Want to Be an Industry Disruptor? Don’t Add, Subtract Instead!
Bernadette is a Corporate Explorer, a manager with the task of building a new, exploratory venture beyond her company’s traditional core business. She has just finished presenting her 2021 strategy to the company’s Growth Board, an investment decision body led by the CEO and CFO. She got what she wanted–more people and money to scale the new venture–but at a cost: more ideas for how she should use those resources.
Does having more ideas help innovation?
This is a common experience for the Corporate Explorer. Everyone wants to help. Everyone has an additional idea about how to improve the product offering, find a new route to market, business model that might work, an opportunity to create a ‘two-sided platform’, etc. etc. The list goes on.
Some ideas are good, but more often they just add complexity, they do not matter to the customer, and make it harder for the Corporate Explorer to execute. Change Logic works with these managers every day, we believe in their potential to move faster than a startup to disrupt markets. (Learn more about our Corporate Explorers to Watch in 2021.) However, they need to overcome the desire of colleagues to help. It turns out this desire is as much a product of human psychology as organizational dynamics.
When the more is not better
A recent article in Scientific American reported on research performed at the University of Virginia. The research concluded that when faced with a problem, people tend to select solutions that involve adding new elements rather than taking away existing components.
In one experiment, researchers asked participants to make a symmetrical pattern by either adding or removing colored boxes. Only 20 percent of the participants used subtraction to achieve the goal; 80 percent opted for additions even if they had to pay a penalty. In another inquiry, the authors analyzed a list of ideas for improvements submitted to the university president’s office. They found that only 11 percent of 651 proposals involved eliminating existing programs or regulations; the rest called for adding new ones.
Additional experiments led to one more curious observation: when simultaneously juggling multiple tasks, individuals were less likely to use subtraction to solve the problem, suggesting that it requires more effort to come up with subtractive solutions than additive ones. In other words, busy people add, not subtract!
The results of the study published in Nature magazine strongly argue that people systematically default to searching for additive transformations and consequently overlook subtractive transformations. The authors shrewdly speculate that defaulting to searches for additive changes may be one reason that people struggle to mitigate overburdened schedules and institutional red tape.
The ‘two-pizza’ rule
This is what ails people like Bernadette. Corporations tend to complicate the process for disruptive innovation by adding multiple, often not necessary, elements to a new venture. Exacerbating the problem is the complexity of a modern corporation: an average large company has between eight and nine levels of management. As more and more people get involved in the development of new ideas, these ideas inevitably become more and more complex and–more often than not–worse.
There is no wonder then that breakthrough innovations are more likely to arise from lone researchers or very small groups. At Amazon, Jeff Bezos’s ‘two-pizza rule’ is designed to break this cycle – new ideas are incubated by teams small enough to be fed with two pizzas. This reduces the risk of the organization adding unnecessary complexity.
Another solution is to separate new ventures from the rest of the business. For example, UNIQA, Austria’s largest insurance company created Cherrisk, a digital startup that is disrupting the insurance business by building an online community for risk sharing. Although UNIQA and Cherrisk share the same location, the startup is kept separate from the mothership. This allows Cherrisk to challenge the fundamental business model of the industry without being destroyed by well-intentioned corporate bureaucracy.
The art of killing (a project)
Another consequence of the organizational complexity problem is the widespread reluctance of large corporations to terminate failing projects. Innovation projects that have lost any chance to succeed still linger for years in the corporate product development pipelines, depriving R&D units of valuable resources. We recently heard of one that had survived for twenty-years before finally being killed.
The psychological preference for addition, not subtraction, may go some way to explaining this tendency to add new projects, without killing old ones. The problem stems from incentives that measure employees on ‘project progression,’ forcing R&D teams to invent excuses to preserve the losers. After all, someone who kills (subtraction) must be failing, compared with someone who starts (addition).
As, Yusuf Jamal, SVP at chipmaker Skyworks, pointed out in his guest blog for Change Logic, many teams fall victim to the ‘sunk cost fallacy’ when, after spending time and resources on a project, teams begin defending not the project per se, regardless of its performance, but their prior decisions about it.
Change Logic advises its clients to adopt a disciplined approach to managing their R&D pipelines by way of portfolio management. Portfolio management is a fundamental element of the innovation process that provides leaders with the insight, data, and visibility to make decisions on how to fund the right mix of projects across all growth horizons. During this process, individual projects are evaluated using criteria that measures value, risk, and alignment to strategic objectives. As a result, ‘zombie projects’ are eliminated, giving space and resources to priority projects that maximize value creation. (To learn more about optimizing your portfolio decision-making, download ‘The State of Innovation Portfolio Management Annual Report—March 2021.’)
Killing ‘zombie’ projects and restricting the number of cooks in the corporate innovation kitchens won’t automatically make any innovation project disruptive. But by following the approach described in this article companies can increase the chances of successful outcomes. It will not guarantee Bernadette’s success in scaling her new venture, but it will make the path ahead easier.