Why executives sabotage their own innovation programs

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Why executives sabotage their
own innovation programs

In their book 10 Rules for Strategic Innovators authors Vijay Govindarajan and Chris Trimble found through their research that potential breakthrough innovations (which they called strategic experiments) experienced the greatest internal resistance precisely when they showed signs of success.

Just the possibility of success threatened the status quo and those with power and influence in the current core business consciously or unconsciously undermined the new venture.

This article will examine why executives may feel threatened and what companies can do to minimize resistance to breakthrough innovation.

In my experience, companies who are trying to increase innovation usually focus on the generation of new ideas and rarely, if ever, think about or plan for the resistance truly innovative products and services can create in their organizations. Yet, all the energy and time put into generating innovative ideas is wasted if the ideas never get a fair shot at being implemented.

It is important to note that for the purposes of this article:
1. I am making a distinction between creativity (the generation of new ideas) and innovation (the bringing of new products or services to market or the implementing of new business models).
2. I am referring to the dynamics involved in trying to get breakthrough innovations to market, not incremental improvements in current products or services.
3. While there are many external factors that can contribute to the lack of innovation (gene therapy suffered a significant setback in 1999 when a patient died from an experimental treatment), this article will focus on one internal factor – executive resistance.

Executives in the established, core products and services have a number of fears about a new, innovative venture including:
1. The money and resources spent on starting up the new venture will reduce their own budgets, making it more difficult for them to invest in improving their own bottom lines
2. Many new ventures fail (and the money will be “wasted”) or, even if they succeed it may take years for them to produce a profit. The shortfall will result in smaller bonuses for everyone and may have a negative impact on the company’s stock price.
3. If the new venture actually turns into a blockbuster product or service (which is the point of breakthrough innovations), current products and services will lose their prestige and may even be phased out, leaving the leaders of these old products and services with diminished roles, the need to find a position in the new venture, or looking for a new employer.

These fears are often played out in skirmishes over the basic differences needed to lead an established product or service versus starting up an innovative one. But underlying these battles is the understandable, but problematic self-interest of executives in the current, core products and services.

Core businesses typically have an operational focus that values efficiency, making short-term goals and holding people accountable for hitting or exceeding plan. Such norms are inappropriate for supporting the experimentation needed for the early stages on implementing innovation. A summary of some differences between an operational focus and an innovation focus can be found in the chart below.

Because executives of the core business naturally want to protect their budgets and company profits, they dislike any norms or processes that seem to let new ventures off the hook for being financially self-sufficient or showing modest profitability (don’t forget, showing significant profitability may actually threaten these executives).

Below are two key cultural differences that can create tension and resistance.

1. What gets rewarded.

Meeting aggressive growth targets.

Executives in core businesses get rewarded for setting and meeting aggressive growth targets. They are held accountable for living up to projections that are based on past history and a relatively stable future. These executives strongly believe that you should get rewarded for contributing to the company’s bottom line.

Yet, executives launching breakthrough products or services typical are running businesses that initially lose money. In addition, they often do not meet their initial targets because their projections are based on untested assumptions. No one knows for sure if there will be a market for a never- before-seen service or product. And, even if there is a market, predicting when the market will open up and how fast it will grow can be even more ambiguous.

As a result, executives in the core businesses resent putting money and resources into new ventures that can negatively impact the bonus pool, a company’s stock price or even threaten the brand’s reputation. These executives will try to exert pressure for the new venture to be held accountable for meeting projections and making an immediate profit.

Senior officers need to resist the pressure to hold new ventures accountable in the same way they hold core businesses accountable. Because projections are based on untested assumptions, executives in the new ventures should get rewarded for how well they scan the environment for data that confirms or disconfirms their assumptions and how quickly they adapt to changes in their assumptions. They should get rewarded for how quickly they learn, not how well they meet numbers based on untested assumptions.

In reality, most senior officers hate uncertainty. They want to know what you will accomplish and when you will deliver it. In the innovation process you often don’t have clear answers. Unfortunately, what often happens is that bosses demand certainty and the innovators are forced to give precise targets when they know they are merely making a guess. To make matters worse, innovators are often forced to give inflated revenue or profit targets since otherwise, they fear their project will not be funded or supported. As a result, when the inevitable setbacks happen, innovators are punished for not living up to targets they never believed in from the start.

No surprises. No Failures.
With core businesses, a product or service failure is seen as a problem that should never have happened and definitely, not rewarded. However, in launching innovative products, failure often needs to be seen as part of the learning process. The Wright brothers tried over 200 wing designs and crashed 7 different machines before their first successful flight. What they learned from each failure helped them to ultimately succeed.

During the innovation process, there are many times when the old ways of doing things do not work, yet you do not know what will work. Maybe the current business model is not appropriate but you aren’t clear on what the new one should look like. Maybe the current organizational structure isn’t appropriate, but you don’t know what it should be.

There are always several periods when this will happen. It is this tension of uncertainty that lays the ground for innovation. You must be able to say that you don’t know the answer yet and be comfortable with the ambiguity and uncertainty of not knowing. You need to experiment with new models and new combinations to find out what works.

That is, executives in new ventures need to be rewarded for trying well-conceived experiments that:

1. Test specific assumptions
2. Are not too expensive
3. Produce results quickly

That way learning happens quickly with minimal expense. As Thomas Watson, Sr. of IBM fame once said, “The fastest way to succeed is to double your failure rate.”

Of course, not all mistakes are “good” mistakes. As Farson and Keyes say in their Harvard Business Review (HBR) article entitled The Failure-Tolerant Leader, “Failure-tolerant leaders identify excusable mistakes and approach them as outcomes to be examined, understood, and built upon.” Excusable mistakes are those that could not have been anticipated because you are delving into new territory.

That is, senior officers must differentiate between failures to meet plan that are due to poor management from failures due to poor projections based on untested assumptions.

Resistance from the core business occurs because they do not have the “luxury” of failing. They have to hit or exceed targets, so they resent others who can continue to show loses and have failures while the core business funds a money losing venture.

2. Attitudes towards time frames.
A typical core business is very short-term focused when it comes to seeing results. Yet most breakthrough innovations often take both a long time to get to market and to show a profit. How many corporations would continue to fund the Wright brothers or Thomas Edison failure after failure? If James Dyson worked for a vacuum cleaner manufacturer, after his 50th failed prototype (on his way to over 500 failed ones) what would he say if his boss asked him, “So when will you have this new vacuum cleaner profitable?” Dyson is now a multi-billionaire, but if he had been working for a typical vacuum cleaner company, his innovative cleaner probably would have never seen the light of day. How many of his peers would have continued to fund him while he spent all of that time building over 500 prototypes?

Breakthrough innovations do not work on a set timeline. There are too many unknowns. Too many untested assumptions. Unfortunately, because innovation is partly based on serendipity, it is hard to predict when it will happen. As a result, too often companies pull the plug too soon.

And putting more pressure on to work people to work faster actually inhibits the creative process. While many believe that tight deadlines results in speeding up the creative process, Amabile, Hadley and Kramer, in their HBR article Creativity Under the Gun report that such pressure ends up killing creativity. “Although time pressure may drive people to work more and get more done, and make even make them feel more creative, it actually causes them, in general, to think less creatively.”

Their research confirmed what many psychologists have stated previously. An innovation happens when someone connects two or more ideas that have not been connected before. Thus, innovation needs both enough time for someone to put enough balls in the air (to increase the chances of a unique combination) and enough time to try a variety of combinations.

Innovation works on its own schedule.

Implications for company leaders.

During the start-up phase, senior officers can help minimize resistance from core business leaders by recognizing that new ventures need to be managed differently and that these differences can create resistance in their core business leaders.

To minimize resistance, senior officers can do a number of things including:
1. Knowing how to balance the isolation a new venture needs from the core business (in order to do things differently) with the need to stay close enough to be able to leverage the needed resources of the core business. Govindarajan and Trimble frame this as knowing what to forget and what to borrow.

For example, leaders launching new products or services need to be supported in being able to experiment and make “good” mistakes or to not have to make a profit immediately. That is, senior officers have to say “They are different and have a different set of standards.”

On the other hand, they have to say “They are part of us and need our support.” The new venture may need to borrow talent, money, or corporate resources.
2. Giving executives in the core business bonuses based on the performance of both the core business and the new venture. While core executives could still resent putting money into the new venture, it will at least give them some incentive to support the new venture.

In addition, executives in the core business could be rewarded for cooperating and supporting the new venture. For example, if a core leader provides the new venture with talent or resources, that leader should be highly rewarded.
3. Making the business case that investing in the new venture is good for the long term financial health of the enterprise.

It should be noted that making a business case may not be easy. Most economic models executives use focus on short-term return of investment. They are not made to appropriately evaluate long term investments such as breakthrough innovation. As one of my colleagues likes to say, “When our kids are born, if we all did a Net Present Value (NPV) calculation on investing in their education, we would never send them to college since we would not get a positive number.”

The impact of the recession.
Tough economic times make supporting breakthrough innovations even tougher.

There is an increased focus on short-term financial gain. Money for investments for long-term strategic initiatives often dries up. Core leaders would be even less included to let new ventures borrow talent or resources, There would be even less tolerance for allowing for mistakes and failures to not financial targets.

Most executives try to “get back to basics” during a recession.

Yet, some argue that these are the times when investing in innovation can mean the most. As Michael Porter said, “The worst mistake in strategy – and it’s a particularly bad mistake in a slowed economic downturn – is to compete with your competitors on the same thing. You want to find a different kind of value that you can deliver to a different set of customers. Strategy is fundamentally about how you’re going to deliver unique value.”

That is, differentiating yourself is particularly important in tough times. If the past is prologue for the future, then these tough times will generate several innovations, but they will come from small entrepreneurs who go for the win, not the big companies who are trying not to lose.