This chapter, and the three that follow it, are devoted to building the foundation of your Innovation Mandate.
This is important work, deserving of four full chapters.
First, let’s talk about your innovation mission.
We call it the innovation “mission” rather than “strategy” because your mission includes the most important three-letter word in your vocabulary: “Why?” Your innovation mission is like a military mission, where the rationale and the goal are both clearly defined.
Creating your innovation mission requires clear eyes, tough questions, and honest answers. Now is not the time to play footsie. It’s the time to turn ideas into action.
This is the framework upon which you’ll build your innovation operating system, of which the key component is your innovation pipeline.
Mission, operating system, pipeline: together they exist to serve your Innovation Mandate and all those tiny little sparks of innovation. These sparks can be fragile things, easily stamped out by lack of vision and poor management.
This is not what you want to happen in your organization.
What you want is a continuous eruption of little sparks and big sparks popping up all over your organization, giving energy to innovation and lighting the way toward market domination. You want both planned innovation and unplanned, spontaneous breakthroughs. You want to be able to go to your R&D people and say, “Congratulations on yet another breakthrough,” and you also want to be able to pick up the phone and call a random employee and say, “Thank you for your suggestion! You’ll be pleased to know that it’s being implemented and we expect to reduce our departmental expenses by two percent. That’s huge! Thank you.”
INNOVATION MANDATE + GOOD MANAGEMENT = SUCCESS
Remember that while having an innovation mission is the new mandate, it must always be pursued in a context of sound business decisions. Innovation combined with lousy management won’t get you very far.
Consider the sad story of toy retailing giant Toys “R” Us. As of March 2018, the company held 15 percent of US toy revenue. With that kind of market share, you’d think the purveyor of plastic stuff made in China should be in a comfortable position, not headed for liquidation.
But the toy chain’s US division, which entered bankruptcy in September 2017, now looks like it might be sold for scrap. Massive debt is one problem, but most analysts say the company’s problems began in 2000 when they made a ten-year deal with Amazon.com to sell online exclusively through the e-commerce giant. It was a fateful choice, especially when you consider that, a few months earlier, Toys “R” Us had received a $60 million investment from Japanese technology conglomerate SoftBank to develop its online retailing. But then Toys “R” Us changed course, backed away from its own innovation program, and announced the partnership to sell toys online with Amazon.
Under the terms of the deal, Toys “R” Us agreed to stock a wide variety of its most popular toys on Amazon in exchange for being Amazon’s exclusive seller of toys and baby products. The companies also agreed that Toys “R” Us would give up its online autonomy, with ToysRUs.com redirecting back to Amazon.
But soon, Amazon started selling toys from other sources. Toys “R” Us sued, and in 2006 their contract with Amazon was torn up. The company won the right to reopen an independent website. It may have been what Toys “R” Us needed, but the Toys “R” Us website was never competitive in terms of customer experience. It was slow and cumbersome, and didn’t get any better. They were far behind in organizational capability to manage online sales.1
The spark of innovation had been stamped out by dumb business decisions.
As Reuters reported in December 2017, to become profitable the company is taking a high-risk, high-reward gamble, setting aside more than $400 million out of its $3.1 billion in bankruptcy loans for sprucing up its approximately eight hundred stores over the next three years with more customer experiences and better-paid staff. But they may be innovating in the wrong direction, because in the retail toy sector, online sales of toys are growing while store visits are declining.2
Time will tell if Toys “R” Us has made the right strategic move!
The story of Toys “R” Us sets the stage for the Three Cs of innovation mission success: commitment, customization, and creativity. In each one of them, the company stumbled. You can avoid their mistakes and keep the spark of innovation alive and profitable.
COMMITMENT
As we’ve seen, the single biggest cause of innovation program failure in organizations is that they simply took a half-hearted swipe at it. The system for innovation was incomplete and oftentimes poorly contrived, and not surprisingly it failed.
In the case of Toys “R” Us, their history reveals an inconsistent and ambivalent approach to innovation.
They began, in fact, as innovators in e-commerce. And at its peak, Toys “R” Us was considered a classic example of a highly disruptive category killer, a business that specialized so thoroughly and efficiently in one sector that it destroyed competition from both smaller specialty stores and larger general retailers. In 1998, the company joined the online retailing boom with the launch of the ToysRUs.com website. (At this time, Amazon.com was mainly focused on books and still unprofitable.) But the effort was insufficient, resulting in the now-legendary Christmas 1999 online meltdown as ToysRUs.com failed to deliver many online orders by December 25. Then the company sought the big SoftBank investment for e-commerce. A few months later they threw in the towel and signed with Amazon.
Be Both Agile and Strategic
This behavior points to a key lesson: you need to be both agile and strategic.
Being agile means responding to disruption and making it work for you, not against you. It means being sensitive to change and quick to adapt.
Being strategic means keeping your eye on the prize. Chart a course for the future and don’t lose your nerve when faced with challenges. Know your market and how you can best serve it. Know why people buy your products or services as opposed to someone else’s. Don’t destroy your brand with either arrogance or indecision.
Your organizational commitment to innovation needs to be all-inclusive and touch every person who works for you. It needs to be long lasting, not the flavor of the month.
Support for the Innovation Operating System
When assessing an organization’s innovation program, you need to evaluate and understand the sincere level of commitment from the very top. A litmus test of commitment is the support shown by top management for the innovation operating system (IOS), which as it’s developed incrementally pushes forward in a way that reports out well-defined innovation successes. In other words, every organization needs an IOS that’s consistent with the CEO’s expectation in terms of expected outcome and overall costs. Once you understand the true level of commitment, you can architect a custom IOS, as you will need continued leadership sponsorship to succeed.
In the chapters ahead, we’ll talk much more in depth about your innovation operating system.
If It’s Going to Be Yours . . . Prove It!
If you’re really going to embrace your Innovation Mandate, you need to commit to it as if your life depended on it—almost literally. Actually, it would be accurate to say that you should commit to innovation as if your professional career depended on it. Remember, the two biggest causes of innovation failure in organizations are: 1) an incomplete and fractional approach to innovation (the Bumper Sticker Syndrome), and 2) the inability to connect the uniqueness of your organization, your people, and your market to your innovation.
This leads us to the next “C,” customization.
CUSTOMIZATION
Without a doubt, the second biggest reason why the spark of innovation is too often extinguished is the one-size-fits-all approach. Just like people, no two organizations are alike. Even among companies in the same industry, each has its own DNA. Consider the software industry. There are the big players—Microsoft, Google, IBM, Oracle, Facebook, SAP, and others. There are middle players—Sage, Red Hat, Cadence Design, Trend Micro. Then you have the up-and-coming little guys—15Five, Bonusly, Image Relay, Clearbit. They’re all more or less in the same industry, yet they’re all very different. What innovation means to Microsoft is not what it means to 15Five!
Innovation Isn’t a Software Package
Too many managers and leaders attempt to create an innovation infrastructure by simply purchasing a software package. If only it were that easy! Innovation requires a comprehensive ecosystem that is complete and healthy. While it’s true that technology can have an important place in terms of driving collaboration across your organization, innovation platforms and other technologies are just one part of the solution. The biggest part of the solution—in fact, the only one that’s absolutely indispensable—is your people. If your people aren’t committed to a culture of innovation, and if they don’t each love experiencing the spark of a new idea or solution to a problem, you can buy all the software you want and it’s not going to help one iota.
Misguided Companies Create Innovation “Initiatives”
If you approach innovation as this quarter’s strategic initiative, you will likely not be able to develop a scalable organizational transformation to become an innovation leader that delivers proven returns on investment year after year. Most so-called strategic initiatives fail in general, and that’s certainly the case with innovation. When you think about innovation, think of it as a recommitment to your organization’s genesis of innovation. Virtually every organization begins with the spark of innovation, and the successful ones keep generating sparks, year after year. Make innovation part of your enterprise DNA and your organizational culture, and it will provide tremendous returns to you and your organization.
CREATIVITY
It may seem like an obvious thing to say, but for your Innovation Mandate to take hold in your company there needs to be a baseline level of creativity at all levels.
The good news is that creativity is a skill that, with practice, can be strengthened. It’s just like any other skill, such as playing piano or using an Excel spreadsheet. The more you do it, the better you get at it, and the easier it becomes.
The “F Word” and Innovation
I hate to be one of those authors who throws around the “F word,” but I have to say, in order to make innovation work, it has to be . . .
This can’t be overstated enough. Innovation is a people-powered process that can only be engaging and successful when we make it a positive experience rather than another bureaucratic task. When you think about it, the most humanist of behaviors is that of creation, and when we are creating we are having fun. Baking fun into your innovation activities will make the difference between success and failure. As we build out an innovation operating system, we need to create a wide range of activities that are fun, productive, and beneficial for all involved, both the organization and employees.
WHAT’S YOUR ORGANIZATIONAL APPETITE FOR RISK?
If you talk to most innovation experts, they will quickly tell you that one of the major causes of innovation failure in most organizations today is an incessant focus on “risk management,” which, translated into normal English, means “playing it safe.” Once an organization achieves a certain level of risk, their gaze shifts from a focus on customers and opportunities to a focus on compliance and risk management. This is unfortunate, because you can absolutely manage risk and compliance while still driving an incredibly innovative organization.
In fact, you could effectively argue that the biggest risk to an organization today is not taking risks. This is exactly what Mark Zuckerberg said in a rare interview at Y Combinator’s Startup School in Palo Alto, California, in October 2011: “The biggest risk is not taking any risk. In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.” Of course, the level of risk that your organization can tolerate is an individual issue, but remember that, like any other skill, risk can be learned.3
As you put together your innovation operating system, it’s incredibly important that you architect it in such a way that it squares up with the risk appetite of the leadership and organization.
“HI, MY NAME IS JIM, AND I’M IN CHARGE OF PRESSING THE ‘GO’ BUTTON”
Have you ever gone to an organization and asked them, “Who’s in charge of innovation?” In some organizations, if you ask that question, the employee will look at you like you’re crazy! It may sound arcane, but every CEO should ask themselves: “Who’s in charge of pressing the ‘go’ button?”
This is because a successful Innovation Mandate always leads to change. The change may involve the shifting of the labor of employees, allocating funding from the budget, alteration in the supply chain, adjustments to a marketing campaign—the ripple effect can be very wide.
If an innovation is local, such as one that affects the work of just one team, then the responsible person might simply be the manager of the team. If it involves several departments, the person who can say yes must have sufficient authority over all of them. If it involves a new allocation of funds, then the finance people need to get on board.
In a large company, you may need a dedicated innovation leader who can manage the various stakeholders and ensure that a new idea gets the support it needs from everyone who’s impacted by it. Otherwise, you’ll have turf wars, which are never good for anybody.
The term “chief innovation officer” was first coined and described in the 1998 book Fourth Generation R&D: Managing Knowledge, Technology, and Innovation, by William L. Miller and Langdon Morris. Successful chief innovation officers (CIOs) focus on managing the innovation process inside the organization, which includes identifying strategies, business opportunities, and new technologies, and then developing new capabilities and architectures with partners, new business models, and new industry structures to serve those opportunities.4
The words chief and officer have significance. Using a functional “chief . . . officer” title signifies that this is a cross-organizational position and empowers this person to work across organizational silos.
In a small company, the CIO can be the CEO. But in a large company with many departments or teams, you’ll need a dedicated chief innovation officer.
Who’s in charge of pressing the “go” button in your organization?
INNOVATION NEEDS TO BE IN YOUR ORGANIZATION’S DNA
Remember, your Innovation Mandate isn’t like the pair of expensive shoes that you put on in the morning and take off at night. Innovation needs to be like your feet: a part of your body that you depend on and, hopefully, don’t even think about. As you go about your daily business, your feet take you where you need to go. Yes, they need to be cared for, but they’re a part of who you are, and carry the same DNA as any other part of your body.
If innovation isn’t in your company’s DNA, adapting to change will be much more difficult.
As Ron Ashkenas pointed out in a 2012 article for the Harvard Business Review, some companies seem to be oblivious to change, while others are consistently one step ahead. The difference is in their innovation DNA. For example:5
• Leaders at the United States Postal Service knew for years—or should have known—that its traditional business model was being massively disrupted by email. Yet they willfully turned a blind eye as deficits mounted.
• Long before they changed their business strategy, the people at Eastman Kodak could see that film was being replaced by digital media. But they didn’t respond.
• Years before it took action, AOL knew that dial-up subscriptions were falling.
• General Electric—which normally leads innovation—inexplicably waited a very long time to shift its lighting business away from incandescent bulbs.
• In 1996, General Motors developed the first practical electric car. While reviews were enthusiastic, GM executives became convinced the EV1 was too innovative and ordered the program scrapped, including all the cars. In the March 13, 2007, issue of Newsweek, GM R&D chief Larry Burns expressed regret GM killed the car his engineers had developed a decade earlier: “If we could turn back the hands of time, we could have had the Chevy Volt ten years earlier.”6
On the other hand, because innovation is in their DNA, some companies seem to be one step ahead:
• When IBM sold its PC division to Lenovo in 2005, many analysts thought it was crazy for the company to divest itself from a unit it had worked so hard to create. But eventually analysts realized IBM had made a savvy move to exit early rather than struggle with PC commoditization, pricing pressures, and supply chain issues.
• At the turn of the century, Intuit realized that by remaining only a financial software firm it could not continue to grow, and began to consciously create, acquire, and incubate new businesses, which now make up more than half the company.
• What business could be more boring than selling home improvement merchandise, like carpeting and paneling? The people at Lowe’s don’t think it’s boring at all, and have introduced some dramatic innovations. They developed software for store employees to use while assisting customers, allowing customers, for example, to determine how much carpet is needed in a given area of space just by using a picture, and reading product reviews with 360-degree views of the product. Their Virtual Room Designer allows customers to fully visualize a room by setting the dimensions, then choosing cabinets, walls, flooring, and more. Lowe’s developed something the customers (and employees) didn’t even know they needed, and it’s changing the in-store experience for both parties.7
PATAGONIA MAKES INNOVATION FUN—AND PROFITABLE
If you make the overall work environment more collaborative, more human, and more positive, the spark of innovation will burn that much brighter, and profits will follow.
Founded by Yvon Chouinard in 1973, Patagonia is an American clothing company that sells outdoor clothing marketed as being sustainable. The company employs one thousand people, many at its Ventura, California, headquarters. They’re at the forefront of encouraging innovation not only with formal programs but by making work more fun. Their commitment makes sense, because the company was founded by people who climb mountains, an activity that is both fun and risky.
Take human resources, for example. Since 1983, Patagonia has pursued innovative on-site child care. (They even wrote a book about it, entitled Family Business.) As the company says, “Strong families build strong businesses. . . . Providing quality on-site child care and paid leave for working families is at the heart of responsible business.” Kids actually come to work with their parents and don’t have to be quarantined in an isolated child-care area. As one employee said about having her children at work with her every day, “It is not just making a living, it is making a life.”
At Patagonia, play is important. “Unstructured play,” the company says, “where kids get messy and wild, is the pinnacle of play; and it’s at the core of Patagonia’s child-care program. Rejecting the idea that early childhood is for academics, we stand for children’s right to play.”8
And yes, for all those curmudgeons who think this is all a bunch of cushiony nonsense, Patagonia addresses the bottom line, saying, “It’s expensive to offer quality care and subsidize tuition, but the benefits—financial and otherwise—pay for themselves every year.”9