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The Seven Deadly Sins of Large Company Innovation

This article is more than 9 years old.

Commercializing innovations – creating net new businesses repeatedly and at scale – is the business challenge of our time.  In the last two years, I have spoken privately with over 100 public company Chief Executives, and nearly every one of them is focused on growth – and specifically, net new organic growth.  They fret over the expectations they have committed to the market and the increasing pressures on their core business.  They tell me they feel like they are running up an escalator, now having to work so much harder just to stay in place. They are trying to move beyond incrementalism and restore the capability to innovate in a revolutionary way. They are trying to create entrepreneurship at scale.

It can be done.  We have seen firsthand how growth teams at GE, Boeing , Tyco, Amazon and other large organizations are building promising new businesses from the ground up.  New offerings, new business models, new markets and partnerships.  They are leveraging their incredible array of assets – talent, experience, R&D, distribution, brand and capital – to grease the engine of new organic growth.

And yet, so many organizations fail in this quest. To be fair, launching new businesses within a large organization is not an easy task.  The pursuit of efficiency creates a culture that is adverse to variance and experimentation, and rejects the “failure” that is a natural byproduct of experimentation and entrepreneurship.

Creating new businesses in any environment is difficult.  But unfortunately, much of the difficulty of doing this within a large company is self-inflicted.  Below are several of the most common mistakes that enterprises make in the pursuit of net new growth – the Seven Deadly Sins of Innovation.  Understand them, and how they can be avoided.

1. One and Done.  With great fanfare, a new growth initiative is launched.  The team is put in place. Resources are allocated.  The bet is placed and the project funds are assured.  Then inevitably, some of the assumptions on which the investments were made turn out to be false.  The customer did not react as planned.  Lofty initial revenue targets do not materialize.  The organization interprets these headwinds as a sign of failure, and the project is dismantled. But was there really no real business opportunity or was the project killed as it was collecting critical market learnings?

Alternative Approach: New businesses are born of numerous iterations, changes in direction, pivots and course corrections. Stay focused on the vision, the strategic and economic potential of the market, and then give the idea time and space to emerge into the offering that can take best advantage of the opportunity.

2. Product Development Over Customer Development.  Large organizations are great at execution. If you can envision a product, they can usually build it.  In fact, the focus on execution is instinctual.  As one Fortune 20 division CEO told me, “I can’t talk about an idea for 5 minutes before someone is already executing it.” And so with new growth initiatives, the instinct of a large organization is to significantly weight the initial effort and resources toward building the product. Far too often, can it be built trumps should it be built. Unfortunately, this often leads to exhausting the available resources, and building something that the customer never wanted.

Alternative Approach:  Instead of scaling an unproven business, focus initial resources on the validation of customer behavior and interest . Don’t build and search for a market.  Scale what works.

3. Death by Committee.  Corporate organization structures look the way they do for a reason.  There are matrixed teams to deal with the complexity of the decisions that need to be made. There are committees to reduce risk and ensure consistency of outcome.  These stringent structures result in a reduction or elimination of variance, a goal aggressively sought by large organizations. But these same structures can kill a new growth effort before it ever gets out of the gate.

Alternative Approach: Entrepreneurial initiatives need to be agile and quick. Experimentation and variance needs to be rewarded. Create a growth structure that fosters the optimal environment for the team, eliminating the corporate obstacles to nimble experimentation, and keeping all unnecessary hands out of the pot.  Several companies are pioneering a VC-style Growth Board structure to address this, and with early success.

4. Reliance on Lagging, Not Leading Indicators.  Companies typically rely on traditional accounting metrics to track the progress of their new growth initiatives.  But metrics like sales, profit and market share are lagging indicators in a new growth business.  These appear after the business has already been validated and is scaling (or not), providing little guidance from which to manage the project during the critical discovery phase. Looking backward at sales and profit are uninformative at best, and misleading at worst.

Alternative Approach: The key is to manage a project based on leading indicators – quantitative and qualitative data that can better predict the future. Metrics such as customer trials, usage of the product after purchase, and referral rates foreshadow whether a business is not likely to grow as expected, or has the real potential to scale. Unfortunately, the most appropriate leading indicators vary greatly from project to project, and are unique to each situation. But it’s well worth the effort - uncovering true predictive indicators of the future can dramatically impact the ROI of any growth investment.

 5. A Culture that Stifles Entrepreneurship.  Large organizations live within a very strict cultural paradigm that has been built over decades. Typically, they are deeply analytic, impatient, and efficiency obsessed.  But for a big company trying to break out and build a new growth capability, these behavioral instincts can run directly counter to the environment that is needed.

Alternative Approach: Promote a culture that is comfortable with ambiguity, patience and experimentation. The ability to commercialize innovations is the direct result of an environment that rewards experimentation and discovery.  Create this type of culture, or even carve out an area within the organization where this type of culture can thrive, and your odds of successfully building new growth businesses will increase significantly.

 6. Poorly Aligned Reward Systems.  In a big business, functional expertise is measured and rewarded. Typically, people focus on getting their task done, and are minimally accountable for the success of the overall business. With a new growth business, if the overall business does not work, it makes no difference how well the marketing or technology lead did.  And yet, companies try to overlay their functional rewards systems on their internal entrepreneurial teams, and then are surprised to see individuals seemingly performing to task while the overall new business falters. A common example is a team that is able to build an amazing product on time and on budget – that no customer wants to buy.

Alternative Approach: Create a rewards system that is consistent with the environment of growth and uncertainty, with clear accountability for the overall success or failure of the business. The team should win (and potentially win BIG) if and only if the new initiative succeeds in the marketplace. And this should be coupled with some level of tolerance for failure.

7. Custophobia.  Lets face it. No one really likes to be wrong, nor do we like rejection.  Yet discovery – the creation of new growth businesses – requires experimentation and direct customer engagement, early and often. Stand alone start-ups understand this – they have no choice!  But for entrepreneur teams deep within a large organization, there is not only a fear of engaging customers, there is a tangible disincentive.  The team has typically been allocated people and money for a certain period of time, often a year or more.  Aggressively seeking out customer reaction may jeopardize these resources if the answers are not what were hoped for. These teams often take their money and hide – delaying customer interaction in favor of internally focused activities like market planning and feature development.

Alternative Approach: The key to maximizing innovation ROI is to get to the customer quickly and inexpensively.  Growth teams must understand this goal and be held accountable to it.  Identify the array of critical assumptions about the potential new business. Rank these assumptions based on their potential impact on the ultimate outcome. Develop experiments to test these assumptions.  And go talk with customers. This week!

Turning innovations into new growth businesses is certainly not an easy task. But replacing these common “sins” with approaches aligned with the optimal entrepreneurial process can help create the foundation on which to build a sustainable growth capability.

For information on hiring Rick to keynote your next event, contact Emree at FastRadius dot com.