A Blog by Jonathan Low


Dec 24, 2012

The Innovator's Straitjacket

As the holiday economy begins to wind down, the last few frantic shoppers are searching for inspiration.

Which brings to mind the how the year in business and policy has changed - and how that may reflect on what inspirations may be important for the year ahead. For despite the year's advances, we, as a society and an economy, seem in need of reassurance.

We find ourselves in a figurative straitjacket. Hoarding cash, afraid to invest, wary of any idea that doesnt 'guarantee' success - as if there are guarantees of anything in life. If you want a lesson on the unpredictability and unfairness that life sometimes delivers, just think how different is this Christmas Eve from the one the families of Newtown, Connecticut were anticipating just ten days ago.

In business and policy, we appear to be constrained by our fears rather than thrilled by our opportunities. The economy is improving, the various national elections have delivered results, not to everyone's taste, perhaps, but major uncertainties have been eliminated.

Despite that, businesses are sitting on virtual cash hoards, fearful that anything spent will fail to offer the returns we demand of ourselves. Some of this is because we have created a system in which a few expect extraordinary results while many are inured to expect little or nothing. Governments, when not at loggerheads with themselves, are similarly reluctant to commit.

Until we are able to accept uncertainty and rationally embrace risks, we will remain strapped in an operational, financial and emotional straitjacket of our own devising. Assessing, planning for and confronting risks is what business does in order to make a profit. Supporting that sort of initiative is what governments must do to encourage growth.

As a rule, we will get some things wrong, but will get many things right. The following article elucidates some of the types of constraints with which we bind ourselves in organizations. The greatest constraints, of course, are in our minds. And we may want to take the quiet week ahead to contemplate which of those straps
can and should be undone. JL

Scott Anthony comments in Harvard Business Review:
Consider the straitjacket. It was invented in the early 18th century in France as a way to stop people with mental disorders from hurting themselves. It does its job well, but a person in a straitjacket also loses the ability to do many other things, particularly creative tasks that require typing, drawing, manipulating objects, and so on.

Even the sanest of companies can unintentionally put themselves in a straitjacket that makes it hard for them to create high-potential new growth opportunities. Here's how leaders unintentionally limit their innovation efforts.1. Constrained by current capabilities. Companies often say they can't do something because it is beyond their core capabilities. To consider the ridiculousness of this statement, imagine Mark Zuckerberg in his dorm room saying, "I can't build Facebook because it is outside of my core capabilities." Remember how Howard Stevenson from Harvard defines entrepreneurship: "the pursuit of opportunity without regards to resources currently controlled."

2. Stymied by fear of cannibalization. Many companies act as if they have a degree of omnipotence. That is, their decisions, and their decisions alone, drive customer action. It would be nice to be able to control cannibalization, but the reality is that cannibalization happens. The operative issue is whether a company participates in the process or not. Remember, truly innovative ideas often grow markets. At the margins, the Apple iPad has surely caused Apple to lose a few profitable notebook and laptop sales, but the category growth has made it clearly worth it.

3. Stopped by dread of dilution. When a company is stable, a new idea's gross margins are a useful thumbnail guide for whether it is a good idea or not. Prioritizing ideas that boost margins over those that dilute them makes sense. However, in changing environments, companies that avoid considering dilutive offerings miss opportunities to explore new business models that could actually produce more attractive free cash flows — just in very different ways. Newspaper companies with 30 percent operating margins naturally looked with some degree of skepticism on lower-margin online models (Jeffrey Zucker from NBC Universal famously described the challenge trading analog dollars for digital pennies). But with the right business model, those lower-margin models can produce real profits.

4. Balked by the brand. It is amazing the awe-inspiring power given to something as ethereal as a brand. Want to have some fun in your next meeting? Ask people to actually define what "brand" means. To justify a plan that looks tenuous? Just say, "It's on brand." To kill a solid-looking idea? Snort, "This might damage our brand." This particularly plays out in disruptive circumstances when companies are thinking about introducing something that trades off raw performance for simplicity or convenience. It also appears when companies explore testing a very novel concept in the marketplace, and worry about the damage their brand will suffer if they end up killing the idea. Early tests should focus on critical strategic assumptions. Most companies have a pretty good sense of the power of their brand. Why not run a test without using an existing brand? After all, a good brand can only make the idea better, right?

5. Caught in the channel snare. Here's a safe bet. When a salesperson has the choice between selling a known product for high price points or investing to learn to sell a new product that has lower price points, they will prioritize existing products. Every time. People don't do what doesn't make sense to them. Companies trying to create disruptive growth need to consider alternative channels to market, or they will predictably struggle.

Big companies have the potential to do tremendous things. But by donning the innovator's straitjacket, they consign themselves to frustrations and disappointments


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