In early August I participated in a strategic planning meeting in the Boston area. I was there in my role as a board member of the Institute for Data Driven Design (ID3), a research and educational nonprofit established to help define the principles, contracts and rules needed to empower individuals to assert greater control over their personal data and digital identities. To implement and enforce these principles, ID3 is developing an open software trust framework platform along with a variety of software tools and algorithms.
ID3 was co-founded by MIT Media Lab Professor Sandy Pentland and by Media Lab Research Scientist John Clippinger. They both participated in the planning meeting, along with senior executives from one of ID3’s industrial partners. The objective of the meeting was to explore potential collaborations between the industrial partner and ID3.
At the beginning of the meeting a few of us made brief introductory remarks. I was asked to talk about the organizational challenges that companies generally face when embracing disruptive innovations like those being developed by ID3. This is a topic I am quite familiar with having lived through it at different times in my career as well as being a subject I often discuss in seminars. Given that I had 15 minutes for my introductory remarks, I distilled them into three key points: the need for a clear, compelling strategy that the whole organization can rally around; the management of disruptive innovation initiatives; and the importance of top-down leadership and support. Let me elaborate on each of these points.
A Clear, Compelling Strategy
While we all talk about how exciting it is to embrace disruptive innovations, we often forget that disruptive innovations are indeed disruptive, not only in the marketplace, but also for individuals and groups in your own organization. Much as we often talk about embracing change as a positive experience, change is in fact very difficult, even painful for many people. You are asking them to move into unknown, perhaps even unchartered territory. What will be the impact on their jobs and their families? Do they have the required skills for whatever is ahead? How well will they personally fare in the new environment? The culture of the institution may not be able to stretch enough to implement the needed changes, even when the very survival of the organization is at stake.
In my experience, a major way of rallying the organization to embrace the needed transformation is to have a compelling target to shoot for, a kind of promised land everyone can aim for instead of wandering in the desert without a clear path forward. One of the most famous examples of a clear, compelling target is President John F Kennedy’s address to a joint session of Congress on May 25, 1961, when he said:
“I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the Moon and returning him safely to the Earth. No single space project in this period will be more impressive to mankind, or more important in the long-range exploration of space; and none will be so difficult or expensive to accomplish.”
By issuing a very difficult but concrete challenge, President Kennedy brought together all the key constituencies in academia, industry and government that needed to work closely together to make his challenge a reality. The goal was achieved by the Apollo 11 mission on July 20, 1969.
Closer to home, after having survived a near-death experience that severely damaged the company’s once stellar reputation, then IBM Chairman and CEO Lou Gerstner turned his attention to the daunting tasks of re-building IBM’s brand, transforming its culture, and setting the company’s future direction. In Who Says Elephants Can't Dance?, his excellent book about this period, Gerstner explained his decision to embrace the Internet in the Fall of 1995 as the centerpiece of IBM’s strategic vision:
“I decided to declare e-business as our moon-shot, our galvanizing mission, an equivalent of the System/360 for a new era. We infused it into everything. It provided a powerful context for all of our businesses. It gave us both a marketplace-based mission and a new ground for our own behaviors and operating practices - in other words, culture. Most important, it was outward-facing. We were no longer focused on turning ourselves around. We were focused on setting the industry agenda again.”
It might be possible to transform a large complex organization through a series of more operational objectives, - e.g., growing revenue and profit, cutting expenses, improving quality, developing new products and services. But, these feel more like business-as-usual. They are key to any successful company, but they cannot generate the passion of a moon-shot, that is, of a clear, compelling vision that captures everyone’s imagination.
Managing a Disruptive Innovation Initiative
“A surprising number of innovations fail not because of some fatal technological flaw or because the market isn’t ready. They fail because responsibility to build these businesses is given to managers or organizations whose capabilities aren’t up to the task. Corporate executives make this mistake because most often the very skills that propel an organization to succeed in sustaining circumstances systematically bungle the best ideas for disruptive growth. An organization’s capabilities become its disabilities when disruption is afoot.”
In many institutions, people who do well in operational jobs are likely to be the ones promoted to higher management positions. But as they rise up in the organization, other skills become increasingly important. In particular, managers have to make the transition from managing the present to managing both the present and the future - that is, they now have to be good at both operations and strategy. Easier said than done.
Operational excellence requires detailed analysis of technologies, quality, processes, competitors, customer satisfaction and the like. It is well suited to a hierarchic, disciplined style of management. But managing a more strategic initiative, especially one based on a disruptive innovation, requires a very different approach. It cannot be based on rigorous information analysis because, in its early stages, there is little data to analyze. There are lots of unknowns because, early on, it’s not clear how the market for a new product or service will develop. Disruptive innovation initiatives requires a more entrepreneurial management style based on establishing an early market presence; close collaborations with research communities, business partners and early adopters; and learning in the marketplace through continuous experimentation and refinement until it becomes clear what the company’s strategy should be.
A lot of companies and executives have trouble navigating the delicate balance between operations and strategy, that is, between managing for near term results versus managing for continued relevance in the future. The operational demands are so intense, especially in our fast-moving, highly competitive and demanding times, that just about all the efforts and funds of the company are spent managing their core business, and the individuals who are good at it are the ones most appreciated and promoted. Often, the management team does not assign a senior enough executive with the proper skills to nurture an emergent business opportunity with small near-term revenues and a promising but unpredictable future. By the time they notice that some new ideas are catching the attention of their customers, who are being courted by companies no one ever heard of, it’s often too late to catch up.
Top-down Leadership and Support
I’m very proud of having been part of the teams that led IBM’s Internet strategy in the mid-late 1990s and its Linux strategy in the early 2000s. We did a pretty good job in both cases. But, there is no question in my mind that such complex, company-wide initiatives would not have succeeded had they not received the strong and visible support from Lou Gerstner and Sam Palmisano respectively.
Top management support is absolutely essential for initiatives based on disruptive innovations to have any serious chance of success. One of the major reasons why breakthrough innovations are difficult for large, established companies is that they treat such efforts as they do any other projects. The venture might be buried within a much larger operational unit, which will manage it based on typical business metrics. It will get little visibility to top management because of its small contributions to revenue and profit. It’s then only a matter of time before the effort is forgotten and eventually terminated.
It’s important to assign experienced senior executives to lead the new ventures during their fragile, startup phase. The new initiative must be carefully nurtured and protected until it has enough concrete results and marketplace successes to stand on its own. In this early stages, other parts of the company can make your life difficult or worse if they view you as an internal threat that is competing with them for resources, senior management attention or marketplace visibility. Leaders of the new initiative should reach out to and include key colleagues across the company as part of their virtual team. But, visible top management support is very helpful in tempering sibling rivalries and getting everyone to work together as part of one compay-wide team.
There are many reasons why disruptive innovations fail in large companies. But often, despite having come up with a good strategy, they fail because proper attention was not paid to the organizational and cultural changes required so that the institution and its people will embrace the innovation and work hard to make it succeed. In the end, these human elements of innovation are likely to make the most important difference between success and failure.