Is the great paradox in managing innovation a red herring?
The paradox in managing innovation is the difficulty–if not
impossibility–of simultaneously having an efficient organization and an
innovative one.
Organizations must perform efficiently to survive and thrive in
their current environment, but they must also retain the ability to
adapt should the environment change. The tension is between adaptation
and adaptability, between exploitation of current resources and
opportunities and exploration for new ones.
A red herring is a device (literary, academic, or otherwise) that is
“laid across the track” to divert or distract people from solving a
problem directly. Like this definition.
Our obsession with the tension between the wild and crazy side of
innovation and the button-downed nature of ongoing operations is
distracting us from one of the more real problems in managing
innovation.
A recent article on 3M describes the “struggle between efficiency
and creativity” that is represented by their recent CEO succession.
James McNerney came to 3M from GE, and brought with him Six Sigma, the
efficiency program GE made a standard management practice in the 1990s.
McNerney cut costs and improved margins:
The plan appeared to work: McNerney jolted 3M’s moribund
stock back to life and won accolades for bringing discipline to an
organization that had become unwieldy, erratic, and sluggish.
But, as the great tension would suggest, the plan came at a steep price:
At the company that has always prided itself on drawing
at least one-third of sales from products released in the past five
years, today that fraction has slipped to only one-quarter.
The author and a host of academics then lay bare the tension:
Those results are not coincidental. Efficiency programs
such as Six Sigma are designed to identify problems in work
processes—and then use rigorous measurement to reduce variation and
eliminate defects. When these types of initiatives become ingrained in
a company’s culture, as they did at 3M, creativity can easily get
squelched.
The tension here is clearly between exploring for what you don’t
know (the protagonist) and exploiting what you already know (the
protagonist). Between color and light, and drab routine.
The terms exploitation and exploration harken back to the oil
companies who used to have (and had to have) two separate divisions.
One division was responsible for exploiting existing fields, in which
productivity was measured in barrels/day and $/barrel, and improvements
could be proposed and tested with relative confidence. The skills of
exploiting were disciplined management, analysis, and the routinization
of work.
But wells inevitably dry up and market demands grow, so oil
companies also needed a division that continuously explored for new oil
fields. The skills of exploring for oil were independence, risk taking,
intuition, and an ability to live out of a suitcase.
This tension was immortalized in the organizational literature by
James March, one of the founding fathers of the field, in a brief 1991
article entitled “Exploration and Exploitation in Organizational
Learning.”
There are profound differences, however, between searching for oil
and developing a firm’s next new products or strategies. One of the
biggest differences is that, when oil is discovered, there is little
doubt that it’s oil, that the organization is capable of exploiting it,
and that it will contribute to the bottom line in some way at some
time. This is more akin to discovering a warehouse of widgets just like
the ones you’re already selling. Regardless of whether you drill 6
wells or 6,000, if one of them is a gusher nobody debates whether this
will cannibalize existing markets, not work at all, distract from our
current focus resources, etc…
I can’t recall a single innovative new product that was obviously
and unambiguously valued in it early days by the organization. So there
is more to innovation than simply exploring for new ideas.
What is missing is a very significant step that lies between
innovation and operations (between exploration and exploitation):
execution. At least, that’s what I would call it. It’s the process of
converting an idea, even a prototype, into a set of resources,
procedures, metrics, and marching orders that can enable an
organization to effectively replicate, scale, and manage the new
venture.
I move around in the worlds of design and innovation and have met a
lot of wildly creative people. Having good ideas is actually pretty
easy for them. I also work with a lot of smart people in operations,
and knowing how to ferret out problems, reduce variability, and manage
others to task comes pretty easily to them. The challenge is in how
these people work together. Good ideas only help the company to the
extent they can be routinized–exploiting the exploration.
The big challenge in managing innovation lies, I would suggest, not
in building up two very strong skills in innovation and in operations,
but rather in building the bridge between them–of developing the people
and processes that facilitate the routinization of novelty. Of turning
good ideas into practical processes that the larger organization can
value, adopt, implement, and manage.
Forget 3M–think about Toyota. They are leaders in manufacturing
efficiencies and also at exploring the new frontiers of innovation
automobiles. How have they managed the tension? Read any number of
books on them (but the original Machine that Changed the World
remains the best read) and you find that they are extremely effective
at recognizing those ideas that can be routinized and doing so before
their competition. Sometimes decades before. Consider the Prius. Ford
and GM had many of the same technologies lying around R&D, but
having the ideas is not the same as converting them into manufacturing
routines, processes, supply chains, and ultimately customers. That’s
execution.
With the obsession between innovation and efficiency, the skills to
execute–and the people who have them–are being largely ignored in
modern corporations. And certainly ignored within business schools.
Which is a shame.
