This Is Why Your Innovation Fails!

“In your experience, what are the three best ways to create the ideal conditions for people and ideas to thrive?”

Or

“How do I make sure my company is able to continuously generate Innovation?”

These are, more or less, the questions that I get asked more often when I engage with companies, startups or organizations that finds themselves in the need of innovating or at least of understanding innovation.

Every time I get that old familiar feeling that leads me to think, “Do you understand this is like asking me How do I make sure I have success right?”.

There is also a sense of urgency and almost skepticism that flows from them, it’s like they don’t want to admit the might not fully understand how innovation works, after all they are sure they are doing everything right!

Sometimes they’ve even “Invented this thing/Industry!” so “How can someone else know better?!”

I smile, at least if we are around the same tale there is the possibility they are actually open to receive some help and after all, admitting you need help it’s really hard to do.

“This is a very broad and complex question, but yet very common.” I answer, “Instead of talking philosophically about the problem, let’s try to rake it down in actionable steps.”

We all know innovation is a difficult matter, possible the most difficult in business: it could lead you to fun, success and glory, or, when missed, it could drag you down failure path.

There are a number of factors that are boosting innovation, but let’s take a different and more “Growth Minded” perspective: let’s see Why Innovation typically fails.

Innovation projects often fail because the resources are spent on the wrong kind of innovation. Innovation needs to be considered in two ways: innovation capacity and innovation ability.

·      Innovation capacity is the organization’s potential for innovation. This is the stuff that’s easy to buy, and that organizations tend to spend too much on: assets and resources

·      Innovation ability comes in. This term describes the more difficult aspects of creating value, like new customer experiences, a revised service system, or new business models.

Too much money is spent on attention-grabbing activities that are straightforward to do, like hiring new people, procuring new technologies, and buying more facilities. It is much less obvious, and usually harder, to change the design of a current service system, introduce new customer experiences, or build a better business model — but the return on those investments may be much higher.

Companies need to create the condition for Innovation Ability to strive.  To do this a  mindeset and truly a “design shift” is required to executives and leaders.

Let Go Dysfunctional Believes.

The first thing we need to do is to let go some dysfunctional believes like “Lack of innovation is a lack of creativity”.

When we bemoan the lack of Innovation, we blame it on the absence of creativity. If only people could generate more novel ideas, we’d all be better off. But in reality, the biggest barrier to Innovation is not idea generation—it’s idea selection. 

In one analysis, when over two hundred people dreamed up more than a thousand ideas for new ventures and products, 87% were completely uniqueand worth deep diving.

Our companies, communities, and countries don’t necessarily suffer from a shortage of novel ideas. They’re constrained by a shortage of people who excel at choosing the right novel ideas.

The empirical truth is that companies typically are not designed to foster innovation on the contrary they seem to be design to act conservatively.

To paraphrase Joseph Schumpeter “Innovation is an act of creative disruption” that requires to let go existing paradigms to evaluate and embrace new ones.

Advocating for new systems often requires demolishing the old way of doing things, and typically this means “rocking the boat” and possible retaliation. 

This has obvious consequences 

·      Among nearly a thousand scientists at the Food and Drug Administration, more than 40% were afraid that they would face retaliation if they spoke up publicly about safety concerns. 

·      Of more than forty thousand employees at a technology company,50% felt it was not safe to voice dissenting opinions at work. 

·      When employees in consulting, financial services, media, pharmaceuticals, and advertising companieswere interviewed, 85% admitted to keeping quiet about an important concern rather than voicing it to their bosses.

Companies that are tied up in these dynamics lose their capacity to innovate and fail dramatically usually by doubling down ona once successful strategy that is now anachronistic and failing.

Let’s consider briefly HMV.

HMV’s rise started with the pop music revolution of the 1960s, when the company began expanding its retail operations in London.It doubled in size in the 1970s and had established itself as the country’s leading specialist music retailer by the early 1980s. In 2002 HMV floated on the London Stock Exchange, valued at about £1 billion.

By then, however, some employees and analysts had started to express doubts about the long-term sustainability of HMV’s business model. 

 Although the arrival of DVDs and computer games initially boosted store profits, supermarketchains had begun selling popular CDs at a discount, and in early 1998 Amazonhad started selling CDs online. A few years later downloadablemusic appeared on the internet, culminating in the launch of Apple’s iTunes store in 2003.

But HMV’s top management doggedly stuck to its strategy. 

In 2004 the company opened its 200th store in the UK and began acquiring rival chain stores, sometimes out of bankruptcy. By 2008 the company was running a global network of more than 600 outlets.

As early as 2002 its advertising agency had tried to alert the board to pending dangers—online retailers, downloadable music, and supermarket discounting—but HMV’s managing director, Steve Knott, had angrily rejected the warning: “I have never heard such rubbish. I accept that supermarkets are a thorn in our side, but not for the serious music…buyer, and as for the other two, I don’t ever see them being a real threat; downloadable music is just a fad.”

Not until 2010 did HMV open a digital music store. By then, of course, the company was far too late to the party, and in January 2013 it went into receivership.

Why this happens?

This happens for anumber of reasonsthat are deeply rooted in the human brain. 

In a classic experiment, two groups of participants were asked whether they would be willing to invest $1 million to develop a stealth bomber. The first groupwas asked to assume that the project had not yet been launched and that a rival company had already developed a successful (and superior) product. Unsurprisingly, only 16.7%of those participants opted to commit to the funding.

The second groupwas asked to assume that the project was already 90% complete. Its members, too, were told that a competitor had developed a superior product.This time 85% opted to commit the resources to complete the project.

These results underscore the fact that people tend to stick to an existing course of action, no matter how irrational.

What exactly is going on? Research has identified a number of mutually reinforcing biases that collectively explain why people’s judgment may be swayed by a prior commitment to a course of action. 

The six most important are:

- The sunk cost fallacy.

- Loss aversion.

- The illusion of control.

- Preference for completion.

- Pluralistic ignorance.

- Personal identification.

In combination, these biases lead a company’s decision makers to ignore signals that their strategy is no longer working. It is what Karl Weick, of the University of Michigan, calls Consensual Neglect or Groupthink: the tendency of organizational decision makers to tacitly ignore events that undermine their current strategy and double down on the initial decision in order to justify their prior actions.

We might get into this in another discussion.

How To successfully foster Innovation.

A second Dysfunctional belief we need to reframe is “Innovation is a product of creativity and genius and it’s therefore non replicable”. 

This is a common misconception and it’s possibly one of the most perverse to have.

Once we accept that the Innovation process is typically not a creativity problem but a design problem, we might start to see the truth: Innovation is a repeatable process that can be ignited, nurtured and managed.

Companies can influence these variables by Creating the best contextual conditions for innovation to thrive and by taking pragmatic steps that will lead them to adopt a repeatable process for innovation.

A company could create the right context towards innovation by applying some processes and practices in decision making. Six of them that have proved most effective in a business context.A company that applies all six practices will significantly increase the chance of Creating successful innovation.

Rule #1: Set Decision Rules

One way to stimulate more-objective decision making is to agree to decision rules in advance.

Intel, for example, when it was still focused on producing DRAM memory chips rather than microprocessors, made a rule that production capacity would be allocated to products according to several criteria, particularly margin per wafer. This objective formula was designed when no concrete decisions were yet at stake.

Some time later, when production capacity had to be allocated between the new technology of microprocessors and the old one of DRAMs (to which several top managers at the time were still firmly committed), managers helped sway the company toward the new technology by pointing to the objective formula, which favored microprocessors.

When hard figures aren’t available and judgment must be applied, non-numerical rules can serve. For example, instead of leaving the decision to a small number of top managers, this decision rule tapped into the collective wisdom of the company’s highly knowledgeable on-the-ground executives. This would increase the level of diversity in the team and the inner level of Innovation ability.

Rule #2: Pay Attention to Voting Rules

Creating a decision rule requires careful reflection, because quite subtle differences can lead to opposite outcomes. Most companies follow a conjunctive procedure(simply tallying people’s overall judgments). But as the statistics suggests, this procedure is likely to lead to escalating commitment/groupthink, because it tends to overwhelm reservations about the status quo. 

When a company is evaluating any sort of Innovation of strategy or product, a disjunctive procedure will better reflect any growing unease with the current course of action.

Rule #3: Protect Dissenters

Companies that have doubled down on a failing strategy are usually not without dissenters.The trouble is that dissenters can be ruthlessly suppressed—and the knowledge that this might happen itself acts as a suppressant. We also know from various studies in social psychology that people are reluctant to speak up if they think they are alone in their disagreement. To prevent escalation, it is essential that leaders create an environment in which people do speak up, share dissenting information, and challenge the organization’s course of action. Amy Edmondson, of Harvard Business School, refers to this as psychological safety: a belief that one will not be punished or humiliated for sharing ideas, questions, or concerns. 

Organizations can create this safety by:

·      Providing anonymous feedback channels.

Creating safe channels that lower-level executives can use to share opinions is one way to surface dissent and create radical collaoration. These channels can take multiple forms, such as an online system or a third party

·      Deploying larger teams. 

We recommend enlisting 10 to 14 executives when it comes to debating the company’s long-term strategy. Larger teams have more information-processing capacity and a greater diversity of perspectives

·      “Make Sure Your Teams Have Subgroups

Researches show that teams with subgroups are more likely to develop alternative courses of action, because the probability is greater that no dissenter will be alone.

·      Modeling doubt.

Executives can make dissent safer for subordinates by expressing their own doubts about a current strategy.

Rule #4: Expressly Consider Alternatives

Data suggest that framing strategic questions to include the possibility of alternatives is an effective way to avoid an escalation of commitment to one course of action. Paul Nutt, of the Ohio State University, analyzed 137 key decisions in as many North American companies and found that when only one course of action had been considered, 52% of the decisions resulted in failure. By contrast, when just one alternative had been considered, the failure rate dropped to 32%.

Rule #5: Separate Advocacy and Decision Making

Managers who initiate a course of action are more likely to continue funding it (even in the face of failure) than managers who assume leadership after a project is started. You can reduce the likelihood of escalation if you give responsibility for a strategic move to people who did not advocate or initiate that move.

Rule #6: Reinforce the Anticipation of Regret

A good way to prevent doubling down on a failing strategy is to get managers to anticipate the regret they may feel at not having taken a different road. This can be done in two ways: 

·      By taking a temporal perspective. Get people to explicitly consider what might go wrong with the current strategy. Of course, companies claim to routinely undertake this sort of exercise.  People—especially those in leadership positions—are inherently overoptimistic about the future and their ability to affect it (the illusion of control).

·      By taking an interpersonal perspective. Back to the Intel example, CEO Gordon Moore was initially reluctant to withdraw from DRAM, because it was “the product that had made Intel.” He changed his mind only after the company’s cofounder Andy Grove famously asked him, “If we got kicked out and the board brought in a new CEO, what do you think he would do?”.

·      We recommend a similar exercise: 

Create three groups of no more than five members of your top management team and ask them to prepare answers to the following questions for presentation to the full team:

o  Group 1: Imagine that an entirely new executive team enters the company. What would it change?

o  Group 2: A hedge fund has shorted our stock. Please explain its reasoning.

o  Group 3: A small group of middle managers have produced a memo urging us to change course. Please write down their arguments.

That is precisely why companies need to establish organizational processes and practices of the kind we’ve laid out—to encourage managers at all levels to make decisions more objectively and explicitly consider alternative strategies and perspectives.

Generally speaking Innovationisconstituted by 3 macro components: Width, Dept, Volume .

Companies need to make sure they master all three elements when approaching the innovation phase.  

Width: regards lateral thinking and our ability of approaching a decision by ringing different perspectives that would usually not being considered. This allows cross-fertilisation of ideas and approaches that are statistically fundamental for the innovation process.

Depth: is related to the specific knowledge of the domain that you are trying to innovate: regardless on how good your lateral thinking is it won’t serve you any purpose unless you know extremely well what you are trying to innovate.

This unique combination of broad and deep experience is critical for creativity. In a recent study comparing every Nobel Prize–winning scientist from 1901 to 2005 with typical scientists of the same era, both groups attained deep expertise in their respective fields of study. But the Nobel Prize winners were dramatically more likely to be involved in the arts than less accomplished scientists.

Volume: It’s a dimension that is usually gravely overlooked on average, creative geniuses weren’t qualitatively better in their field than their peers. They simply produced a greater volume of work, which gave them more variation and a higher chance of originality and innovation.“The odds of producing an influential or successful idea, are a positive function of the total number of ideas generated.”

 This doesn’t meanthat innovation is a numbers game, but that there’s a positive correlation between the numbers of action taken toward innovation and the average quality of the output produced. It’s fundamental therefore that companies engage in more than one or two “side innovation projects” , which unfortunately it’s the most typical approach, and invest instead in repeatable and virtuous cycle of innovation generating an high number of alternatives through radical collaborations and subgroups of teams within the different business units of the company.

Design the right strategy

Innovation though It’s not just a problem at companies known for poor management. Even businesses that are well versed in the best management practices can, without realizing it, generate an environment hostile to innovation. It’s a particular problem for a company’s frontline business units, whose business processes and performance metrics are optimized to relatively short-term goals that are anchored in what they are currently doing or selling rather than in what they could be doing differently. As a result, line managers instinctively reject innovations that won’t immediately contribute to their goals.

This is precisely why large companies need a powerful Innovation Strategyto can counterbalance the natural innovation killing instinct of a company’s business units and design a more innovation-friendly organizational environment (and also why companies seems lately to e appointing a lot of Chief Innovation Officers - CIO)

Every innovation requires a proper strategy. 

This strategy needs to be nested in the corporate and business strategy. If not innovation simply  won’t happen.

These are the key factors for a successful innovation strategy:

·       Every organization has a strategy. 

·       Innovation is about evolving and listening to different and even radical point of views 

·       Strategy is about making choices. (it’s Actionable)

·       Strategy is about increasing our odds of success, not guaranteeing it.

·       Strategy making combines rigor and creativity. (It’s a process that needs to be designed)

·       All great strategy starts with customers. (Innovation Ability)

Along the way, a design-thinking based Innovation Strategy can counteract human biases that thwart creativity while addressing the challenges typically faced in reaching superior solutions, lowered costs and risks, and employee buy-in. Recognizing organizations as collections of human beings who are motivated by varying perspectives and emotions, organisations must emphasizes engagement, dialogue, and learning. By involving customers and other stakeholders in the definition of the problem and the development of solutions, a Proper Innovation Strategy garners a broad commitment to change. And by supplying a structure to the innovation process, it helps innovators collaborate and agree on what is essential to the outcome at every phase. It does this not only by overcoming workplace politics but by shaping the experiences of the innovators, and of their key stakeholders and implementers, at every step. That is social technology at work.