Thursday, August 23, 2012

Lock in perspective defeating innovation

I'm just back from two weeks in Shanghai, leading innovation workshops for several firms.  My first trip to China and I hope to return.  There is clearly a lot of innovation underway in China, as businesses grow and expand, and begin to innovate not just for western markets, but also for the local market.

But I experienced in one workshop something that I have begun to call the "lock in" mentality, and this experience is not isolated to China, or to a specific business industry or function.  What happened is this:  when asked to imagine a disruptive innovation, people respond by talking about cutting costs 10% as opposed to 5%.  When asked again to stretch their thinking, participants talk about growing revenue from existing products by 5%.  After a range of creativity exercises, divergent thinking approaches and some disruptive tools and techniques, the ideas aren't stretched any further.  While everyone in the room will admit that new ideas that stretch the market, or disrupt an adjacent market are critical, every idea is incremental at best.  There's a huge gap between the need for interesting, disruptive new products and services and the willingness to generate even ideas about disruptive products.

I've called this the "lock-in" effect.  Unintentionally, many teams have simply not allowed themselves to think creatively or expansively.  Every idea starts from a very cramped view of what is "possible" within existing decision making, funding and resourcing.  Even these cramped, incremental ideas get watered down as time pressures, competing initiatives and other factors chip away at marginally interesting ideas.  The "lock-in" effect is deadly, because it is so insidious and so difficult to overcome.  Rarely has training felt more useless than to introduce a disruptive thinking technique and a methodology for accelerating interesting ideas to teams that simply cannot comprehend anything more than simple incremental innovation.

Need incremental and disruptive

This phenomenon is not based on an inability to create interesting ideas.  When pushed, most teams can create interesting ideas.  There is inherent creativity in every individual and in every team.  What stymies the thinking is the incredible pressure to perform, to deliver, on an every decreasing timeframe and cost basis.  While people may be willing to consider interesting, even radical ideas for a short period, they immediately revert to what is "possible" in their minds.  This is one side of the gap between what executives want and what businesses deliver.  Executives want both steady earnings and profit growth which comes from incremental innovation AND differentiation and market disruption that comes from disruptive innovation.  Any firm that is not constantly innovating is watching its margins and market share erode.  Yet the demand for disruptive innovation that drives new revenues, new profits and new market share is often heard and dismissed, because of the overwhelming pressure to deliver in the short run.

Locked in

The majority of people in any business are locked in to a way of thinking, a set of perspectives.  Even if they want to innovate, even if they believe innovation is possible, and even if they believe their ideas are valid, they wait for approval, they focus on the short term and they trust in what is possible.  Increasingly, the lack of risk taking, the absence of experimentation, the reduction in headcount is paying dividends in the way people think and respond.  We've managed to train an entire generation of managers to worry only about costs, and many are slowly starving their businesses of any innovative ideas.  They are so locked in on the quarterly result, on eliminating waste and inefficiency, on Lean, on right sizing, on making the numbers that they've lost sight of what will sustain and grow a business over the long term.

Their perspectives are so cramped that many cannot think about next year, let alone a 3 or 5 year window.  But what they fail to realize is that the pace of change in the outside world is far faster, and is accelerating.  While lock-in may work internally, it competes with an ever-accelerating external market.  Strangely, while product lifecycles are growing shorter due to increased competition and market expectations, internal product development timeframes are unchanged, or getting longer.

Locking the market to your ideas

Businesses don't control the market, and our timeframes, perspectives and priorities don't matter to the market.  Rather than define a drumbeat that means we are constantly playing catchup to the market, rather than lock in attitudes and perspectives focused on short time frames and risk reduction, we should try to work ahead of the pace of the market.  For too long many businesses have attempted to react to the market, and that game is about up.  Increasingly, it's time to shift your thinking and perspectives to become far more innovative and expansive.  You simply cannot react fast enough to shifting market conditions to remain relevant - you have to anticipate or even create the new market conditions.  This is what Apple actually does best of all - constantly forcing firms that are slow to react to have to shift to a completely different competitive landscape before they've caught up with the last new platform.  Rather than lock into the market, force the market to lock into your ideas.

Risk

Oh, but that's risky you say.  Trying to influence the market with our ideas and new products is risky.  Well, so is your current operation of slow, incremental innovation which appears less risky in the short run but leaves your team with nothing new to provide to the market in the medium and long term, and leaves your team sprinting to react to any new shift in the market or new market entrant.  There's another risk of lock in as well - you begin to believe you understand the market and can react to it.  This is perhaps the biggest risk of all.  Rather than constantly understand the market, you believe your perspective of the market is accurate and that they market thinks like you do.  The market is nothing if not unpredictable, and global economies and market conditions should tell you that more shifts are coming, more rapidly and in different directions than you can possibly understand, predict or react to.  While your locked in strategy is working in the short run, it is increasingly lulling you into an exceptionally false sense of security.  Soon you'll be innovating, but out of a sense of panic, rather than a sense of insight or opportunity.

Eliminating Lock in

How can we eliminate lock in?  Lock in is caused by cramped viewpoints, overconfidence in existing strategies, a focus on cost reduction and risk reduction rather than new product creation and a false sense of the stability and predictability of the market.  Lock in is a cultural phenomenon, linked to how people are rewarded, the amount of risk that is tolerated, the long term vision of the company.  This means lock in has to be changed by executives who create a new storyline for the company, one based on growth and differentiation, rather than survival and 90 day increments.  Executives have to demand innovation, yes, but constantly review results and reward successes.  They must define more expansive goals - perhaps measuring revenue from products less than 3 years old as an example.  They must encourage more risk taking and more expansive thinking.  They must promote people who take risks and drive new innovations.  Innovation is not an activity but a cultural phenomenon and a belief system.  Only when these kinds of actions and beliefs are reinforced will you be able to overcome the locked in resistance to interesting innovation.


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posted by Jeffrey Phillips at 5:23 AM

3 Comments:

Blogger Ed Eppley said...

You have hit a virtual "grand slam" with this post. You identify not only the symptoms but most of the causes that trap so very many managers and companies.

9:20 AM  
Blogger StephenSchu said...

Have you read the book "Create Marketplace Disruption: How to Stay Ahead of the Competition" ? That book provides the complete description of why and how organizations create Lock-in, and how to overcome it. I feel like you should give credit to the author of that book for the prior work you summarized in this blog post. In fact, the author's weekly blog refers to Lock-ins all the time - http://www.ThePhoenixPrinciple.com

11:17 AM  
Blogger Jeffrey Phillips said...

Hi Stephen.

I don't ordinarily respond to comments but I wanted to let you know that I was unaware of the book you mentioned or that the Phoenix Principle regularly discussed the concept of "Lock in". Interestingly, many people can simultaneously notice the same concepts without becoming aware of the existence of each other. Thanks for letting me know about the Phoenix Principle.

6:25 AM  

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