Why do the under-resourced, scrappy teams ALWAYS beat the over-funded teams with all sorts of expertise, tools, and frameworks when it comes to innovation (or anything generative for that matter)? Let’s explore – the answer is simpler than you think.
My experiences building and leading innovation at different altitudes within organizations both large and small have given me a unique insider’s view to what works and what doesn’t. A consistent thread throughout has been the underlying human and cognitive challenges associated with innovation, especially within more established and mature organizations.
Early-stage ventures and mature startups have obvious headwinds surrounding market capture, product development, and scaling, but do have major advantages in human alignment and commitment to a singular goal. My time at Liberty Mutual and Keurig Dr. Pepper uncovered the hidden, but common human challenges impeding successful transformational innovation. Here are my top five challenges to address on the human side when building your innovation team:
1) “It’s your attitude, not the altitude”
This is a favorite quote of mine from the movie Everest (adapted from Zig Ziglar’s quote). It showcases the need for perseverance, selflessness, and teamwork necessary for mountaineering (and in innovation). By nature, we are wired to act in self-serving ways (i.e. forcing ‘success’, getting the promotion, etc), but long-term innovation takes a mindset focused on experimenting, learning, and failing. When our team at Liberty Mutual was working to develop new waves of growth, we had to come up with ideas knowing we were going to ‘kill’ most of them. That was uncomfortable.
But once we got over the fact that failing was succeeding, we shifted our approach: new ideas that create long-term value for the company, not short-term success for our careers. Encouraging teams to adopt a company-first mentality feels cliché, however, it does result in focusing on what’s best for new, sustaining growth (even if it means slowly getting out of some core businesses). In addition, helping to curb “land grabbing” behavior creates an environment where the team with the right resources, capabilities, and capacity tackle new projects, not who just wants to “own the idea”.
2) Incentivizing behavior to get the growth you want
This seems so obvious that it’s almost not worth mentioning, but I do see it every day. It is important to incentivize the growth you want from long-term innovation. Again, while this is obvious, variable compensation for executives and middle managers generally focuses solely on results from THIS year. As we already discussed, humans are inherently self-serving, so ignoring variable incentives for those who will implement innovation in business units is a recipe for execution disasters. For example, if your compensation was only based off of this year’s performance, would you spend the last $1 million of your budget on an idea 5-10 years away?
The executive team at Liberty Mutual was exceptional at integrating long-term innovation into business unit’s goals (and kept it there). This helped develop an incentivized human ethos to not only prioritize innovation, but also make real progress towards it.
3) Building Anti-Fragility for Innovation
Long-term innovation is exactly that – LONG TERM. Too often the vision and support for a 5–10-year innovation strategy changes like the wind. The easy excuse for this is around budgeting changes if there are 2-3 underperforming quarters in the core business leading to budget cuts. While innovation budgets should definitely be shielded from short-term business performance, more challenges exist with people changes. In today’s market, how often do you see people staying in the same job for 10 years? (hint: not very often). This highlights the challenge of building an innovation vision and team that can stand the test of time through human changes both within the team and across the organization.
Our team at Liberty Mutual was careful to design a strategic ambition and ethos that was integrated into the organization both at the C-Suite and within business functions. As people came and went or re-orgs occurred, there was always someone to carry the torch forward for where the innovation was headed.
4) Treat long-term Innovation as a vital function (because it is)
As previously mentioned, innovation budgets should be protected from short-term headwinds in the core business, but the real question is… how? This is easy to say, but challenging to do. Our MBA courses tell us to optimize for shareholder value and if market headwinds diminish performance, we can jump to cutting non-essential spending. Treating long-term innovation as non-essential is akin to cutting your sales team when profits are down. Both will hurt you in the long run!
The key to keeping innovation a priority is having it be at the top-level company decision making. Transformational innovation should not be buried into a business unit that is at the mercy of that business unit’s performance or even worse a re-organization that doesn’t have a “landing spot” for innovation.
During my time at Liberty Mutual, innovation was communicated at each level of the organization and discussed every quarter in companywide town-hall meetings letting every employee know that it was vital to future success.
5) Use a better measuring stick
Every business school teaches managers of mature businesses to grow top-line 2-5% and optimize for profitability. This works and shouldn’t be discarded as an effective strategy for the CORE business. Innovation, however, is inherently not the core business by nature. Even though everyone knows this, many of us still struggle to let go of existing metrics and models when thinking about innovation (GM targets, growth metrics, etc.). This stifles innovation and steers you right back to the core – especially in the early scale days of new ventures.
Imagine if Uber applied taxi company metrics to their early ideas – they might think about fleet purchasing, vehicle maintenance & depreciation, and car insurance (hint: this would’ve killed the idea for Uber).
Our focus for measuring ourselves was more on qualitative measures early on that built up to quantitative measures that fit new ventures. Examples of these were anything from ideas generated, test, killed to new customers acquired or new markets entered.
Transformation Innovation is extremely challenging requiring a balancing act of ambidexterity within a mature company focusing both on core and explore. There are plenty of known methods, tools, and models for innovation that help guide us on how to materialize ideas into new ventures. However, we can STILL fail if we don’t keep a laser focus on these hidden challenges for the human side of innovation.