Capacity to Act: What Really Stops Companies from Innovating
Innovation consultants focus on how to generate new ideas, but what leaders need is a consultant that helps them have the capacity to act when the stakes are high.
As the Superintendent of Denver Public Schools, Tom Boasberg wanted to go beyond conventional approaches to solving the problem of underachievement in the city’s schools. Alongside the regular school system, Boasberg created Imaginarium, a unit focused on reinventing schooling around a student-centric model.
How Innovation Stops
The Imaginarium freed schools from traditional teaching norms, positioning teachers as facilitators and making use of technology to enable students to self-direct their learning. Despite generating promising results, it faced opposition. Many teachers were concerned about losing their professional identity as “sages on a stage,” and parents were uncomfortable with their children being used in what they saw as pedagogical experiments. Boasberg’s innovation was at a critical point. His team had created a concept for a new approach to education, won support for funding from the school board and city and state authorities, and now it was time to bring it to scale. However, at this key moment, with the future of his innovation in the balance, Boasberg decided to take a sabbatical. By the time Boasberg returned, the Imaginarium was gone.
Boasberg avoided the battles ahead, and his new venture died as a result.1 In that crucial moment, he could not commit to the opportunity to transform Denver education. He lacked what we call the “capacity to act”—the ability to commit resources to scale an innovation when the stakes are high. Boasberg is not alone in lacking this capacity when he wanted it most. His story is repeated in different guises by leaders in large and small organizations. Leaders faced with the opportunity to commit to a new technology or business model that could enable them to lead disruption in their industry will, most often, choose a path of safety. Instead of committing resources to scale a new venture, they withdraw, preferring to lament the failure of the innovation (and innovators) than publicly commit to its success.
Generating New Ideas at a Greater Velocity
In recent years, a plethora of methods and techniques have emerged to help corporations and large organizations to build innovative ventures like the Imaginarium. Design Thinking, Lean startup, Hackathons, and other related practices and approaches have helped firms generate new ideas at greater velocity, experiment with alternative business models, and incubate new ventures. This work on ideating and incubating new businesses has become a multi-million-dollar global innovation industry. However, this same industry is silent on what to do about the problem faced by Tom Boasberg.
How do we enable leaders to demonstrate a capacity to act when faced with an opportunity to do so?
If all you want is the buzz and excitement of innovation, then running shark tank competitions and hackathons is all that is needed. If, however, you want to step up to the hard choice of committing resources to new ventures and confront the fear and inertia in the organization that holds them back, then leaders need to learn how to develop a capacity to act. This is the secret sauce that differentiates innovation theatre from actually building new and disruptive businesses.
I have spent the past fifteen years building Change Logic into a strategic advisory firm that works with organizations to help leaders like Tom. We know from the work of my co-founders Professor Tushman from HBS and Professor O’Reilly from Stanford that there is a “technical” answer to the problem in the “ambidextrous organization.” We know how to implement an ambidextrous organization, the one that gives a new venture sufficient autonomy to ideate, incubate, and scale, leveraging the assets of the core as needed. Having a capacity to act, however, is a human challenge, and solving it requires more than knowing how to design an organization.
It is easy to “trash talk” leaders that fail to overcome this human challenge. Watching as a company backs away from an ambitious new direction can be demoralizing for employees. It confirms our assumptions about their short-term focus, risk aversion, and concern for what they will say the next time they appear on CNBC’s Mad Money. However, we need to understand these choices to opt for the security of short-term gains over the uncertainty of long-term promise as a human default that can affect anyone. Risk aversion plagues us all. CFOs often like to say that they are in favor of “balanced” or “calculated” risks. However, 50 years of cognitive psychology research show that humans are rarely willing to commit themselves to risk, even when the potential payoffs are attractive. Senior executives, like all human beings, fear loss far more than they value potential gains. This is a fundamental pattern of human behavior. It may feel good to dismiss a decision we do not like or understand as emotional or ill-intentioned and join in the trash-talking of senior executives that fail to support innovation.
However, the choice to play it safe is not irrational. It is just basic human psychology, culture, and organizational inertia; hard issues to tackle anywhere, let alone in senior teams where egos are often well developed.
In reality, most senior executives are deeply committed to the success of new ventures. Their challenge is that they have another, competing commitment that wins out.2 At the highest level, that is a commitment to sustaining the performance of their current business or organization. Whenever an innovation involves a scale of commitment that might jeopardize the continuity of the current business, by diverting funding or resources, it competes with this attachment to stability. This preference for the “Core” or “Exploit” business is not unusual. Even if the long-term consequences of not acting are disruption, the immediate threat of a hit to short-term performance or quarterly results remains a key responsibility for the leader.
At GE, Jeff Immelt committed to make the firm a “top ten software company” and created GE Digital as a unit to pursue it. However, by 2017, as the company’s performance faltered badly, GE crashed out of the Dow Jones Industrial Average (that it had co-founded 100+ years earlier), and its digital strategy was wound-up. It turned out that the new unit had very little revenue of its own. In reality, GE Digital did not have its own P&L and was forced to rely on a “matrix” organization to provide resources for the new venture. Immelt had bowed to pressure from business unit leaders not to make GE Digital a separate unit. Instead of a disruptive new venture, it became a digital services unit for GE’s existing businesses. Immelt allowed his commitment to maintaining harmony among the senior team to compete with the one he had to his flagship strategy.
Capacity to Act
If more corporations are to demonstrate a capacity to act, then executives need to examine how their commitment to stability competes with their desire for innovation. These are strategically contradictory impulses. If leaders can find a way to replace or manage these competing commitments, then they can avoid the fate of Tom Boasberg and Jeff Immelt. Our job as innovation consultants is to be better at listening and understanding senior executives and less focused on selling the latest cure-all technique. Our role is to ask the tough questions of senior executives, acting as a neutral, disinterested outsider that can help them manage their competing commitments to stability and exploration.
I experienced this recently with a tech CEO. His firm has grown rapidly to more than $1billion in revenue. He sees the opportunity for it to grow even more rapidly in new market areas and fears that, unless the firm commits quickly, they may be disrupted by new upstarts. This CEO had competing commitments, not so much to his existing business model, as to his customers. He was proud of the impact the firm had had in the past and struggled to think beyond its existing market segment. We worked with him to find a way to see serving a new market as a both/and strategy, rather than an either/or one. His existing customers did not have to lose out in order for him to grow. This helped him resolve his competing commitment and invest in developing go-to-market capabilities beyond the firm’s core.
Often, the CEO is not the only one with competing commitments. Boasberg, for example, had to contend with teachers who defended their traditional role as “sage on the stage” against the onset of technology and student-centered learning.
One CEO I have partnered with is Vince Roche at Analog Devices. Vince has managed this tension expertly by substituting a new commitment for the old. Analog Devices is a $60 billion market cap tech firm with a deep technical heritage. Vince has shifted his engineering teams away from a pure focus on technical performance. He wanted them to focus less on “winning sockets” on a circuit board and more on software-led solutions to customer problems. He replaced the commitment to technical excellence with having an impact on solving customer problems. Roche reasoned that if they could solve high-value problems, then it would give his organization a new competitive advantage and excite his engineers with a new mission. Analog’s stellar financial performance today is largely due to the success of this strategy, with products like a software-defined radio solution that has enabled a rapid global roll-out of 5G.
Roche saw beyond the technical or strategic issues to see the human dimension that could have inhibited his capacity to act, as it did to Boasberg. As innovation consultants, we need to inspire our client’s capacity to act by doing the same. That means spending a lot of time learning and listening, not simply telling, or providing tools and techniques. It is also true that our clients pay us for our opinions. They expect us to know what they should do to advance their innovation agenda and we need to have a high-quality answer for them. However, our clients need more from us. We are the strategic ally that can help them to step up when opportunity beckons. It may be a less glamorous role than some aspire to have, but it is the work that is needed to help our clients have the capacity to act.
1To his great credit, he learned from this mistake and invited Professor Michael Tushman to write a Harvard Business School Case Study on the fate of the Imaginarium, “Denver Public Schools 2015: Innovation and Performance?”
2 The Competing Commitments framework was pioneered by the Harvard psychologist Bob Kegan, see https://hbr.org/2001/11/the-real-reason-people-wont-change