Financial Cryptography

Innovation: a word, a dream or a nightmare?

It is fairly normal to hear people talk about innovation, but it doesn't take much experience to realise there is a gulf between the reality and the buzzword. Innovation is not something we can bring to the company just by talking about it. Here's some cold water poured on popular notions by Govindarajan and Trimble (G&T):

The fashion these days is to focus on the supply side of innovation: for example, by encouraging everyone to think big thoughts. 3M, the maker of Post-it notes, ...

Fashion in innovation thinking is an oxymoron if ever I saw one! When did 3M invent Post-it notes? No matter, let's carry on:

...expects its workers to spend 15% of their time on their own projects. Google expects them to spend 20%. This approach is attractively democratic: by giving everyone a chance to innovate, it makes everyone feel special. Or so the theory goes. G&T are ready with the cold water. The let-them-loose approach spreads resources thinly and indiscriminately. Companies dissolve into a thousand small initiatives rather than focusing on a few big problems. It also produces far too many ideas: managers have to spend weeks sorting through the chaff to find a few grains of wheat.

I've seen the 20% idea in operation, and it doesn't work. Calling it democratic is a good approximation, so there is some value to it in a tight bureaucracy seeking to "empower" its people. But innovation-driving it isn't, and doing it in a technology company like google reveals a profound misunderstanding of the techie's human psyche. I'd even suggest that the approach quite possibly hides the sources of true innovation.

G&T say that you need to start by recognising that innovation is unnatural.

Hallelujah! Now, ask your boss whether she'd like something unnatural to happen to her this week ... and we'd be getting close to why that it isn't going to happen.

Established businesses are built for efficiency, which depends on predictability and repeatability—on breaking tasks down into their component parts and holding employees accountable for hitting their targets. But innovation is by definition unpredictable and uncertain. Bosses may sing a pretty song about innovation being the future. But in practice the heads of operational units will favour the known over the unknown.

Right. But it is also not just companies that are obsessed with these things. People are scared, scared for their jobs. Mundane is safe, innovation gets you fired, or if you are lucky the credit will be lost to others. Far safer to talk the buzzwords, only.

So how to to turn big corporations or departments into innovation factories? Well, it's probably unreasonable because we are likely in that statistical impossibility space. Either people will talk about it, and not do it (for fear of their jobs), or people will do it and lose their jobs. So every lesson will be an anti-innovation lesson, and any accidental slippage into innovation will be dismissed as a statistical outlier.

Annecdote: I recall presenting on the fundamentals of why innovation is impossible in banking, to a big british bank's Head of Innovation. Of course, he argued I was wrong. But after he left, two of his employees told me that while he talked the talk very well, he did everything possible to avoid innovation. He was the head of Innovatory Capture & Suppression, and he served the bank well.

The only way to crack the anti-innovatory structure of business is to change the rules.

Many would-be innovators deal with the trade-off between efficiency and innovation by rejecting traditional management entirely. They repeat mantras about “breaking all the rules” and “asking for forgiveness rather than permission”. They set up skunk works (small, autonomous units with a remit to innovate) and mock the boring corporate types who write their pay-cheques. But again this is counter-productive.

However, not the rules written on paper, but the meta-rules of the operation! (People who talk about breaking the rules are generally using this as a cover to get their own way.)

G&T argue that companies need to build dedicated innovation machines. These machines need to be free to recruit people from outside (since big companies tend to attract company men rather than rule-breakers). They also need to be free from some of the measures that prevail in the rest of the company.

Right! But! That gets us back to the same dilemma:

But they must avoid becoming skunk works. They need to be integrated with the rest of the company—they must share some staff, for example, and they must tap into the wider company’s resources as they turn ideas into products. And they must be tightly managed according to customised rather than generic rules. For example, they should be held accountable for their ability to learn from mistakes rather than for their ability to hit their budgets.

We can talk about it but we won't actually do it. Or, what we do will not be it. Or what we do will be captured or dispersed, so not learnt.

Innovation in big corporates, as a turnaround, /has been done/. But the cases are relatively rare, and the conditions are hard to duplicate. Innovation happens in the startup sector, and the word innovation is never used there, it's just business, or survival, or the founder's omniscience. That is, the natural state of the startup is to write the meta-rules, so it is totally natural that the unnatural takes place.

Which perhaps confirms that the only successful strategy for innovation a large company has is to buy out small successful startups ... Sorry about that!

Posted by iang at September 1, 2010 09:09 PM | TrackBack