Everything can always be done better than it is being done.
—HENRY FORD
PART OF JEAN’S job as an editor in Macmillan’s children’s group was to recruit promising authors—but her pitch seemed to be getting tougher. More and more, authors seemed to be interested in self-publishing, sidestepping traditional publishing companies altogether.
One day, Jean opened USA Today and saw five self-published titles on the bestseller list. What’s going on here?” she wondered. “Why are they on the list?” She read three of them and found “loads of issues with structure and grammar…and it didn’t matter.” They were still selling.
Additionally, she observed that old titles were reappearing on best-seller lists. For example, Ginnie’s Baby-Sitting Business by Catherine Woolley, originally published in 1969, would hit the list every couple of years and sell hundreds of thousands of copies.
Something was changing. A growing segment of readers seemed not to care about the high-quality, fresh titles that traditional publishers thought were the key to market success.
When Jean tried to recruit a few self-published authors, she was surprised to hear they were less than enthusiastic about being traditionally published. Then, in what (in retrospect) seems like a turning point, Jean read a manuscript by a young writer named Colleen Hoover. It was a little rough around the edges, but so raw and authentic that Jean “couldn’t put it down.” She wanted to publish it. Colleen, to Jean’s surprise, responded, “What do I need you for?” That question lodged in Jean’s head. “What
do they need us for?” she asked herself.
At that moment, Jean recognized an emerging market need. “The system was broken,” she realized. “We needed to go beyond the system.”
In the workshop where I first met Jean and her team, we explored several emerging trends and their impact on the publishing industry: digitization, ebooks, and self-publishing. That last trend—self-publishing—was at the top of everyone’s mind. As we thought through the implications, it became clear to the fifteen people sitting around the boardroom table that the undeniable growth of self-publishing needed their wholehearted attention. More to the point, it needed action in response.
Jean’s radar beeped. She had realized for some time that the company needed to address self-publishing; indeed, the beginning of an answer had already been building in her mind. But in that moment a door opened for her, because now the entire leadership team had simultaneously come to the same conclusion.
Therein lies an important lesson for all of us: Spotting a market need is not enough. That need must also match a strategic need for the company. Otherwise your organization is not likely to support pursuing it. When you understand what your company needs and, more precisely, what the company recognizes it needs, you can focus your search for innovation more strategically.
Like the drunk who looked for his keys in the parking lot (where even he knew they could not possibly be) because that’s where the light was, too often we look where it’s easy to look rather than stopping to consider which hunting grounds would produce the kinds of ideas our organizations want.
You wouldn’t drill for oil or mine for diamonds by randomly picking a piece of land to which to apply your shovel. You would conduct some kind of survey to identify a site with a high probability of yielding something. You similarly risk wasting your time if you invest effort in looking for ideas in areas your company doesn’t view as important. You can dramatically improve your chances by directing your search in more fertile grounds, by seeking not just any idea your customers might want but also, of those possibilities, just the kinds of ideas your organization is likely to embrace.
How do you maximize your chances of finding ideas that make sense for your company and the market? How do you know where to look?
Knowing Where to Look
In 1959, a submarine surfaced off the coast of Florida and fired a guided cruise missile toward the shore. Luckily, this was not an enemy attack—the missile landed harmlessly at an air base in Jacksonville.
The missile’s nose cone contained not weapons but mail: three thousand letters addressed to officials of the Eisenhower administration, from the president himself on down. The letters, signed by Arthur Summerfield, the U.S. postmaster general, introduced the U.S. government, and the navy in particular, to the first official “missile mail.” In the letter, Summerfield predicted that “we will see missile mail developed to a significant degree before man has reached the moon.” But eventually, the navy viewed his idea as a public relations gimmick with costs too high to warrant its insignificant benefits. We got to the moon, but we never got missile mail.
Get used to this: The failure rate for internal innovators is high. A macro study conducted by Strategyn, an innovation consulting firm, found that on average only 17 percent of innovation efforts succeed.
1 For every innovation adopted, we can find ten or more missile mails that are rejected. This is one instance where entrepreneurs have an advantage: When one funder rejects their idea, they have forty other doors to knock on. You only have one, so you have to be smart about it.
One internal innovator put it this way: “It’s like baseball. I learned that baseball teams don’t just scout players, they scout umpires. They study what strike zones different umpires have. Some are wider and some more narrow. Some higher and some lower. If you want to throw a strike, you have to know what your umpire’s strike zone is.” Similarly, you’ll want to know what your organization’s strike zone is before you pitch an idea.
What your company will embrace may not be immediately obvious. Amazon Web Services, for example, seemed to be a significant break away from Amazon.com’s core business of ecommerce. Yet it was embraced by the company and its partners, turning into a $17 billion business in just eight years.
Or consider Google. By its third year of operation, Google had become the leader in online search, overtaking internet powerhouses like Yahoo! and Alta Vista. Google could have gone on forever, doing very nicely as the leading search provider, but then Sheryl Sandberg joined the company and saw something different. Almost immediately she understood Google’s strategic potential and, more importantly, the path needed to realize that potential. She volunteered to oversee a team of four Googlers in order to develop what was then called the AdWords program, selling small text advertisements next to search results. It did not take long before AdWords was making money.
Sandberg then started working on something bigger. A new initiative, AdSense, would place advertisements directly onto external sites, with Google earning a commission on their sales. Linking paid advertising to search results was a game changer for Google. AdSense positioned Google at the center of online commerce. Revenues soared. As online advertising revenue grew, so did Google’s. The profit fueled new products, which further strengthened Google’s share of online activity, setting Google on a cycle of growth. In 2001, when Sandberg joined the company, Google’s ad revenue had been $70 million; by 2008, when she left to join Facebook, it had grown to $21 billion.
2How did Sandberg spot the strategic potential in AdWords and AdSense? By making a big-picture survey of the landscape, which enabled her to see what others could not see, and then applying a clear-eyed, strategic analysis of possibilities.
At McKinsey we called this adopting the “top-management perspective,” which means that you step up and think like your CEO. You understand not only what it takes to succeed in your own role, but also why your job matters to your team, and why
that matters to your group, and why
that matters to your company, and why
that matters to the world. Because you see the full picture, you can spot the best places to look for the ideas that your organization will embrace. This, research shows, reduces the risk of your ideas’ being rejected.
3The internal innovators I interviewed and the research I studied offered a plethora of advice and framework for addressing this challenge of knowing where to look. I have summarized that into a set of tools you can use to direct your search more strategically.
The Strategy Pyramid
Many companies conceive of their strategy as a pyramid. At the top are elements of the strategy that change rarely, if at all. At the bottom are the elements that must adjust often to deal with changes in the market. Taking the time to understand the layers of your company’s pyramid is time well spent.
Purpose or Mission
Every well-run organization holds at the very top of the pyramid some overarching purpose. You may see it referred to as the “core purpose” or “mission.” Whatever your organization calls it, it defines what your organization should do (things that support the purpose) and should not do (things that do not support the purpose).
Sheryl Sandberg left Amazon to join Google because of the company’s purpose: “to make the world’s information freely available.” Southwest Airlines’ purpose is “to give people the freedom to fly.” Amazon’s is to be “Earth’s most customer-centric company.” Alibaba.com’s is to “make it easy to do business anywhere.” Johnson & Johnson exists to “alleviate pain and suffering”; Disney lives to “create happiness.”
4I have used those examples of core purpose because they are easy to grasp. That is not always the case. Many organizations, in my experience, have more complicated purposes or pursue purposes that fail to inspire employees and customers. For example, Barnes & Noble’s mission at the time of this writing is “to operate the best specialty retail business in America, regardless of the product we sell. Because the product we sell is books, our aspirations must be consistent with the promise and the ideals of the volumes which line our shelves.”
Whatever your organization’s core purpose is, it’s worth using it as the starting point for your idea search. Here are some practical ways to clarify your organization’s mission:
• Look it up in your annual report.
• See what the mission was in the past, all the way back to the company’s original founding.
• Interview five colleagues and/or managers and ask them what they think the mission is.
• Interview five customers to understand what need they seek to meet when they use your product or service, and why they prefer your offer over others.
Long-Term Strategic Intent
Create your future from your future, not your past.
—WERNER ERHARD
Your purpose is something you pursue every day, yet may never fully attain. By contrast, your strategic intent is a vision of something, usually an outcome or state, that you will one day realize, even if it takes a long time.
At the time of this writing, for example, Cisco’s stated vision is “to deliver a highly secure, intelligent platform for digital business.” Mastercard’s vision is to realize “a world beyond cash.” These succinct statements may not immediately make sense to you, but to Cisco and Mastercard employees they speak volumes.
To assess your organization’s vision, you can follow steps similar to those you use to clarify your mission:
• Read your annual report.
• Ask colleagues and managers what they think the vision is.
• Listen to quarterly earnings calls to see what your CEO says the vision is.
• Ask what future state of the world would be achieved if your organization experiences success over the next five to ten years.
Your organization may be bombarded with numerous signals and market changes and need to make sense of them. Ideally, your leadership has converged on a common view of the trends that matter and painted a picture of a potential future state, showing how your long-term strategic intent fits into that picture.
Microsoft, for example, defines its key trends this way: “We believe a new technology paradigm is emerging that manifests itself through an intelligent cloud and an intelligent edge where computing is more distributed, AI drives insights and acts on the user’s behalf, and user experiences span devices with a user’s available data and information.” Cisco puts it this way: “As our customers add billions of new connections to their enterprises, we believe the network is becoming more critical than ever. We believe that our customers are looking for intelligent networks that provide meaningful business value through automation, security, and analytics.”
Identifying a few particularly relevant trends, as these two examples illustrate, removes the clutter. Smart organizations can then merge those trends to paint a comprehensive view of the future state in which they must compete.
To pinpoint the trends that matter, it helps to start with your formal strategy statement. If you’re lucky, you will find them clearly laid out there. But you can also:
• Look up conferences related to your industry and review the breakout sessions that are part of the agendas.
• Attend industry conferences and listen to what people in your industry are concerned about.
• Search articles that have up-to-date thoughts about the top trends affecting your industry. They may have titles that promise “the top trends impacting [your industry] today,” or something similar. Such third-party lists are often more insightful than leadership lists; they are typically more objective. I do this whenever I am preparing to deliver a speech inside a new industry.
• Talk to colleagues or friends in other companies in your industry and ask them what they think is important.
Near-Term Strategic Goals
A long-term strategic intent is a vision of something that will take time to reach. It requires phases or steps. Your near-term strategic intent describes the phase or steps your organization is undertaking now. It answers the question “Where must we be in the near term to know we are on track to achieving the long-term intent?” Typically, we hope to achieve near-term goals in one to three years.
If you look through your company’s annual report, investor presentations, and budget presentations, you will likely find four types of near-term goals:
• Financial goals, such as “to increase revenue growth to 10 percent annually” or “to achieve zero long-term debt”
• Customer goals, such as “to achieve a 95 percent customer-satisfaction rate” or “to introduce seven new products into the market”
• Operational goals, such as “to improve efficiency by 10 percent” or “to improve our acquisition success rate”
• Organizational goals, such as “to become a more agile organization” or “to develop a culture of collaboration”
This framework was first introduced by Robert Kaplan and David Norton in the early 1990s and has continued to influence how organizations set strategic goals.
Your organization may have scattered the expression of these goals throughout various internal documents and across functions. Compiling them may take some detective work on your part, but would give you insights into the overall workings of your organization that few people in company have. To do this:
• Ask functional leaders (e.g., HR, IT, operations, sales, marketing, regional divisions, brands) to share their strategic plans with you.
• Ask your manager for the strategic plan or budgets of your group or division.
• Attend or read the transcripts of town halls or internal conferences in which divisional leaders share their plans.
• Search through your internal blog, if you have one, for insights.
The next layer in your strategic pyramid may be the most important: your organization’s strategic priorities. These are simple themes or “thrusts” that clarify what your organization is focusing on now and for the next one to three years. They are what your organization has decided are the most important ways to achieve your near-term goals.
When I was diagnosed with high cholesterol, my doctor told me to do two things: take red yeast rice supplements and go on a specific eating plan, the South Beach Diet. That diet, in turn, had very simple instructions: during the first week, eat absolutely no carbohydrates.
In the whirlwind of my days, it’s easy to mindlessly pick up a hamburger when I get hungry. Had the doctor’s instructions been more complicated, I probably would have eaten a hamburger. But because the instructions were so simple, concise, and clear (“take red yeast rice every day and don’t eat carbohydrates”), I was able to stop myself from putting the hamburger into my mouth or leaving my house without having taken my pills.
Strategy works the same way. In order for strategy to translate into action, it needs to be simple enough that people can align their behaviors. Unfortunately, most strategies are far too complex to remember, let alone to keep in mind during a business day. But somewhere, formally or informally, there exists a set of priorities that your organization deems important.
Mastercard, for example, is currently very clear on its priorities: grow, diversify, and build. At nearly every earnings call, executives repeat the same mantra. Cisco’s current strategy states it this way: “Our strategic priorities include accelerating our pace of innovation, increasing the value of the network, and delivering technology the way our customers want to consume it.”
Each of your company’s strategic priorities captures a number of initiatives. If you link your project to those priorities, you are more likely to get buy-in for your ideas.
Alignment Priorities
Finally, in order to implement its strategy, your organization is always undertaking several alignment initiatives, defined as efforts to ensure you have the resources, capabilities, and practices needed to operationalize your corporate strategy. These initiatives often go overlooked or underappreciated by employees and mid-level managers. So if you understand them and look for innovations that will advance them, you have a chance to stand out.
Academic research has numerous frameworks, philosophies, and checklists for assessing what alignment efforts any particular organization is undergoing. At my company, we compiled several of them into a simple checklist of eight dimensions:
1. Key Performance Indicators (KPIs): Your company may be adjusting its system for measuring and managing performance. How can you help them do that better, faster, more simply?
2. Resources: Your organization may be shifting resources from one area to another. What ideas do you have for facilitating this rebalancing?
3. Configuration: Your company’s strategy likely requires adjustments to organizational structure—who reports to whom, how groups are defined, etc. What opportunities do you see to improve your organizational configuration?
4. Policies and procedures: Internal innovators often cite this as a point of frustration and opportunity. What ideas can you propose for improving your policies and procedures so you can better execute your strategy?
5. Leadership: How your leadership team members interact with each other and with the next level down can have a profound impact on your organization’s success. This is a touchy area to get involved in, but think about what ideas you could diplomatically suggest to improve your leadership team’s effectiveness at implementing your strategy.
6. Staff and talent: Your organization will need to hire and fire staff members and shift sources of talent. What ideas do you have to help your firm access the talent it needs to win?
7. Skills and capabilities: When your company’s strategy shifts, you often need to begin building new skills and capabilities in your organization. How can you help your organization build the skills and capabilities its strategy demands?
8. Culture: The norms, habits, and values that your organization shares comprise its culture. When strategy changes, culture must follow suit. What cultural characteristics does your strategy demand, and what ideas do you have to help ease the shift?
An Idea That Opened Possibilities at Red Hat
Doing the detective work and assembling a picture of your strategy that is as precise as possible can make the difference between toiling in frustration and living the life of a successful innovator who affects your organization and the world. Consider Marina Zhurakhinskaya.
From a young age she was drawn to computers. She often visited her mom’s office and played games on the computers there. No surprise, then, that she joined a programming club in the eighth grade. When the family emigrated from their native Ukraine to the United States, Marina chose programming as her college major. It was, she says, “a profession that matched my abilities, provided financial security, and did not require perfect proficiency in English.”
5Her second job after graduating was with Red Hat, the innovative company that has been a pioneer in the “open source” movement, essentially taking a community-powered approach to building technologies for enterprises. Organizations and individuals can freely use and collaborate on open-source technologies. Working in such a context gave her the freedom to bring her passion for programming to another community she has passion for.
Marina was working as a developer on the GNOME Project, which builds an easy-to-use desktop for the GNU/Linux operating systems. She found few other women contributing to the project, so when the board of a nonprofit supporting the project, the GNOME Foundation, approached Marina for help getting more women involved with the project, the mission immediately spoke to her. She says, “I loved my job. I loved how connected I felt to the community. Open source has this additional appeal that you feel you are contributing to the world and I wanted more women to have access to this.”
In 2010, Marina started an effort to support women in applying for Google Summer of Code with GNOME. In this program, college students from around the world apply to spend the summer working on an open-source coding project with mentors from open-source communities and financial support from Google. While many men were applying to work with GNOME, few women were doing so. Despite Marina’s efforts, only about six of the eighty-three applicants to GNOME were women.
Later in 2010, in true “open organization” style, Marina led the creation of the Outreach Program for Women, which supported women contributing to GNOME with paid, mentored internships. She built a community of GNOME contributors, many of them from Red Hat, who mentored women in the program.
The program Marina started proved so successful that the GNOME Foundation expanded it to support multiple free and open-source software communities offering internships to women, trans men, and genderqueer people. That effort quickly outgrew the GNOME Foundation and was transferred to Software Freedom Conservancy, which provides a nonprofit home and infrastructure for numerous free and open-source software projects. During that transition, the program was renamed to Outreachy and expanded to offer internships to people from groups underrepresented in technology in the United States, such as African Americans and Latinos.
Marina had a passion for expanding this community even further and for working to promote diversity and inclusion in open source in other ways. She wanted to focus on this full-time, but she still had a full-time role working on an engineering team at Red Hat.
So she thought about how she could turn this passion into a new full-time job. She wanted this project to be her core job, not just a side project. This meant getting buy-in for such a role at Red Hat and moving to a different team. She brought the idea to a senior leader at Red Hat, who suggested that she create a proposal outlining what such a role would entail and all the ways in which the company could benefit.
In 2015, she did just that—thinking through Red Hat’s mission and strategy, its priorities and challenges—and a number of clear, compelling benefits emerged. If she engineered her proposed role correctly, it could very clearly support Red Hat’s strategic success.
1. Purpose: Her effort to increase the diversity of the open-source community aligned beautifully with Red Hat’s mission “to be the catalyst in communities of customers, contributors, and partners creating better technology the open source way.”
2. Long-term intent: Red Hat was growing quickly, and this role could help expand the community of people familiar with working in a collaborative open-source environment that Red Hat could engage as employees, collaborators, partners, and customers, which could fuel continued growth.
3.
Alignment initiatives: Employee engagement was a key alignment priority for Red Hat, and Outreachy could help. It could strengthen engagement and retention of current employees by giving Red Hatters, as Red Hat employees are called, an opportunity to directly affect diversity in their open-source communities through mentoring. Additionally, supporting Marina and other employees in organizing and mentoring for the program would be another way for Red Hat to demonstrate its commitment to promoting diversity and inclusion in open-source communities.
Company leaders quickly saw that Marina had demonstrated how her idea fit Red Hat’s strategy, and they agreed to create a new position that allowed Marina to continue working on Outreachy and other diversity and inclusion initiatives as her formal role. As of August 2018, Outreachy has supported close to five hundred people from underrepresented backgrounds in gaining experience in open source, nearly a fifth of them mentored by Red Hatters.
More Tools for Focusing Your Search
Beyond the strategy pyramid, internal innovators I interviewed emphasized several other tools they used effectively to understand their company’s strategic needs:
• Capabilities
• Strategic orientation
• Investor goals
• Time horizon
• Market/user need
Capabilities
Most companies define themselves by their industry. If you sell dog food, you prioritize dog food ideas. If you sell beauty care, you look for beauty ideas.
An effective way to uncover new innovation opportunities is to take a different point of view. Our research shows that most successful companies today define themselves less often by their industry and more often by a unique capability, unrelated to their industry, that they can apply in new areas. Indeed, many of the most impactful corporate innovations over the past ten years have sprung out of this way of thinking.
• Amazon Web Services was not an ecommerce idea, but rather leveraged Amazon’s skill managing technology.
• Google’s AdSense was not a search product, but rather leveraged Google’s unique ability to understand what customers are looking for to help advertisers.
• Slack, the team communication tool with more than eight million daily users as of the time of this writing, was an internal communications tool commercialized by the gaming company Glitch.
In every case, the innovators who pursued the idea would not have done so had they limited their energies to their company’s industry. Consider Hoby Darling, a Nike executive who led the company to explore territory beyond sneakers.
When Hoby assessed the opportunity to lead Nike’s electronics business, he could have shied away. Nike, after all, is known for athletic footwear and apparel. Why would it think it could compete with electronic giants? As Hoby explained to me, he saw the company’s core advantage differently. He recognized that what made Nike great was its unique ability to understand, and meet, the needs of everyday athletes.
Nike’s campus is filled with top athletes who come in to try new products the company is developing. The company’s designers spend hours with clipboards in hand, watching these athletes play basketball, tennis, and other sports, as a means of tracking unmet needs. Hoby understood that this unique ability to draw insights made Nike the natural innovator to introduce one of the first athletic wearable devices.
The device was so profitable that it sold out twice when it opened for preorder in the United States. In fact, one consumer on Twitter tracked the Fuelband preorder time as not more than four minutes before its inventory ran out. Though Nike eventually decided to discontinue the Fuelband, industry insiders believe Nike’s rapid initial success inspired Apple to launch the Apple Watch and helped convince Fitbit, Samsung, and Garmin to take wearable devices seriously.
By ignoring your industry and orienting yourself instead to your company’s capabilities, you can open up exciting opportunities. These capabilities can be tangible (e.g., your company has machinery that allows it to produce something others cannot) or intangible (e.g., a brand, intellectual property, or unique culture). Regardless, to be valuable, the capability your idea leverages will only be worth something if two things are true:
1. The capability allows you to achieve superior performance on an attribute that your customer or user actually cares about.
2. It is so scarce or hard to duplicate that if your idea succeeds, competitors will have trouble replicating your success.
Ask yourself: What are my organization’s unique capabilities (not as defined by its industry) that can be leveraged to make an idea work?
Strategic Orientation
Every organization evolves to develop a particular strategic orientation. While you need to be good enough at everything, in order to survive over the long term, you need to become outstanding at one thing. Michael Treacy and Fred Wiersema first proposed this idea in their 1995 bestseller
The Discipline of Market Leaders. We have found this concept to be powerful in enabling innovators to rapidly separate promising ideas from bad ones. Treacy and Wiersema proposed three types of orientations (they call them disciplines),
6 to which we like to add one more:
• Product orientation: If your company focuses on winning by producing the best product, you have a product orientation. Think of BMW, which builds the “ultimate driving machine,” or Samsung, which adds new features to its products so quickly competitors have difficulty keeping up. Product-oriented companies seek to push the boundaries of product performance, they value research and development, and product designers carry considerable power. Such companies encourage innovation and accept risk as a path to leadership.
•
Process orientation: If your company competes primarily through the efficiency and precision of its operations, you have a process orientation. Think of Walmart or McDonald’s, which daily pursue opportunities to wring cost and waste out of their operations. Such companies tend to be cost-conscious, have involved measurement systems, adopt rigorous quality- and cost-control approaches, and train people to be as efficient and cost-effective as possible.
• Customer orientation: If your company competes primarily on the strength of its connection with customers, if it prides itself on knowing customer teams even better than customers do themselves, then you have a customer orientation. Nike wins by understanding its customer better than the competition. Apple does the same. Amazon similarly seeks to win by understanding the customer more effectively, but in their case through data rather than personal observation. Customer-orientation companies obsess over knowing their customers in detail, view success as depending on predicting customer needs early, and adopt business practices that encourage deep customer insight.
• People orientation: If your company competes primarily on the basis of your people, if you focus on culture and recruitment, you have a people orientation. Zappos is a great example of such a company. It obsesses over culture and is famous for adopting unusual people policies. For example, about a week after being hired, Zappos employees are offered $2,000 to quit, the idea being that every employee who stays is there because he or she want to be, not out of obligation. In consulting, Deloitte has long been known as a leader in orienting itself toward its people. McKinsey and Goldman Sachs are known for being able to recruit top-tier talent. People-oriented companies have strong cultures (which makes them a great a place to work for those who fit, but an undesirable place for those who don’t), adopt unique people policies, and invest heavily in people development.
If you are clear about your organization’s orientation, you can focus your innovation search in the areas that play toward it. Ask yourself: Given our past success, which strategic orientation—product, process, customer, or people—has been at the heart of our success?
To better understand which kinds of ideas your organization will support, take a higher-order perspective. Recognize that while customers ultimately will be the judges of whether your company thrives or struggles, in the near term your investors’ demands may matter even more.
Pressure from investors flows down through board members to your leadership team and then down the line. Your CEO is likely fretting daily about what investors will ask. So think like a CEO. Seek to understand what your investors are demanding; this will help you make better-informed choices about which types of innovations to pursue. Generally, your investors will cluster into one of four categories:
Value investors seek to buy stock at a price below what it is truly worth (its intrinsic value), trusting that the market will eventually appreciate the company’s worth. Warren Buffett is the archetype of the value investor. We have worked with multiple companies owned by Buffett’s Berkshire Hathaway, and they tend to prefer innovation ideas that:
• Do not involve significant risk.
• Do not promise huge growth potential.
• Generate immediate cash flow.
Income investors are interested in cash flow. They prefer you give them cash left over at the end of the year as dividends rather than investing in projects with uncertain and longer-term returns. In such environments, you will likely find leadership shying away from ideas that require big up-front investments in favor of innovations that fund themselves. You won’t get far proposing a new factory; instead, propose to outsource manufacturing. Rather than build technology, find a technology partner.
Growth investors are the opposite of income investors. They are pressuring your CEO to reinvest profits to fuel faster growth. They expect you to invest whatever you do earn in new growth initiatives. They don’t need cash now; they want a future payoff. For example, Amazon investors have cared little that the company, for most of its history, until the time of this writing, has not delivered profits. An investor base dominated by growth investors is looking for ideas with future payoff, even if the idea may require some investment up front. In a meeting with a team seeking to launch a mining business within a company that knew little about mining, I was at first shocked that they were planning to build a massive mining operation, until I realized their investor base was asking the company to prove they had big, long-term investment opportunities to fuel future growth.
There are other types of investors, of course. New York Life is a mutual company, meaning that its policyholders actually own the organization. As a result, their executives and internal innovators, in my experience, are continually oriented toward innovations that serve policyholders. The Co-Operators, a leading insurance firm in Canada, is structured as a cooperative, so their innovations must benefit a countrywide network of members. REI, the outdoor apparel retailer, is also a cooperative, owned by its customers. As a card-carrying loyalty member, you receive a dividend each year to use on purchases. One of our clients is a B corporation, requiring it to embrace innovations that serve the environment and workers before profits.
Many of the internal innovators I interviewed had an intuitive sense of their investors’ goals and steered their search accordingly. Here are some tips from them, to help you assess your organization’s investor goals.
• Consider your corporate structure. Are you a traditional corporation or a cooperative, for example?
• Look at which investment funds own shares in your firm, then research their investment goals. For example, the funds invested in your company may have the words “growth,” “value,” or “income” in their title.
• Look at investment blogs liked seekingalpha.com or motleyfool.com to see what investors are saying about your company.
Finally, you want to understand your organization’s time horizon. Knowing ahead of time how far in the future your organization is looking can save considerable heartache later on. At my workshops, I always ask participants what they see as the most persistent barrier to internal innovation; without fail, “short-term thinking” is always in the top five. I’m not suggesting you abandon long-term pursuits. But if you clarify in the beginning what time horizon will excite your leadership, you can start making some clever, strategic choices.
At the end of a two-day innovation brainstorm during which thirty managers worked passionately to generate more than two hundred growth ideas, they were ready to pitch to senior management. Through a flurry of Post-it notes and flip-chart diagrams, seven big ideas emerged that participants were sure would deliver major impact on the company’s future.
But as the teams pitched their ideas in a “shark-tank” format, the executive judges grew noticeably uncomfortable. It soon came out that the leaders wanted ideas that delivered a financial impact within ninety days. Had we clarified this ahead of time, we could have easily avoided this disheartening moment.
Several frameworks are available to distinguish time horizons. From two of our favorites—the Three Horizons of Growth
7 and the Three Boxes
8—we pulled together elements that collectively give you four potential time horizons within which to look for ideas:
• Abandon: abandoning practices, systems, and businesses that are no longer serving the organization. What could your organization abandon?
• Core: ideas for protecting and expanding the core business, including improving efficiency, fixing broken processes, improving core products, evolving policies, or increasing penetration into existing customers. How could your organization strengthen its core business?
•
New: ideas for adding new value on top of the core business, including expanding into new customer segments or geographies, finding new uses for existing technologies, expanding younger products and services that are not yet scaled. What opportunities might generate new value?
• Options: ideas that create “option value”—something that may or may not turn out to be valuable in the future but requires you to take action now. What actions could your organization take today to create “option value,” even if the true potential of those actions cannot be accurately calculated right now?
To assess which horizon(s) your organization is most interested in now, you can:
• Gather recent initiatives your organization has launched and ask into which category (abandon, core, new, or options) they fit.
• Interview managers and senior leaders. They are likely to already be aware of where the organization wants to focus.
• Look at the strategic priorities you identified earlier, in your strategic pyramid; these will likely give you a clue as to what is important to your organization right now.
Market/User Need
An innovation, to be effective, has to be simple and it has to be focused. It should do only one thing, otherwise, it confuses. If it is not simple, it won’t work…. It should be focused on a specific need that it satisfies, on a specific end result that it produces.
The tips presented here will help you build an informed assessment of what your organization needs. When you marry that with clarity on a specific need of your customer or your market and what you are passionate about, you can reveal a market need that your organization is uniquely qualified to meet. Kevin Systrom, cofounder of Instagram, put it this way: “Building new things requires that we step back, understand what inspires us, and match that with what the world needs.”
10Ten years ago, understanding what the market needed involved extensive top-down market research, surveys, and data analysis. But over the past decade, a more human-centered approach has emerged. Inspired by the human-centered design approach (more to come in
chapter 7) popularized by Apple, IDEO, and Silicon Valley more generally, companies are finding that the most important insights come from getting out of the office and talking to customers.
George Day of Wharton points out that leaders are often separated from customers by so many layers that they no longer understand what the market needs. This disconnect creates an opportunity for you to close it by doing your own firsthand market research.
Tom Chi, former head of Google X, advocates picking up the phone to speak to a customer within minutes of having an idea. Debra Brackeen, the chief innovation officer of CSAA, forces her people to “get out of the office, talk to customers, talk to agents.” When they return from doing this kind of research, she told me, “They realize there is no substitute for it.” Steve Blank advocates getting “out of the office.” Stop guessing what users want (whether those users be customers or internal to your company) and talk to them or, even better, observe them firsthand. George Day has a simple formula: force yourself to have in-depth conversations with at least two customers your company has lost.
Few people have more experience at gathering valuable customer insights than Tomer Sharon, senior user experience (UX) researcher at Google. He summarizes his approach with seven tips:
1. Ask yourself why you are conducting the interview before you start. What are you trying to learn?
2. Watch out for the phenomenon called “rationalization.” If you ask people why they did something, they have a tendency to give you an answer they think is socially acceptable instead of revealing what they were actually thinking.
3. Look for the story. Ask about stories of things that happened (e.g., “Tell me about the time that…”), or better yet observe them (“Show me how you check your email.”).
4. Ask follow-up questions like “What do you mean?” or “Why do you frown when you say that?”
5. Don’t ask about the future, and avoid asking questions like “Would you use it? Would you pay for it? How much would you pay for it?”
6. Don’t ask leading questions by inserting your opinion into the question. For example, remove “improved” from the question “Would you rather use the old one or this new improved one?”
7. Don’t explain the question; ask it and let the silence settle in. Let them think and remember.
A Final Word
Many would-be internal innovators grow frustrated because their ideas are too rarely adopted. But often this is because they fail to understand what their organization and market really need. By investing the time to understand your company’s strategy, then marrying that with firsthand customer research, you can develop a list of promising places to look for new ideas and become an unparalleled source of valuable innovations.
Jean would soon have an opportunity to link her insight to her company’s strategic priorities. In a workshop my firm facilitated, her boss, Jon Yaged, head of Macmillan’s children’s division, gathered about fifteen of his top executives. Over the course of the day, we walked through a process to define their business unit’s strategy. We discussed emerging threats, trends, and their long-term vision. Out of that conversation emerged a sense of clarity among everyone at the table that the growth of self-publishing was a major opportunity if they chose to take it, and a major threat if they did not.
Jean swung into action.
