How to build an innovation machine
In the national interest…
What is the key to America’s competitive advantage in the world of globalization? This question is simply a restatement of the general question of competitive advantage that corporate executives and boards of directors (and shareholders) have been asking for decades. What is new is that companies no longer compete locally; they compete globally. What is new is that America is part of the global economy. As American business goes so goes America. There is a national interest in making American companies the most successful and competitive in the world. You can read President Obama’s 2011 State of the Union Address to see how this all hangs together.
How do we compete?
Corporate strategy is only about 50 years old. Prior to this there really wasn’t an idea of a Strategy. What companies did was “planning”. And planning was mostly an extrapolation of the present into the future. There were no major bumps in the road; it was unlikely that a Black Swan would show up; and Planners did not require too much insight or smarts to make a linear projection of the present into the future.
Well, that all changed with deregulation and globalism. It was not so simple anymore. The recognition that corporate strategy was more like chess than a game of tic-tac-toe gave rise to some of the legends of the strategy consulting business – Boston Consulting Group, Bain Consulting, McKinsey, and the contribution of the Harvard Business School in the form of people like Michael Porter.
The past 50 years of corporate strategy from the view of consulting
What these strategy consulting companies gave us over the past 50 years was various machinations of how companies can best compete – against each other and into a non-linear future. We got things like the experience curve; the growth share matrix; secret strategies from Bain who only worked with one client in an industry. McKinsey gave us “The Evolution of Strategic Management”: Financial Planning (meet budget); Forecast-based Planning (Predict the future); Externally oriented planning (Think Strategically); Strategic Management (Create the future) and the 9 Box Matrix. Michael Porter from Harvard Business School came up with the value chain the 5 forces model of competition (suppliers, customers, substitutes, competitors, new entrants) and generic strategies (low-cost leadership, product differentiation, market specialization). After this was a focus on strategy as re-engineering with an emphasis on process improvement (Michael Hammer) and time-based competition (George Stalk). After this was strategy as financial engineering – leverage, takeovers, etc;
It’s good to be a strategy consulting firm. Revenues of the “Big Three” strategy firms in 2005 was $4 billion, $1.5 billion, and $1.2 billion respectively from McKinsey, Boston Consulting Group, and Bain. And that’s up from basically nothing – BCG opened its doors in 1963 and the rest followed. Not bad and you get the consulting fee no matter if the strategy works or not. Some consulting firms will write you a nice report on what your strategy should be but you won’t find them sticking around for the execution of that strategy or the results. About three-quarters of the top US businesses use BCG, Bain, or McKinsey or some combination of them.
So, what’s the point?
So what’s the point? In all of this do you see any mention of people as strategy? No. For nearly 40 years strategy was conceived primarily in terms of organizational structure, positioning, and allocation of financial resources. Where are the people? People and motivation made a brief showing in 1982 with the publication of “In Search of Excellence” by Peters and Waterman ( both McKinsey consultants) but faded away in a few years. Of the 43 enterprises identified as ‘excellent’ by Peters and Waterman one-third were in financial difficulty five years after being surveyed, a few years later – all but five were.
It had to wait until nearly the year 2000 before there was a recognition of people as part of corporate strategy. It was built on McKinsey’s idea of “tradable privileged assets” – brands, patents, trademarks – that could be sold or, more importantly, bought.
Someone extended this idea to include “intellectual capital” which constituted the “new wealth of organizations”
People – The New Wealth of Organizations
People as strategy took three forms: People as intellectual capital; people in networks and the competitive advantage this brings; and strategy as private equity firms.
Just a side note. When traditional strategy consultants got a look at how a global network of programmers were able to come up with Linux as a serious competitor to Microsoft without the benefit of an explicit strategy or central control these big-league strategy consultants “got schooled”. The success of Wikipedia against a traditionalist like Encyclopedia Britannica was another wake-up call that something serious was going on which had eluded them.
How to build an Innovation Machine
So, how do you build an innovation machine focused around people as strategy and the power of networks of people in collaboration? There are many experiments by companies that are taking the risk just to see what would happen.
Below you will find a description of one company and one experiment that leverages the intellectual capital of people as part of corporate strategy. The idea is catching on. The company is Rite-Solutions and it’s the brainchild of CEO Jim Lavoir and President Joe Marino. Here is how they approached it
It also takes a lot of pressure off of the top two guns if you freely admit to people that this is one big experiment, and we really don’t know where it’s going. But we do promise [to employees] that we’re not going to do anything that will jeopardize your wellbeing. These people have families. It’s not like we’re a bunch of cowboys. But there’s a certain liberation that goes along with saying that we’re going to try some stuff. Some things will work, some things aren’t going to work. We actually have a model for it, things that we can’t mess around with that might interfere with peoples’ lives. But there’s a piece of the business that we purposely break every once in a while to say, “Let’s try this, because by trying this it isn’t going to send the company down the tubes, but it could map out a new direction for us, and a new way of doing business.” Our COO calls this our “Doctrine of Disruptive States.”
I should point out that one thing that makes “Mutual Fun” different from other methods of idea generation is that the employees – not the executives – make decisions on the vitality/value/legitimacy of the idea. This generates more employee engagement than when ideas are “thrown over the wall” for executives to decide.
Does it work?
Will this work in your company? It depends. Who did you hire? If you are running a very large mature company or division that is heavily focused on process compliance, repeatability, six-sigma, and has tons of frameworks and best practices it’s likely you have hired people who can fulfil these roles without much deviation. Therefore, do you reward and provide incentives for innovation and creativity? Probably not. I am not saying that these sorts of “workouts” and tools won’t generate a lot of high-quality ideas or interest. It’s just that a more successful outcome will come from companies who were “born that way” in regard to innovation. Or, if the company has followed the advice of folks like Clay Christensen (The Innovators Dilemma; The Innovators Solution) in purposely creating a specific segment of the organization that is built from the ground up for innovation in distinction and separation from those people who run the sustaining part of the business. It’s hard to change the cultural DNA of a company.
In any case, take a look at “Unleashing the quiet genius of employees” and maybe try an experiment.
Doctrine of Disruptive States
Keep this in mind from CEO Jim Lavoie:
It’s not like we’re a bunch of cowboys. But there’s a certain liberation that goes along with saying that we’re going to try some stuff. Some things will work, some things aren’ t going to work. We actually have a model for it, things that we can’t mess around with that might interfere with peoples’ lives. But there’s a piece of the business that we purposely break every once in awhile to say, “Let’s try this, because by trying this it isn’t going to send the company down the tubes, but it could map out a new direction for us, and a new way of doing business.”
Rite-Solutions: Mavericks unleashing the quiet genius of employees
Case study from Stanford Graduate School of Business – online copy
An article from the NY Times
The big picture – how it works