A Blog by Jonathan Low


Feb 4, 2013

Innovate Faster or Innovate Better

In our organizational lives we hear a lot of talk about taking risks. Business gurus are constantly encouraging us to set stretch goals or even Big Hairy Audacious ones. We are urged to follow our passion, to fight for our beliefs. Compromise is derided with down home wit suggesting the only thing in the middle of the road are small dead animals.

Which is all very...edifying. If somewhat misleading.

Because the nature of organizations, large ones in particular, is to find the middle ground. To do just enough to increase chances of success without betting the entire enterprise on the outcome. The latter all too often tends to result in photos of unhappy young people in expensive suits they may never again be able to afford as they are led off to jail.

This also applies to innovation. The very word has become something of a cliche. What organization - and leader - does not proclaim its devotion to innovation, its record of success in achieving same and the impact that has had on the quality of its products, the gratitude of its customers and the increase in its sales?

Which has led to an epidemic of innovation fatigue. Listeners' eye cross when they hear the word. In group settings where they are hidden by rows of seats or large conference tables, people can be seen reflexively grabbing for their mobiles to check old emails they ignored in previous weeks - or merely to do something even more dubiously productive like play Angry Birds.

This reaction to verbal innovation bling is driven by the knowledge that neither organizations nor individuals can do all things well. Innovation is essential for business survival but it may not be the company's most salient characteristic. Nor will the market necessarily compensate the enterprise for it. In the research my colleagues and I have done on the subject, we have found that CEOs consistently insist that their companies are known for their innovation efforts and that it is one of the factors driving their growth. But surveys of their customers, whose names are usually provided by the company itself, report that the subject companies could innovate all day and the market would not reward them for it.

How can this be, you ask? If you dont innovate constantly longevity may well elude you, but customers may well conclude that doing so is the price YOU pay to live another day but not one for which THEY should pay in a competitive world.

So the challenge is how to innovate. And frequently, the question is, as the following article explains, to innovate faster or innovate better? The correct answer depends: on the size of the enterprise, the cost basis of the process, the strength of the market, the inclinations of customers, investors and lenders. In sum, the way one innovates is a strategic issue, not a given or a mass market application. Innovating faster is something companies with access to significant financial and operational resources generally do better because they can buy the attributes that fund speed. Innovating better is something any enterprise can do if it is conscious of its competitive strengths and weaknesses, is resourceful and clever. The constraints and opportunities in achieving innovation success, or not, have little to do with formulas and everything to do with attitude, belief and awareness. JL

Scott Anthony comments in Harvard Business Review:
If a company really wants pure unbridled entrepreneurialism, it should invest in a startup rather than creating a compromised organization that neither has complete freedom nor truly unique capabilities. The other week I met with the leader of a new growth business for a large Asian company. The meeting was miles away from the corporate headquarters. The leader proudly showed me around her office, pointing out how the open, energetic feel compared to the closed-door, corporate nature of headquarters. The young staff certainly seemed to be enjoying itself in the lounge that was well-stocked with booze and snacks.

"So, what does your corporate parent give you?" I asked.

"Absolutely nothing," the leader replied without some degree of pride. "Except funding, of course. Otherwise, they completely leave me alone."

I didn't want to burst the leader's bubble, but I gently explained to her that what she said was actually quite troubling. The reality is she is fighting a tough battle with one hand behind her back. And the odds are pretty high that she is going to lose.

Yale School of Management Professor Dick Foster notes that a single firm cannot innovate faster than the market in which it participates. Why is that? Consider three key differences between a startup and an autonomous business formed by a large company:

1.Talent. A startup chooses the very best talent it can find to tackle an opportunity. The autonomous business more often than not chooses key leaders from its parent company, even if they haven't had relevant experience (a problem I described here).
2.Funding. The startup receives a finite slug of funding to demonstrate its viability. It has to zig and zag to find success before it runs out of money. The autonomous business will typically draw funding via the annual budgeting processes. As long as it doesn't fall on its face, it can chug along with its predetermined strategy. Since that strategy is likely to be wrong, the lack of adjustment is bad, not good. Too much capital can be a curse.
3.Governance. The startup is governed by a Board of Directors that typically includes an eclectic mix of founders, financiers, and advisors. That Board probably meets at least monthly and is on call if any quick decisions need to be made. The autonomous business is controlled by the parent company. Reviews might happen quarterly. Just getting a meeting on a senior leader's calendar can take weeks. Forget about quick decisions.
The end result too frequently is the market speeds ahead of the autonomous organization. A large company just can't innovate faster than the market.

But a large company can innovate better than the market.

There are some things that only large companies can do, because they have unique assets like technology, channel relationships, relationships with regulators, scale operations, and so on. I profiled fourth-era corporations that created powerful growth businesses by combining these kind of difficult-to-replicate assets with "just enough" entrepreneurial behaviors. Clark Gilbert, Matt Eyring, and Richard Foster described how companies that have successfully transformed their business in the face of disruptive change have made smart use of a "capabilities exchange" that allows new growth businesses to selectively draw on unique enabling capabilities without being overly constrained by legacy business models and mindsets.

If a company really wants to do something remarkable, it has to confront the very real tensions between operating a big business and supporting entrepreneurial behavior and between leveraging unique capabilities and being constrained by them. Those tensions will always make a company move more slowly than an unburdened startup. But mastering these tensions can allow companies to do what a startup cannot.


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