Organizing for Innovation

An excerpt from the forthcoming book “Organizing and Managing Insanely Great Products” by David Fradin with RN Prasad.


It is the Culture
The Organization
Organizing for Innovation
Leadership
Organizational Structure
The Impact of Digital
Who is the decider?
Metrics for Innovation
Summary

Organizing for Innovation

In this section, I will discuss how toorganize for innovation, leadership, structure, the impact of digital, decisionmaking and metrics.

Every product company will have an agenda forinnovation, big or small.  The results ofinnovation depend on factors such as:

  • The organization culture
  • The leadership commitment toinnovation initiatives
  • Innovation team organizationstructure (closeness to customer & continuous feedback…)
  • System of metrics to quantify thecontribution to company growth
  • Adoption of digital tools
  • Reward system with NO fear offailure

As discussed in the values, vision, and mission section of this book, they combine to create the organization’s “culture.” The organizational culture affects innovation.  Innovation is defined as doing something better or faster.  I say innovation can also be about style.  For example, the Apple Watch was marketed from the start as a status symbol in addition to the niche target markets of health monitoring and exercise.

Innovation: It is the Culture

For innovation to occur, frequently, it issome technology that is involved.  Thedefinition of technology is the organization of knowledge for practicalpurposes.  That organization is affectedby the organization’s culture. 

Take Facebook, for example.  Facebook has a culture to “act fast andbreak things” with the goal according to Facebook co-founder Chris Hughes:”Facebook’s business model builds on capturing as much of our attention aspossible to encourage people to create and share more information about whothey are and who they want to be. We pay for Facebook with our data and ourattention…”

In other words, it is Facebook’s culture, incombination with its technology, that has disrupted society worldwide.

An organization’s culture affects how thatorganization sets its goals, trains its people, how it is organized and setsthe rewards.  A culture of innovationvalues original thoughts and supports new ideas across the enterprise.

For an organization to be innovative, we needto think about how we organize, what we value, and what behavior we encourageand discourage.

The organization’s culture needs to, in thewords of Dr. Waguih Ishak “encourage the embrace of new technologies,kindle the passion for knowledge, and ease barriers to creativity andserendipitous advances.”

This culture of innovation starts withphilosophy and tone, encouraging innovative behavior such as allowingexploration. 

When I started in Engineering School at theUniversity of Michigan, I was bored after about three weeks and startedexploring the campus.  One day I cameacross a flyer calling for a meeting to organize a flying club.  I went to the meeting of five people, andwhile the other four dropped out pretty quickly, I went on and started theclub. 

Unknowingly I set the values and mission forthe club in writing and discussed them with each new member, thus internalizingthe culture.  By the time I graduated, weowned 25 planes and had a run rate of over $4 Million per year. 

The club is still going strong now having trained over 5,000 pilots providing the airlines, general aviation, and even the Blue Angels with pilots.  The club was so innovative we were able to do all of what we did with no money.  We did have monthly dues, not unlike Amazon Prime, which gave us a base to cover fixed expenses, and we priced the hourly rate to cover airplane operating costs to generate a little profit.  We started with rentals, then lease-backs, and then banks would loan use the funds for aircraft purchases.  We allowed the members and the Board to innovate.  HP did the same exploring.  They called it “Management by Wandering Around.”  It was one of the reasons HP grew 20% a year for 50 years until Carly Fiorina stopped the practice. An organization’s culture should also encourage folks to think out of the box and shoot high including having connections outside the organization.  That may also include forming strategic partnerships with them.

The Organization

In the early 1900s, the size of businessesstarted to grow as the world starting shifting from an agricultural economy toan industrial one.  But there were nomodels of how an organization should be structured if it is large except for copyingthe military which at the time was the only large organization around.  So the companies picked a top-downcommand-and-control-style structure.  Thefirst to do that was the railroads. Then other large, typically manufacturingbusinesses.

The problem with that type of structure forinnovation is that it requires those at the top of the structure to payattention to everything, no matter how large or small. The other problem withthat structure is that decision making tends to get further and further awayfrom the customer.  In my consulting, Ihave found some companies that meet and decide on everything just one time ayear.  As a result, hundreds of smalldecisions, that combined will affect the future of the company, do not getmade.

Hewlett-Packard in the mid-1990s formed”councils,” and decision making slowed as did HP’s record of growing20% a year for 50 years.  HP then blew uptheir Councils, and growth returned.  Afew years later Carly Fiorina came on board as president and decision makingflowed to corporate.  She also blew up thecompany’s values known as the HP Way.  HPhas been spiraling into oblivion ever since.

In the mid-2000s Cisco formed councils withthe same results as HP. They since blew them up, and growth returned.

Hierarchical organizations are not agile in a world where agility is essential to thriving.  A better way to organize is an open organization where dynamic, networked structures run the show.

Organizing for Innovation

A culture of innovation provides feedback anddeals with failure positively.

HP co-founder Bill Hewlett, when as head ofHP’s engineering, required that whenever there is a new idea, the idea will begiven three separate meetings.  The firstmeeting the idea will be greeted as “Yes, And” like in the improvgame. 

Such an approach allows the idea to flourishand get enhanced.  But frequently when anew idea is floated, it is greeted with a “No, But” thus shuttingdown innovation and the culture of innovation. In the second meeting, the idea would be analyzed, questioned. Then, inthe third meeting, a decision would be made. 

Frequently, David Packard writes in his book”The HP Way,” the person first suggesting the idea votes against hisown idea.  But he doesn’t leave thecompany feeling rejected.  He/She feelstheir idea was thoughtfully considered.

As a contrast, when Eric Schmidt stepped asideas the President of Google and handed the reins to Sergey Brin who wasapparently bothered by Eric’s edict to have folks at Google work on their ownideas 20% of the time.  He required eachperson to submit to him an “elevator pitch” that is about a 60 secondor say 125 words describing their project to gain approval to continue to workon it. 

For a person inexperienced in managinginnovation, it sounds like a good idea because, after all, that is the wayventure capitalists do it.  But at thebeginning of a project, the idea is not fully fleshed out yet.  As Werner von Braun, the rocket scientistonce said about a new idea like space exploration, “Of what worth is ababy?” One does not know until the baby grows up!

When I heard about Google’s new 60-secondtest, I joked to one of my classes that this would cause an exodus fromGoogle.  That someone will be so upset inthat change in culture and might even become the head of Yahoo.   A few months later, Melissa Meyer, Google’sfirst and most senior product manager, left the company and became thePresident of Yahoo.  A culture ofinnovation is a fragile thing.  Saying”NO, But” is a recipe for shutting down innovation.

In short, the feedback needs to be continualand positive, respectful, including frank disagreement. 

Failure needs to be acceptable.  At HP, during their growth years, folks wereencouraged to fail because without failure they were not trying.  As a flight instructor, I would enable mystudents to make mistakes up to the point of killing us because the best waypeople learn is from their failures from their mistakes.  Without accepting and embracing failure,nothing new will be done.

As Amazon’s founder and president, Jeff Bezossaid in a letter to shareholders “Most large organizations embrace theidea of invention, but are not willing to suffer the string of failedexperiments necessary to get there . . . Given a ten percent chance of a 100times payoff, you should take that bet every time. But you’re still going to bewrong nine times out of ten. We all know that if you swing for the fences,you’re going to strike out a lot, but you’re also going to hit some homeruns.”

Management by objective needs to be balancedwith rewards for failure, for risk-taking too.

An innovative organization must balance thewisdom it has gained over the years with fresh ideas.  Ideas can come from anywhere, not justspecific departments.  The culture shouldfavor the best ideas from anyone. Otherwise, innovation will gravitate to the lowest level ofmeritocracy. 

Because of the rapid rate of change, a moreagile approach to planning needs to be adopted of planning/development,execute, evaluate, and repeat, quickly. But not to the extent that some venture capitalists advocate of”ready, fire, aim.”  I advocate thatone can immediately have a successful product market strategy toimplement.  So, at least, you are atleast aiming in the generally right direction for product success.

Leadership

One of the keys to leadership in our newbusiness environment is networking people together for team success.  Knowledge is not hoarded; it is shared.  Collaboration is invited, meaning bringinghalf-baked ideas up sooner rather than later. That a team developed solution will always be better than from just oneperson.

Leaders should be willing to share informationand knowledge, extend trust, and encourage collaboration. They should beenabling and supporting their organization. Incentives should be for the teams, not the individuals. Leaders shouldencourage individuals and teams to own the problem.

In a recent IBM study, sixty percent of a sample of 1,500 CEOs cited creativity as the most critical leadership quality over the next five years. (Capitalizing on Complexity: Insights from the Global Chief Executive Officer Study, (2010), Somers, NY: IBM Corporation.)  Creativity trumps other leadership qualities. They foster creativity and innovation.

Organizational Structure

I argue there should be a VP of ProductSuccess and the product success managers beneath them should have budgetauthority over such things as market research and all marketing.  They also should easily encourage teamworkand interactions throughout the entire organization. 

Amazon has found that teams need to be keptsmall.  No more than ten people.   If more people are required, then theproblem should be split up.  HP learnedthese years earlier where it would not allow a Division with multiple productsthat is autonomous with integrated engineering, manufacturing, marketing, HRand finance would be no larger than 500 people. Roman Legions also found an effective fighting unit is no more than 150men.

The Impact of Digital

According to Bain, traditional organizationsare struggling to cope with the pace of change brought about by the digitaltransformation.  Plus different groupscompete for the same, limited digital resources. Bain’s survey of 1,000companies found that those that did a digital transformation had revenue growthof 14% over three years, which was more than double than those companies thatdid not do a digital transformation. 

But, Bain found, just 5% achieved or exceeded the expectations they had set for themselves from the transformation.  The reason is they did not adjust their operating model of decision making,  how people collaborate across functions, accountability, governance like decision making, budgeting, behavior incentives, capabilities of people, process, technology, and teamwork.  Management has to consider how each of these components of the business model changes with the digital transformation.

Who is the decider?

I strongly advocate that the product successmanager should/must, at the beginning of a project, set out a clear line ofauthority and responsibilities for each aspect of the product market strategyand marketing plan.  Otherwise, as one ofmy clients once said; “the lack of process and clear roles andresponsibilities results in a culture of blame.”  Or perhaps you might call it a circularfiring squad with everybody points fingers at the others. 

An excellent place to start would be a DACI orRACI chart, as shown above.

How the organization deals with innovation determines the level of success.  First, the organization must do customer research to verify the product’s value proposition in terms of what the outcome will do for the customer. Then, if the product is green-lighted, its product market strategy is researched and written, the product is developed, and marketing needs to proceed as a process that is continuously refined and improved.  The idea is to get to a repeatable and mature process.  Product success or failure reviews are essential and should be made available to future products too. 

 

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