The inaugural “Ask Corporate Wise Man” post will answer a question from Jessica C.:
In the corporate world, innovation often means going directly against the grain of how things are usually done. I see the dilemma of upper management who say they want to be innovative while middle managers try hard to implement new initiatives but are constrained by resources. All the while, lower level employees don’t understand why change can’t happen more rapidly to, say, switch from one type of software to another or change to a newer, better system. How can organizations better reconcile these needs to be more innovative?
Wow, great question! This is an important question that is being asked in board rooms in every large company as “becoming more innovative” or being willing to “disrupt yourself” is a major imperative. In fact, the (vast) majority of my time as an executive is spent trying to balance the long-term strategic goals of the organization while at the same time meeting short-term financial goals. The short answer to your question is that doing both of these things well (balancing short-term vs. long-term goals) is very, very difficult and fraught with risk, which is why change is so challenging for large, public companies. I will break down some reasons why change is so difficult and what all three layers of the organization can do to support large-scale changes to drive innovation.
Spending time in a variety of roles in multiple large, public companies leads me to believe there are three main challenges to driving faster, large scale innovation in the corporate world:
- Protecting the core business model
- Coordinating change across complex organizations
- Short-term distractions. I will discuss each of these in detail.
Protecting the core business model.
I started my career in a diversified Fortune 100 company with a 100+ year heritage of innovation. I joined six month after the company hired a new CEO who promised to “reignite” innovation by pivoting away from the company’s core activity of “roll to roll” manufacturing processes into software, systems and services. Being a new (and enthusiastic) hire, I was excited by this vision but quickly became frustrated by the lack of progress and willingness to take risks to pivot more quickly to the new strategy. Many of the newer employees to the company felt the same way. We didn’t understand why longer tenure employees and middle managers weren’t more fully engaged with driving change even though we could readily point to newer, smaller companies who were disrupting our market place with innovative technologies.I was frustrated that the older generation just “didn’t get” how important it is to be open to change.
Now that I have progressed through the ranks of middle management to become an executive I have a more seasoned, nuanced understanding of how big companies work. What I was missing earlier in my career was an appreciation of the importance of a company’s business model and operating system. Every company, regardless of size or age, has a business model; a guiding set of principles and activities that creates value for the company. At my first company (that I mentioned above) their business model was (and is) investing in developing a world-class patent portfolio around a small set of technologies and creating efficient manufacturing processes to develop products based on these technologies. In short, the business model, and all of the core processes of the company, were designed to 1. Create IP and 2. Efficiently manufacture products based on this IP. Because this company had a 100 year legacy of creating IP and manufacturing processes, it was very good at it. Margins were much higher than competitors, global penetration was very high (and growing), and the company’s stock marched higher year over year.
As a new employee, I didn’t really understand the company’s business model or why it was important. Middle managers knew the importance of the business model but most of their metrics were focused on meeting the short-term financial goals of the business so they viewed a change to software and services to be distracting (perhaps rightly so). Executives, most of whom grew up in the company and reaped the (very generous) financial rewards of the existing business model, didn’t want to disrupt a formula that was working. As such, the migration away from a wildly successful patent and manufacturing business model to a software and services business model failed. (On a side note, the CEO was forced into retirement…)
This company didn’t have any expertise in software, systems or services businesses so the company did not have the skills or infrastructure necessary to facilitate the change the CEO wanted to drive. In hindsight, the CEO could have better articulated his goal by stating “We need to strengthen and diversify our existing business model, which is built on research and manufacturing strength, by expanding into software and services” which would both leverage the existing business model while expanding into new and exciting areas. This brings me to my next point…
Coordinating change in complex organizations.
As you can see from the prior example driving change within a complex organization is difficult as you need to ensure you do not break the core business model (which delivers results today) while you evolve the business model to be successful in the future. To complicate matters, different layers of management have different objectives they need to meet. Finally, most modern corporations have multiple locations, tens (if not hundreds) of thousands of employees, and operate across geographies, languages and cultures. All of these factors combine to form what I call a “corporate immune system” which fights change. The reason is simple: in order to be successful, companies have to have a high level of coordination at a basic level. This coordination takes time and, when it works, leads to profitable growth. Anything that threatens this coordination is potentially harmful in terms of financial results and individual’s career development.
The CEO of my second company (also a Fortune 100 global diversified manufacturing company) was famous for driving his teams very hard. That said, he was also very realistic. Similar to the CEO of my first company, my second company CEO had a vision to diversify from products into software and IoT (the seemingly omnipresent “Internet of Things”). The main difference is that the 2nd CEO would say publicly and repeatedly:
“We need to make this change in order to be successful because if we don’t change our competitors will and it will kill us. That said, we have a very successful business to run. I am going to drive you hard and challenge your business models and change will not be optional. That said, I also understand how difficult change is and realize that any meaningful change takes at least 3 years.”
During one of the quarterly town hall meetings, an employee asked why the change would take so long. The CEO’s response was telling:
“We are a very successful company. We operate in over 180 countries, have grown steadily and have great margins and our success is reflected in our stock price. Yes, we have to change, but we also need to get all 130,000 employees on board with these changes and need to evolve in a way that allows our current success to continue. We also need to invest in new skills and processes to be successful. I will relentlessly drive these changes but it will take massive investment and time.”
Moreover, the CEO would deliver this message at every town hall, investor meeting, executive meeting, and public presentation. All performance reviews started with an overview of the strategy and measurement of our progress in making it a reality. His singular goal was to communicate the importance of the change and ensure progress and investments were being made to achieve the strategy while driving short-term results. Communication across layers (executives, middle management, and “line” employees) and geographies aligned priorities and created focus. The takeaway here is that change is hard, and it becomes exponentially harder the larger and more complex the organization. Executive leadership and communication is critically important for driving innovation.
Similar to how companies are married to the business models that have made them successful, they are also married to the processes and systems that have fueled their success. For example, the company for which I now work ($100M subsidiary of a $4B global company) has an Enterprise Resource Management (ERP system…like SAP or Oracle) that is severely outdated, difficult to use, and inflexible. I get complaints about it on a near daily basis. So, why not change it? Because changing it would be tremendously disruptive, expensive, and may not lead to a better result. And that is for a $100M company. My first company is currently under going “business transformation” which means they are migrating all business systems from a mixture of home-grown custom solutions and Oracle to a brand new SAP system. This company has over 100,000 employees, 35+ business units (many of which have their own one-off systems) and operates in many countries. Their switch to SAP will take over 10 years and cost hundreds of millions of dollars. Yes, you read that right.
Because companies have such large investments in business models, processes and systems, change is challenging, slow and expensive. Yet there is one more complicating factor that may be the most important.
So far I have explained the challenge of protecting existing business models and coordinating and communicating change in driving innovation. But the biggest problem is managing short-term distractions. The pressures put upon public companies by Wall Street is well beyond the breaking point. Professional investors want large companies to embrace new business models but they expect the change to be driven across these large, complex organizations nearly instantly with no negative impact to short-term performance. To be blunt, it’s an unrealistic expectation. If you have ever worked in a public company you will know that all strategies are abandoned if you miss a quarter (which is a shame). Once under-performance arrives it’s an “all hands on deck” response to ensure the business can perform again, usually by reinforcing the fundamental business model and processes.
Yet short-term distractions can take other forms; attrition of key talent, changes in the competitive market place, new technologies, restructuring, etc. No matter the cause the result is the same: the corporate immune system kicks in and everyone reverts to the status quo.
So, why bother?
Ok, you get it: driving change and innovation is hard. Should you quit your corporate job and get a minimum wage job at your local convenience store? Not quite yet.
Below is a list of actions you can take, broken out by level within the organization, to support change and drive innovation.
Executives: Your job is to rise above the day-to-day operations of the business to understand and champion what is good (and must not change), what needs to be changed, and any resource/skill gaps that are required to achieve the corporate initiatives.
The number one failure mode for executives is not communicating enough. One of my best mentors said it best: “Tell people what you are going to tell them, tell them, then tell them what you told them. It is literally impossible to over-communicate.” You need to own the vision, what success looks like if you can implement the vision, and chart the path to implementation. Across functions, geographies and levels within the organization.
Beware of the corporate immune system.
It cannot always be business as usual. Understand what needs to change, what needs to stay the same, and push hard by ensuring metrics are aligned to deliver the strategy while maintaining short-term performance.
Create enabling infrastructure and processes.
You will never be successful if you do not have the right structure, talent and processes to win short and long-term. Have a strategic road map and tactical plans in place to ensure victory. Ask questions and monitor competitive response.
Be a heat shield for your employees.
Realize that change is hard and there will be setbacks. Encourage your team to take risks and protect them when they fail. Communicate needs and issues in a timely and honest manner to the CEO.
Middle Managers: Unfortunately, you probably have the hardest job as you will be held responsible for both achievement of the long-term vision and short-term results.
Create actionable work plans.
Your goal is to take the vision and turn it into an actionable set of short-term actions. Set clear deliverables, dates and metrics and communicate clearly so there is no confusion.
Drive innovation/change…but deliver results.
The goal is to evolve the existing business model to something better. Take risks, but hedge your bets with contingency plans and clear metrics. Know what you are willing to compromise on and what cannot change. Manage accordingly.
Don’t hesitate to ask for help.
Most middle managers fail because they think they need to prove themselves by acting alone. WRONG! Leverage your colleagues and manager for advice and support. Ask your employees for ideas on how to best achieve the long-term goals and be open to their suggestions. Often times, the people closest to the customers have the best ideas! Motivate by listening and implementing the best ideas.
Communicate…but focus on action.
Like executives, your job is to communicate the vision in a way that is actionable. Tell your team about key goals and corporate initiatives, but ensure the team is focused on actions that drive the metrics that measure performance toward the initiatives.
Line Employees: At the end of the day, your job is to deliver against the company’s metrics. That doesn’t mean you don’t have a critical role in driving innovation!
Understand the business model.
Do you really understand what makes your company successful? Before seeking to change, seek to understand.
Communicate in terms of strategy and customers.
You may have a great idea but it will fall on deaf ears if not communicated properly. Don’t just pitch an idea to you manager in a meeting, but create a concrete business case with an overview of the idea, why it will resonate with customers/make the company more successful, and how it will help the company achieve its strategic objectives.
This one is probably the hardest. If you are new in your career, understand that change is hard, takes time, and will be delayed if the core business is not delivering results. Understand change takes time and all of your ideas (even good ideas!) cannot be implemented overnight. Focus on proposing good ideas supported by rock solid business cases (ask your manager for support and feedback) while delivering short-term wins in the mean time. There is no better path to promotion than a track record of short-term wins supported by great longer-term ideas and a passion for serving customers well.
Whew! A long answer to a short question. Change is hard and innovation is much harder. Companies struggle to drive innovation because they have massive investments in business models and supporting infrastructure that have proven successful so there is little impetus for change. Further, the goals within layers of the organization are different which can lead to confusion. Finally, short-term distractions occur which cause an organization to lose focus.
So, is all lost? Is trying to drive innovation a waste of time? Of course not! Driving innovation is not only a major imperative all the way up to the board room, it is also a great career accelerator and can be tremendously fulfilling when done correctly. Just focus on the advice outlined in the blog relevant to where you are in your career and you will be fine.
A big THANK YOU to Jessica C. for your great question!
To all my readers: Please do not hesitate to contact me with any questions you may have. I would like this blog to evolve in time to become a forum to discuss big, meaty issues in the corporate world. Agree? Disagree? Discuss in the comments section below! Finally, submit a question and you might be the focus of the next “Ask CWM” post!