Ever since I wrote my master’s thesis on innovation capabilities in established companies, I have constantly been on a mission to understand how to lead real change and push the innovation agenda from an incumbent standpoint. Looking back at the combination of my theoretical background combined with several years of practical experience, I will try to summarize some of my experiences in a short and hopefully sweet playbook for corporate innovation.
Create a common understanding
Challenging the status quo is one of the hardest parts of leading change. In a time when as good as all industries are facing radical changes over the next decade, innovation is necessary for survival. However, all too often, organizations and leaders are stuck in a “wait and see” mode. Rather than taking a leap of faith into the unknown, incumbents all too often find themselves on the steady decline into obsolescence by doing nothing.
The challenge many leaders face is how to prioritize new business opportunities when there are still a number of unknowns in the business case. The result is often a wait-and-see approach, where initiatives with a predictable solid business case based on linear projections that show a reasonable ROI prevails. Innovation, which is by nature riddled with uncertainty falls victim to the need for more information and analysis and often ends up as an academic study. Wasting both potential market opportunities as well as internal resources.
When the impact of technology is shaping both customer behavior as well as potential business models, complacency becomes a significant vulnerability and should be considered among the top strategic risks for any company out there.
Disruptive innovation gets its potential from incumbent complacency. Where what may be seen as an inferior product is good enough for underserved customers, and slowly improves until it is able to challenge existing paradigms. By the time the actual consequence of disruptive innovation is evident enough to fit the business case template, it may already be too late to act.
The challenge is to recognize the actual risks of doing nothing.
Customer behavior shifts fast, while at the same time, developing solutions that fit customer needs takes time. In order to keep track of customer behavior, companies must recognize changes in customer behavior at a much earlier stage. The winner takes it all dynamics of a digital economy favors fast movers, and the inability to act may result in arriving at the battlefield long after the battle is over.
The characteristics of an exponential world also mean that the stakes are raised. Potential returns are higher for those who succeed, and the potential downsides for those who are left behind are correspondingly devastating. The ability to shift your mindset to actively pursuing opportunities for exponential growth is crucial in order to both recognize which opportunities are worth pursuing as well as when to take a leap of faith. Attempting to do a little bit of everything is equally unwise as doing nothing.
At the end of the day, complacency is challenging to overcome. It is often the by-product of not only past success, but also a steady state of current success. Overcoming this requires leaders to push parts of the organization into the deep end of the pool. In order to succeed it is crucial to have the right people on board that recognize that innovation will be an uphill battle, and is prepared to overcome both trip wires and take some punches along the way.
Both leaders and middle managers should embrace the concept of productive paranoia. Productive paranoia is the ability to be hyper-vigilant about potentially bad events that can hit your company and then turn that fear into preparation and clearheaded action. This does not mean that you should sit around and fear what may happen, it requires you to act on that knowledge.
Investing in innovation may seem expensive as returns are often uncertain from a business case perspective, but the alternative of doing nothing will most likely be even more expensive in the end. In order to overcome organizational complacency and be able to navigate uncertain waters, leaders should replace the fear of the unknown with a profound fear of doing nothing.
Communication is a powerful tool for establishing a shared vision of the future. No one really likes change, that is a part of human nature. it is therefore imperative to establish an understanding of why change is necessary. Culture should never be underestimated. By now, most are familiar with the somewhat over-used term “culture eats strategy for breakfast”. A constant reminder of why is a powerful tool in order to create a culture for innovation and willingness to change. This was my main reason to start writing these blog posts. Knowledge is most valuable when it is shared.
Evaluate your position
When you agree upon how you view the world and plausible scenarios for the future, it is time to see how your organization fits into that vision. What are your key assets, and do they represent an unfair advantage? At this point prioritization is key. Where should you dare to cannibalize existing revenue streams in order to secure a future position. This is a good opportunity to eliminate established truths and obsolete assumptions, as the goal of the evaluate-phase should be to create a truly objective understanding of where you stand as a business. The alternative is to continue grinding in the hamster wheel and continue to do things how they have always been done. Blockbuster stayed true to the latter approach to the end.
While it is easy to point fingers at Blockbuster in the never-ending wisdom of hindsight, let’s be honest. We have all been there. Your to-do list is packed, your calendar has barely time for lunch, and the triple-digit number of unread emails is constantly acting as an indicator of falling behind.
As a result, every instinct in our body urges us to start at the top of the list and start executing on the issues at hand. The faster one produces a solution; the more dopamine is released as a mechanism of our craving for instant gratification. While there is nothing wrong with having a crunch day where you get a lot of trivial stuff done every once in a while, the challenges arise when every day is a never-ending game of catching up and slowly exhausting the organization by chasing yesterday’s news.
A reactive approach to problem-solving may get things done, but surely has pitfalls. By thinking reactively, the fastest way to come up with a solution to any given problem is to apply past experiences, if you constantly deploy past experiences and proven solutions to any problem, it is a surefire way of inhibiting any innovation, as your brain will automatically gun down anything that does not fit your frame of reference. But perhaps the biggest pitfall is the danger of jumping to conclusions too fast instead of spending enough time to define and break down the problem at hand before implementing a solution.
The implications of reactive leadership tendencies is well described in Scaling Leadership: Building Organizational Capability and Capacity to Create Outcomes That Matter Most, where Robert Anderson and William Adams have surveyed more than one million leaders to look for leadership that scales as well as leadership that limit scale. Their findings on reactive leadership show that outside forces drive most of us much more than we realize. According to Adams, most of us operate from a play-not-to-lose inner game, and our fear of not meeting outside expectations drives us toward a reactive mode.
According to their research, reactive leaders typically emphasize caution over creating results, self-protection over productive engagement, and aggression over building alignment. These self-limiting styles overemphasize the focus on gaining the approval of others, protecting oneself, and getting results through high control tactics. Each of these behaviors reduces the effectiveness of leaders instead of increasing it.
While a reactive leadership style can provide excellent results, reactive leaders tend to overdevelop their own strengths, while neglecting to develop others. In short, the results may come at the expense of those who report to and work with them.
Over time, this may lead to a lack of ability to see the bigger picture, and an increasing tendency to micro-manage rather than coach and guide your employees. Most would agree that this does not spell a motivating work environment, and in order to effectively lead, one needs to break free if you find yourself stuck in a reactive pattern.
While this is easier said than done, there are some techniques that would potentially ease the transition. Just remember that leadership is all about balance and having one gaze fixed on the future without tending to the present, brings along a completely new set of challenges. It is therefore important to maintain a balance between present and future and tend to everyday needs without being caught up in micromanaging.
The first step towards making a change in behavior is to realize when you are entering reactive mode and be able to cut down on the tasks that eat away on your time and attention. Being busy does not equal being productive, and rather than taking on any task coming your way, focus relentlessly on succeeding with those that matter the most.
Remember that as a leader, your job is not to be the one with all the answers, but rather the one that coach and ask the right questions that motivate your team to develop, grow to find the answers for themselves.
Stop doing the job for your employees, delegate, and empower them instead. This will not only free up your own time but also motivate your team. Spend your newly acquired time on building trust and confidence in your employees, thus raising your standing as a leader.
Even though there are many steps, one could take to improve oneself, being stuck in a reactive cycle is unfortunately often a company-wide issue, where all levels of leadership are stuck in the same hamster wheel. Lack of diversity on the senior leadership level tends to strengthen this predicament, as a homogenous leadership team tends to gravitate towards a state of groupthink.
The only way to break free from this situation is to achieve a collective understanding of why this is a problem for the organization. Make sure to get diverse views on the situation and involve widely across the organization. Often it is useful to envision potential future scenarios for your industry or target market and see if your present mode of operations would fit in. In order to succeed with such an exercise, it is necessary to take yourself out of the equation. How would you go forward if you were your fiercest competitor?
As we are in the midst of a global pandemic, the only certainty is that the future will be in a state of perpetual change and uncertainty. Imagination, creativity, and curiosity should be skillsets that are encouraged in any leader. Those who are able to envision the future, strategize and communicate in a way that motivates the organization to stay ahead of the curve and shape the future, while still delivering results in the present are the winners of tomorrow.
Execution is everything
I often emphasize that a vast majority of my time is dedicated to change management. Both by actively participating in strategic projects, as well as stay close to the everyday business. However, the most valuable assets when innovating from within are the innovation champions.
Organizations that are successful at innovation naturally develop a strong innovation culture, and the default reaction from most incumbents upon this realization is to attempt to establish a culture for innovation. However, in order to innovate, merely having a culture for innovation is not sufficient. This merely acts as a minimum requirement. Secondly, one does not decide to establish a culture for innovation. This comes as a result of having the right talent onboard.
Innovation is in most cases dependent on having at least one internal champion. That person who is able to look beyond the next quarterly result and refuse to accept status quo. This is a rare talent, and the defining trait of a true innovator is not their creativity, but their resilience. An innovation champion needs to be confident enough to act as a shit umbrella and protect the team from internal politics and struggles.
The champion needs to be structured in an unstructured environment, as well as able to constantly look for out-of-the-box solutions to unforeseen problems. The champion also needs to be stubborn enough to never give up for the wrong reasons, but at the same time possess enough integrity and introspection to let things go for the right reasons.
no matter how brilliant your idea might be, inertia will dominate every organization’s decision process, and you will face resistance along the way. If you as an innovator venture to change this inherent aspect of the organization, you will fail. In order to lead innovation, you must accept this as an immutable fact and develop the necessary skills to overcome organizational resistance to change.
How do you get the necessary funding? Innovation is by nature unpredictable and is therefore often not rarely in any budgets. Don’t expect to get a free pass to innovate. Getting the necessary means to implement any innovation requires a precise proposal based on facts and insight. What business problem are you trying to solve, and what will it take in terms of resources and organizational dependencies. Since innovation is uncharted waters, be prepared to get internal funding in several portions. Be prepared to dismiss your idea after the initial rounds of internal funding if you discover insights that falsify the original hypothesis. At the same time, remember that many of the necessary stakeholders will actively look for proof to shut down the idea. Not out of bad intent, but as a natural reaction to resist change. If you expect to sit idly by until someone hands you some cash and tells you to start innovating, you should probably reconsider your role. An innovation champion is willing to fight for the means to implement their idea.
Who gets to be innovative? In many organizations, most people want to be affiliated with innovation but are not ready to do the work. A good innovator is rarely appointed in a clearly defined role with a standing order to innovate. Even for those lucky enough to have such a role, it will always be vaguely defined and you should be prepared to constantly prove your value either by implementing a new innovation, educating your organization, or gathering insights on your surroundings. An innovation champion needs interdisciplinary understanding and a good portion of street smartness. An innovation champion always looks for new angles and is quick to pick up the pieces and move on to the next field when an idea is rejected. If you expect to wait and be told what to do and get discouraged by resistance, you should again probably reconsider your role.
Do you have the right sponsors for your idea? Your greatest supporter may be your worst enemy and vice versa. To drive innovation, it is crucial to have sponsors at a decision-making level. Good ideas are often the victims of suffocating too far down in the organization, and at the same time bad ideas receive artificial respiration due to groupthink in one department. Knowing who to involve is crucial for innovation success. Often will skeptics provide valuable questions to validate your idea at the same time as friends will reinforce a bad idea in fear of disappointing you. Sometimes the right sponsor is the one who is most skeptical towards your idea. Be prepared to let someone else take the credit to see your idea implemented.
Bear in mind that this is not a one-time exercise but will be necessary every time you propose and attempt to implement a new idea. Innovation is an uphill battle, and you must prepare to overcome both trip wires and take some punches along the way. As one of our modern-day scholars put it It’s a long way to the top (if you wanna rock ‘n roll). When you identify your champions, never let them go.
Don’t trust the process
Innovation and change management is no one-off in a digital world but must be considered as a continuous process. Chances are that you will fail at least once. It is therefore important to have an acceptance for failure, as well as a feedback loop to make sure you learn from those mistakes. The alternative is to do nothing and slowly fade into obscurity.
On that note, repeating the process does not imply that one should attempt to industrialize and streamline a generic innovation process. On must keen awareness on what was integral for success in the past might as well be the cause of failure in the future.
No man ever steps in the same river twice, for it is not the same river and he is not the same man. Such are the words of Heraclitus of Ephesus, a Greek philosopher, whose philosophy was centered around the concept of everything being in constant motion. Even though this statement is 2500 years old, it precisely describes the reality of the ever-changing landscape most companies are facing today.
A study by McKinsey found that the average lifespan of companies listed in Standard & Poor’s 500 was 61 years in 1958. Today, it is less than 18 years. McKinsey believes that, in 2027, 75% of the companies currently quoted on the S&P 500 will have disappeared.
Even though all of us are aware of the risk of becoming obsolete and none of us wishes to join the ranks of Kodak or Blockbuster, the list of once-great companies that failed to renew themselves is growing at an accelerating rate.
With the never-ending wisdom of hindsight, it is easy to point fingers and say, “how did they not see that coming?” Perhaps they saw it coming, but merely lacked the necessary tools to face a changing market.
Or even worse, they were so deeply tied to the methods that provided success in the past, that they were not only confident that whatever comes our way, we know how to fend off every challenger out there, but also failed to realize that the challenge ahead had completely different characteristics than those of the past. In my opinion, this deadly combination of hubris and confirmation bias has led to the demise of many great companies.
If the only tool you know is a hammer, every problem looks like a nail. If you at the same time are convinced that your particular hammer is the best hammer ever made, you will probably attempt to hammer away on a screw even though you know it’s not a nail. There are many examples of this, but perhaps the most notable is Nokia. Their height, more than fifty percent of the profits in the mobile phone market belonged to Nokia, and as a company, they had made the transition from manufacturing rubber to becoming the leading mobile phone manufacturer in the world. At the same time, they (believed) that they had the best brand in the world. The Nokia sound was the soundtrack of the early 2000s.
What Nokia failed to acknowledge was the importance of software in the next generation of handsets. Nokia at its core was a hardware company, where both their engineers and marketers were experts at designing and selling hardware. As a result, Nokia grossly underestimated the importance of the smartphone entering the market.
Enthralled by its past success Nokia also overestimated the strength of its brand and believed that even if it was late to the smartphone game it would be able to catch up quickly and continued to insist that its superior hardware designs would win over users, even long after the launch of the iPhone.
Yahoo is another company that has been struggling to keep up with the times and has been left to slowly deteriorate as the world is changing. It is easy to point out the opportunities that could have, would have, or should have to change the course of tech history as Yahoo not only almost acquired Google in 2002, but also almost acquired Facebook in 2006, but the key lesson here is the systematic inability to acknowledge fundamental paradigm shifts in the usage of digital services. And nowhere is this more apparent than in the mobile space. Just as Nokia failed to adapt to the smartphone era, the same can be said for Yahoo. When Marissa Mayer took over as CEO in 2012, Yahoo’s mobile business barely existed. Mayer was tasked with bringing Yahoo into the “smartphone era” a full five years after it had started.
According to Andreessen Horowitz Yahoo’s homepage-driven content portal did not work on mobile, paving the way for Facebook and Google to capture users where they were at the time. Even though Yahoo set out to be a predominantly mobile company, they arrived at the party too late, as well as having an organization that was used to creating content for a desktop-based browser, and relied on this to give them success on the mobile app. Even though Yahoo managed to generate some revenues from its mobile venture, repeating what made them succeed on the traditional web was not sufficient compared to the competition.
When facing digital disruption, our reliance on gutfeel and past experiences may prove to be our worst enemy. In a static world, this approach may succeed, but as soon as you throw technology into the mix, the only constant factor is perpetual change.
One of the deadliest lessons from history of failing to acknowledge the role of technology can be found back in 1914, at the first major battle of world war 1, the battle of Liège, where the massive army of the German empire attacked Belgium. At the dawn of the first world war, the military commanders at the time were trained in traditional warfare where two great armies meet at the battlefield.
As a result, the German army charged the vastly outnumbered Belgian defense line with a never-ending tidal wave of infantry. What they failed to account for was that the Belgian army was dug in behind heavily defended and at the time technologically advanced fortifications. Only, after suffering heavy casualties, the German army realized that the success formula of past military campaigns was obsolete and turned to one of their own technological marvels at the time and literally brought in the big guns to turn the tide of battle.
While this example is more than 100 years old, this time period also plays an important role in how we are taught to structure and organize our organizations.
Even though we are leaving the information era for an era of machine intelligence, our institutions and organizations are still built on an industrial logic. Figure out what works, refine and repeat. The whole purpose of the core process is to replicate the successes of the past. But what happens when you rely too much on your processes and fail to renew your core business? Steve Jobs phrased the problem with this approach to leadership perfectly:
‘You know what it is? People get confused. Companies get confused. When they start getting bigger, they want to replicate their original success. And they start to think that somehow there is some magic in the process of how that success was created. So, they start to institutionalize the process across the company. But before very long people get confused and think that the process is the content. And that was ultimately the downfall of IBM. IBM had the best process people in the world, but they forgot about the content.
And that’s what happened a little bit at Apple too. We had a lot of people who were great at management processes, and they didn’t have a clue as to the content. And in my career, I found that the best people are the ones who understand the content. They are a pain the butt to manage. You put up with it because they are so great in the content. And that’s what makes a great product. It is not process. It is content.’
However, not everyone can be Apple, and not even Apple has Steve Jobs at the helm anymore. In order to build endurance through adaptability as part of the organizational culture, one must be willing to explore and experiment while at the same time be able to deliver on existing financial targets. Constantly be aware of your surroundings. When top management spends more time on internal affairs than looking outwards and forwards, you are getting dangerously close to the beginning of the end. Continuously combat legacy, and acknowledge that legacy technology is merely the symptom, the root cause is legacy culture. Finally, when navigating in an environment of constant change, avoid hubris. Be aware of the fact that the success formula of the past might be the recipe for future demise.