Both / And
The ability to balance the here and now with strategy and the future.
By Maria Potoroczyn, Tom Ingvoldstad & Michael Engström
Core Business or Innovation?
“Both And” refers to a duality that is required of leaders and companies to become innovation-driven. While we speak of “Both And” under different conditions and in different contexts, the initial “Both And” refers to how balancing core business efforts with innovation efforts should be on top of every leadership agenda.
To us, this is Innovation Leadership!
Unfortunately, core business tends to get most attention; Innovation efforts, with all their risks and ambiguities, are marginalized.
Leaders often choose to focus on the straightforward streams of revenue, as opposed to ventures requiring investments, just as likely to succeed, as they are prone to failure.
Nike is a perfect example of a company that is not afraid to divert far away from its core competencies, and manages to innovate both at their core business, as well as maneuver far away from it with other projects – creating new product platforms and through creating entirely new markets.
How can we find the balance between managing core business and innovation efforts,
so that both activities flourish and become successful?
Core business and innovation efforts mostly compete for resources and attention, and it is no surprise that innovation usually looses in this equation.
Additionally, when “shit hits the fan” and the company experiences financial difficulties, or alternatively if it is the more simple need of “making the numbers work” to close the quarter – innovation projects (and especially those far-fetched, breakthrough, disruptive ones as they hold largest risks) will be first to be cut from the budget.
The “Both And” challenge can however take on a more conventional form – where innovation is understood and strategically defined as incremental improvements to existing business within the core competency scope that the company has mastered. It is a strategic choice that many companies are afraid to make.
Keep the competitive tension in terms of resource allocation to the very top of the company – so that people operationally involved in innovation efforts (and core activities) don’t feel “their” money going elsewhere, but also to instigate a “creative” tension in terms of resource competition at the senior table. Maintain the tension between the conflicting agendas only at the top of the company, so as not to involve operations.
Both And” Decision Making
We define companies’ “innovation capabilities” as the top management’s decision framework and its decision-making power.
With all of the above in mind, it is clear that the “Both And” approach of balancing conflicting efforts will eventually stumble across a tough decision-making challenge. “Both And” capabilities are therefore best tested on a ground where decisions are made and consensus can be reached. As part of efforts to implement an innovation process with our clients, Innovation Boards will serve as the decision-making arena for the top management team. Innovation Board meetings require preparation and a strategic, analytical approach. Coherent documentation is necessary as it act as a form of checklist by which we as a team make sure that in our “creative mode” we have not become too overconfident in the success of our projects. Fulfilling documentation requirements provides us with a form of “control” over the process, and over the project itself.
"If i need to spend my time on operations, then the company is heading in the wrong direction".
A.G.Lafley P&G CEO
Making decisions about, and as part of, innovation projects is a challenge for a company and its management group. In fact, we define companies’ “innovation capabilities” as the top management’s decision framework and its decision-making power.
To make an informed decision, the management team need to have a clear view of the whole contextual setting of the project. This will allow the team to make the right decision whether it’d be to further develop and launch, or to stop the project in its tracks. With cutting-edge, innovative ventures the real challenge lays in the ability to evaluate and make a decision about something that you may have no previous experience with. You need to understand that your intuitive answer or decisions are based on your past experience of what is possible and how things work.
The big question is: how do you deal with information that you have no reference - no previous exposure to? And more importantly, how do you make a decision about things you don’t necessarily understand very well? What type of support system do you need in place in order to be able to deal with such a challenge?
These questions precisely describe the most fundamental part of the Innovation Leadership Program. We help prepare you to make decisions when the ambiguity and uncertainty is very high, and your past experience won’t help. Maybe your experience rather lead you in the wrong direction! Together we build skills that your management team will use to make important decisions.
This is where innovation starts!
We also believe that in order to become an innovation-driven company, you must learn to say yes more often to new initiatives.
While this may sound scary and expensive, in the long term it will enable your organization to learn and develop its innovation capabilities. People will have to learn how to cope with high levels of experimentation and how to make decisions in such unfamiliar frameworks.
We also need to understand how we can learn from mistakes as well as creating new best practices for our company.
Like anything else in a successful company, this process starts with the management team. You need to first understand this mechanism, then build your innovation-decision-making skills, and as a consequence create a framework promoting experimentation and learning.
Core business operations need to view its offering as something that needs to be forever more competitive and continuously improved.
The “Both And” perspective has a twist to it. It is not only about driving core business and innovation separate from each other, but is it just as much about creating a culture of continuous improvement at the core business - this is the “Both And” at the top of your agenda!
The duality of core business and innovation efforts also translates onto another duality of mindsets and skills used for the two very different activities; While core business focuses on maximizing efficiency and minimizing risks or mistakes, innovation requires high degrees of experimentation, and that you learn to value the learning process in order to deliver innovations with highest return possible.
Our 20-year tack record in innovation provides us with empirical support on this thinking. We have also found that it is very hard to cultivate both mindsets even beneath one roof, in one company. Imagine how hard it is for an individual
This brings us to an issue of primary importance: companies that want to be innovative need to ensure that operational people who deal with innovation projects (and are required to experiment, explore ideas beyond existing business models and outside of companies immediate activities) dedicate 100% of their time towards these efforts.
Resources that divide their working time between two activities, for example 80% towards core business, and 20% on “innovation”, will always prioritize core business when pressed on time, and innovation will loose in such an equation.
If a company seriously thinks about innovation, and its goals and objectives clearly aim to achieve more than incremental innovation, there will always be a need to have separate, dedicated team to succeed. That’s when we zoom out onto a bigger picture, wider perspective level – and we can see organizations as microcosms, where core business activities run parallel to innovation efforts – the two can interact, but should not share resources. Leaders, on the other hand, need to be able to maintain and manage both activities in their team, and enable both mindsets to thrive. They need to be able to manage core business, while paving the way for breakthrough innovations.
Another challenge to this duality lies in securing that all your teams and employees deliver continuous improvements to your core business activities as naturally as the maintain the current platform.
Our approach is to develop the necessary innovation skills and capabilities across top management first. Once these are developed, the process of trickling begins. Top management then work with middle management to build their innovation capabilities and their awareness of the responsibility they hold for their subordinates.
Middle managers need to understand that there is a lot more outside of their immediate competitive landscape with the potential to impact business. If they start to perceive the market and the customer free from the constraints of the “existing value chain glasses”, they will have created an innovation-driven core business.
Having achieved that, they can then call themselves master-innovators!
A "Both And" portfolio
“Both And” also refers to the innovation portfolio balance that must be achieved between incremental, platform and breakthrough activities.
While it may differ between industries and between companies within the same industry, a starting point would be to allocate 60% of the efforts towards incremental projects that improve existing products/services/etc.; 30% on platform innovations; and finally 10% on breakthrough or disruptive innovations.
Achieving a balanced portfolio of incremental, platform and breakthrough projects should start by setting benchmarks as to the type of balance you want to achieve – whether it is going to be the 60-30-10 model, or other.
As with human resources, when it comes to financial resource allocation, the innovation teams should have separate budgets for core business operations. This independence ensures that innovation is treated on equal terms with core business. At the same time, because core business is already the focus for much of the organization and leadership teams, it is innovation that needs the extra push, and the extra attention, and often the extra care when it comes to securing financing.
A.G. Lafley, P&G CEO between 2000-2009 and the engineer of one of the most important corporate turnarounds of all time stated:
“If I need to focus only on operations, the company is heading in the wrong direction”.
A.G. Lafley took it to the extreme, and spent most of his time on Innovation Boards securing that his focus was on creating the future instead of trying to fix the here and now.
Left vs. right
The “Both And” concept rests on the “left/right brain divide” in a very primal way;
The left-brain is the analytical, rational part, which allows us to fulfill simple as well as the most complex tasks and activities.
The right-brain is responsible for our senses, experiencing our own body and the environment around it. It is the abstract part of our brain that helps us to be creative and imaginative.
Right-brain is always on the look-out for things that might be different from our expectations, it sees things in a wider context, it understands metaphors, implicit meaning or body language. It, therefore, helps us empathize with our customer and with other people in general.
Right-brain is also responsible for understanding change, evolution, and the interconnectedness of things.
Left-brain, on the other hand, is much more into analyzing details; it is the part of our brain that “reasons”. It is more adept at understanding static concepts, decontextualized situations (think maths), it is good at creating generalized statements.
Left is rational, right is emotional.
Our brains are the most primary instruments for Both And thinking. Let’s use them in a conscious way by learning more about the “geography” of our brain.
But there’s more to it – as stated before, right is responsible for experiencing the environment and it “keeps a look out” when our attention is not focused but preoccupied with other activities - It’s like a dormant alarm-system.
You know that situation when you drive a car and you suddenly experience a feeling, which tells you that the driver to your left is moving into your lane, without noticing you?
Soon enough you actually see the car starting to change driving lane! This was the right brain picking up on tiny signals and keeping you vigilant. The left-brain can then decide that it makes sense to honk the horn, to prevent an accident, and all this happens in split seconds!
It’s your two systems, your two brains, collaborating at supersonic speed.
Our brains are programmed to understand the world, and to make intuitive decisions based on learning and experience. This is in most cases good news as it allows us to move fast in life. But for business, intuitive decisions will in most cases produce more of the same.
And more of the same will never create anything new!
Disruptors and disrupted
The big “Both And” challenge kicks in when you think about large companies and their emerging / emergent competitors that attack them from the lower end of the market.
It’s the Innovator’s Dilemma in action: an established player once used to be the new entrant to a market or created the market in the first place. Once the company matures, the team starts to increasingly listen to their best customers, who pay the most for their product. They continue to develop their products / services towards the high end of the market, creating the best offering with the highest profit margins.
The former entrant is now the high-end solution provider. Being so it is vulnerable in the face of new players entering its market with a a product / service with a smaller price tag, and a “good – enough” quality targeting all the consumers at the low end of the market spectrum.
Becoming the high-end market leader makes you ignorant of the consumer needs at the mid and lower end of the market.
Here’s the famous dilemma – can you serve both consumer needs? Can you manage to deliver to both consumer groups? How do you do it as one organization? How do you organize to succeed with that? How do you disrupt or cannibalize yourself?
You're General Motors, and you've be making cars for a very long time, and you've been doing it quite well. The main reason people buy your cars is because your cars are better than the competition. For you, the most attractive cars to keep building are the ones with the highest profit margin.
In the spirit of customer understanding, you ask your high-end, loyal and paying customers what they want. They tell you that they want “more features”, “better styling”, “bigger engine”, and so on. And so you continue to make more of these expensive, highly profitable cars that your customers ask for.
The problem with listening only to your high-end customers is that you do not understand the needs of those who cannot afford your product.
General Motors were challenged by a disruptive entrant in the form of Japanese auto manufacturers.
Toyota embodied the disruptive entrants. The company launched its US effort with a very cheap entry model. And like most incumbent businesses, General Motors dismissed Toyota like they were making a toy. “It's no threat to our business. These cars are nowhere near as good as what we make.”
But to the people who couldn't afford a GM car, that little Toyota was a fantastic option. So Toyota gets a foothold in the market as a result of its low-end offering.
But it doesn’t stop there; Toyota keep improving their product and eventually they get to the point where they're making Lexuses,
The Lexus is now challenging the best of what America has to offer. This is the process of disruption.
The innovator's dilemma therefore becomes the process of disruption from the perspective of the incumbent.
Disruptive Innovation explained by its creator in less than 3 minutes
Small adapts, the big must cannibalize
Start-ups are flexible and adaptable. Big companies struggle when they have to cannibalize their own business.
Developing new products, services, or exploring business model innovation with the capacity to either immediately or eventually cannibalize existing operations is another form of a “Both And” challenge.
This is a significant threat to, established companies who already have a wide spectrum of business operations.
By contrast, young and small companies do not fear change as they are much more likely to quickly and easily alter their operations, adapt to consumer / customer needs or a changing market. They turn being small into a competitive advantage, as they are faster and more flexible in the process of adaptation.
Small companies are forced to adapt and evolve, while big companies must cannibalize. The perspective on what it is they achieve through change varies;
Young, small companies see change as the necessary prerequisite to better serve their consumer / customer and hence grow.
The established company tends to see change as a threat to how things have always been done and should be done. New products, services and business models with the capability to cannibalize existing core business, therefore represents the biggest threats of all.
What could established companies learn from entrepreneurial spirit and methods? Understanding the mechanism of entrepreneurship is about understanding what fuels it. True entrepreneurs see the world in a different way, and understand that they can create a future different from the past.
Gillette is a solid example of how a big company turns cannibalization into a competitive advantage. They regularly kill their own products with new, better products. They know they need to be their own fiercest, most ruthless competitor. That’s the kind of culture that innovation leaders should foster; development becomes proactive and continuous.
Companies with the ability to disrupt on the core level are the ones that dominate industries and markets for long periods of time.
At the same time, large companies have a significantly more complex situation than their smaller counterparts, when it comes to innovating at their core and potentially cannibalizing their own products / services / activities.
It becomes clear that managing and leading innovation projects with the potential to disrupt or wholly cannibalize existing business needs to be organized outside core business. Preferably with an entirely separate team and budget, reporting directly to CEO and CFO only.
The Innovators DNA
Source: Innovator’s DNA by J. Dyer, H. Gregersen, C.M. Christensen
True Innovators exhibit 4 specific skills:
Contrary to what some might believe, these are not skills you are born with; they are a result of habits the defines your behaviour. Hence; it can be taught.
Innovators are consummate questioners who show a passion for inquiry. Their queries frequently challenge the status quo, just as [Apple Inc. co-founder Steve] Jobs did when he asked, "Why does a computer need a fan?" They love to ask, "If we tried this, what would happen?"
Innovators, like Jobs, ask questions to understand how things really are today, why they are that way, and how they might be changed or disrupted. Collectively, their questions provoke new insights, connections, possibilities, and directions. We found that innovators consistently demonstrate a high Q/A ratio, where questions, not only outnumber answers in a typical conversation, but are also valued at least as highly as good answers.
Innovators are also intense observers. They carefully watch the world around them—including customers, products, services, technologies, and companies—and the observations help them gain insights and ideas on new ways of doing things.
Steve Jobs observation trip to Xerox PARC provided the germ of insight that was the catalyst for both the Macintosh's innovative operating system and mouse, and Apple's current OSX operating system.
Innovators spend a lot of time and energy finding and testing ideas through a diverse network of individuals who vary wildly in their backgrounds and perspectives.
Rather than simply doing social networking or networking for resources, they actively search for new ideas by talking to people who may offer a radically different view of things. Jobs talked with an Apple Fellow named Alan Kay, who told him to "go visit crazy guys up in San Rafael, California." The crazy guys were Ed Catmull and Alvy Ray, who headed up a small computer graphics operation that created special effects for George Lucas's movies. Fascinated by their operation, Jobs bought the company for $10 million, renamed it Pixar, and eventually took it public for $1 billion.
Innovators are constantly trying out new experiences and piloting new ideas. They unceasingly explore the world intellectually and experientially, holding convictions at bay and testing hypotheses along the way. They visit new places, try new things, seek new information, and experiment in order to learn new things.
Jobs, for example, has tried new experiences all his life—from meditation and living in an ashram in India to dropping in on a calligraphy class at Reed College or doing acid drugs. All these varied experiences would later trigger ideas for innovations at Apple Computer.
Collectively, all these discovery skills — the cognitive skill of associating and the behavioural skills of questioning, observing, networking, and experimenting — constitute the innovator's DNA, or the code for generating innovative business ideas.