by Rita McGrath
When you look at such disasters, you’ll find a classic pattern: untested assumptions taken as facts, few opportunities for low-cost testing and learning, leaders personally committed to the project’s every detail, generous up-front funding, and a “damn the torpedoes, full steam ahead” operating model. To avoid the same result, try to be humble about what you know (and don’t know) about how to innovate. Identify a few people and a few projects that deserve modest resources in order to develop a proof of concept.
This is also the level at which many organizations authorize “skunk works”—small, often secretive operations given air cover by senior executives that are tasked with working on some great new thing without attracting unwelcome attention from the larger organization. According to a 2005 article in General Aviation News, the concept stems from a Lockheed Martin initiative called Skunk Works, launched during World War II to develop a new aircraft. The tent that housed the project was located near a plastic factory that created a terrible odor. One of the team borrowed the nickname “Skonk Works” from the popular comic strip Li’l Abner and raffishly answered the phone “Skonk Works” one day. The idea caught on, “Skonk” was changed to “Skunk,” and the rest is history.
Skunk works, or whatever your organization calls them, can lead to wonderful things. (Who can forget the brilliance of the new computer created in Tracy Kidder’s book The Soul of a New Machine?) All too often, however, a project created without the endorsement or support of the parent organization meets a grim end—either killed off in political infighting when it gets too big to ignore, or left to wither on the vine without the resources needed to realize its ambitions. As Steve Blank has pointed out, the very presence of a skunk works indicates that the organization has not yet mastered continuous innovation.
Level 4 Challenge: Launch a Few Opportunistic Wins
Having begun to work on projects in the level 3 phase, an organization with level 4 capabilities understands enough to take an idea all the way through to the potential scale-up and launch. Ideation is, of course, important. But the first version of an idea is hardly ever the one that eventually makes it to market. Instead, ideation needs to be followed by incubation, in which the idea is prototyped, tested, shown to customers, retested, validated, and moved forward. Steve Blank calls this the “customer discovery” process.
Following incubation is acceleration. I use the metaphor quite deliberately. Think of your main business as a number of vehicles rolling along an eight-lane highway at top speed. Your new, about-to-be-launched venture needs to be brought up to a pace at which it can join the flow of traffic without being mowed down. That is often an unexpectedly painful process for innovation teams.
Technical and organizational debts both need to be taken care of. On the technical side, code that was “good enough” now needs to be brought to industrial scale. A similar issue arises with organizational debts. In the hurry of starting and launching a new venture, all kinds of shortcuts are likely to be made on the people side: Let’s not worry about formal job titles, pay grades, or evaluations—let’s build something great! That’s nifty in the early stages, but now you need people with real titles who are looking for a career path. Your venture, which has probably been protected from too much interference from support functions, now has to play nice with Legal, HR, Compliance, and the office of the CFO. It needs to connect to corporate rhythms, such as the budgeting cycle. Organizations with level 4 proficiency are often just beginning to figure this out and are still designing their acceleration programs in isolation.
Level 5 (Emergent) and Level 6 (Maturing) Challenge: Systems, Structures, and Routines
One of the biggest shifts from the earlier levels to these two is that a budget for innovation-related activities is now specifically set aside, across the organization. It no longer depends on the business cycle or the preferences of senior leaders, but is rather a routine line item, much the same as for other key organizational processes.
With levels 5 and 6 come increasingly routinized and repeatable practices for generating an ongoing stream of innovations. There is an identifiable innovation system that most members of the organization can talk about. There is a governance mechanism regulating decisions about which innovations should be supported, redirected, or stopped. There is a dedicated stream of resources that are focused on innovation rather than supporting the existing business. Innovation practices are measured, and it matters when the measures don’t show progress.
The majority of employees have received some kind of training on innovation topics and are provided with well-understood mechanisms to present ideas. The criteria that determine whether a particular innovation is suitable to move forward are clear to most people. Resource reallocation across different projects happens more quickly and smoothly. The barriers that prevent business unit leaders from enthusiastically embracing innovation (such as being held accountable for unpredictable results) are removed.
We also start to see a reallocation of talent, in which the best people focus their attention and energy on potential growth projects rather than on problem solving for today’s current business. There is also an increased flexibility about organizational structure, with innovations going into structures that are most likely to support them successfully. Attention is given to making sure that innovation teams are diverse in terms of thought processes, skills, and background.
Level 7 Challenge: Institutionalization
At level 7, innovation is associated with the organization’s brand in a meaningful way, and senior leaders see fostering innovation as a key agenda item. Executives are expected to support the innovation agenda, and it becomes a critical element of their compensation. Employees know how to access small pools of resources to experiment and test ideas and what to do if those ideas look promising. Technology is used to supplement human communication and accelerate decision-making.
The company begins to tell the innovation story in internal and external communications. It creates a technology platform that underpins the effort (an innovation operating system). It continues core transformation while adding new resources.
At this stage, the organization should have a pipeline of innovations, solid governance and funding processes, employees trained and knowledgeable about these processes, and customers delighted with how well the company is serving them!
Level 8 Challenge: Continuous Renewal
Achieving a high level of innovation mastery doesn’t imply that an organization will stay there. The big challenge for this level is preserving what is working and fending off the forces that might drag the organization back down the innovation proficiency scale. I have spent hundreds of hours (and my clients many, many more) helping to build wondrous innovation systems, only to have a subsequent regime dismantle them. This often leads, a few years later, to newspaper articles commenting on the organization’s fall from grace, with headlines along the lines of “What the Hell Happened to X?”
It is extraordinarily tempting for leaders, especially if they were not part of the innovation journey in the first place, to slip back to prioritizing near-term results in the existing business. The structure of our public markets at present rewards such leaders with outsize benefits. Among the mechanisms that have been identified as undermining organizations’ innovation processes are stock buybacks, which have become a vehicle for rewarding executives and investors. Buybacks boost stock prices, and therefore executives’ compensation when they are awarded on the basis of stock price appreciation. Unfortunately, resources flowing into buybacks are not available for investment in the future (or in people, or in other assets). The challenge of creating a level 8 organization is keeping it a level 8 organization through the selection of leaders who have its long-term best interests at heart.
Building Proficiency Step by Step
As we saw with Klöckner, tempting as it might be to try to leap from a lower level to a higher one on the innovation proficiency scale, such a move is almost always a recipe for
disappointment. Building innovation proficiency is an organizational learning endeavor, and learning and mastering do not happen instantly. Recall how Klöckner moved through the stages in its years-long journey.
When Rühl took over Klöckner in 2009, my guess was that the entire steel industry was pretty much working at level 1. It was slow, conservative, and traditional. The trauma of the Great Recession of 2008, coupled with the aggressive globalization of the Chinese steel industry, convinced at least Rühl and his board that the current business model was not viable. In effect, they knew that the time had come to see around the corner.
The inflection point around digital technologies that attracted Rühl’s attention sparked his movement into level 2 activity—first with a disappointing internal effort and next with a separate but liberated small group with different skill sets and assumptions. As the company moved through what I would call levels 3 and 4, work began taking place not only at the Berlin digital outpost but also back at the “mother ship.” There was an effort to “horizontalize” and to broaden communications without regard for hierarchy. There was training. There were processes whereby people who were not central to the innovation effort nonetheless benefited from its liberating effect on the corporate entity.
As the digitization effort continues at Klöckner, it can be assumed that the company will move methodically into ever higher levels of proficiency, with digital providing the impetus for a major corporate transformation and a return to inflection-driven growth.
Key Takeaways
Navigating through an inflection point often means working on two massive challenges at once—bringing the core business forward in its competitive capability and creating new capabilities that will be relevant to the future.
Digitally enabled business models are often collaborative. There is a need to rethink where organizational boundaries lie. Incumbents cannot depend on traditional barriers to entry.
When an existing solution set does a poor job of responding to customers’ “jobs to be done,” it creates an opportunity for a new entrant to get a toehold.
Recognizing that both the existing business and the new business have contributions to make and designing incentives accordingly are key.
Simple techniques—such as a hierarchy-free communication system and widespread availability of training and upskilling—can help break down hierarchical barriers.
Moving up the innovation proficiency scale often involves sweeping change in company practices and procedures. It is a challenge to long-held assumptions, incentives, and organizational arrangements and needs to be well orchestrated with significant senior level support.
8
* * *
How Leadership Can and Must Learn to See Around Corners
People will put up with awful, terrible, incompetent leadership, as long as things are going well. But when the inevitable crisis occurs, rank and file perspective changes, the focus turns to competence, and the pressure skyrockets.
—Brigadier General Thomas Kolditz, retired
I never intended to go to an all-women’s university for my undergrad years. In fact, when I was admitted to Barnard College, one of the “Seven Sisters” at the time, it took a lot of convincing to persuade me that being in New York, being part of Columbia University, and being at a place with a huge commitment to teaching and learning would be worth living in some kind of nunnery for four years.
Of course, I couldn’t have been more wrong. Barnard was transformative for me. When it came my daughter’s turn to attend college and she, too, chose Barnard, I could not have been more proud. But while I’m more than happy to chat with you at length about the pros and cons of women’s colleges, women’s education, and relatedly of a liberal arts education, that’s really not what this chapter is about.
Instead, it explores the kind of leadership models we should be thinking about in organizations that are prone to frequent and more destabilizing inflection points. So, back to Barnard (sort of). I’m now teaching at Barnard’s sister (brother?) institution, Columbia Business School, often in our Executive Education classrooms.
Enter the Women in Leadership Course
A couple of years ago, I was approached by a small but passionate delegation from Columbia Business School’s program development team. It seems that they had been meeting for quite some time with a group from Barnard’s Athena Center for Leadership Studies.
The creation of the Athena Center was an initiative strongly sponsored by Barnard president Debora Spar, who had come to Barnard from Harvard Business School. She wanted to create a place that would focus on leadership in addition to the liberal arts curriculum for which Barnard was already well-known. The staff would use their knowledge of women’s leadership to develop programs specifically to guide organizations in helping women advance. The center had elegant diagnostics and a small but very well-run set of sessions they were using with a few companies attracted by Barnard’s brand name and clear legitimacy on the female-facing side of things.
The development team thought there was a great opportunity for these programs to be expanded into the open-enrollment sector (meaning that people from all different types of organizations could attend them). They wanted to create a working model in which the Executive Education group would manage the logistics, joint marketing, and promotion, and the Barnard folks would provide subject-matter expertise, their cool brand, and perhaps use of the gorgeous Barnard facilities. You have to love a place where all the oil paintings of the “fearless leaders” from the past are of commanding-looking women!
But I digress. It seems the whole idea had just one little glitch: they needed someone on the Executive Education faculty to agree to become the faculty director of the joint program. That person would be the face of the program and be responsible for selecting faculty, directing overall curriculum design, and creating a coherent experience for participants. That person also typically would be an expert on some element of the topic. Even though we have a fair number of faculty members who work in areas focusing on gender and women’s issues, no one wanted to take on the responsibility of creating, launching, and running a brand-new program. As a result, the team worried that the plan was going nowhere.
Then one member of the team happened to be reading my bio and—bingo!—noticed that I was a Barnard graduate and a fairly loyal alumna. When the team approached me, I said that women’s advancement and gender issues were not my thing, and besides, it was 2016, and why on earth would the world still need such a program?
In good academic fashion, the team proceeded to bury me in research. As I went through study after study on the myriad ways in which talented women (and the organizations that, in most cases, really do want to do well by them) fall out of the executive ranks, I was persuaded. Also a little enraged, to be completely honest.
“OK,” I said. “Let’s do this.” The resulting course was called Women in Leadership: Expanding Influence and Leading Change.
We had a great launch, with star appearances by Nancy McKinstry, CEO of the global publisher Wolters Kluwer, and Sharon Price John, CEO of the Build-A-Bear Workshop. Glenn Hubbard, dean of Columbia Business School, and Debora Spar jointly kicked off the program, and the participants themselves were amazing. And then, of course, the “me too” movement erupted, making my skepticism about why such a program was still necessary seem more than a tad naïve.
Women’s Ways of Leading?
For our purposes here, what matters about my role in that program was a major “Aha!” moment—for me, anyway. We had invited Sally Helgesen, who together with world famous executive coach Marshall Goldsmith had just published a book called How Women Rise, to address the class. Helgesen made an observation that to her was probably a throwaway but that struck me profoundly. Back in 1990, she’d written a book that attempted to do for female leaders what Henry Mintzberg had done for male ones in the 1970s—namely, figure out what they actually did at work all day.
“What we’ve realized since the
n,” Helgesen said to the class, “is that the qualities that I found were exhibited by the female leaders in my research were exactly the same qualities that we are now realizing are essential for leaders of all kinds in faster-moving, more uncertain environments.” That got me thinking. Had those women in fact been at the forefront of a sea change in how we lead organizations—and were forced, perhaps, to come up with a new model because they didn’t fit into the old one?
The broad outlines of that model, which were surprising then, are much less so now. The women in Helgesen’s study focused “on the doing of various tasks rather than on the completion.” They created “webs of inclusion” rather than hierarchies. Information flows were widely distributed, and the role of the most senior leader was as a connector and guide rather than a command issuer. Leaders did retain decision rights and authority, but they granted enormous autonomy to those closest to the situation.
This all started to sound very familiar to me.
When I look at the outstanding corporate leaders of today, male and female, I see these same patterns. Alan Mulally, legendary for turnarounds at both Boeing and Ford, refers to his role among his executive teams as a “facilitator.” General Stanley McChrystal, the leader in the United States’ fight against Al Qaeda, talks of creating what he calls “shared consciousness” and trust among team members, so that decisions can be made by those closest to the problem, regardless of their seniority. Mark Bertolini of Aetna took a personal interest in the lives of his employees and was shocked at the economic and thus personal toll they labored under. His controversial decision to raise Aetna’s minimum wage and improve its medical benefits was the result. And in dozens of other examples I found in the research for this book, a new leadership model seems to be becoming more of a reality, and not just for women.