Apple iPad and Google Buzz: Harsh Reality of Innovation

February 24, 2010 21 Comments

Nothing like putting your heart and soul in an innovation, and then getting this:

Man, tough audience. But very much in keeping with some the best advice on innovation. Which is, you can’t have innovation without some failure along the way. It’s inevitable.

That advice is both true, and glib. Innovation consultant Jeffrey Phillips catches the right spirit when he says:

Another thing about “failure” is that we try to kid ourselves that failure is a “good thing” a learning opportunity.  Well, not in most cultures.

This is the reality of innovation. It’s tough. The more disruptive an innovation, the tougher it gets. And we’re in the middle of seeing how it plays right now with Apple iPad and Google Buzz.

Let me ask you this: Do you personally think either the iPad or Buzz will be guaranteed successes for their respective companies? Be honest now.

My guess is you’re like most of us: I don’t know.

Well, truth be known, neither do Apple and Google. But they’ve got a history you’d bet on.

Apple and Google: Big Time Failures, Big Time Innovations

Both Apple and Google have had their share of duds in the market:

Obviously, these companies do not have a perfect record of successful innovations.

But they do have a record of pressing through failures and continuing to roll out innovations. In fact, they’re consistently ranked the best in the world:

It pays to stick-to-it in trying out innovations. But can everyone?

Does Your Company Really Want Radical Innovation?

In Psychology Today, a professor at the University of Michigan gets to the issue:

From vaccines to Velcro, many inventions were spawned from accidents, seeming failures. But when Fiona Lee, psychology and business professor at the University of Michigan, explored which conditions help people experiment with novel ideas, she uncovered an interesting phenomenon: “Managers talk a lot about innovation and being on the cutting edge, but on an individual level, many people are not willing to try new things.”

What’s holding us back? A fear of failure.

Think about your own reaction to the question of whether the iPad and Google Buzz will be successful. It’s easy enough to be uncertain as an observer. But imagine if you have to put shareholder capital in to it, affect your brand in the market and risk some career trajectories?

I will often read of the importance of taking risks and accepting some level of failure for companies to be innovative. This is very true. But it can be glib to summarily dismiss companies for not “getting it”. When they’re made up of people like you and me who possess ordinary…well, human characteristics.

Because how do you know when you’re iterating toward a true high-value innovation, or you’re just spinning your wheels? I’ll turn again to Jeffrey Phillips:

As Edison and countless others have demonstrated, you rarely get it right the first time, and if you are stymied by early failure, then you’ll never find and implement the best ideas.  Innovation, as has been pointed out by individuals with far more to say about it than me, will create some failures.  Your job isn’t to avoid the failures, since you can’t predict them in advance, but to reduce the cost and impact of the inevitable failures.  In other words, keep moving.

As I said before, I can’t know for sure whether the Apple iPad or Google Buzz will be successful. But kudos to those companies for rolling out innovations that might fail. And in case you’re wondering whether allowing employees some latitude to fail is worth it, check out the 5-year stock performance of Apple and Google versus the S&P 500:

Let’s take this one out with the great speech from Teddy Roosevelt:

It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.

Indeed.

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Open Innovators Outperform the Market by 16.9%

December 7, 2009 10 Comments

At the Open Innovation Summit last week in Orlando, there were a number of companies there discussing their various initiatives for open innovation. What is open innovation? UC Berkeley professor Henry Chesbrough, perhaps the father of the movement, formulated this definition several years ago:

Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology.

At the Summit, several companies expressed their growth related to and/or impact of open innovation:

Cisco: Cisco’s internally generated growth is at 5%. Its partner-based growth is 10%. #ois09

Clorox: Clorox target for growth from innovation is 4%. Last few years around 2.5% to 3.5% = significant portion of growth. #ois09

Royal Dutch Shell: Conser: About 40% of projects in Shell’s R&D program come from GameChanger. #ois09 [GameChanger is its open innovation program]

Rockwell Collins: Aggarwal: 75% of firms expect 40% of innovation to come from external sources by 2012. #ois09

Hewlett Packard: McKinney: 60% of ideas generated internally. Via HP Garage. Use employee crowdsourcing to filter and refine these. #ois09

Given the way these companies described their open innovation efforts, I decided to check out their stock performance. Hat tip to Jackie Hutter for suggesting this idea.

The table below compares the 5-year performance of the companies presenting at the Open Innovation Summit against the S&P 500:

It’s not a clean sweep, but most of the companies have outperformed the S&P 500 handily the past five years. While it’s not all due to initiating open innovation, it appears that you can’t rule out its influence on company performance.

Here’s how industry consultant Stefan Lindegaard describes the open innovation landscape:

I also argued that only about 10% of all companies are adept enough at open innovation to get significant benefits today. Another 30% have seen the light and are scrambling to make open innovation work and provide results that are worth the bother. I call them contenders.

The other 60% are pretenders—companies that don’t really know what open innovation is and why or how it could be relevant for them.

Looking for growth ideas? See what the firms in this open innovators stock index are doing right.

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Being Upfront Gets Better Results than Trying to Sneak It By

November 23, 2009 3 Comments

Credit: dbking

I’m generally not tracking the “post ads to your social networks” movement, be it sponsored blog posts or tweeting ads to your followers on Twitter. There is one aspect to it that I think is most important: disclosure. Robert Scoble has a post up, More thoughts on in-Tweet advertising, where he notes that he unfollowed people on Twitter who were running ads:

So, I unfollowed and won’t be looking back. Actually I unfollowed Pirillo too. I don’t think he’s disclosed everything clearly or explained where his ads were coming from and until he does I’ll stay away.

His perspective reminded me of an experience I had years ago in the late 90s when I worked as an investment banker for Bank of America. It taught me the right way to disclose unsavory facts.

Selling a Superfund Deal: The Wrong Way

You know what the Superfund is? It’s the federal government’s program to clean up the nation’s uncontrolled hazardous waste sites. Throughout America, there are parcels of land with dangerous materials in them. Superfund is there to help get them cleaned up.

We had a client, a rising star in the software world, that need financing for a new headquarters in Mountain View, CA. A headquarters built on a Superfund site. That designation, from 8 years before, meant the land had been declared a hazardous waste site. By the time of the deal, the site itself was cleaned up, and was in an “operation and maintenance” phase. Its status was sufficient for the company to build on. But anything with “Superfund” on it is a big red flag in banking. And we knew it.

I was in the debt financing unit, and I worked with our real estate group on this one. After deliberating, we decided to bury the Superfund status deep in the materials selling the deal – in the prospectus, in the deal presentation. Act essentially as if it was a non-event.

Which at this point, was true. The property was clean and ready for development.

It was also a mistake.

Other banks got to the Superfund status of the site as they went through their analysis of the deal, and saw that it had an afterthought treatment. They didn’t like that.

And they didn’t participate in the deal at the levels we had expected. We got stuck with a larger percentage of the deal than we wanted. We scrambled, got one other bank to join and accepted holding a larger portion of the deal.

Wasn’t a pleasant experience. Nope, not at all.

Selling a Superfund Deal: The Right Way

It’s not often in life you get a chance to rectify a mistake so readily. But I did. Several months later, the software company approached us to increase the deal size, by nearly double. You might imagine the trepidation that request caused internally.

To raise double the amount, after having a number of banks turn us down, meant we were going to have to go much deeper in the market. It wouldn’t be easy.

We decided to do it, but with a big shift in approach. We led with the Superfund status. Put it out there, and directly address issues. Create a separate write-up that specifically addressed the Superfund status, the remediation efforts, and the reasons Bank of America was comfortable with it.

When I got out there and presented the deal at the prospective lenders meeting, I talked in detail about the Superfund site, upfront. Amazingly, no one got up and left the meeting. They seemed to take it in stride.

And the result? Easily got the larger deal done, and even increased its size a bit.

Lesson: Don’t Be Cute

What did I learn? People aren’t stupid. Treating them that way is a sure recipe to piss them off. Scoble’s comment illuminates that fact.

I’m not saying openly declared ads will be welcome, but for sure trying to slip ‘em in to the tweet stream is the wrong way to go. There is a “right” way to go about this advertising thing, if it’s going to happen. Acknowledge people’s concerns, and address them intelligently. You’d be surprised the effect that has.

Don’t make your Twitter account a hazardous waste site.

UPDATE: I received an email from the EPA’s Superfund program manager regarding how to find information about Superfund site. I’ve posted it in the comments below.

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Would You Manage CRM with a Wiki?

October 19, 2009 2 Comments

Or human resources with a blog? How about project management with forums?

Funny questions to ask, no doubt. Of course it’s not possible to effectively address many of the critical business functions using basic Enterprise 2.0 tools. Yet when it comes to social software, it often seems that the only game in town is to be a provider of such tools. For instance, Gartner’s Social Software Magic Quadrant requires that vendors have wikis, blogs and forums to be considered (side note – for the record, Spigit has all three social software tools and more).

I am fully on board that there are great opportunities for new types of communication, collaboration and information discovery in these tools. For instance, see my post, Microblogging Will Marginalize Corporate Email.

But there’s an enormous opportunity for applying the ethos and value of  ‘social’, ‘transparency’ and ‘collaboration’ to a wider range of business processes. Key here is not to force specific processes into a general purpose tool, but to bring social software ethos to longstanding enterprise activities.

Hmm…sounds Dachis Group-like (“social business design”), eh?

Activity-Specific Social Applications

In the recent Gartner Social Software Hype Cycle, analyst Anthony Bradley introduced a new category, Activity-Specific Social Applications:

“As social software implementations mature, application patterns are evolving, and the software industry is responding with activity-centric social application offerings rather than with generic social software capability suites. Delivering a targeted social solution with a general purpose social tool (such as wikis and blogs) can involve significant development, configuration, and templating effort.”

Bradley has identified the next opportunity in enterprise social social software. Integrating the valuable characteristics of social software into the in-the-flow activities that make up our days. As a percentage of employees’ time, activity-specific social applications will be quite large.

Back in March 2009, Sameer Patel wrote, don’t confuse Enterprise 2.0 with social computing concepts. He was making this exact point, and included this illustrative diagram:

Credit: Sameer Patel, Span Strategies

Credit: Sameer Patel, Span Strategies

His point is that the left side are tools, whereas the right side are results-based activities. Key here is to create applications aligned with the processes for those activities. That means going deeper than a general purpose tool.

Successful Applications Will Be Designed for Results

So back to the original question. Would you manage CRM with a wiki? Could you? Perhaps there’s a geek hack to do this, but for mainstream business, the answer is ‘no’. Customer relationship management includes:

  • Case management
  • Customer revenue analytics
  • Sales pipeline
  • Individual prospect opportunity workflow
  • And lots of other stuff

It would be really hard to use generic off-the-shelf social software to deliver the above functionality. Yet, going back in time, here’s what was prescribed for CRM success in April 2002:

People [who fail] don’t integrate CRM into the other parts of their business or implement CRM as a stand-alone and don’t have it communicate with core systems. A bigger and more frequent stumbling block is forgetting to address the people issues around a CRM implementation. In almost all of the cases we described earlier, CRM is a behavior modification tool.

There is a need for the “hard” functions that CRM can provide, like case management, campaigns and analytics. But that’s not enough (e.g. see social CRM), and enabling the customer-centric firm seems to require a good bit of what makes Enterprise 2.0 tick: cross-organizational perspectives, contributions from different departments, a more collaborative orientation to an end-goal. Integrate CRM into “other parts of their business”.

Wikis, by themselves, don’t provide the necessary CRM functions that are table stakes to be useful for companies. But CRM platforms could benefit from integrating more social software tools and conventions.

And that’s the case for a lot of the current processes that define companies today. They aren’t going to be addressed by off-the-shelf generic social software tools. But they benefit by incorporation of social software tools.

“Activity-specific social applications”. A few examples:

Dachis Group talks about social business design as “the intentional creation of dynamic and socially calibrated systems, process, and culture.” Indeed, there’s a huge opportunity to apply social software to the multitude of applications and processes that make up organizations, beyond the insertion of standalone generic tools.

Watch this space.

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Warburg Pincus Invests $10 Million in Spigit

October 15, 2009 2 Comments

Warburg Pincus SpigitWell, this is pretty cool. I’m pleased to announce that Spigit has received a $10 million equity investment from Warburg Pincus. The investment will be used for the usual things a growing start-up needs: product development, sales and marketing and program management. Here’s coverage in the New York Times and TechCrunch.

I’ve been with Spigit for 6 1/2 months, during which time I’ve seen firsthand how things have progressed. Both the company and me.

If you’ve ever checked my bio, you’ll know I worked in investment banking from 1996 to 2000. If not for a banking merger that shut down my San Francisco office, I’d likely still be there as a Managing Director, doing financings for companies.

OK, wait. Considering the recent financial market collapse, let me rethink that…

Rather, I moved into technology. And let me tell you, it ain’t easy making the transition from banking to technology. You have zero geek cred (note the name of this blog). Since 2000, I’ve worked for several small technology start-ups. From each of them, I’ve learned a lot. I will say that in Spigit I’ve found a place that nicely combines my MBA company performance orientation with my social software enthusiasm. Innovation management meets Enterprise 2.0.

The team at Spigit is a hard-working one. I’m impressed with the seriousness of purpose each of them brings to the job every day. When we closed the funding this week, our CEO Paul Pluschkell got a couple bottles of champagne for a company toast. After we drank a bit of champagne (not too much, customers reading this blog…), everyone quickly went back to their desks to do work. Dorks. :-p

Which is appropriate. There’s a lot of work to do. I’m looking forward to it.

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Here’s to the Passionate Creatives

October 13, 2009 8 Comments

Here’s to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. They’re not fond of rules. And they have no respect for the status quo. You can quote them, disagree with them, glorify or vilify them. About the only thing you can’t do is ignore them. Because they change things. They push the human race forward. And while some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do.

Apple ad, “Think Different”, 1997

Why did Apple’s ad resonate so well with you? After all, how much time do we spend disagreeing. Admit how happy it can make you when your manager praises you for executing well on an assignment. I know I feel it. No “think different”. More like “think excellence”.

But that Apple ad. It was damn good, wasn’t it? Seemed to reach inside us to something else beside the praise we get for doing an assigned job well. It was celebrating some thing in each of us.

John Hagel recently wrote A Labor Day Manifesto for a New World. The post is a call to action for work that better fits our human nature. Our desire for creating better ways to address problems, in ways that fit our personality, interests and skills. To reach our full potential. We’re not all doing this though.

Hagel terms people whose personalities and drive are based on making situations better than what currently exists as “passionate creatives”. There have always been these types, but recent changes in the global economy and shifting market dynamics (e.g. digital technology rewriting one industry after another) are increasing their importance.

Passionate creatives exist within organizations, and as independent entrepreneurs. For those inside firms, Hagel notes:

They experience deep frustration today with the institutional barriers that have been put in their way as they seek to more effectively achieve their full potential.  They want and need platforms that can help them connect with others and drive performance to new levels.

For many of us, even if we wouldn’t label ourselves “passionate creatives”, the point about frustration resonates. How often have you had an idea, but can’t attention for it, nor resources, nor figure out who else to work with? I’ve had jobs like that in the past. You know some things are not working well, and you can see how to improve the product/delivery/business model. But you can’t make headway on iterating through new possibilities.

Hagel’s manifesto is a great read. I want to hit on two points I take away from it:

  • What is the role of “passionate creativity” in daily work?
  • The gathering of passionate creatives at the edges and the accelerating rate of change in markets

The Role of Passionate Creativity in Work

Very few of us get to live a life of unfettered passionate creativity. The realities of the mundane trump the thrill of the new. And that’s not a fault of the system. If all we did was work on new stuff, there’d be no stability and no scalability. More like mass economic anarchy.

But that’s too heavy handed a look at it. We can be quite productive and help our companies, and careers, while working on tasks that hit our passionate creative sweet spot. A good question to ask is, how much of this passionate creativity infuses our work days?

Work imbued with passionate creativity

Take a look at those two Venn Diagrams. They’re saying different things. The left one says that we all have to execute on tasks assigned by others, or assigned by ourselves for the role we fill. In some of that work, we’ll have the opportunity to reach deeper, to deliver creativity on an activity that animates us. But the primary focus is executing on the plans and processes already in place.

The right one indicates a job which is dominated by passionate creativity. Hagel’s call-to-action is more aligned here. We work primarily on things which stimulate and energize us regularly. But there is a twist to this notion. It doesn’t mean spending one’s time on only starry-eyed big picture thinking, producing little of tangible value for your organization. It includes work by those “who are searching for new and creative ways to do the most ‘routine’ tasks.”

Which model of work are we likely to see arise in the next decade or two? Both. Neither. Yes.

Hagel’s manifesto is not so much a clear-eyed plan for rearranging organizations. Rather, it’s a wake-up call to the corporate world that the nature of work and what employees seek is changing. As he says:

Why will more and more people evolve into passionate creatives? Because we live in a world that is shifting inexorably from an obsession with efficiency to an obsession with learning.  We have come to call this the Big Shift.

In that statement, I draw some conclusions that relate which model above will emerge. First, note that the Big Shift is a shift in “obsessions”. From efficiency to learning. That’s a shift in attention, and in resources. It’s a shift in the dynamics of the supply side of the equation.

What hasn’t shifted is the demand side of the equation. Consumers worldwide still depend on the massive efficiencies that Tayloresque methodologies have brought to our economy.

So there’s the quandary: if we’re all working on things that inflame our passionate creativity, who is minding the massive scalability store?

My sense is that the Venn Diagram on the left is closer to what we’ll see. Enlightened companies will follow the examples set by Google and 3M, encouraging employees to pursue initiatives outside their regular routines. This does a couple things:

  • It provides an outlet for growing passionate creativity on a wider basis
  • Some of those initiatives will turn into full-fledged projects

The second point then lets employees live a life in the right-side Venn Diagram.

Passionate Creatives at the Edges

Another point Hagel makes is that passionate creatives tend to occupy spaces that are “edges”:

Passionate creatives are everywhere among us, but they are not evenly distributed. They tend to gather on the edges where unmet needs intersect with unexploited capabilities.  Edges are fertile seedbeds for innovation.

Reading this, I was struck by how well this fits with the observation that Gary Hamel made. The pace of change in markets is faster now than it ever has been in history. What this means is that Hagel’s edges – unmet needs intersect with unexploited capabilities – will be more frequently found.

Companies need to get better in pivoting to meet changes in their markets. And this keeps CEOs up at night. IBM surveyed global CEOs in 2008, asking them about their view of changes in their markets. The results are eye-opening:

Collectively, CEOs set their organization’s ability to manage change 22 percentage points lower than their expectations for the level of change they will have to manage — a ‘change gap’ that is widening.

A wide ‘change gap’ there, isn’t it? If Hamel identifies the problem companies face, Hagel identifies the types of workers who will make a difference in addressing the problem. The passionate creatives.

The edges are places of opportunity and uncertainty. It’s hard to know what the demand dynamics are, and existing infrastructure and processes don’t address the changing market needs. New alternatives are emerging, it’s time for fresh approaches by existing firms.

Companies are best-served by allowing employees who are attracted to these changes to pursue innovative ways to address them. Why? They get energy. They get an experimenter’s mentality. They get a happier workforce. Let employees exercise some form of self-organization to accomplish this.

The alternative may be incumbent staffers who have fallen into routines, or have reason to protect the status quo. This does not help companies address rising levels of volatility. Free the passionate creatives!

Passionate Creativity Will Fall on a Spectrum

My sense is that work will evolve, over years and decades, to allow people to shift attention to work that energizes them more fully. It will happen on a spectrum, with daily jobs that fall between those two Venn Diagrams above. Society cannot get away from the requirements of predictability, efficiency and scalability. We’re all going to have elements of our jobs that are routine.

I think Hagel’s post is right on though. It will be a slow change where companies integrate the existing passionate creatives more effectively, and develop the passionate creativity in all employees. Companies doing it well will need to celebrated and publicized repeatedly for the value to be understood more widely in the market.Over time, we’ll see the change.

Note what G. Michael Maddock and Raphael Louis Vitón wrote in this recent Business Week article. Passionate creatives like to “follow the challenges”:

Stop and think about the last truly great person who left your organization. First think about what made that employee great. We bet you name such characteristics as action-oriented, driven, passionate, fun, and genuine.

Now think about where that worker went. Chances are, to a position with a perceived promise of putting his or her talents to better use—moving into a role with greater challenges and opportunities to learn and make a difference. It wasn’t about money.

It will happen. Here’s to the passionate creatives.

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Crowdsourced or Elite Unit Innovation?

September 8, 2009 14 Comments

A classic dilemma for companies is determining the best way to foster innovation. There are many good books with different approaches. Clayton Christensen’s Innovator’s Dilemma has influenced a generation’s thinking about innovation. He focuses management and entrepreneurs’ attention on the Big I: disruptive innovation.

One outcome of the popularity of Christensen’s book is the awareness people have that entrenched business practices can inhibit companies’ ability to recognize and address discontinuous innovations from new market entrants. Motorola, for example, is often held up as an example of this. The company continued to develop only analog cell phones even as the digital phones were getting traction. In clinging to analog, which it dominated, it fell far behind in the mobile phone market.

A key practice espoused by Christensen is for companies to tackle discontinuous innovations by creating separate divisions. These divisions have an R&D profile, meaning they are funded without requiring a financial return. They do not have to prove themselves to sales or other parts of the organization. This gives them the room they need to figure out how to approach the impending market shift.

The issue with the popularization of this framework is that it sets up a binary approach to innovation. You’re either addressing disruptive or discontinuous innovations, or you’re executing on yesterday’s business. It’s this dichotomy that obscures the value of innovations that move organizations forward, competing to increase market share and profits.

To that end, let’s examine two ways companies create work structures for innovation.

Integrated or Separate Innovation

The graphic below highlight two very different ways to approach innovation. And that’s a good thing.

Innovation Work Structures

Separate Division: As advised by Clayton Christensen, this approach is best for companies that need to address disruptive innovations. And all companies need to address disruptive innovations.These days, it’s not a matter of if, but when. For fundamental market shifts, too much is invested in the current operations for companies to address changes. Freeing a group of people from these constraints is critical, if the corporate culture is not open to big-bet innovations.

A couple examples of interest here. First, let’s go back to Motorola. Yes, the company muffed it badly on the transition from analog to digital. But there was something that it did right years before. Motorola researcher Jim Mikulski could see in the 1960s that existing cellular technology was insufficient for the emerging uses of the mobile technology. He had a new technology to replace it, and asked the head of Motorola’s communications division, John Mitchell to fund its development. Mitchell said “no”,

Arguing that 400MHz technology offered sufficient capacity and met consumer needs. The Communications Division current product line was the market leader, and a new product, which would likely cannibalize the current system, was deemed to be both unnecessary and potentially harmful to this business line.

So Mikulski found refuge in Motorola’s Corporate Research Laboratory. He worked on the new technology there, receiving funding for its development. When his view of the coming changes proved to be true, Motorola was ready with its new technology.

In other words, he addressed innovation that affected the communications division in a completely separate division.

Microsoft, on the other hand, has programmatically set up a separate division for innovation. The Microsoft Research group works on ideas that may never have commercial appeal. But some of their work has resulted in product features and direction for its new Natal gaming system, its Bing search engine, and an upcoming release of Outlook email.

They have a separate division, but the innovations arguably are of the sustaining variety, not disruptive.

Integrated into Daily Work: In this work structure, everyone is involved in innovation. The company sets expectations, and encourages employees’ to share ideas. Done right, this is in-the-flow stuff. Employees are encountering issues to be addressed daily, and they’re hearing new customer feedback all the time. They are well-positioned to come up with innovative solutions and products, if senior management makes that a priority.

Whirlpool is a good example of this. In 1999, then-CEO David R. Whitwam made the determination that Whirlpool needed to stop competing on price, and make innovation its central strategy. Fast forward to today, and the results have been stellar. Whirlpool has escaped competing as a commodity vendor, with $4 billion in revenue (21% of total sales) generated from its innovation efforts. Are they satisfied? No. CEO Jeff Fettig stated that while participation in innovation from 5,000 employees is good, he’s looking to increase it to 15,000.

That’s integrating innovation into employees’ daily work for sustaining innovation. In this case, sustaining innovation has been the source of growth and profits.

Another company where innovation is part of everyday work is 3M. The company is legendary for its innovation. And clearly, the encouragement of all employees to be part of innovation has taken hold. For instance, there was this story recently in Fast Company:

3M told a great innovation story at the ARF annual conference about a new product that started with a complaint call into customer care. The representative did his own research online, came up with a solution, filmed a video that he put on YouTube and re-contacted the customer to see if that is what he was looking for.

The sheer volume of ideas that employees have to improve companies’ existing businesses puts a premium on crowdsourcing ideas. And inevitably, some of that culture and the ideas emerging from sustaining innovation will relate to discontinuous or disruptive innovations.

Why Not Do Both?

Google is a good example of a company that does both. It’s 20% time for employees to devote to innovation is the stuff of business legend. And according to the company, half of its new products result from this employee time.

But then look at Google Wave. This project was done beyond 20% time. It was actually a completely separate project developed by a 5-person “startup” team in Australia, far from the company’s Mountain View, CA headquarters. Google Wave is transformative, and will likely usher new design principles into a host of software applications.

Google is a good example of an innovation-led company. They mix the elite unit approach to innovation with the everyday encouragement for employees to innovate.

There’s not this dichotomy of “all disruptive/discontinuous innovation, or you’re just falling behind”. Rather, it’s a smart blend of the strategies.

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Lego’s Innovation Won’t Stop Children’s Creativity

September 6, 2009 4 Comments

LEGO logoThe New York Times has a great story about Lego’s resurgence as a profitable, growing toymaker. In Beyond the Blocks, the newspaper asks: “Lego has rebuilt itself, but does it risk losing a sense of wonder?”

Lego is a universal toy for all of us, across generations. As kids, we played with canisters of those multicolored bricks. As parents, we pass along the tradition to our kids. The free form nature of Legos is part of their attraction. Build whatever you want, exercise the creativity muscles and wonder that’s so prevalent in young children.

The company, however, was running into challenges of slow market growth and poor internal operational discipline. To combat the malaise that was setting in, a new CEO came in and made two big changes. He instilled a key performance indicator (KPI) mentality and greatly expanded the product line beyond the free form blocks. It is a story of success and innovating to become a stronger company, as the New York Times notes:

But the story of Lego’s renaissance — and its current expansion into new segments like virtual reality and video games — isn’t just a toy story. It’s also a reminder of how even the best brands can lose their luster but bounce back with a change in strategy and occasionally painful adaptation.

A key point made in the story is that the theme-based Lego toys have a downside. Toy sets based on Indiana Jones, Star Wars and Toy Story rob children of the creative aspects that the traditional plain bricks. With a plain set of Legos, there are no instructions, no pre-set pictures of what the end result will be. It requires that the child think about new possibilities and dream up their own structures. The themed toys, on the other had, are more about following someone else’s directions and creativity. Indeed, here’s what psychiatrist Dr. Jonathan Sinowitz says in the New York Times article:

What Lego loses is what makes it so special. When you have a less structured, less themed set, kids have the ability to start from scratch. When you have kids playing out Indiana Jones, they’re playing out Hollywood’s imagination, not their own.

I think it’s a point well-made. But I want to offer a counterpoint. It’s not from any deep research background on childhood creativity. Rather, it’s as a father of a 5 year old boy. Here is my son’s current favorite Lego creation:

Lego flying machine contraption

Lego flying machine contraption

What’s that? Ask my son, and he’ll tell you, “It’s a secret.” What did it used to be? A helicopter. A Lego helicopter that came with specific instructions for how to build it. Which we did together. But soon thereafter, he decided to make it his own thing. He can tell you all about the different parts of his magnificent flying machine. What they do, and where the people climb in and how they operate it.

What this tells me is that creativity is an intrinsic part of all of us. Sure, my son made a helicopter into a variation of something that flies, instead of turning it into a castle or bridge or something. So certainly, the theme of the toy influenced the direction of his creativity. But I actually think that’s a good thing. Give him some direction for his creativity.

Can’t wait to see what he does with the Grand Carousel.

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Management by Community

September 3, 2009 5 Comments

At the Spigit Customer Summit, Gary Hamel described an innovative management approach that has stuck with me. W.L. Gore management has a hands-off approach to managing employees. Each employee is free to say ‘no’ to any request by a colleague. That’s right. Refuse to do something a colleague asks.

Damn, that sounds pretty good, doesn’t it? No more of those annoying requests that drive you insane.

But doesn’t it also sound like a recipe for anarchy? I mean, companies need employees to get specific things done, on a timely basis. It’s what make companies “go”. You get people refusing to do work, things will grind to a standstill.

All true, if the story stopped there.

Say ‘No’ But Watch the Repercussions

The figure below demonstrates the power of community in regulating excessive refusals to do work, or in providing work that is of inferior quality just to get someone off your back:

Mgt by Community

Employees learn community expectations about what constitutes quality work, responsiveness and collaboration. As you see in the graphic, each employee is requested to work on different projects over the course of a year. And true to the W.L. Gore way, an employee can say ‘no’ or ‘yes’ to each request.

The kicker is that at year-end, peers will rate the employee’s performance. A normal, conscientious worker will do fine in this scenario. But one who is an underperformer will have trouble hiding from the judgment of peers.

Consider how this maps to current processes:

  • Executives and other employees set direction and launch new initiatives, just like today
  • Employees are expected to contribute to multiple projects during the year, just like today
  • Employees need to work in a collaborative team environment, just like today
  • Peers provide a 360 review of employees, just like today

The biggest difference is the primacy given to the peer feedback. It is the crucial input on performance reviews.

It is the crucial input on performance reviews. This is how individuals internalize expectations that might normally come from a single boss. In the usual work setting, your boss is the final arbiter of your performance. Which means you really need to focus on winning the opinion of just one person.

In management by community, you need to think larger than that. The work everyone does plugs into a larger objective of growth and profitability. By tying one’s performance to the interactions with multiple colleagues versus one, companies like W.L Gore alter the influences on employees’ work. And it has paid off for Gore. As noted in FastCompany recently:

In its 50th-anniversary year, the $2 billion-plus private company is on pace for record revenues and profits, thanks to a number of clever new products with a lot of potential.

Visibility Becomes More Important

One outcome of management by community is that the visibility of one’s work becomes more important than ever. Two reasons for this:

  • You want a record of the work you have done, so others will see it  and be able to find it
  • You need evidence of the work you are doing when you inevitably have to say ‘no’ to someone

Others will know that you are accomplishing things as you deliver your work for projects. But the visibility will be limited to only those involved at that time on that task. You’ll likely email your work to others for use in a project. That includes your boss, which is all you really need usually.

Creating public spaces for the sharing of work allows you to deliver on a specific task to a group of people in the same way. But it also lets others know what you’re doing. Someone who may be rating you down the road may not have been on that specific task. But they are now aware of your work. Think that might help influence their opinion come peer review time? I’d say it will. It also makes you more valuable to others for future work, which is an important aspect of management by community.

The other thing is that you will have to say ‘no’ to people. They will be disappointed, even a bit angry. This is a reality, as there is only so much of you to go around. But what can help mitigate those feelings of rejected “work suitors” is a demonstration that:

It’s not you. It’s me.

You didn’t say ‘no’ to someone because you don’t like them, or the work they need. It’s because you’re just so tied up currently on other things.

Final thought on visibility. One could take this to an extreme of tracking the tasks you’re asked to work on. You then signal whether you are in or out on some sort of online site. Considering that many task requests come in the form of email, perhaps not so farfetched to imagine them being made online.

Better Match between Employees Interests and Their Work

Another aspect of management by community is that employees will tend to associate to projects with work that matches your skills and interests. As you make decisions about what to say ‘yes’ and ‘no’ to, there will inevitably be a pattern to them. Generally, I’d expect a bias toward ‘yes’ on projects requiring talents matching yours.

This has two upsides and one downside. One upside is that projects get a better mix of diverse skills from people with above average talents for a given task. This is great, as it improves the output of a team.

A second upside is that employee satisfaction rises. Imagine a world in which you got to employ your skills in something bigger than yourself, and that was your primary work. Not everyone gets to do this. Having more control over your career destiny and work that you personally enjoy is a recipe for happier employees.

The downside is that there are always going to be those grunt tasks that need to get done. Having liberated workers who determine that their time is better spent on meatier projects can risk a failure to get the grunt work done. We all know what employees who exhibit these traits are called: prima donnas.

An interesting question is how much the community dings employees who refuse the more menial tasks that make up everyone’s day. If you truly are world-class talented for something and applying those skills for bigger picture work makes everyone’s projects better, I suspect you can get away with it. But suppose your chosen work is of decent quality, but not earth-shattering. Or what you’re good at is in low demand by peers. I think you risk serious prima donna backlash in the community reviews by saying ‘no’ too many times to grunt work.

Employees will have to do a serious self-assessment in such an environment. Which may be one of the best outcomes of management by community.

There is a lot to commend this concept of management by community. It plugs employees much more into the hive mind of the organization than do traditional management models. And it seems to work. Aside from W.L. Gore’s record financials in its 50th year of business, note that the company is consistently ranked as One of the Best Companies to Work For by Fortune Magazine.

Management by community: worth a closer inspection.

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Democracies Don’t Suffer Famines: Implications for Corporate Governance

August 24, 2009 5 Comments

In his keynote at the Spigit Customer Summit, Gary Hamel said that something that caught my attention: democracies don’t suffer famines. Hearing this, I was intrigued and did some research.

Amartya Sen, winner of the 1998 Nobel Prize in Economics, made this empirical observation:

One of the remarkable facts in the terrible history of famine is that no substantial famine has ever occurred in a country with a democratic form of government and a relatively free press.

Why? In a paper from the John F. Kennedy School of Government at Harvard University, Sean M. Lynn-Jones puts forth two reasons:

First, in democracies governments are accountable to their populations and their leaders have electoral incentives to prevent mass starvation. The need to be reelected impels politicians to ensure that their people do not starve.

Second, the existence of a free press and the free flow of information in democracies prevents famine by serving as an early warning system on the effects of natural catastrophes such as floods and droughts that may cause food scarcities.

Isn’t that powerful? Simplifying things, I distill those two reasons into these: (i) organizational responsiveness, and (ii) distributed trend detection.

Both of which describe the realm of what Enterprise 2.0 is about, albeit without the life-and-death issue of starvation. That in itself is interesting enough. But when you try to apply those findings to companies, you realize they don’t quite mesh with today’s corporate governance models.

Corporations Aren’t Democracies

You, the reader, probably say “duh” to the observation that corporations aren’t democracies. But to consider the benefits of organizational responsiveness and distributed trend detection, it’s important to understand a crucial difference between democracies and corporations. The diagram below shows the corporate governance model:

Corporate Governance Model

In the context of making organizations more responsive, and distributing trend detection, where does that happen? It’s the employees. They’re the ones on the front line. They’re getting creative to solve issues everyday. They hear things from the market before most do. They want to make a difference and see their companies progress.

This is the equivalent of the voters in a democracy. The ones who are experiencing issues firsthand. But employees aren’t empowered to change their organizations. That’s the C-Level suite: CEO, COO, CFO, etc.

The C-Level suite lives a life of leading employees, and listening to the Board of Directors. Well listening, and leading, the Board. And the Board serves at the pleasure of shareholders.

In this model, shareholders look at company results and estimate future overall growth in revenue and profits. Fail to hit the numbers, and they put pressure on the Board. Board feels the pressure, and begin to question the C-Level suite. C-Level suite makes changes, and/or is replaced.

Notice that train of actions – it’s not the feedback from employees that drives changes. It’s a look-back at the results by shareholders. This isn’t to say that C-Level executives do not listen to employees. But the structural governance model sets the pecking order for who and what gets attention.

Bringing the Voice of the ‘Governed’ into the Enterprise Conversation

As someone who went to business school, I’m a firm believer in the accountability to shareholders governance model. Capital is scarce, and its efficient allocation across the economy is valuable for ensuring generally sufficient supplies of products and services needed by the population.

But that doesn’t mean the C-Level executives can’t change the way they manage to improve the prospects of their companies and returns for their shareholders. As has been pointed out before, companies are experiencing unprecedented levels of volatility in markets today. Sources of industry change come from multiple directions, and their speed of invasion is much faster.

Maintaining a model of listening only to their senior executives, their Board and their shareholders is becoming a risky strategy for CEOs. It means listening to people whose interests are certainly in seeing a strong, healthy company, but whose capacity to provide early trend detection and problem-solving creativity is limited. Shareholders aren’t in the trenches of your company’s operations. The Board of Directors is made up of C-Level executives from other companies, who need to worry about their own operations.

Gary Hamel discussed W.L Gore as a model of a company where employees are much more a part of the corporate governance model. From Fast Company in February this year, here’s a quick update on W.L. Gore:

Gore has spun a fortune from constantly reinventing the polymer polytetrafluoroethylene. In its 50th-anniversary year, the $2 billion-plus private company is on pace for record revenues and profits, thanks to a number of clever new products with a lot of potential.

An article in Sales and Marketing Management noted that employee teams help to hire new staff members, assist in determining each other’s pay, and pick their own leaders. Crazy eh? But note the same article says this:

An almost eerie optimism radiates through the hallways at Gore, which is best known for its Gore-Tex lining for weatherproof jackets, and which remains a private company despite its size, in order to protect its culture from outside interests.

Ouch! Here’s a company that exemplifies a governance model of innovation, encourages employee innovation and distributed market intelligence. And it has to stay private to protect this culture?

My sense is that the Enterprise 2.0 movement in general is a vanguard toward improving the way companies are managed. Being a public company, used to a top-down order of things and paying a lot of money to outside consultants to understand the market, is hard to change overnight. But companies can begin to improve the way they engage their employees and leverage their vast, distributed know-how and creativity. There is a wide spectrum of how far companies can take this. The key is to begin understanding how new approaches can work in your organization.

Enterprise 2.0 as a movement, not a technology, is quite promising for enabling companies to improve their overall strategies and operations.

Alternatively, we can continue to do things the way we always have, with a limited set of decision-makers and market intelligence gatherers. As seen with the increased rate of companies gaining and losing positions in industries, this model is becoming less reliable.

Remember, there’s a reason democracies don’t suffer famines.

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Gary Hamel on Enterprise 2.0 and the Post-Establishment Age

August 18, 2009 20 Comments

Gary Hamel photoLast week at the first-ever Spigit Customer Summit, I had a chance to listen to Gary Hamel live. He delivered the keynote for the event, “Inventing Management 2.0.” If you’re a reader of Gary’s blog or his books, you know he’s a big proponent of empowering employees and changing management paradigms. See his 25 Stretch Goals for Management in the Harvard Business Review from last February for a great overview of his thinking.

In his speech last week, he did not disappoint. In fact, he provided a distinct rationale and call to action for companies to embrace the Enterprise 2.0 movement.

Driving the Autobahn in a Model T

In his presentation, there were two distinct graphs that really drove home the point that it’s time for new ways of managing companies. I’ve put them together below:

Gary Hamel - Why Innovation in Mgt Is Needed

On the left, a conceptual chart outlines something many of us instinctively feel. The pace of change in our world is increasing. As Gary Hamel noted, year-to-year volatility in company earnings have been increasing exponentially the last 40 years. Those changes are manifestations of what we all experience. I thought he put it well when he said:

What a company did in the past is now less predictive of its future.

Business Week in 2004 ran an article that nicely demonstrated the acceleration of change. It included these points:

  • The number of Fortune 300 CEOs with six years’ tenure in that role has decreased from 57 percent in 1980 to 38 percent in 2001.
  • In 1991, the number of new household, health, beauty, food, and beverage products totaled 15,400. In 2001, that number had more than doubled to a record 32,025.
  • From 1972 to 1987, the U.S. government deleted 50 industries from its standard industrial classification. From 1987 to 1997, it deleted 500. At the same time, the government added or redefined 200 industries from 1972 to 1987, and almost 1,000 from 1987 to 1997.
  • In 1978, about 10,000 firms were failing annually, and this number had been stable since 1950. By 1986, 60,000 firms were failing annually, and by 1998 that number had risen to roughly 73,000.
  • From 1950 to 2000, variability in S&P 500 stock prices increased more than tenfold. Through the decades of the 1950s, 1960s, and 1970s, days on which the market fluctuated by three percent or more were rare — it happened less than twice a year. For the past two years it happened almost twice a month.

On the right, the chart provides the major innovations in company management over the past 150 years. Current management systems reflect philosophies that were developed in an earlier era of greater stability. A quick primer on the different management ideas (note – cannot find information on McCollum):

Taylor: Frederick Winslow Taylor advocated: “It is only through enforced standardization of methods, enforced adoption of the best implements and working conditions, and enforced cooperation that this faster work can be assured. And the duty of enforcing the adoption of standards and enforcing this cooperation rests with management alone.”

Sloan: Former GM CEO Alfred P. Sloan revolutionized the management of corporations through numbers: “Sloan oversaw the use of rigorous financial and statistical tools to profitably manage GM’s far-flung empire.”

McGregor: MIT professor Douglas McGregor developed Theory X and Theory Y: “In Theory X, management assumes employees are inherently lazy and will avoid work if they can. In Theory Y, management assumes employees may be ambitious and self-motivated and exercise self-control.”

Deming: W. Edwards Deming was a professor and statistician credited with revolutionizing post-war Japan’s manufacturing: “Dr. W. Edwards Deming taught that by adopting appropriate principles of management, organizations can increase quality and simultaneously reduce costs (by reducing waste, rework, staff attrition and litigation while increasing customer loyalty). The key is to practice continual improvement and think of manufacturing as a system, not as bits and pieces.”

The point Gary Hamel drives home is that our business and economic environment has irrevocably shifted toward higher volatility and accelerated change. The sundering of companies from healthy industry positions to crisis mode in relatively short order demonstrates the need for updating management philosophies.

Need for Better Adaptability in the Post-Establishment Age

My own term for this is the “post-establishment age”.  In prior decades, change was slower, and companies could count on inherent advantages that helped them maintain their established positions. As Gary Hamel noted, protections came in the form of regulatory frameworks, monopolies (e.g distribution), capital access and other ways.

These protections continue to erode in our modern, WTO-governed society. The web and digitalization of content and processes are making it easier than ever for new ideas to be tested. Consumers have access to more information than ever. Social media ensures more people know about new companies and products more rapidly then ever.

Old protections are falling, while change and industry disruption is accelerating. What can modern companies do to manage in this new environment?

Gary Hamel prescribes two strategies for companies in the post-establishment age:

  • Increased organizational adaptability
  • Pushing innovation and decision-making out to employees

Adaptability is a critical strategy. It means that companies pivot as they learn new information about their markets, competitors and changes in customer behaviors. As noted in a recent Wall Street Journal article noted, companies can try more ideas faster and less expensively than ever:

Technology is transforming innovation at its core, allowing companies to test new ideas at speeds—and prices—that were unimaginable even a decade ago. They can stick features on Web sites and tell within hours how customers respond. They can see results from in-store promotions, or efforts to boost process productivity, almost as quickly.

Gary Hamel then notes that senior executives continue to have a monopoly on strategy. This essentially makes companies dependent on a handful of executives’ ability to adapt to change.

Yet employees are probably the earliest to know when something is changing. They also are faced with situations where they must come up with solutions. It is in this environment where companies will find their sources of adaptation. In an article for the Harvard Business Review, 25 Stretch Goals for Management, Gary Hamel included these two goals:

12. Share the work of setting direction. To engender commitment, the responsibility for goal setting must be distributed through a process where share of voice is a function of insight, not power.

17. Expand the scope of employee autonomy. Management systems must be redesigned to facilitate grassroots initiatives and local experimentation.

In the post-establishment age, these strategies are what distinguish leaders from those that will go through another disruption.

This Is Enterprise 2.0 Evolved

The cornerstones of Enterprise 2.0 include greater information visibility, tapping the emergent knowledge of employees and increased collaboration. Those are the foundational elements. Use them to create a company of higher adaptability and distributed innovation and decision-making.

As Gary Hamel concluded in his keynote:

“You can’t build a company that’s fit for the future unless it’s one that’s fit for human beings.”

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Gary Hamel’s Hierarchy of Employee Traits for the Creative Economy

August 17, 2009 Leave a comment

Over on the Spigit blog, I published Gary Hamel: Hierarchy of Employee Traits for the Creative Economy. It’s notes from his talk last week at the Spigit Customer Summit. The post has the full details, but I wanted to share this graphic from it:

Gary Hamel - Hierarchy of Employee Traits for the Creative Economy

The key point is this: the traits that will determine success in the Creative Economy are different than those that govern the Information Economy. They are much closer to the Enterprise 2.0 ethos than that anything we’ve seen previously. The top three traits are something that employees themselves bring to the job. As Gary Hamel says, they cannot be commanded.

Check out the post for a full description of what Gary Hamel talked about.

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