Investment in innovation will bring business energy, they say, and will enable new revenue growth. Investment in innovation will lead to more efficient business operation and will deepen your brand’s hold on existing clients while attracting more prospects. Investment in innovation will help level up your team’s skill set.
Innovation is powerful. Investment in it is a necessary condition for any growing, visionary organization. But investment in ITD (innovation, transformation, and digital) is a means to an end. Growth remains the objective. According to Mark Zawacki, it’s a difficult lesson many have learned the hard way.
In this episode of the Product Momentum Podcast, Mark joins Sean and Paul to closely examine true impact of investment in innovation on organizations large and small. As Founder and CEO of 650 Labs, Mark is intimately aware of the challenges confronting today’s businesses. And the news is troubling.
“We’re experiencing a real crisis in corporate innovation,” Mark says. “Tens of billions of dollars invested every year, and it doesn’t appear things are coming out the other side. We’re finding it difficult to see the relationship between investment in innovation and ROI.”
Much of Mark’s analysis stems from his work with large multinational organizations, but he makes clear that the same issues scale to the business unit and team levels too. “When you unpack it, we see the same issues appearing in five key areas: Structural, Organizational, Methodology, Cultural/Political, and Advisorial.”
Here’s a quick look at the root causes of what Mark refers to as poor ITD performance:
- Structural. Large organizations are built for stability, reliability, and predictability with executive compensation aligned with near-term results. This is hardly the environment for nurturing innovation and a new way of doing things.
- Organizational. Digital leaders in larger organizations are rarely on the fast track to the C-suite. This suggests that they are more interested in securing the incremental innovations that come along and not the big, strategic shifts that innovative organizations pursue.
- Methodology. The traditional companies, the incumbents, follow a pretty standard playbook. But they’re aren’t showing results for a variety of reasons – mostly because their playbook has become obsolete.
- Behavioral/Cultural/Political. So many organizations are filled with smart but risk-averse people who tend to hire in their own image. Organizational politics is the result of individuals acting in their own self-interests. Progress grinds slowly in that environment, and radical ideas are ridiculed.
- Advisorial. These issues arise when your incentive/compensation system is misaligned with actual problem solving.
So, how do we break through these big, hairy challenges to build an environment where innovation and risk-taking are not only welcome, but encouraged?
The answer lies in creating a new “edge” business that operates separately, but in parallel, from the company’s “core” business. Where the core is focused on delivering short-term results with incremental innovations, the edge business is built for flexibility, uncertainty, and long-term growth opportunities.
The key, Mark says, is to make sure you keep separate the core and edge pieces of your organization. Historically, we’ve tried to create the edge business within the core – and that’s where it’s not working. The edge business is designed and operated to ultimately replace the core business’ declining revenue. Why bring a high-growth asset into a low-growth environment?
Tune in to the Product Momentum Podcast to hear more of Mark Zawacki’s insights into the core/edge organizational model and how to bring transformative innovation and ROI to your organization.
[02:06] A crisis in corporate innovation. Tens of billions of dollars invested every year, and it appears there’s nothing coming out the other side.
[05:35] The relationship between investment in innovation and ROI. At a macro level, we’re finding it difficult to find one.
[06:36] At the micro-level, are companies working on the big things to replace declining revenue? If so, where? That’s when the conversation gets a little difficult.
[07:10] What’s going wrong on the inside of these companies? There are five buckets, or problem areas, where large organizations are having difficulty.
[07:32] Structural issues. Large organizations focus on the short term. They’re built for stability, reliability, and predictability. That’s the reverse of innovation and the reverse of doing new things.
[09:15] Organizational issues. The company’s digital leaders are rarely on the fast track to the C-suite. This tells me the business isn’t really thinking about big strategic change.
[10:15] Methodology issues. Start-ups don’t always play nice with corporates. They don’t make an appointment and say, “Hey, how do we partner together?” They break into your house at 3:00 in the morning and steal your stuff.
[12:05] Behavioral, political, cultural issues. These are the issues that slow innovation. Failure is a bad word that translates to “no real risk-taking.”
[12:50] Don’t confuse new ideas and great ideas. A great team with an average idea always beats an average team with a great idea.
[13:28] Advisorial issues. The vast majority of advisors are fee-based; when you have a fee-based model, your incentives are misaligned with solving problems.
[15:22] The hard stuff is easy. Hard stuff doesn’t mean difficult, but “hard” as in more scientific.
[16:18] The soft stuff is hard. The people skills, knowing talent, applying leadership and management models. How do you go about upskilling? How do we build great teams? That’s hard.
[18:43] Recipe for success. Small team, big goal. Get out of the way and they’ll figure it out.
[20:27] Dunbar’s number. Overwhelming evidence that teams of 150 – ideally under 100 – are more high performing than monolithic teams of thousands working on a goal.
[22:15] Merge the core business and the edge organization? No, never. Why bring a high-growth asset into a low-growth environment?
[29:16] “Burn the ships.” Here’s how to test a person’s intrapreneurial spirit. Few people have the risk profile to forego pay for equity, to forego comfort today for opportunity tomorrow. It’s an example the reality that we’re in.
[31:14] Pooh-poohing incremental innovation? Not at all. It’s necessary but insufficient. We are hurtling toward the technological singularity. We know in 10 years AI eats the world.
[34:13] Three horizons of innovation. Incremental, the horizon three, and transformative.
[37:11] Innovation theatre. You get all the buzz words, all the excitement. But when you push on it, when you look down the pipe to see what’s coming out the other side…that’s when results are disappointing.
Mark’s Recommended Reading
Dual Transformation: How To Reposition Today’s Business While Creating the Future, by Scott D. Anthony, Clark Gilbert, and Mark W. Johnson.
Mark Zawacki is a business strategist and Board advisor, management researcher, author, keynote speaker, and investor. Since 2001, he has led or supervised engagement teams on more than 400 clients globally, working through myriad revenue-related initiatives including growth, corporate strategy, disruptive innovation, business and corporate development, organisational change/transformation, and variety of people issues (leadership development, organisational design, talent strategy, corporate culture, etc.)
To date, he has worked in more than 80 countries. His clients span a wide variety of sectors, most notably financial services, mobile/telco, retail, media, automotive, healthcare, technology, and energy. He has also provided strategic counsel on growth and innovation to the European Union and the governments of The Netherlands, France, Turkey, Singapore, Mexico, Switzerland, Australia, New Zealand, and others.