In their excellent book Lead and Disrupt, 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.
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.
We call our observations the Eight Deadly Sins of Stasis. 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.
No. 1: Unwillingness to Listen
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 realized the M.D. 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.”
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.
No. 2: Lack of Patience
Innovation takes time to build and gestate—despite being all about moving fast. That is the paradox and a crucial balance. 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. 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.
Meanwhile, 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, and as we look at the successful exits of Weather.com and the acquisition of the Weather Channel by IBM, it appears that perhaps Mozilla pulled hte plug on Project SensorWeb too soon.
No. 3: Lack of Distance
In his book The Innovator’s Dilemma, Clayton Christensen advocates forming external businesses to compete with parent companies. O’Reilly and Tushman, in contrast, hold that growing new business lines internally is viable if they get a dedicated budget and executive sponsorship. 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.
A 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. 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.
No. 4: Lack of Resources
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. 3M has long had a 15 percent policy 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.
No. 5: Wrong People and Wrong Role
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.
In building his team 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 want artists who are frustrated. I want the ones who have another way of doing things that nobody’s listening to. 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.
No. 6: Lack of Accountability
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. 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. 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.
No. 7: Inappropriate Culture
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.
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. “There’s no such thing as a perpetual-motion machine,” Nadella tells us. “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.”
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.
No. 8: Lack of Political Support
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.
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.
Reprinted with permission from From Incremental to Exponential:How Large Companies Can See the Future and Rethink Innovation by Vivek Wadhwa and Ismail Amla with Alex Salkever; Berrett-Koehler Publishers. www.bkconnection.com