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Organizing for Innovation

An excerpt from the forthcoming book “Organizing and Managing Insanely Great Products” by David Fradin with RN Prasad.


It is the Culture
The Organization
Organizing for Innovation
Leadership
Organizational Structure
The Impact of Digital
Who is the decider?
Metrics for Innovation
Summary

Organizing for Innovation

In this section, I will discuss how to organize for innovation, leadership, structure, the impact of digital, decision making and metrics.

Every product company will have an agenda for innovation, big or small.  The results of innovation depend on factors such as:

  • The organization culture
  • The leadership commitment to innovation initiatives
  • Innovation team organization structure (closeness to customer & continuous feedback…)
  • System of metrics to quantify the contribution to company growth
  • Adoption of digital tools
  • Reward system with NO fear of failure

As discussed in the values, vision, and mission section of this book, they combine to create the organization’s “culture.” The organizational culture affects innovation.  Innovation is defined as doing something better or faster.  I say innovation can also be about style.  For example, the Apple Watch was marketed from the start as a status symbol in addition to the niche target markets of health monitoring and exercise.

Innovation: It is the Culture

For innovation to occur, frequently, it is some technology that is involved.  The definition of technology is the organization of knowledge for practical purposes.  That organization is affected by the organization’s culture. 

Take Facebook, for example.  Facebook has a culture to “act fast and break things” with the goal according to Facebook co-founder Chris Hughes: “Facebook’s business model builds on capturing as much of our attention as possible to encourage people to create and share more information about who they are and who they want to be. We pay for Facebook with our data and our attention…”

In other words, it is Facebook’s culture, in combination with its technology, that has disrupted society worldwide.

An organization’s culture affects how that organization sets its goals, trains its people, how it is organized and sets the rewards.  A culture of innovation values original thoughts and supports new ideas across the enterprise.

For an organization to be innovative, we need to think about how we organize, what we value, and what behavior we encourage and discourage.

The organization’s culture needs to, in the words of Dr. Waguih Ishak “encourage the embrace of new technologies, kindle the passion for knowledge, and ease barriers to creativity and serendipitous advances.”

This culture of innovation starts with philosophy and tone, encouraging innovative behavior such as allowing exploration. 

When I started in Engineering School at the University of Michigan, I was bored after about three weeks and started exploring the campus.  One day I came across a flyer calling for a meeting to organize a flying club.  I went to the meeting of five people, and while the other four dropped out pretty quickly, I went on and started the club. 

Unknowingly I set the values and mission for the club in writing and discussed them with each new member, thus internalizing the culture.  By the time I graduated, we owned 25 planes and had a run rate of over $4 Million per year. 

The club is still going strong now having trained over 5,000 pilots providing the airlines, general aviation, and even the Blue Angels with pilots.  The club was so innovative we were able to do all of what we did with no money.  We did have monthly dues, not unlike Amazon Prime, which gave us a base to cover fixed expenses, and we priced the hourly rate to cover airplane operating costs to generate a little profit.  We started with rentals, then lease-backs, and then banks would loan use the funds for aircraft purchases.  We allowed the members and the Board to innovate.  HP did the same exploring.  They called it “Management by Wandering Around.”  It was one of the reasons HP grew 20% a year for 50 years until Carly Fiorina stopped the practice. An organization’s culture should also encourage folks to think out of the box and shoot high including having connections outside the organization.  That may also include forming strategic partnerships with them.

The Organization

In the early 1900s, the size of businesses started to grow as the world starting shifting from an agricultural economy to an industrial one.  But there were no models of how an organization should be structured if it is large except for copying the military which at the time was the only large organization around.  So the companies picked a top-down command-and-control-style structure.  The first to do that was the railroads. Then other large, typically manufacturing businesses.

The problem with that type of structure for innovation is that it requires those at the top of the structure to pay attention to everything, no matter how large or small. The other problem with that structure is that decision making tends to get further and further away from the customer.  In my consulting, I have found some companies that meet and decide on everything just one time a year.  As a result, hundreds of small decisions, that combined will affect the future of the company, do not get made.

RELATED:  4 Lesser-Known Skills of Successful Product Managers

Hewlett-Packard in the mid-1990s formed “councils,” and decision making slowed as did HP’s record of growing 20% a year for 50 years.  HP then blew up their Councils, and growth returned.  A few years later Carly Fiorina came on board as president and decision making flowed to corporate.  She also blew up the company’s values known as the HP Way.  HP has been spiraling into oblivion ever since.

In the mid-2000s Cisco formed councils with the same results as HP. They since blew them up, and growth returned.

Hierarchical organizations are not agile in a world where agility is essential to thriving.  A better way to organize is an open organization where dynamic, networked structures run the show.

Organizing for Innovation

A culture of innovation provides feedback and deals with failure positively.

HP co-founder Bill Hewlett, when as head of HP’s engineering, required that whenever there is a new idea, the idea will be given three separate meetings.  The first meeting the idea will be greeted as “Yes, And” like in the improv game. 

Such an approach allows the idea to flourish and get enhanced.  But frequently when a new idea is floated, it is greeted with a “No, But” thus shutting down innovation and the culture of innovation.  In the second meeting, the idea would be analyzed, questioned. Then, in the third meeting, a decision would be made. 

Frequently, David Packard writes in his book “The HP Way,” the person first suggesting the idea votes against his own idea.  But he doesn’t leave the company feeling rejected.  He/She feels their idea was thoughtfully considered.

As a contrast, when Eric Schmidt stepped aside as the President of Google and handed the reins to Sergey Brin who was apparently bothered by Eric’s edict to have folks at Google work on their own ideas 20% of the time.  He required each person to submit to him an “elevator pitch” that is about a 60 second or say 125 words describing their project to gain approval to continue to work on it. 

For a person inexperienced in managing innovation, it sounds like a good idea because, after all, that is the way venture capitalists do it.  But at the beginning of a project, the idea is not fully fleshed out yet.  As Werner von Braun, the rocket scientist once said about a new idea like space exploration, “Of what worth is a baby?” One does not know until the baby grows up!

When I heard about Google’s new 60-second test, I joked to one of my classes that this would cause an exodus from Google.  That someone will be so upset in that change in culture and might even become the head of Yahoo.   A few months later, Melissa Meyer, Google’s first and most senior product manager, left the company and became the President of Yahoo.  A culture of innovation is a fragile thing.  Saying “NO, But” is a recipe for shutting down innovation.

In short, the feedback needs to be continual and positive, respectful, including frank disagreement. 

Failure needs to be acceptable.  At HP, during their growth years, folks were encouraged to fail because without failure they were not trying.  As a flight instructor, I would enable my students to make mistakes up to the point of killing us because the best way people learn is from their failures from their mistakes.  Without accepting and embracing failure, nothing new will be done.

As Amazon’s founder and president, Jeff Bezos said in a letter to shareholders “Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there . . . Given a ten percent chance of a 100 times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten. We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs.”

Management by objective needs to be balanced with rewards for failure, for risk-taking too.

An innovative organization must balance the wisdom it has gained over the years with fresh ideas.  Ideas can come from anywhere, not just specific departments.  The culture should favor the best ideas from anyone.  Otherwise, innovation will gravitate to the lowest level of meritocracy. 

Because of the rapid rate of change, a more agile approach to planning needs to be adopted of planning/development, execute, evaluate, and repeat, quickly.  But not to the extent that some venture capitalists advocate of “ready, fire, aim.”  I advocate that one can immediately have a successful product market strategy to implement.  So, at least, you are at least aiming in the generally right direction for product success.

Leadership

One of the keys to leadership in our new business environment is networking people together for team success.  Knowledge is not hoarded; it is shared.  Collaboration is invited, meaning bringing half-baked ideas up sooner rather than later.  That a team developed solution will always be better than from just one person.

RELATED:  Apple's Product Portfolio Management

Leaders should be willing to share information and knowledge, extend trust, and encourage collaboration. They should be enabling and supporting their organization.  Incentives should be for the teams, not the individuals. Leaders should encourage individuals and teams to own the problem.

In a recent IBM study, sixty percent of a sample of 1,500 CEOs cited creativity as the most critical leadership quality over the next five years. (Capitalizing on Complexity: Insights from the Global Chief Executive Officer Study, (2010), Somers, NY: IBM Corporation.)  Creativity trumps other leadership qualities. They foster creativity and innovation.

Organizational Structure

I argue there should be a VP of Product Success and the product success managers beneath them should have budget authority over such things as market research and all marketing.  They also should easily encourage teamwork and interactions throughout the entire organization. 

Amazon has found that teams need to be kept small.  No more than ten people.   If more people are required, then the problem should be split up.  HP learned these years earlier where it would not allow a Division with multiple products that is autonomous with integrated engineering, manufacturing, marketing, HR and finance would be no larger than 500 people.  Roman Legions also found an effective fighting unit is no more than 150 men.

The Impact of Digital

According to Bain, traditional organizations are struggling to cope with the pace of change brought about by the digital transformation.  Plus different groups compete for the same, limited digital resources. Bain’s survey of 1,000 companies found that those that did a digital transformation had revenue growth of 14% over three years, which was more than double than those companies that did not do a digital transformation. 

But, Bain found, just 5% achieved or exceeded the expectations they had set for themselves from the transformation.  The reason is they did not adjust their operating model of decision making,  how people collaborate across functions, accountability, governance like decision making, budgeting, behavior incentives, capabilities of people, process, technology, and teamwork.  Management has to consider how each of these components of the business model changes with the digital transformation.

Who is the decider?

I strongly advocate that the product success manager should/must, at the beginning of a project, set out a clear line of authority and responsibilities for each aspect of the product market strategy and marketing plan.  Otherwise, as one of my clients once said; “the lack of process and clear roles and responsibilities results in a culture of blame.”  Or perhaps you might call it a circular firing squad with everybody points fingers at the others. 

An excellent place to start would be a DACI or RACI chart, as shown above.

How the organization deals with innovation determines the level of success.  First, the organization must do customer research to verify the product’s value proposition in terms of what the outcome will do for the customer. Then, if the product is green-lighted, its product market strategy is researched and written, the product is developed, and marketing needs to proceed as a process that is continuously refined and improved.  The idea is to get to a repeatable and mature process.  Product success or failure reviews are essential and should be made available to future products too. 

Metrics for Innovation

Historically companies have used such metrics as research and the development budget as a percentage of sales, patents filed, percentage of sales from recently released products, and ideas submitted by employees.

But these are a limited view.

It is more important to track innovativeness, not products. Some metrics to track innovation could be the standard ones of capital (spent on innovation), talent (number of entrepreneurs who have started their own business that is in the organization) and time (Time spent on innovation by the workforce) resulting in the number of new products, new businesses started over the previous year. 

Capability metrics could include the number of employees whose performance review includes innovation, number trained in innovation, and how employees use many innovative tools and processes. It is here where individual competencies should be measured and have the training, coaching, and mentoring programs in place to enhance them. Adjacent and new markets entered could be considered too.

Leadership could be evaluated to measure the percentage of time executives spend on innovation vs. operations. How many of them have been trained in innovation?  How frequently is the core business redefined?

In the metrics selection process, one should ask what might be the negative impact of each particular metric to assess its level of risk.  After an organization has selected their metrics, they should then be reevaluated annually.

Summary

The organization’s culture affects innovation.  The culture is developed over time and includes the organization’s values, how well the organization follows those values, the vision of the company, leadership’s commitment to innovation, the innovation teams’ structure, the metrics selected and the reward system.

The organization should be structured to stay as close to the customer as possible.

In this section, I discussed how to organize for innovation, leadership, structure, the impact of digital, decision making and metrics.

Leadership should not be a top-down chain of command approach.  It should be an open, networked environment with fostering creativity.

The structure should be small teams, with teamwork and interactions throughout the entire organization.

Digital is accelerating the pace of change and organizations need to keep up.

A clear understanding of roles and responsibilities is critical.  I advocate the use of a DACI or RACI chart to map this out.

The metrics selected for success will determine the outcome. So pick carefully and evaluate ahead of time the positive and potential negative impacts of the metric(s) selected.

Suggested Reading

https://www.bain.com/insights/organizing-for-a-digital-world/

https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/creating-an-innovation-culture

https://www.ddiworld.com/ddi/media/trend-research/creatingtheconditionsforsustainableinnovation_tr_ddi.pdf

https://www.bcg.com/documents/file13542.pdf

https://www.strategyand.pwc.com/media/uploads/Strategyand_Global_Innovation_1000_2010_How_Top_Innovators_Keep_Winning.pdf

https://www.summary.com/book-summaries/_/Innovation-by-Design-Gaynor/

http://unterwalcher.com/ICQ.pdf

http://www.bobcooper.ca/articles/product-innovation-strategy-for-your-business

https://www.peoriamagazines.com/ibi/2009/may/mastering-innovation-roadmap-sustainable-value-creation

https://www.researchgate.net/publication/3228107_Metrics_for_innovation_Guidelines_for_developing_a_customized_suite_of_innovation_metrics

https://www.mckinsey.com/business-functions/operations/our-insights/leadership-in-innovation-needs-innovation-in-leadership

https://opensource.com/open-organization/resources/organize-innovation

https://hbr.org/2015/04/the-5-requirements-of-a-truly-innovative-company

https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-eight-essentials-of-innovation

https://www.mckinsey.com/~/media/McKinsey/dotcom/client_service/Strategy/PDFs/The_Eight_Essentials_of_Innovation_Performance.ashx

David Fradin


David Fradin has trained thousands of managers throughout the world in the successful management of products. With over 47 years of experience across major companies, 75+ products and services and 11 startups, he infuses his workshops with insights gained as an expert product leader, product manager and product marketing manager at companies like Apple and HP. He was classically trained as an HP Product Manager and was then recruited by Apple to bring the first hard disk drive on a PC to market. As a result of his leadership and management skills, Apple promoted him first to Apple /// Group Product Manager and later Business Unit Manager at the same organizational level at that time as Steve Jobs. He recently authored “Building Insanely Great Products: Some Products Fail, Many Succeed…This is their Story” Lessons from 47 years of experience including Hewlett-Packard, Apple, 75 products, and 11 startups later. Go to: Amazon Store Coming soon will be "Organizing and Managing Insanely Great Products" and "Marketing Insanely Great Products." His workshops cover the founding values, vision, product lifecycle and management employed by Apple at its start and which it subscribes to today. You can learn more about his workshops at Spice Catalyst Workshops Soon to be released by Wiley and Sons, in the Early of 2017, is a seven-volume set of university-level textbooks entitled: "Foundations in the Management of Successful Products" covering keys to product success, product market strategy, marketing, soft skills, user experience, user interface, product engineering, and product support. What students will learn in the workshops, online courses and books are cover what has made Apple the most valuable company in the world today. Go to David Fradin @ Youcanbook to schedule a time to talk.

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