Guest post by Elvin Turner, Associate Professor of Innovation and Entrepreneurship, Innovation Coach and Four Points Associate.
No organisation wants to be a dodo, yet most companies inadvertently invest more in preserving old ideals than addressing their future relevance. How can you avoid the same fate?
An executive inside a global, digital icon recently confided to me that one false move could see the 34,000-person company unravel in less than three years.
Although speculating, he illustrated the point that even highly agile, “born digital” companies can take nothing for granted about future survival.
Contrast that with many “born analogue” boardrooms and few are taking the threat to survival nearly as seriously.
Many executives have spent a week on beanbags in Silicon Valley learning about disruptive innovation and agile ways of working (which I believe can be helpful, by the way). But back home, normal service resumes with executives quickly entrenched in the same old tactical discussions about the short term, and robbing their organisations of the strategic thought that their future needs from them.
It may sound harsh but unfortunately it’s very common. The parallel pursuit of short, medium and long-term relevance that should be a company’s North Star, is often lost in a fog of bureaucracy where ‘urgent’ gets confused with ‘important’.
There are many reasons why this happens but I’ve observed three approaches that can help activate a better balance:
Redefine your “unit of progress”.
Firstly, research shows that companies gain significantly higher returns from innovation when they help customers make progress in important areas of their lives. This sounds obvious but it gets lost inside many organisations where the unit of success is measured as revenue from a sale of a product rather than as helping a customer achieve a unit of significant progress.
For example, imagine it is September 2001 (one month before the iPod launch) and 75% of my music consumption takes place in the gym because it helps improve my workout performance.
As a consumer I care about aligning appropriate music genres, convenient portability, music search and select, and a few other factors that collectively help me make progress in that specific gym context. Portable CD players are the best solution available but all of the parameters that are important to me could be improved significantly.
Now imagine a portable CD manufacturer looking at this scenario. Most likely a “we-make-CD-players” mindset prevails because of the business model (and self-reinforcing internal rewards system) that has driven success up to this point. That usually means that any new idea that emerges that doesn’t include a CD player is likely to be rejected.
The outcome is a century of companies that crashed and burned as technology shifted in the music industry, but the underlying units of consumer progress remained fairly constant: amplifying a feeling, facilitating dance, increasing adrenalin in a computer game, for example.
So back to the gym. If the CD manufacturer decides to be technology agnostic and to focus on helping people improve their gym performance through music, then they are aligning with specific customer progress and therefore more likely to be simultaneously pursuing relevance in the short, medium and long term.
What units of progress do your customers care about? Are you selling them products or outcomes, CD players or fitness facilitators?
Exploit, Expand, Explore.
Secondly, short-term revenue fixations aside, one of the reasons that 95% of a typical company’s resources are aimed at the next 12 months is that most leaders and managers often lack the tools, language and metrics to think about the future in practical ways.
McKinsey’s “three horizons for growth” is a great starting point here: thinking about time in short, medium and long-term horizons and allocating a 70/20/10 allocation of resources to each (as a starter for 10).
Importantly, each horizon has a different focus and therefore requires different approaches to management and measurement. Horizon 1 is all about exploiting today – increasing efficiency and defending market share. It’s the core of today’s business that needs to fund tomorrow’s sources of growth.
Horizon 2 is about expansion, new growth and entrepreneurism – helping new products and services to scale and become the major new revenue streams of the medium term.
Horizon 3 is pure exploration and experimentation – tracking “weak signals” from the future, interpreting them into meaningful insights and prototyping potential solutions. The failure rate here is extremely high (around 90%) because teams are often working with best guesses and emerging trends that may evaporate into nothing. However, the 10% that emerge with potential to create meaningful value become the fuel for Horizon 2.
When companies use the three horizons as a corporate narrative for their innovation portfolio, it creates a lot of clarity, especially in environments where the horizons have previously been compressed into a single amorphous blob and chaos has inevitably ensued.
So, time-boxing innovation into a three-horizon innovation portfolio is a great tool for thinking about relevance strategically. But these horizons are somewhat academic without ideas to fuel them. This brings us to the third area.
Answering the unspoken question in everyone’s minds.
In most companies, generating ideas is rarely the problem. My experience is that turning them into action is where the chief difficulty lies. Again, there are many reasons for this including weak cross-functional collaboration, speed to market, wrong allocation of resources, relying on under-developed internal capabilities, to name a few.
All of these matter, but before we even get to them, there’s a more fundamental issue that I believe needs to be addressed.
Inside most organisations if you listen hard you can hear a single question being whispered from the back of every employee’s mind. It’s a question that if left unaddressed, becomes one of the biggest blockers to a company being able to meaningfully test ideas that could change the future. That question is: “Am I safe?”
Innovation is an argument with today’s ways of working. If you lose the argument, how much is at stake? For most people, the perceived personal cost of taking a risk with a new idea is too high: losing face, losing a promotion prospect, missing a target, losing your job and all of the personal stress that accompanies it. Innovation inadvertently becomes an argument with your personal life plan and there will only ever be one winner.
This helps explain the research that shows that 85% people never shared the best idea they ever had.
Are you a ‘safe place’?
One of the questions I often pose to leaders in this space is: “To what extent are you a ‘safe place’ to be around?” especially in a context that requires risk taking. This is a big issue for innovation performance because the certainty-driven metrics that rule in a short-term focused system rarely lend themselves to risk taking.
There are three approaches that I have seen work here:
Firstly, define what ‘safety’ looks like across the three horizons. What do you need people to actually do? And then, what needs to be true for them to do those things (time, resources, motivation, risk, failure tolerance etc.)?
Secondly, lower the stakes. Before investing significantly in any ideas, identify the riskiest assumptions around them and run small, fast, cheap experiments to test the truth of those assumptions. Most customer-facing ideas turn out to be of little interest to the market so testing your assumption that customers genuinely care enough about your idea is a good starting point.
Finally, teach people how to trust. This sounds crazy but it’s crucial. A sense of personal safety is closely linked to how much I trust my line manager and colleagues. In a context of uncertainty, change and failure, a lack of trust can provoke anxiety in the best of us. And unfortunately anxiety breeds fear and fear brings out the worst in us. Don’t expect people to innovate in that environment.
Helping people understand and contract around what high trust looks like and the behaviours that will cause our trust quotient to diminish, is a great way to begin building a high-performing innovation environment. That requires being intentional about building trust as a source of competitive advantage, and therefore measuring and rewarding it deliberately.