CHAPTER SUMMARY: In this chapter, we cover eight common attitudes, approaches, and errors that can negate innovation efforts, using a wide range of real-world examples of how these sins can harm a business and even drive it into insolvency.
In their excellent book Lead and Disrupt,1 Stanford University’s Charles O’Reilly and Harvard’s Mike Tushman compellingly present a means for companies to avoid the Innovator’s Dilemma; they also analyze how a handful of companies, including Amazon and IBM, have managed to successfully pivot to new opportunities without concurrently sacrificing their old businesses. In the case of Amazon, for example, the company has disrupted itself with innovation not just once or twice but many times. Two of those innovations—Amazon Web Services (the cloud-computing business) and Amazon’s advertising business—will probably be the most profitable parts of Jeff Bezos’s empire. Amazon was able to do this without slowing down any of its retail operations, according to the authors, because it practices what the authors call ambidextrous leadership. This phrase describes a delicate balance between giving internal startups and innovation projects the room they need in order to breathe, the funding they need in order to grow, and the executive sponsorship they require in order to avoid being eaten or crippled by legacy business units.
We will talk more about their theories in the last section of this book. But what are equally instructive are their insights on what kills innovation in large legacy companies and prevents them from generating new lines of business. From our own observations over time, and our own experience working inside or advising large organizations, we have formed our own hypotheses on what makes large organizations so unable to embrace change and risk. There is some overlap between our observations and O’Reilly and Tushman’s findings.
We call our observations the Eight Deadly Sins of Stasis. Those sins are:
1. Unwillingness to listen
2. Lack of patience
3. Lack of distance
4. Lack of resources
5. Wrong people and wrong role
6. Lack of accountability
7. Inappropriate culture
8. Lack of political support
We will quickly run through each of these sins and supply an example from the past of how it played out in a real-world instance. Individually, none of these sins will doom a company to oblivion in its efforts to innovate and change. Collectively, though, they are a strong indicator that a company’s entire culture is stymying its efforts to maintain its relevance and survive. To put it bluntly, an organization that suffers from these sins probably has a larger cultural problem to overcome.
Toyota employees meet regularly to suggest process improvements. This comes from a culture of listening wherein even top executives are willing to listen to employees far down the ranks. This can and ideally will extend beyond the confines of the company into customers, consultants, and partners. When a company has a listening culture, the very act of listening opens it to change. Part of the reason that Amazon has been able to launch so many new business lines so quickly is that it is constantly listening to its marketplace by watching the data coursing through its commercial and technological veins. For its part, despite its failings, Google has always been a company that listens well to employees for new ideas. This is evidenced in the “20 percent time” it afforded to engineers to pursue passion projects. Other historically innovative companies too have had the characteristic of good listeners.
Firms that have failed to listen have often failed to adapt. A case in point is the British retailer HMV. Once a paragon of cool in Britain and the power broker in the hot worlds of pop music, films, and video games, HMV experienced a spectacular fall from grace when all three of its major business lines were savaged by online competition. In a telling article explaining the demise of HMV, advertising executive Philip Beeching recounts a 2002 meeting with HMV’s management team where he detailed the three greatest threats to the company: online retailers, downloadable music, and supermarkets’ discounting. Beeching narrates what happened next:
Suddenly I realised the MD had stopped the meeting and was visibly angry. “I have never heard such rubbish,” he said, “I accept that supermarkets are a thorn in our side but not for the serious music, games, or film buyer, and as for the other two, I don’t ever see them being a real threat, downloadable music is just a fad and people will always want the atmosphere and experience of a music store rather than online shopping.”2
HMV’s management team was unwilling to listen. The company ignored the online perils until too late and failed to ever build a viable online presence or to explore alternative business models more suited to an age of decreasing purchases of discs of music or films. Weighted down by poor management, HMV went bankrupt twice, in 2013 and in 2018, after shuttering most of its stores.
Had it but listened.
Innovation takes time to build and gestate—despite being all about moving fast. That is the paradox and a crucial balance. A significant percentage of startups pivot to a new business model or product during their early years. Some do so more than once. Many startups labor for three years or more before even achieving product–market fit, that golden connection showing that you have something customers want, need, and will pay for. Though interminable patience is equally damaging (see the section on lack of accountability), a dearth of patience spells certain doom for innovation and internal efforts to chart new courses.
In March 2016, the Mozilla Connected Devices team launched a new project called SensorWeb, a crowdsourced web of PM2.5 air quality sensors. The project was started by a Mozilla engineer in Taipei, Taiwan, who wanted an easy way for her grandmother to access immediate air quality information on a smartphone or a computer. As part of the browser company and nonprofit’s exploration of Internet-of-Things devices, Project SensorWeb was one of several efforts to develop new business models. Mozilla produced dozens of PM2.5 sensor kits and distributed them for free, and the project produced spectacular maps of air quality and garnered a loyal following. But, less than a year after launch, Mozilla abruptly shut the project down.
As global warming continues to cause massive fires around the world, air quality has become a bigger and more pressing concern. In the United States, a company called PurpleAir launched a similar effort to sell and link high-quality PM2.5 sensors. During the California wildfires of 2018 and 2019, PurpleAir became the go-to source for local air-quality information, with the best coverage in California by far. Is there a business opportunity there? As we look at the successful exits of Weather.com and the acquisition of the Weather Underground by IBM, it appears that perhaps Project SensorWeb was unplugged too soon.
In his book The Innovator’s Dilemma, Clayton Christensen advocates forming external businesses to compete with parent companies. Only by separating completely, he argues, can disruptive innovation thrive and grow. O’Reilly and Tushman, in contrast, hold that companies should create some distance but that growing new business lines internally is viable if they get a dedicated budget and executive sponsorship.3 In our view, either option is viable, but the most important commonality is that new business lines be allowed the space and distance required to explore their new opportunities with fresh eyes.
Distance includes not only physical distance—separate offices—but also distance from many of the existing processes of the legacy companies. For example, part of what allows startups to move so quickly is that they are not burdened by rigorous compliance processes and I.T. requirements. Moreover, they don’t need fancy videoconferencing gear or fancy office furniture. What they need are speed, agility, and the right to distance themselves from internal status quos in order to move faster. They need the autonomy that distance provides.
O’Reilly and Tushman cite an example in which a Hewlett-Packard unit cannibalized funding for an innovative new type of printing system’s R&D efforts in order to refocus on developing legacy product lines. Another classic example of lack of distance killing a product’s chances was the Nike FuelBand. An early wearable device that competed with Fitbit and other fitness trackers, the FuelBand won over early converts with its clean design and its nifty social functions encouraging competition between users. But the FuelBand suffered from too much internal control; the engineering team making the band knew that it would need to be better integrated with smartphones and had to quickly iterate features. Nike’s internal product-development cadence and more stately pace could not handle this, and, over time, features on the product lagged far behind those of other fitness trackers. Yes, LeBron James wore one, but users simply wanted one that worked well with both iPhone and Android. In 2014, Nike killed the FuelBand after a two-year run.4 Many from the team that had worked on it moved over to Apple, joining the Apple Watch team, a product that is quickly becoming a sleeper hit for Apple CEO Tim Cook.
Though it is important that corporate innovation be nimble and not too resource dependent, neither should it starve. Resources take on many forms: office space, budgets, personnel, R&D lab capacity, legal resources, and more. Too many resources can lead to more stasis and product-development paralysis. A resource shortage, though, is a more common malady, often killing innovation efforts before birth. Too few resources—in the form of either a hard “No” or steady starvation—also signal to intrapreneurs that their efforts are not prioritized and that they are wasting their time. As we saw Zoom did to Eric Yuan, a company can starve innovators of resources through simple neglect.
Some companies take innovative approaches to assigning necessary resources. 3M has long had a 15 percent policy (call it the original Google 20 percent) to allow employees to focus on projects. Once a year, 3M employees from across the company create posters showing off their projects. They all stand in an auditorium, and thousands of 3M employees parade by, reading the posters and offering feedback and suggestions. If they are so inspired, employees are empowered to join a project as a collaborator. By letting employees vote with their feet, 3M creates a viable marketplace for internal ideas and a neat way to assign resources to the most persuasive. This approach has granted critical human capital to numerous products that later made it to market—from painter’s tape to reflective optical films and clear bandages.5
All too often, internal innovation teams are set up with leaders who are masters of getting things done in the broad company organization. Likewise, engineers or designers are picked from the most successful teams in the bigger company. But what makes someone successful in a large company usually does not carry over to applied innovation and internal startups.
Success in the larger entity means following the process and sticking to the rules—bending them only a little, if at all. In applying innovation and moving quickly, such commitments become obstacles. You need executives, engineers, and designers who, though they may have been successful in these other contexts, as often as not have struggled because they had a different vision or wanted to try new ways of doing things. This is why, in building his team for The Incredibles 2 at Pixar, director Brad Bird hired a cadre of restless company “black sheep” to reimagine the delivery of video special effects and make a movie faster than anyone had ever envisaged.
As Bird related in an interview with consultancy McKinsey & Co.:
I said, “Give us the black sheep. I want artists who are frustrated. I want the ones who have another way of doing things that nobody’s listening to. Give us all the guys who are probably headed out the door.” A lot of them were malcontents because they saw different ways of doing things, but there was little opportunity to try them, since the established way was working very, very well. We gave the black sheep a chance to prove their theories, and we changed the way a number of things are done here. For less money per minute than was spent on the previous film, Finding Nemo, we did a movie that had three times the number of sets and had everything that was hard to do. All this because the heads of Pixar gave us leave to try crazy ideas.6
Innovation is sexy and fun. But too many legacy companies view innovation goals as pet projects rather than as serious initiatives. Creating an attitude and environment of “. . . and if it works out, great!” is a terrible way to affirm innovation’s importance. This kind of environment, though common, transpires only if innovation efforts face no real accountability or regular hard questioning. You can see, of course, that many of the failed innovation structures we discussed—such as corporate outposts in Silicon Valley and internal corporate innovation teams—all too often can fall into this trap of lack of accountability. Worse still, this environment can attract precisely the wrong sorts of executive sponsors to innovation projects: sponsors who lack real commitment and see innovation efforts as yet another way to burnish their résumés.
Sometimes, lack of accountability can have dire consequences. After decades of superlative results, Cisco Systems CEO John Chambers adopted a new management structure that created a series of councils and new management boards with the goal of pushing decision-making power down to a group of 500 or so executives and leaders. The idea was to stimulate communications across Cisco and raise the overall metabolism of the flagging networking giant, accelerating its progress.7 As part of that effort, Chambers saddled executives with sitting on the boards of promising innovation efforts, but left vague the criteria for what constituted a promising effort. And the innovation assignment was just one of the numerous new committee and internal board and project assignments doled out to the leaders.
The so-called matrix management system quickly soured many of Cisco’s leaders, who felt bogged down in a high volume of meetings and discussions that, perversely, slowed decision-making. As you can imagine, for executives suddenly stuck on dozens of committees, an innovation project with no real accountability lacked priority. Without genuine executive interest, internal innovation efforts failed to gain significant traction or generate new products. Two years later, after hundreds of leadership departures from Cisco, Chambers admitted he had made a mistake with his management structure. Cisco’s stalled innovation efforts, which failed to produce internal innovation on par with the company’s aggressive acquisition strategy, were a predictable casualty. To date, the company continues to struggle with incorporating internal innovation efforts into product development.
Poisonous internal politics, inconsistently applied or unclear rules, and paralysis due to fear will block any business’s progress.
Though many studies have demonstrated a direct correlation between a healthy, productive culture and a company’s ability to transform, most businesses still spend little time thinking about, let alone acting to improve, their internal culture—despite the contribution that a negative culture will make to reducing employee engagement, stifling creativity, and increasing employee turnover.
Xerox invented most of the technologies that we use in personal computing today, but it now plays little role in computing. Kodak invented the digital camera yet filed for bankruptcy in 2012. Nokia was a pioneer of the smartphone and still lost its leadership position to Apple’s iPhone. These companies didn’t use their positions of strength to transform, and so missed their crucial market opportunities. Kodak, in particular, which was afraid to compete with its own traditional film business and therefore of innovating, focused only on the next quarter when it should have been thinking about the possible long-term gains.
Two CEOs who have understood the importance of culture in transforming iconic businesses are Lou Gerstner at IBM and Satya Nadella at Microsoft.
Gerstner joined IBM in 1993 and developed a strategy to use processes and culture to regain advantage. Moving from proprietary standards to open standards, for example, was important to IBM’s new strategy in light of dramatic adoption of Internet and web technologies, and IBM had to learn to open up and even give away base technologies, creating value by solving customers’ problems using systems built on its business processes.
Underneath all the sophisticated processes, Gerstner concluded, there is always the company’s sense of values and identity.
It took me to age fifty-five to figure that out. I always viewed culture as one of those things you talked about, like marketing and advertising. It was one of the tools that a manager had at his or her disposal when you think about an enterprise. The thing I have learned at IBM is that culture is everything.8
In the six years following Microsoft’s hiring of Satya Nadella as CEO in 2014, its share price tripled. Nadella has been lauded for successfully repositioning the business from a “devices and services” company to a “mobile and cloud” company. But Nadella always states that Microsoft’s reinvention would have been impossible without changing the culture among his 130,000 employees.
In an interview in McKinsey Quarterly, Nadella states:
there’s no such thing as a perpetual-motion machine. At some point, the concept or the idea that made you successful is going to run out of gas. So you need new capability to go after new concepts. The only thing that’s going to enable you to keep building new capabilities and trying out new concepts long before they are conventional wisdom is culture.9
Nadella’s emphasis on developing a learning company based on the growth mindset, one that is constantly seeking to develop and improve, has delivered spectacular results.
It’s worth noting that bad behaviors can infect the business and do tremendous damage.
A fantastic example of a team culture that understands this and looks to eradicate bad behavior is the New Zealand rugby union team, known as the All Blacks. The most successful rugby team of all time, with a win rate of 80 percent, it refuses to tolerate bad behavior that threatens the balance of the team or whanau, the Maori word for extended family. There is no room for prima donnas, and everyone must work together toward the same goal.
As we noted earlier in this chapter, enabling innovation requires resources, patience, distance, and a willingness to lead. All of these are dependent on innovation efforts receiving enough political support to fend off other parts of the organization that would rather these fledgling efforts died.
Corporate budgets are political allocations as hotly contested as government budgets are. For the CEO and her team, a budget is a bet on the future with clear winners and losers every year. For any general manager with discretion as to how to spend his unit’s budget, his choice of which team gets how much is a statement of his priorities and allegiances.
It’s almost always politically expedient to starve innovation efforts in order to feed the hungry mouths you already have that are proven revenue generators. Innovation efforts without robust support by an executive sponsor are far more likely to be cherry-picked and left to starve. The Cisco example demonstrates this indirectly; because so many executives were busy trying to sponsor and mentor so many different innovation efforts, all of them suffered a collective lack of political support. It was a tragedy of the innovation commons.
The Eight Deadly Sins have many overlapping facets, and they hint at a key reality for managing innovation efforts effectively within organizations: a constant struggle for balance. Too much is as bad as too little. Too far is as bad as too close. Recalibrating all these settings on a constant basis to ensure that an organization maintain the right balance poses a significant management challenge.