Innosanity

One of the advantages of being a large, multi-division company like IBM or Johnson & Johnson is that keeping your innovation capability in fighting form without distracting the company from the current winning business model becomes a matter of portfolio management.

With a company that defines itself by a single line of products or services, paradigm shift inevitably disrupts the current business. And because paradigm shift is how we distinguish innovation from improvement, a single-threaded company that is enjoying strong growth playing by the rules of its current business model is right to err against changing those rules in the near term.

That means the answer innovators in such companies often receive even for very good ideas is, “Let’s wait and see.” Not fun for innovators who, no matter how good the current business is, want to try something different.

But in a highly diverse business like IBM – what I would call a strategically aligned conglomerate – there is always some part of the overall business that is facing a clear and present threat. The core competency of such companies is not on one specific business or business model but rather on managing a portfolio of options. So for lucky innovators in strategically aligned conglomerates, there is always something to do, some business that needs to be reinvented.

A strategic conglomerate can focus innovators where real innovation is needed without throwing the whole company into a spin. Managers in parts of the business that don’t need to be transformed at the moment can nominate those employees who are happiest “changing the rules” for innovation projects in other parts of the business that do need transformation.

Anyone in the company can get onto these focused, innovation “seal teams,” but not everyone in the company needs to – or even wants to – be actively involved in paradigm shift all the time.  This “focused fire” strategy keeps innovators in the company, honing their skills as game-changers, while leaving improvers to further improve how the company plays the games it is currently winning.

“Shock and Awe (technically known as rapid dominance) is a military doctrine based on the use of overwhelming power, dominant battlefield awareness, dominant maneuvers, and spectacular displays of force.”

In this fourth segment of Innovation Wars, the notion of Shock and Awe seems apt, following the comparison of Google and Amazon and how they handle innovation during different phases of the business cycle.

Most established companies don’t get a chance to engage in Shock and Awe innovation. They defensively react – slowly, usually too slowly – to outside disruptions.  Few companies engage in proactive “wars of aggression,” where they shift focus to a new business model before being forced to by the actions of others. The shining example of this aggressive approach is Amazon.

If you look at the moves Amazon has made over the past two decades, they follow a pattern: A big change in customer segment but a small change in core capabilities. It’s almost dance-like: 1) Target a market segment; 2) Build new competencies to improve operations; 3) Pivot onto one of these competencies to target a new market segment…repeat. 1-2-3, 1-2-3, 1-2-3…it’s a waltz.

This short, rhythmic, functional pivoting is the key to rapid aggressive innovation.  Using incremental improvements made for the current business as the foundation for the shift into a new business model reduces uncertainty. It prevents overreaching and allows the firm to focus fire as soon as it decides which target to shoot at. This is superior to blindly developing green-field capabilities right in the middle of a period of disruptive change, which is typical in defensive innovation.

Amazon’s approach, using improvement to launch innovation, is a real advantage in following the most important rules in both war and business transformation:

1. Know as much as you can about what you are getting into;
2. Commit fully to a specific objective;
3. Win as fast as you can.

The alternatives to this approach, and there are many, often suffer from uncertainty and mistakes, and that means delays. Executing a paradigm shift too slowly is like fighting a protracted war. You tend to get bogged down. Best to remember the military adage: If you are going to go to war, make it a short one.

This is the fourth in a series that stars here.

This is the followup to yesterday’s feature, War and Peace.

Google:  There is hardly a business writer who hasn’t praised Google’s various innovation-friendly policies, notably the 20% time rule. Everyone loves this story, and rightly so. What innovator wouldn’t want to live in Google-land? Twenty percent of your time devoted to doing something different - innovator crack!

No doubt, Google has learned the lessons of the past decade:  1) Big things can come from tiny beginnings;  2) You can’t tell what the right bets are in advance. Let 1,000 flowers bloom.

Heaven forbid I should quibble with that strategy in general, but was it exactly right for what Ben Horowitz calls peacetime? Steve Jobs famously told Larry Page to “figure out what Google wants to be when it grows up…It’s now all over the map” (Isaacson, 2011). Now they are focusing. That’s good, perhaps, but remember yesterday’s war and peace lesson:

Focus and build an overwhelming advantage in peacetime and then paradigm shift in wartime.

If Horowitz is right and Google is now entering a war zone, then they have this lesson reversed. Sure, they did alright in peacetime. Nobody can scoff at Google’s success. But they ran their innovation engine incredibly hard – indulging everything from self-driving cars to  dodgeball. And what are they doing now? They are going into an era of disruption, where they really need to find and execute new opportunities, with the peacetime strategy of heavy pruning and focusing.

That said, a recent Forbes article suggests Google may be demonstrating one of the key symptoms of a peacetime innovation engine run amok: innovation addiction. They say they want to focus (whether that is the right wartime innovation strategy or not), but then they explode their active portfolio again like a struggling dieter wolfs down entrees at a buffet.

Contrast this with Amazon.

Jeff Bezos and team are possibly the very best business model innovators in the world today. Amazon has followed the “war and peace” strategy perfectly for nearly two decades. The formula:

1. Establish a repeatable, scalable business model in an attractive market.
2. Employ the peacetime strategy of focusing on radical improvement.
3. Reinvest heavily in the core and achieve total market domination.
4. Then go to war by pivoting hard, paradigm-shifting into an adjacent space by focusing on competencies that had merely supported the previous peacetime operation (e.g., world-class logistics, manufacturing, IT infrastructure).
5. Rinse and repeat.

Over and over, when Amazon found a repeatable, scalable business, it doubled-down, pouring in resources and boldly sacrificing short term profits to go all in.  Focus, focus, focus – a classic peacetime strategy.  First, the online bookstore, then supply chain for anything from A-to-Z, then eBooks, crowd-sourced services, and cloud computing.  These are really different businesses, but you can see how the company used the lessons of one to attack the next.

And they are doing it again. Just yesterday – thank you, gods of blogging, for your excellent timing – Forbes reported that Amazon is signaling revenue growth but net loss as it aggressively pushes the Kindle Fire, a bold move into tablet computers leveraging lessons from making eBook readers.

That’s the cool thing about paradigm-shifting innovation: you can make small moves that are huge.

How Amazon maintains a team of active paradigm-shifters during peacetime periods of focus is less obvious from the outside than it is for Google, but they are doing something right. You don’t roll this many “hard-sixes” in a row without knowing how to manage your innovators in both peacetime and at war.

So both Google and Amazon are inventive, vibrant, very cool companies. Both have strong innovators that they have to manage, and both are balancing ever-more diversified business portfolios.

But where Amazon really has the “war and peace” formula nailed, Google appears to be stumbling into it.

Fortunately for Google, they do a lot of things right, and one of them is the subject of a future post: how to keep a standing army of innovators fit and ready even when you aren’t going to throw your weight behind their ideas any time soon.

Tune in for the next installment of Innovation Wars: Shock and Awe.

Caveat: This post is more of a journey than a destination. Using the “war and peace” lens to look at how companies handle innovators and innovation portfolios is not well established, and for me it raises many questions. If there were ever a post of mine that called out for comment, this would be it.

This is Part 2 of Innosanity’s series, Innovation Wars.

Innovation can come from anyone at any time, but it isn’t for everyone all the time.

Managing innovators is all about timing. Treating them the same through different phases of your business cycle would be like running a military the same in peacetime as in wartime.

Ben Horowitz has a fantastic blog that frames business in terms of war and peace:

Peacetime in business means those times when a company has a large advantage, and its market is growing. In times of peace, the company can focus on reinforcing its strengths.

In wartime, a company is fending off an imminent existential threat. Such a threat can come from competition, dramatic macro economic change, market change, and so forth.

In peacetime, smart firms focus on improving the business they are in. They see what works and do more of it. They race to gain a comfortable lead over competitors. Peacetime companies can amass a considerable war chest and strategic advantage. The last thing peacetime companies should do is take their eyes off the prize by actively indulging in paradigm shifting innovation.*  Peacetime is for improvers.

But when wartime comes, better have some innovators, and they better be rested and ready to rumble. When you are overrun, they will scout for a new home. When you are bursting with resources and have a real opportunity to steal new ground, they are the invaders that drive the other guys out. When the territory you hold would be more attractive turned upside down (assuming you can withstand the disruption while everyone else goes under), they set the charges and blow the place up.  That’s wartime.

But what do we actually see companies doing today? Peacetime companies dither away their lead in the market by pursing “innovation” programs that drain executive focus, resources and commitment to quality. Google is a good example. (Boy, I’m going to get it for what I’m about to say next.)

Tune in tomorrow for the next installment of Innovation Wars: A Tale of Two…Companies.

* Not indulging innovation (remember, we’re talking about the Innosanity definition of innovation, paradigm shift) doesn’t mean that you should line your innovators up and shoot them. We’ve seen how that works in the recent Microsoft example and earlier in famous cases like Xerox, who squelched innovative teams at PARC on the grounds that their breakthroughs wouldn’t sell more toner! The whole point of Innosanity is finding ways to keep innovators vital in all phases of the business cycle. And while you shouldn’t stifle them, peacetime companies can’t let them run amok either. How to strike this balance is the subject of many future posts.