the other side of innovation

Innovation is a two-part challenge. First you have to come up with a great idea, then you have to execute it. Execution is the other side of innovation.

When hoping to stimulate innovation, companies tend to put almost all of their energies into this side of innovation — the thrilling hunt for the breakthrough idea. That’s unfortunate, because there are severe challenges and hidden dangers on the other side. Complicating matters, the managerial techniques that work well on this side of innovation have almost nothing to do with what works on the other side.

For one thing, it’s very easy to get involved in, and to generate excitement about, a Big Idea Hunt. Creativity is fun and energizing. Plus, being the person that comes up with the Big Idea confers great status. If you come up with the Big Idea, then you will always be associated with it. Execution, by contrast, seems like the behind-the-scenes dirty work.

In addition, companies tend to make the mistake of underestimating the degree of difficulty of the other side of innovation. They know how to execute day-to-day operations and thus presume that execution is easy. But innovation execution is much harder than most companies realize.

Simple. Innovation and ongoing operations are always and inevitably in conflict. Worse yet, the forces behind day-to-day operations are typically much stronger than the forces behind innovation.

Organizations are not designed for innovation, they are designed for ongoing operations. They are designed to be what we call Performance Engines. They are constructed for efficiency and accountability. They are built to be on-time, on-spec, and on-budget — every day, every week, and every month. They are outstanding at delivering consistent and reliable results.

The problem is that there are deep and fundamental incompatibilities between ongoing operations and innovation. The method of the Performance Engine is to make every task, every activity, and every process as repeatable and predictable as possible. But innovation is exactly the opposite. Each innovation initiative is non-routine and uncertain.

Yes, absolutely. Performance Engines are incredibly powerful. In fact, they are at the very foundation of modern life. By mastering the construction of Performance Engines, the management profession has raised living standards around the world.

While it is true that Performance Engines create barriers to innovation, they are not at all insurmountable. It is entirely possible for a single organization to simultaneously excel at innovation and day-to-day operations.

There aren’t any. The other side of innovation is a challenge that vexes even the best-managed corporations. In fact, we’ve worked with companies that show up routinely at or near the top of the Most Innovative and Most Admired lists in the popular press, and they struggle with the other side of innovation just like everyone else. It’s trial and error, and companies get it wrong all of the time.

We have been studying the other side of innovation for ten years. We’ve compiled a library of case studies about the other side of innovation that we think is the most extensive in the world. But what we don’t have is even one example of a company that did everything right the first time. We have stories of failure and stories about initial struggles, corrections, and eventual success.

All of these stories are instructive. All hint at best practices. What we’ve been able to do in our research is piece together a picture of what it would look like if a company were to get it right the first time.

First, it’s an expensive and lengthy study. We were fortunate to have access to the necessary resources. Second, until the 1990s, the dominant paradigm in strategy was to secure a profitable position in the market and then defend it. Keep everyone else out. Strategy was about seeking stability. If you think about it, there couldn’t possibly be a strategic doctrine more antagonistic to innovation.

Only in the last two decades has it become widely accepted that stability is elusive if not impossible. The only way to stay profitable — or, in some cases, even to survive — is to innovate.

We have found that the well-known definitions of different types of innovation, such as the distinction between disruptive and sustaining, are quite useful on this side of innovation but of little use on the other side of innovation. These distinctions help estimate the market impact of an innovation if it indeed succeeds, but are not of much help in guiding execution.

Our prescription can be applied to any innovation initiative.

Yes. Any initiative that is small enough that it can be tackled by one person or a small group of people in their spare time can move forward inside the Performance Engine. A lot of continuous process improvement happens this way. Also, routine product and service development — bringing out this year’s version of last year’s product — can also be managed using Performance Engine techniques, because it is a repeatable and predictable process. These two forms of innovation are important, but they are rarely sufficient over the long run.

When we launched our research, we expected to be writing a lot of conditional recommendations. If you are working on an innovation that meets certain conditions, and if your existing business has certain characteristics, then the following steps are advisable.

What surprised us most was that the general was more powerful than the specific. Not every situation is the same, of course, but you can get much, much further than we anticipated with a one-size-fits-all prescription.

Every innovation initiative requires a special kind of team and a special kind of plan.

The special team is actually a partnership between a Dedicated Team, which is dedicated full time or nearly full time to the project, and the Shared Staff, which supports the project while sustaining its Performance Engine responsibilities.

The special plan guides a disciplined experiment. Just running an experiment is easy. Doing so in a disciplined fashion ensures that you learn quickly. Quicker learning leads to better decisions, and better decisions lead to better results.

Yes, it would eliminate the barriers. But by taking that extreme approach, established companies would forfeit the one major advantage they have over independent startups —their existing assets, such as brands, manufacturing facilities, relationships with customers, areas of technical expertise, and much more.

It is hard to manage. It is important that the full-time leader approaches the situation with the right mindset. The Performance Engine is a friend, not an enemy. It is also important that senior executives get directly involved in making the partnership work, even if it means getting their “hands dirty” at levels in the organization that are typically well below their radar screens. Further, ensuring that the Shared Staff has sufficient resources to handle both day-to-day ops and innovation is critical.

It’s critical to treat the process of building a Dedicated Team literally as though you are building a brand new company from scratch. That means using a mix of both insiders and outsiders, writing new job descriptions, creating new processes and systems, and so forth.

Established companies have a nasty habit of creating new organizational subunits that behave just like the rest of the company — exactly as though a parent has passed along its DNA to its offspring. We call these units “Little Performance Engines” and they are deadly to innovation.

Just maintaining the necessary discipline, for starters. At minimum, you have to write down a plan that spells out all assumptions, and you have to do it in a way that is clear to everyone on the team (as opposed to burying the assumptions in a spreadsheet that only the builder of the spreadsheet understands). You have to be able to return to the plan months later, when results start to come in, and still be able to clearly understand what your original assumptions were. You have to have the discipline to only alter the plan and alter the assumptions when there is a clear and evidence-based lesson learned. You have to go to the effort to gather the right data that can prove or disprove your assumptions. And, perhaps most critically, you have to be able to analyze disappointing results with rigor and detachment … not with defensiveness and emotion.

It never hurts to have an extraordinary leader, but it is important to remember that organizations are almost always more powerful than individuals, even extraordinary ones.

Innovation initiatives are difficult challenges and not all leaders are cut out for them. That said, if the organizational decisions are on target, then a leader that is merely above average can succeed.

We think it sounds expensive. Few organizations have 20% slack time that can be shifted to individual initiatives, and even fewer can afford to increase their human resources costs by 20% to create the needed slack.

But even more significantly, we worry about what actually gets produced with such an approach. It seems likely to generate a tremendous amount of activity on this side of innovation but nearly nothing on the other side.

With a bit of spare time, one person can dream up a big idea or two, but how can they do anything with them? It seems all too likely that the approach will create a mountain of great ideas on paper that never become anything more than … great ideas on paper.

This is a common statement that is frequently interpreted in a vague and exaggerated way. First reaction: If everyone’s job is innovation, then whose job is day-to-day operations?

The reality is that everyone can make contributions to innovation, but it is critical to set clear and specific expectations. Everyone can contribute ideas, and everyone can move forward with small innovations that improve their immediate surroundings. For bigger innovation initiatives, the work can’t possibly be shared equally by every employee. Some people have heavy roles (the Dedicated Team), some lighter roles (the Shared Staff), and some none at all.

During the current deep recession, innovation is both more important and more difficult. Innovation is the path to a strong recovery, but resources are scarcer than ever.

That said, the fundamental barriers to innovation inside Performance Engines have not changed and they never will. Companies have to learn how to simultaneously manage innovation and ongoing operations despite the inevitable conflicts between the two.

We simply looked for variety of industries and innovation types. Most every innovation story has valuable lessons embedded in it.

Through innovation, corporations can change the world. With that in mind, the case study that was most motivating for us was a story we wrote about IBM’s effort to build the world’s fastest computer, BlueGene. What was so inspiring was not the technology inside the computer but the applications for which it is intended. BlueGene will be used to push the frontiers of science. On the same computer, massive simulations will be run that will help us improve the health of our bodies (through biotechnology) and the health of our planet (through deeper understanding of the processes of climate change).

On this side of innovation, the alchemy analogy seems apt. The hunt for the breakthrough idea often leads in completely unexpected directions. On the other side of innovation, however, the analogy is completely off the mark. The other side of innovation is a learnable discipline that any company can master.

If anything, it is a “prequel.” This is the book you read first. Ten Rules was Innovation 201, The Other Side is Innovation 101.

Ten Rules was a specialized, narrowly focused book. It only tackled the most extreme, most aggressive innovation initiatives — high-risk, high-growth potential new ventures. The Other Side addresses all innovation initiatives — large and small, risky and not so risky, new processes, new products, new services, moves into adjacent markets, and entirely new businesses.

In October 2009, we published “How GE is Disrupting Itself,” co-authored with Jeff Immelt, Chairman and CEO of General Electric. In that article, we introduced the notion of reverse innovation. Quite simply, a reverse innovation is any innovation that is adopted first in the developing world. It is a rising phenomenon with potential to transform the global economy, accelerating the rise of those who understand it and vanquishing those who do not. We are now working on a book on the topic.