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1 What is the Innovation Paradox?

Tony Davila Berrett-Koehler Publishers ePub

NOKIA WAS A FINE-TUNED MACHINE when it came to grabbing the latest trends in mobile phone use and translating them into robust, profitable designs. Its scouters mixed up with young urban trendsetters, executives, and families, almost to the point where they understood their customers better than they understood themselves. Techniques ranging from in-depth ethnographies to early prototyping helped the company keep its healthy lead in mobile communication. For instance, the discovery that people in countries such as Morocco and Ghana would share phone conversations led Nokia to develop phones with more powerful speakers, making it easier for more people to participate in conversations.1 Incremental innovations—gradual, regular improvements to existing products and services—allowed Nokia to maintain and extend their lead in the market as they knew it. What could possibly go wrong?

Nokia’s market lead fell apart when the smart phone became the mobile device of choice. Since the company was so successful in the market for traditional mobile phones, when the market shifted away from their flagship products, Nokia was left with a nearly perfect organization innovating for a market whose relevance quickly eroded. Not only did Nokia lose its venerable market position, but it also lost any meaningful chance of making a dent in the smart phone market, allowing companies like Apple and Samsung to establish themselves.

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4 The Startup Corporation the New Kid on the Block

Tony Davila Berrett-Koehler Publishers ePub

GOOGLE WAS FOUNDED on the benefits of a better search engine algorithm, and its search engine is still its largest business. But Google hasn’t just sat back on its haunches, content to be a leader in search. On the contrary, the company has added numerous new businesses, most of them derived from the ingenuity of its people. (Of course, the company has also leveraged ideas from the outside with acquisitions such as Double Click, AdMob, Keyhole—the initial insight into Google Earth—Grand Central, and Motorola.) Gmail, Google News, Google Maps, Google Docs, Google Car, Google Glass, Android, and Chrome are some of the well-known innovations to come out of Google.

How does Google foster an environment ripe with ideas like these? To start, the company gives its engineers 20 percent free time (one day a week) to pursue their own projects—a concept shared with 3M but originally begun at universities, where faculty members traditionally have had one day per week to interact with outside organizations. The objective of giving engineers regular free time is to allow them to be exposed to new ideas, and to encourage curiosity-driven work. Free-time projects are exploratory adventures not necessarily tied to the business model, and Google believes that letting people pursue their passions makes them both more productive and more innovative.

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7 Innovative Cultures

Tony Davila Berrett-Koehler Publishers ePub

SINCE THE STARTUP CORPORATION lives within an established organization, the management of that organization has important implications for the success of strategic discoveries. The following chapters examine the aspects of established organizations that influence the Startup Corporation. We refer to them as the foundations, which encompass the soft aspects of culture and leadership as well as the hard aspects—strategy, incentives, and management systems. In this chapter, we focus on culture (table 7.1).

Culture can be the fertile soil that nurtures developing ideas, or it can be the hard ground that thwarts them before they have a chance to grow. Take, for example, a large Silicon Valley– based company in the software industry with a top-down, execution-focused culture. Every quarter, targets were set for each employee and closely tracked. One employee spotted an opportunity in Asia, but it required an upfront investment. At her quarterly meeting with her boss, he came with his usual list of goals for her. During their discussion, the employee told her boss about the opportunity. He did not dismiss the idea; instead, he added it to her list of goals with a 5 percent weight on her bonus (basically making it clear that she should not spend time on it). The employee who went into her meeting with an idea to potentially help the company came out of it with more work and no additional resources to pursue it. The message was: “So, you have an idea? Great, but you can explore it only in addition to your regular job, and we’ll provide you with no additional resources. Ideas worth the time and resources of the company come from top management alone.” That idea was her last with the company. A culture in which people who contribute ideas end up accountable for them but have no resources to pursue them will quickly kill bottom-up innovation.

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2 The Benefits and Limits of the Business Unit

Tony Davila Berrett-Koehler Publishers ePub

BUSINESS UNITS date back to the 1930s, when General Motors took the leadership position in the car market from Ford.1 Ford had become extremely good at process innovation during that decade—streamlining its operations to be the lowest-cost automobile producer—but General Motors was better at reading the consumer of the time. While Ford was busy working to keep costs down, GM was capturing new market segments for which price was not the main purchasing criterion. More than one car market existed, and GM restructured its organization to serve multiple markets. Contrary to the traditional functional organization, GM was divided into business units—each focused on a particular market segment, each with its own brand, each run as if it were an independent company (figure 2.1). This structure proved to be much faster than the traditional organization at capturing the demands of customers and translating them into new designs.

The widespread use of divisional structures and business units speaks to their success.2 Razor focused on execution in a particular market, they beat any alternative management solution developed thus far. In the absence of industry revolutions, execution and the ability to manage incremental innovation decide winners and losers. Focusing on being more efficient, more attentive to shifts in customer needs, and more creative in addressing and fulfilling customer needs pays off.

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8 Leading for Breakthrough Innovation

Tony Davila Berrett-Koehler Publishers ePub

IF YOU ARE LEADING YOUR COMPANY toward becoming a change agent in the world, your attitude, culture, and systems all need to be attuned to that vision. A range of cultures and leadership styles support innovation, but they share the points described in table 8.1. Both soft foundations—culture and leadership—are delicate and need constant attention. Although cultures vary across companies and geographies, they all need to support risk taking and understand the role of innovation efforts. Trust in the leadership team—a fundamental aspect of every innovative organization—takes time; it develops over each decision and interaction, but it can quickly erode. Combining the operational excellence and incremental innovation needed for ongoing development with the breakthrough innovation key to future success requires leaders who possess unique characteristics.

Most managers and their organizations know how to execute. They have been doing it all their professional lives—targets are set, performance is monitored, courses of action get adjusted, and people are rewarded based on how well they perform against targets. Pursuing breakthrough innovation is different, though, and leaders must avoid letting the current strategy receive all attention and resources.

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