was known for his focus on maximizing return on investment (ROI). It contributed to his success in transforming GM, a distant second in the automotive market, to a giant within the American industry.

Despite the famed CEO’s respect for ROI, Sloan periodically invested in innovative efforts that couldn’t possibly be justified by the numbers alone. Sloan created a central R&D unit to develop platform technologies for GM, protected the decentralized operations of his brands, and invested heavily during World War II on the hypothesis that capacity needs would pick up. When strict adherence to ROI didn’t make sense, Sloan used the most valuable tool in his management portfolio — himself.

Creating guidelines to protect innovation can work; after all, the first three steps in this post suggest as much. But at the end of the day, intuition will always play a role in management. Vision can be invaluable in forecasting where profits will flow if the world changes. So when common sense and your Excel spreadsheets don’t line up, use your brain.

This is the second post in a three-part series. Read the first post here.

via HBR.org http://blogs.hbr.org/cs/2012/10/how_big_companies_should_innovate.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+harvardbusiness+%28HBR.org%29