Big companies have great execution habits to manage and improve proven and successful business models and value propositions. But those execution habits can easily kill any potential new growth engines inside the corporation. In this post, we break down the 11 corporate habits killing your company’s innovation engine. How are you avoiding them?
Bad Habit #1: The current business model dominates the agenda
In most companies, the future suffers at the expense of the present. Companies are great at improving their existing business model and value propositions but fall short when it comes to inventing entirely new business models, value propositions, and growth engines. In fact, by the time a company realizes it needs to reinvent itself for future success, it’s often too late. This happens because managing the present often takes oxygen away from inventing the future. Rita McGrath, a Columbia Business School professor says, “there’s pleasing today’s customers and there’s developing tomorrow’s business.” You need to be excellent at both.
Remedy: Create a protected space in your org chart where you invent and test new business models and value propositions. Equip this “space” with power and prestige. Become an ambidextrous organization — one that is excellent at managing and improving your existing business, alongside inventing new ones.
Bad Habit #2: One-size-fits-all decision making hurts speed & inventiveness
Companies that swell in size and scale proven products and services can quickly fall into a trap of slowness, unthoughtful risk aversion, and failure to experiment. As Jeff Bezos puts it, one-size-fits-all decision-making “hurts speed and inventiveness” inside large organizations. In fact, Bezos constantly adjusts Amazon’s culture to ensure that the company never slows down and loses its entrepreneurial and nimble approach to finding future business success.
Remedy: Copy Amazon and distinguish between non-reversible decisions with substantial sunk costs (like e.g. investing in a new warehouse in Amazon’s case), and reversible decisions like experimenting with a new offer. The former requires slow and careful decision making. The latter requires speed and agility.
Bad Habit #3: Insisting on untested and detailed business plans
Most established companies require detailed business plans for new ideas. This results in carefully crafted and thought-through documents with detailed spreadsheets and a great focus on how an idea will be implemented. However, the first goal of an innovator should not be to think hard about an idea and describe its implementation. First and foremost, an innovator’s job should be to rapidly, cheaply, and continuously test and adapt ideas until there’s enough evidence from the field to prove they will work. Only the latter helps to avoid big flops because it systematically reduces the risk and uncertainty of new ideas. Business plans actually maximize the risk of failure because of the focus on executing an unproven idea rather than testing it.
Remedy: Use business plans only for execution challenges. Don’t ask innovators for business plans. Instead, implement processes that force innovators to systematically prototype and test ideas, reduce risk and uncertainty, and ultimately provide the evidence that an idea will work.
Bad Habit #4: Opinions and past experience matter more than evidence
Over the course of a career, senior leaders acquire a lot of knowledge and experience about their business. Unfortunately, this knowledge is often irrelevant when it comes to new value propositions and new business models. The knowledge that Kodak’s leaders acquired during their successful decades in analog film didn’t equip them for digital photography. Quite the contrary. The rules to compete in the digital age are completely different. That’s why it’s so important for companies to “get out of the building” and interact with customers. Steve Blank, father of the Lean Startup movement, stresses that you will never know enough about your customers if you are holed up inside a boardroom. A good idea might still be a bad idea because customers don’t care about it. Michael Schrage, a research fellow at MIT, emphasizes that “a testable idea is better than a good idea”.
Remedy: Educate leaders that judging ideas for new value propositions, business models, and growth engines requires evidence from the field rather than “expert opinion” from leadership. Implement processes that judge ideas based not on how they look but based on the evidence from the field that supports them.
Bad Habit #5: Outsourcing customer discovery and testing
Large companies have a habit of hiring outside agencies to do market research and customer discovery. That’s dangerous when it comes to developing new value propositions, business models, and growth engines. You can’t hire outside professionals to test and learn from customer interactions and make decisions for you. New ideas require many rapid iterations between prototyping, immediately testing with customers, and then deciding how to adapt your idea based on the acquired insights.
Remedy: For radically new ideas you should fire outside agencies, roll up your sleeves and internalize the hard work of rapid prototyping, testing, learning, and deciding. Third parties can help you with the process, but they can’t do the work for you.
Bad Habit #6: Lack of senior leadership participation
Senior leaders are very busy and time-pressed people. Typically they see the “getting out of the building” to test ideas with customers as a task to be performed by subordinates. But leaders have to be more than just sponsors of new business ideas. Decision makers are the ones who can make things happen. They are the ones who need to feel the market and talk to (potential) customers to learn that some of their initial assumptions or strong opinions might be completely wrong. Equipped with these market insights they can help move things faster.
Remedy: Distinguish between senior leaders who manage the present like running factories, and senior leaders who are involved in creating the future and need to “get out of the building”.
Bad Habit #7: Obsession of competitor rather than customers
Unfortunately, many companies are more obsessed by their competition than their customers. Your customers are far more important than your competitors. Your (potential new) customers contain the evidence your organization needs to validate or invalidate new business ideas and potential growth engines. That doesn’t mean you should completely ignore the competition. After all, business models and value propositions aren’t designed in a vacuum. However, competitors should not be your primary focus.
Remedy: Obsess over your customers first when developing and testing new value propositions, business models, and growth engines. As a secondary: evaluate how these new ideas perform in the competitive landscape.
Bad Habit #8: Predominant focus on technology risk at the expense of other risks
New business ideas face many different risks. The Californian design firm IDEO distinguishes between three types of risk when they assess prototypes: desirability, feasibility, viability. Desirability is about the risk of your customers not being attracted by your new value proposition. Feasibility is about technology and infrastructure risks. Viability is about financial risks. We added a fourth risk, adaptability. Adaptability is about the risk of a business model and value proposition not being fit for evolving external factors, like competition, technology change, or regulation (risk: external threats).
Remedy: When you test your ideas make sure you test all four types of risks: desirability, feasibility, viability, and adaptability.
Bad Habit #9: Innovation is career suicide in most organizations
There are four main reasons why innovation is not an attractive career path in most organizations today. First, good innovation processes require rapid experimentation and failure to gain insights, adapt, and ultimately succeed. In most organizations, any type of failure is seen negatively in terms of career advancement. Second, The entire incentive system is geared to managing the execution engine, where failure is not an option. Third, in most large companies, innovation is still seen as a department for pirates and “the crazy ones”. And fourth, prestige in companies today is largely centered around who commands the largest budget and staff. In truth, good innovation processes require little resources and few people during the early stages–and in big companies, that’s not a great way to advance your career.
Remedy: Create an appropriate incentive system for each: the people focused on execution, and the people focused on innovation. Make innovation the most prestigious job in your company. After all, the innovators are ensuring your organization’s survival in an age of constant change.
Bad Habit #10: The innovation engine is siloed from the execution engine
Companies struggle to get the “execution engine” and “innovation engine” to collaborate, rather than to compete. They often fight for the same resources, rather than admitting that managing the present and inventing the future are equally important and should be equally resourced. What’s worse is the execution engine often deprives the innovators from access to valuable resources like customers, brand, or skills. That means the innovators end up competing like a start-up in chains without any competitive advantage against the more nimble and agile startups.
Remedy: Create a culture where executors and innovators collaborate because they understand each others value to the organization. Create processes that grant innovators access to customers, brands, and skills so they can outcompete the more nimble and agile startup ventures.
Bad Habit #11: Integrate new ideas into the execution engine too quickly
New ideas are fragile and they need to be carefully accelerated and scaled before they are integrated into the execution engine with its rigid processes, rules, and procedures. If you integrate new ideas before they fully mature you might kill them. For example, Nespresso, the successful daughter company of Nestlé, only survived and thrived because they were physically distant from Nestlé’s headquarters.
Remedy: Protect new ideas until they fully mature; for example, like in Nestlé’s case, by locating the project outside of the company’s headquarters.