One of the ongoing questions in my mind is why large companies have such a difficult time managing disruptions and, as a consequence, why the average tenure of companies on the Fortune 500 has now decreased to 10-12 years. My thinking around this question got triggered recently, when I received an email in response to a talk I gave at a large company. Historically, this company has been extremely successful, but more recently it has fallen on hard times. My talk was intended to re-energize the employees and shift their focus from the recent not-so-bright past to a promising future.
Below, you’ll find the email (anonymized and shortened to protect the individual and the company). I am sharing it because I think it summarizes quite eloquently the challenges that many of the large companies that I work with struggle with.
Thank you so much for your talk today at our company! It was very inspiring to see what direction your thoughts and research have taken. I can relate to many of the points you made. You put words to many of the thoughts that has been in my head the past year. If you have time, it would be very interesting to have chat about how to create an innovation culture in general and at our company in particular. My apologies for the lengthy email. I realized I had a lot of thoughts in this area. I am very interested in your view, but I fully understand if there is no time to read it through.
The past year has been a journey for me, where I have had the opportunity to think a lot about strategy, innovation and leadership. I started a business program and at the same time, I was very lucky to meet some very inspiring leaders. The more I have learned the more lost I feel. I look at my work surrounding and I compare what we do with the surrounding industry. I keep hearing “We have managed many crises before, we will handle this one too” and then we do as we always do. Don’t misunderstand me, I really feel for my organization, it is an amazing company and has achieved great things and I can fully understand that we are in a red alert mode and that things might get wrong when you are panicking. No matter how much I think about, how much I read, how much I discuss with others, I cannot change the uneasy feeling inside of me saying that we are doing things wrong.
You are an evangelist for new ways of thinking and you are a very important authority at my company. Your words are echoed many times in internal discussions. However, I feel that the very core that needs to be changed is rather untouched – our leadership culture. I am a strong supporter of servant and transformational leadership. I can see that very many first line managers are trying to be that too. However, middle management and top management seems to be more transactional leaders. This creates a large conflict in the organization, with a notion that we need to innovate but we are not allowed to fail. Somewhere, the basics and fundamentals seem to have been lost. If we want an innovating organization, we need to be allowed to fail. If we want our engineers to come up with crazy ideas, they need to understand the problems and the bigger picture. For me it becomes so incredibly clear that the view of our employees needs to be changed. We can no longer regard our employees as a cost on an excel sheet and instead see them for what they are, our most important asset. We need to live our core values and show them the respect they deserve. It might sound judgmental, and that is not my intention at all. For me this is the consequences of the decisions that has been taken. Everything, such as the choice of organizational structure, incentive programs, different roles, leadership trainings, C-level nominations, etc., promotes certain behaviors and builds the culture. Given what I see, I feel a considerable uneasiness. I sense a large mismatch between what we say we want and what we actually do. The more I think about it the more alienated I feel. Do I see things that others don’t see? I am not particularly intelligent or very experienced, so I start doubting my own conclusions/insight. Why don’t I hear these kind of discussions more often?
First line managers and developers seem to agree with the that innovation is important and it calls for another leadership style. However, at second line management level the agreement with that statement seems much weaker. During the last re-organizations it seemed that managers considered too radical were removed, especially those having the most progressed thoughts about leadership and how to encourage empowerment and innovation. What I see, is a strong force of conformity. What is different seems scary. A manager sticking out too much is not conforming to the expectations as a manager. A small variant of the classical “Jonathan Livingston Seagull” syndrome. In times of distress and panic like now, this behavior is enforced even further. Embracing the different is seen as a risk and the current focus is to minimize risks. From a sociological perspective this is very natural, we tend to like and choose persons that are similar to us, persons that do not deviate too much from how we are. For me this becomes very myopic and somewhat a vicious circle. I hope I am missing something. We seem to have a culture and structure that try to counteract cultural changes and maintain the status quo.
I feel that in order to create an innovation culture at my company, we cannot do that bottom-up. It needs to come top-down, with an enormous buy-in from corporate management. Having Peter Drucker’s “Culture eats strategy for lunch” in mind, I realize how incredibly difficult that is. At the same time, the overall principles of human nature, human organizational and leadership behavior is not unique to my company. As far as I know, we do not belong to another species ;). Is it at all possible to transform a company from a traditional form into an innovation company within reasonable time? Or are traditional companies doomed to succumb to disruption?
Do you think it is possible to shift my company’s prospects without fundamentally addressing our corporate culture and financial strategies? Are we right now just scratching the surface? Or are we actually doing something big without me realizing it? What are your thoughts? What are your view on other companies? Are other large corporations more innovative than us? If so, what differs them from my company?
This email summarizes the key challenges that I see in many large companies. First, companies want to innovate, but innovations are not allowed to fail and individuals are punished for trying things that don’t work out. Obviously, the vast majority (90%+) of innovations fail in the companies that I have worked with, so not accepting failed innovations is the fastest way of killing initiatives by your people.
Second, for all the talk about embracing diversity, many companies, especially when things get difficult, seem to become increasingly homogeneous. People, especially in management positions, become more concerned with mimicking the behavior of the most powerful managers rather than following their own beliefs and insights. The hierarchy becomes a structure that reinforces the qualities and weaknesses of the top dog.
Third, as the margins fall, the focus increasingly shifts towards delivering to customers and cost reduction efforts. In part this is a, largely subconscious, desire to return to the past where the company was successful and to reduce uncertainty, but also by economic realities: to keep the stock price up and the owners happy, the company has to generate cash.
Finally, many large companies are run by bean counters and numbers people. That works fine in a stable environment where the focus should be on optimizing the last bits out of the business model and R&D process. However, it works terribly in fast changing and disruption-heavy markets. There we need product people in the lead that understand the various things that engineers try out, understand that the majority will not work out, but that still have the benefit of educating the company. And that have the vision to identify those new innovations and product ideas that will drive future revenue.
The traditional model of innovation was that the R&D organization gets optimized for efficiency and the innovations come out of the research lab. That model is now fundamentally flawed. In my experience, the research labs are only concerned with filing patents and all the simple, repeatable R&D work is automated or outsourced to low-wage countries. The role of the R&D organization is to innovate and build new businesses. No matter what the general management of the company may believe and controversial as it may sound, the real business strategy of any company is developed by R&D.
The interesting thing is that I still have to meet the first person who disagrees with the points above on a conceptual level. The challenge is that operationalizing this when the company is in trouble is surprisingly hard. All the decisions taken by managers, from the most senior levels all the way down, are individually correct or at least defendable. The problem is that the combination of all these “rational” decisions puts the company in a vicious cycle where things get worse continuously.
To get out of the vicious cycle and into the virtuous cycle requires leadership. The kind of leadership that shows the non-obvious direction, that explains why doing things the way we did is wrong and that keeps the company from clinging to its comfortable past and gets it to embrace the uncertain future so that the company can create its own destiny, rather than waiting for others to disrupt it.
Making this real, in any company, however, is terribly hard and I’d love to hear about your experiences! Please share in the comments or contact me at firstname.lastname@example.org.