There is good news and bad news for big corporations about their innovation efforts. The bad news first: Executives and innovators do not speak the same language, do not have the same culture, and do not fit well together. And, the good news: With an appropriate translator, both cultures can succeed together.
“Most innovations fail. And, companies that don’t innovate die. ”
This article is based on the newly published book of Daniel Huber, Heiner Kaufmann, and Martin Steinmann: Bridging the Innovation Gap – Bauplan des innovativen Unternehmens (in German, English translation in preparation). Springer, 2015 ISBN 978-3-662-43925-8
Is it really that dire? Are there not many innovative companies that are repeatedly successful? Yes, there are, but analysis of their successes reveals several astonishing patterns:
- Many projects that lead to successful innovations are officially terminated by their companies—often more than once—before they eventually find success.
- Following termination, projects often continue in stealth mode, contrary to rules and formal decisions, and are later revived officially—just to be terminated a second time. In some cases, this pattern repeats itself.
- Innovations owe their success in almost every case to one or a few champions, without whose leadership the projects would not move forward.
Moreover, the contribution of systematic innovation management efforts is disappointing, or even barely existent! Corporate executives often express dissatisfaction with their innovation management and with the efficiency of their innovation projects.
Where Innovations Fail
Gaining little from an analysis of innovation successes, we turn to an assessment of unintentional innovation project failures by analyzing the four steps of the classic innovation funnel: Ideation, Evaluation and Selection, Development and Production, Market Introduction.
Projects rarely fail inadvertently in the ideation phase. It is not uncommon, however, for companies to cut short the ideation phase, focusing on a particular solution too early without sufficiently assessing alternatives. This tendency can lead to situations where an innovation project is not optimally suited to the opportunity or where an innovation opportunity is neglected completely.
Evaluation and Selection
Companies typically employ the Value Benefit Analysis method to evaluate and select the most worthy ideas. This approach is questionable methodologically and often does not lead to an optimal selection, though it can lead to a project termination decision that is at least transparent and explicit. Therefore, in this phase, too, innovation projects rarely fail unintentionally.
Development and Production
Of the four innovation phases, the development phase has the highest degree of maturity, has been the most extensively studied and is the best understood. Many projects are intentionally terminated in this phase due to technical difficulties, unattainable cost goals, or other unresolvable challenges. Often, however, we also observe unintentional termination during this phase as the result of halfhearted attention to selected projects, leading to discontinuation without any formal decision.
Although major setbacks and changes do occur during preparation for market introduction, we observe relatively few terminations of innovation projects during this phase. Too much effort and money has been invested to let projects die, so they are typically “pulled through.” We all know, however, that many products newly introduced to the market are not successful.
The Quiet Death of Innovation Projects
This brief analysis of the four phases of the classic innovation process shows that inadvertent project terminations occur primarily at two points: in the development phase just after the selection decision and after market introduction. Only the second is visible to outside observers. The first is largely hidden, but not only from outside observers; even within the company this first type of project termination is infrequently seen and is rarely reflected in innovation project data. Those involved have no interest or incentive to have such terminations be widely known. Some may be relieved that the new project has been terminated (because it has been irritating), whereas for others the project failure is embarrassing. In general, such project failures can have a damaging effect on the careers of all involved and therefore they are systematically hidden. Innovation projects die lonely and quiet deaths.
The lack of visibility and accountability of project failures has consequences: Companies ignore these inadvertent project terminations and do not count them in evaluations of their innovation capabilities, thus overstating the success rates for innovation efforts. Another factor exacerbates the tendency toward overstatement of innovation success rates. The mechanism described above only applies to innovation projects that go through the Evaluation and Selection phase. Such projects are typically generated by the internal innovation and research divisions. Incremental innovations, however, which are usually developed for the improvement of existing products, typically arrive directly in the development division without going through the evaluation and selection process. As a result, the following picture emerges: The innovation performance is perceived as being stronger than it truly is, while, at the same time, executives are dissatisfied with the effectiveness of their innovation and research divisions.
Misunderstandings Hinder Success
The mechanism described above is consistent with my personal experience inside the innovation division of a large Swiss corporation. Although our innovation center was strongly supported by corporate executives, we always had the impression that the executives never really understood what we tried to tell them. Even worse: They sometimes had expectations with regard to innovation that were clearly unrealistic. Most irritating was our inability to correct such unrealistic expectations—even once—even in a direct person-to person-discussion. This perspective on innovation was not limited to senior management. It was as if the people responsible for the early stages of the innovation process spoke an entirely different language than everyone else in the company. This fundamental misunderstanding crystallized as being the most important barrier to innovation success.
To better understand these differences, I analyzed, many years later, the tasks of employees who dealt with innovation projects, as well as the processes they used. The comparison showed several fundamental differences:
- The process to perform an operational task is normally sophisticated and rich in detail. It is highly optimized and uses a relatively low number of carefully selected tools.
- The process to resolve a research or innovation project, however, is just the opposite: It is largely generic and simple but uses a large number and variety of tools and instruments.
For employees who perform operational tasks, it is important to conform strictly to the detailed and optimized process. In such a work environment, employees must be disciplined and have a clear focus on detail. Rigorous adherence to the process is a virtue, and improvisation a vice.
For employees with exploration tasks, however, things are different. They need to react to new and unforeseen situations with flexibility. To deviate from a defined process is not only not a problem, but may even be the only option to move forward. Flexibility, improvisation talent, and a broad knowledge base are virtues, whereas stubbornly following the rules is a vice.
Two Types of Employees
Of course, employees should be selected according to the tasks that require resolution. This implies that employees who resolve tasks of differing characteristics will, when properly selected, show different personality traits. According to the widely known Myers-Briggs Type Indicator, operational tasks attract mainly SJ-types (Sensing/Judging), whereas exploratory tasks attract NT-types (Intuition/Thinking).
- SJ-types therefore can be seen as pillars of the established system. They are conservative, orderly, reliable, and responsible. SJs think in an analytic and linear way, in cause-effect chains. They naturally tend to optimize and pursue efficiency. SJs like hierarchical organizations into which they fit. They need a high level of security, and therefore do not like change. In short, SJs are ideal managers and executives.
- NT-types, on the other hand, are creative, concept-oriented, factual, and impersonal. NTs typically prefer continuous learning, without necessarily applying their knowledge. They think in analogies and work through induction. NTs do not like hierarchies but instead build networks. They experience change as interesting experiments. In short, NTs are ideal researchers.
Companies typically recruit SJs for operative tasks and NTs for exploratory tasks. These personality types, however, have significant difficulty understanding each other, and the resulting misunderstandings create a gap in the information flow and thus a gap in the innovation process between exploratory tasks and operational tasks (i.e., Development and Market Introduction). I call this the Innovation Gap.
As different as these two personality types are, so are the different cultures in which they can perform and thrive and the environments they create. Companies need to cultivate both cultures, but organization theory instructs that an organization can only cultivate a single culture. We therefore have no choice but to create two separate organizations: one for the business, SJ-oriented, and one for innovation, NT-oriented. We have to cut the enterprise into two parts, each with sufficient autonomy to be able to create and live its own culture.
This division allows us to reach two goals:
- Both cultures can develop unobstructed.
- There is no permanent conflict between the two cultures.
While this course of action produces a desirable result, it creates a new problem: Our two, now autonomous organizations no longer have anything to do with each other. Therefore, we have to take measures to enable the two organizations to interact by introducing a dedicated communications and coordination function. Doing so does re-create our original communication problem, but now in an explicit form, which allows us to treat it explicitly, a substantial improvement.
As always, when we experience a situation where two parties do not speak the same language, we need a translator. We are already familiar with such a situation from another area in business: sales. The client also “speaks another language” than the enterprise, requiring the services of a translator. From sales theory it is well known (and also very common in practice) what to do: we install key account management. Following that analog, we need to install “key account management” between the research and exploration part of the company and the operational and business part of the company. This key account manager enables the translation between the two cultures. Without this explicit effort to translate between the two cultures, the transition of an innovation project between the exploration phase and the development phase will not work. And, innovation projects will die at this point inadvertently but systematically—as often happens!
- Unintentional terminations of innovation projects occur primarily at two points in the process: after selection for development and after introduction of the new product in the marketplace.
- Most companies have an “Innovation Gap”—a disconnect in the flow of information between those people involved in exploratory tasks (Development) and those responsible for operational tasks (Market Introduction).
- Innovative enterprises have to create two organization - one for innovation and one for business - and allow each sufficient autonomy to create and live its own culture.
- Simultaneously cultivating two conflicting organizational cultures contradicts the rules of organizational theory. To resolve that conundrum, companies need a “key account management” function to enable translation between the two cultures.