Thursday, May 12, 2022

Book Review: A new way to think by Roger Martin

 I'm lucky to have the opportunity to read and review a number of books in the innovation and strategy space, and I find many of the books have interesting insights or promote new ideas but often aren't overly actionable.  However, I've always found the insights of Roger Martin useful.

His book - Opposable Mind - is a great book about capturing and merging two disparate ideas or opinions to form new viewpoints, products or services.  New managers need the skills introduced in the Opposable Mind to learn to think more broadly and to combine what may seem disparate or opposing ideas.  It should be a book that all managers read.

A New Way to Think

But I'm here to review his latest book - A New Way to Think.  The book is positioned as a more holistic way to think about and build strategy.  Martin argues in many of the chapters that a number of our closely held beliefs about management are flawed.  He targets a number of key components and attributes in a business and helps illustrate how we should rethink our approach to concepts like culture, knowledge work, talent and more.  The question he asks is:  do your models and frameworks work, or are they limiting your thinking?  His assertion is that if an existing model or framework doesn't work, executives assume it wasn't fully or appropriately applied, and then they attempt to apply the same framework again, only with greater emphasis.  He notes that often, it's not the effort behind the model, but the model itself that is not effective.

Strategy - what's important is what will be true

For example, when writing about strategy, he remarks that "In strategy, what counts is what would have to be true - not what is true".  In other words, we often analyze strategy based on what the current market conditions are, who the current competitors are and so forth.  As a person who works a lot on trend spotting and scenario planning, I can't agree more.  When developing strategy, we forecast the company in the future and need to understand the operating conditions then - in other words deciding what must be true for success in the future, not what is currently true today.  Yet, most executives are very comfortable and well-read on existing conditions and competition and are much less comfortable with future conditions and competition, so the debate over strategy is about current conditions, which are less likely to impact the development and eventual roll out of a new strategy.

Knowledge Work - focus on projects, not jobs

Martin has another chapter on knowledge work, in which he points out that the vast majority of work today is knowledge work.  This of course is not new news, but the way he thinks about it is.  He points out that knowledge work is primarily project based - we create new knowledge and package or use new knowledge, almost always as a definitive project.  Therefore, we should organize around projects rather than functions or permanent jobs.  It's an interesting and valuable idea, if perhaps difficult to implement.

A compilation with great chapters

This book, as it is, is really a compilation of a number of HBR articles Martin has written over the years, and as such has some really great points and chapters, and some that in my mind miss the mark a bit.  The chapters on stakeholders, strategy and knowledge work are outstanding and have great insights and recommendations, while the chapter on innovation I found a bit unfocused and less valuable.

What the book does well is call into question a number of the management philosophies and theories that define how companies are structured, how they go to market and how and where they create value.  The ideas are very useful and coming out of the COVID pandemic and faced with new competition, unfamiliar market conditions (inflation) and other issues, it is probably time for a rethink of corporate strategy and structure.  I'd highly recommend the book and its insights and look forward to using it as a guide with my own clients.


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posted by Jeffrey Phillips at 4:26 AM 0 comments

Wednesday, February 23, 2022

Bringing innovation in from the cold

 I've been thinking a lot about innovation and it's "place" in a corporate structure.  Innovation is often so different, so unique and so unfamiliar that many companies aren't quite sure where to place it.  Does it belong with product teams, since some innovation is logically focused on new products?  Does it belong in a strategy organization, since innovation is often focused on growth?  Does it belong in R&D, since R&D creates a lot of new technologies?  Or does it belong in its own organization?  Where does innovation actually belong?

Innovation is like a wise but cranky old uncle that many companies keep up in the attic, out of sight, until the need is so great that they bring that uncle front and center of some of their biggest problems.  Or, innovation is a practice or capability that exists on the periphery or the edge of the business, in many groups and forms, without a coherent overall strategy or plan.  Even companies that have robust innovation capabilities or organizations are careful to keep innovation in carefully defined lanes.

It's time to bring innovation in from the cold, to the center of the organization, and embed it in the fabric, culture and practice of your business.  Honestly, most companies have some flavor or aspect of innovation floating somewhere in the electron orbit of the company, circling the nucleus, sometimes swooping closer and sometimes well out in an elliptical orbit.  What is really needed is to bring innovation into the nucleus, embedding it in the very core of the business.  What Prahalad and Hamel would have described as a "core competency", or what Drucker would have noted as one of the two functions of a business:  marketing and innovation.

Why is this so urgent now?

Why should innovation, a difficult horse to ride, become one of the most important ponies in the stable, one of the most frequently ridden?  There are more reasons than I can possibly list here, and none of them will be new.  None of them alone makes the case for moving innovation to the core, but the preponderance of all of them make the case for innovation quite compelling.  To whit:

  • The increasing speed of change in every business
  • The rapid increase in investment in science and technology and subsequent rapid adoption
  • The rise of truly global operations and competition
  • The reach of the internet
  • Customers who are constantly learning, absorbing new products and services and unsatisfied with what they have

When conditions were stable and change was slow, and barriers to entry were higher, innovation was an occasional need to solve a momentary problem.  Soon, and very soon, innovation will become a necessity, a core competency, and not just creating new products.  The real ability will be to innovate new products, and services, and business models.

What does it mean to bring innovation into the core?

A good friend - Paul Hobcraft - and I were talking about this topic recently.  He asked what I meant by saying innovation needed to be a core competency, and what that would look like.  Except I'm sure he said it more eloquently.  My answer was:  consider any executive or senior manager in a business confronted with a business challenge.  Today, they will reach for trusted methods, tools and people that are based on how the business operates, and those tools will focus on efficiency and current operations.  What's needed, and what will signal that innovation has become more important, is when any of these people, confronted by a business challenge, is comfortable considering innovation methods and activities as equally valid and potentially useful, and knows how to implement either an efficiency action or an innovation action with equal skill.

Currently, a lot of companies have a lot of programs that provide some aspect of innovation.  This could be a brainstorming group, an incubator, a market research team that conducts ethnography, an open innovation scouting team, or other innovation activities or components.  All of these companies can claim to be doing innovation, yet none of these activities is core to the business, or a core capability.  All of them are occasional activities and on the periphery of the business.  There, like the cranky uncle in the attic, if we really need them in an emergency, but not part of day to day operations.

Why is innovation on the periphery?

Innovation is out in the cold, out in the hinterlands, beyond the pale, so to speak, because most executives don't learn innovation in school, didn't require innovation to advance in their progression to the top, and view innovation as dark magic that overpromises and under-delivers.  And, since innovation is often conducted by poorly trained people who have limited time and budgets, their sense of what peripheral innovation can deliver is usually accurate.  

There's little that is more frustrating to the corporate practitioner who sees the value that innovation could bring than working against a management team, a philosophy and a culture that distrusts innovation.  In many firms, there is simply too much aggregate resistance to new ideas, divergent thinking, taking risks, experimenting and exploring.  And what so many corporations fail to understand is that these are exactly the attributes of companies that will survive in the new competitive, global, fast moving economy.

OK, so what?

Now, you could ask:  is it innovation that makes me fast, agile, adaptable and creative, or do I become more innovative if my culture and operations adjust to become more fast, agile and insightful?  This is an interesting chicken and egg question but it misses the point.  Companies now, and in the near future, must be faster, more agile, better able to use data and insight, more creative and more innovative to simply survive. These attributes aren't "nice to haves"; they are table stakes. 

The sooner you recognize that having fourteen little innovation teams on the periphery of your business doesn't mean that your company is innovative, the better off you'll be. It's more important to work to create a core capability and competency focused on innovation from the center out, if at all possible.  Few changes of this magnitude happen from the periphery in.  To do this, you need an executive team that not only acknowledges the importance of innovation, but invests in it,  You need a senior team that reinforces an innovation option at every decision point, a leadership and management team comfortable with the tools and processes of innovation.  Very few companies have the management team I just described, so getting started on changing the thinking and skills of senior leaders, and changing the culture and philosophy of your company is vital.  Do it now.  Bring innovation in from the cold.

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posted by Jeffrey Phillips at 1:48 PM 0 comments

Tuesday, February 01, 2022

The new pioneers

 Time was, a few hundred years ago, that a pioneer was a person who left the civilized areas and moved to new lands in search of a better opportunity or a new way of life.  When we in the States think of pioneers, we think of people like Daniel Boone, who led people into Western Virginia and then on into Kentucky to find new opportunities and new lands further west.

The reasons pioneers went west (in this case) were several.  First, the land near the coast was often very expensive and in some cases in the hands of aristocrats or wealthy families, passed down from generation to generation.  Even though the US was only a hundred years old, land and its value had the same connotations as it did in England.  Second, the coastal plan, and increasingly the Piedmont, was getting populated, and many pioneers wanted more space.  Third, by going further west, they could open up new lands and bring new settlers in, which would allow the pioneers to replicate some of the things that happened on the coastal plain.  The pioneers could be the landed aristocrats eventually.

The pioneers, however, as anyone who knows their history, were often violating the law (going beyond the Blue Ridge mountains) and encountering people who already considered the new lands their home and heritage.  The pioneers had to brave difficult mountains where there were no roads, and had to be relatively self-sufficient.  This meant they could plant their own crops, kill their own game, make and weave their own clothing and so on.

Thanks for the history lesson

The recap above is familiar to anyone who knows their history, or who watched Daniel Boone or Davy Crockett on television.  What's all this got to do with a blog that is nominally about innovation?

We are seeing a new opportunity for pioneers in the so-called metaverse, yet the pioneers entering and staking out claims in this new frontier are dramatically different from the pioneers of old.  We ought to stop and ask what's changed, and why it has changed.

New "pioneers"

There is a new "land" rush happening, and it is happening for perhaps the third time, in what is now called the meta-verse.  This isn't the first time that the phenomenon of virtual reality has raised its head.  I had the good fortune to work with a number of people almost a decade ago using virtual worlds like Second Life to solve problems in real time for corporate customers.  At that time, there were discussions about claiming a particular location in Second Life, or designing avatars or clothing, or earning money by designing virtual buildings or locations.

The concept of virtual reality has been with us for a while, and there have been several very good attempts to create a continuous virtual reality.  What makes this attempt a bit different?

Oligarchs

This new virtual reality is sponsored by a completely different set of pioneers - what I'll call the oligarchs - that is, Facebook (Meta), and a number of other companies who are salivating at developing a virtual reality that moves platforms like entertainment and gaming into a 3 dimensional platform that until now really wasn't achievable.  In earlier virtual realities like Second Life, much of the interaction was still done on a computer screen, so while you were represented by an avatar, you were still watching from an observer's perspective.  With the advent of low cost virtual reality headsets, faster internet and new computing platforms, we can now feel relatively completely immersed.

The problem is that the people and companies who are staking out the claims are the same GAFA (Google Apple Facebook Amazon and so on) that control much of the traffic (and advertising, and content) that is on the web.  In reality, their likely goals are to recreate all the earning potential of the web in the metaverse, and lock down advertising channels and other mechanisms to make money.

Early pioneers (the ones in the coonskin caps) had visions of making money but also seeking new lands, new opportunities and bringing people to a new place.  There were definitely speculators - including our first president - but there seems to have been a deeper, personal investment and less crass mercantilism.  Now, it seems, the opposite is true.

Why does it matter?

This all matters because the metaverse as currently envisioned will rapidly converge to the "web 4.0" without any experimentation or divergence.  We'll lose an opportunity to explore what the metaverse could be, and attempt a collective development.  Whereas the States are independent "laboratories" of democracy and learning, where differences can occur, I think the metaverse is likely to end up controlled by a few powerful corporations who will dictate how it works, and we will all have missed an opportunity.

The new "pioneers" in the metaverse have resources far beyond what any early pioneer could imagine, and far more technical advantage and control.  There is no patriotism or sense of manifest destiny, just another way to put more advertisements in front of eyeballs.  If this is what we allow the emerging metaverse to become, we consumers and participants will lose, and Meta and others will win, leaving us a little less engaged, a little more saturated with ads, and having missed an opportunity to explore what could be a much richer and more fulfilling opportunity.

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posted by Jeffrey Phillips at 6:01 AM 0 comments

Wednesday, January 19, 2022

Practical Innovation throughout the business

 One of the big challenges to innovation is that many people think of it as a big program, like implementing the quality programs of the 1980s, or rethinking everything, like the re-engineering programs and right sizing programs of a more recent vintage.  Thus, innovation is often "too big" and too disruptive, because it is seen as a platform change, or is defined too narrowly to create real results.

I happen to be a fan of the big, platform basis innovation programs, where an organization sets out to build innovation capacity as a core competency.  And, yes, in this light there is a fair amount of investment and some change required.  Committing to becoming a far more innovative company requires training people on the tools and methods, introducing more risk and uncertainty in the business and experiencing occasional learning experiences that others might call failures.

Every day innovation

There are, however, plenty of opportunities to introduce innovative thinking and innovation tools in a wide variety of ways throughout the business without a full scale platform change.  Many innovation tools and ways of thinking are scalable to a specific need and are reasonably user friendly, and often generate a tremendous amount of value for a small investment.  Today, I want to talk about using innovation tools, creative thinking and other factors in a more humble setting - less organizational change and platform implementation and more getting better in small ways across the business.

Service Excellence

Let me start with the idea of service excellence.  Many organizations are trying to improve their service to customers, partners and internal stakeholders.  There are a number of ways of measuring the service delivered, including net promoter score (NPS), so we often know where we stand in regard to the service we deliver.  There are plenty of tools and methods to help define service and what service excellence might look like.  But innovation and design thinking have something to offer here.

First, there is the concept of the customer experience journey.  This is a powerful tool that helps internal teams understand the customer experience from finding a product to acquiring it to using it.  A true service experience should consider the end to end cycle I've just described, and ideally will describe it from the customers' point of view.  The customer experience journey maps the steps from learning about a solution to acquiring it, using the solution, requesting support and deciding to retain the service or abandon.  Within each of those steps, the team considers what the customers' expectations are and how well they are being met.  In really radical cases, the company goes and talks to customers to get real world feedback about the journey.  Using this insight, we can begin to understand where in the journey we are meeting or exceeding customer expectations, and where we are failing to meet expectations.

In my experience, this tool introduces eye opening insights, because most organizations focus on services for customers where the company believes it adds value, but often the internal thinking and belief don't match what customers want or expect.  Many times we'll find that there is an over-emphasis on some portions of the journey and a lack of emphasis on other phases or steps that the customer prioritizes.

Using the customer experience journey, a tool from the design thinking and innovation toolkit, you can radically improve customer service and service excellence.  You can do so in the guise of service excellence, without bringing in the labels and anticipated risk or overhead of "innovation".

Doing more with innovation tools and thinking

This is just one example of where you can apply design thinking and innovation tools and frameworks to improve a process or activity that does not seem at all related to innovation.  Most innovators know that we can create projects to focus on service or experience innovation, but that may be too much change or uncertainty for your management team.  Knowing that the tools work, regardless of the label we place on the activity, can make for better insights and better outcomes.

What customers want

I'll turn to looking at a critical need - understanding what customers want - as another example.  In a large innovation project, we might consider the Jobs to be Done (JTBD) method, or Voice of the Customer, or Ethnography as a way to gather and assess needs.  I think these tools work exceptionally well, but they are often grouped with other "innovation" tools and seem risky.  So many teams proceed with surveys or focus groups and miss a lot of what customers actually want.

This, again, is a problem of context and labels.  Tools like JTBD, VoC, ethnography or the strategy canvas from Blue Ocean Strategy are all very easy to use and produce excellent results, whether they are part of a full-fledged innovation project or simply used to gather more insight into customer needs.  

Using tools that make sense for the problem or opportunity

It's too bad that too many of the tools and frameworks of creative thinking, innovation and design thinking are corralled and labeled as innovation tools, because that groups them into a risky and uncertain category, which means fewer people learn them or understand how to use them.

These tools, and plenty of other innovation tools and methods, can create real value in spot activities not attached to a larger innovation program.  The more people learn these tools, and see their value, the more the tools and thinking models will be used and become familiar, and then innovation itself won't seem quite so daunting.

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posted by Jeffrey Phillips at 1:31 PM 0 comments

Tuesday, December 28, 2021

Exploring the Executive Innovation Workmat with Video discussions

 Over the last few weeks, Paul Hobcraft and I have developed a series of short videos.  The purpose of these videos is to explore a tool that Paul and I created, which we call the Executive Innovation Workmat.  The Workmat is meant to help executives understand their role in innovation activities, and to identify the key attributes of a business that must be aligned and in synch for innovation to flourish.

You've perhaps read some of the material we developed originally about the Workmat.  You can see the Executive Innovation Workmat graphic just to the right.

Each of these sections represents a factor that needs to be understood and developed for innovation to thrive.  To build a really successful innovation capacity, all of these components must be fully developed and working together.

 

In the videos we've created, we explore why each factor is important to innovation.

Strategy - we discuss the relationship between corporate strategy and innovation.

Governance - we examine how to govern an innovation project, and why this work requires different governance models from other projects.

Function/Structure/Design - we examine the way innovation should "work" - design and processes - and why it is vital to focus on an innovation capacity.

Common Language/Communication - we look at the importance of having common definitions, common language and regularly communicating about innovation.

I think the videos allow us to explore each of these, and I think you'll find them helpful if you are starting to build an innovation capacity, or trying to improve your innovation activities or outcomes.

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posted by Jeffrey Phillips at 7:56 AM 0 comments

Thursday, November 11, 2021

Building a lasting innovation capability

 I've been asked a number of times, by companies large and small, how to create an innovation capacity that lasts.  This is a really interesting and important question, with a distinction.  Note that what my clients are asking for is to create an innovation capacity that outlasts a product need, or market gap, or executive team member.  After all, most (probably 90%) of all innovation projects undertaken in large corporations are reactive projects trying to respond to a market threat or competitive move.  In these cases, innovation is a one and done activity, in order to respond to a new product or service, and aren't meant to be retained in the culture or processes or consciousness of the organization.

So, how do you build a lasting innovation competency in any business, of any size?

First, make innovation important to the CEO and the executive team.

If innovation isn't important to them, or seems like a distraction from day to day operations, then you can't do the real infrastructure development you are going to need to do.

  • How do you make innovation important to an executive team?  Most of them already say that innovation is important.  You need to demonstrate that innovation is not "a" strategy, but is a way to accomplish strategies - growth, differentiation, new line extensions and so on.  In fact, every strategy, every business and every product should have an innovation component.
  • Demonstrate that innovation can be purposeful, and managed through a process.  This reduces the risk of innovation and increases visibility
  • Introduce the idea of innovation portfolios and the need to innovate across the three horizons.  A company needs to make reasonable bets across the incremental, transformative and disruptive horizons in proportions that make sense based on competition and speed of change.
  • Demonstrate that innovation depends on finding the most innovative people, who by definition are rarely the more efficient people.  Efficient people run day to day operations really well and defend those products and practices.  Innovative people wonder why we aren't doing better or something new, or why we are sticking with these products long after they've been superseded in the marketplace.
  • Tie their compensation to innovation goals.  For example, you could tie their bonuses to the number of products less than 2 years old generating revenue.

Next, focus on the corporate culture. 

In reality, you should work on culture first, since the culture will be around long after the executives that start the innovation effort will move on or retire.  The average time an executive is in a role in a corporation is about 3-4 years, and significant cultural change will take much longer.  But no one will want to start all of this work focused on the culture without other changes in place that can move more quickly.

Culture is as powerful, and lasts longer, than any executive tenure, market depression or other factor.  If you have an innovative culture, deeply embedded, it will respond to any adversity.

  • How do you create a corporate culture that embraces innovation?  It actually isn't hard, just takes a lot of time and discipline.  Most cultures are like Newton's first law.  They are at rest and want to stay at rest.  Change is always difficult, and changing factors like informal decision making, beliefs and attitudes, risk taking and other factors is more difficult because it requires buy in at all levels and constant reinforcement.
  • Create a burning platform - let the company know that the existing culture - while it got you to where you are - isn't what will take you to the next level and opportunity.  Create a reason to change the culture and get people to buy in to the need for change.  Let them see "what's in it for me"
  • Show them a future vision of what the company and it's culture should be (these last two bullets are classic change management)
  • Change how people are compensated, measured and rewarded.  Today, very few companies measure or reward people based on innovation activities or outcomes.  If it is important, it will be expected, measured and rewarded.  This can go as far as incorporating innovation measurements in an annual review, requiring evidence of innovation work to get promoted into new roles.
  • Talk about innovation, communicate constantly at all levels, and follow up the communication and talk with action.  Too often, companies participate in what is known as innovation theater, where executives talk about innovation but little actually gets done.  Executives need to talk about innovation, but also engage in innovation, check in with direct reports, better yet, go do some innovation work.
  • Make it easier to take risks, to experiment, to test ideas and hypotheses.  Reduce barriers and encourage more risk taking, more experimenting with new ideas, more prototyping. 
  • Extend innovation work broadly throughout the organization - don't pigeonhole it in R&D.

Next, find the best people to do innovation work and give them the skills necessary to lead and conduct innovation projects.  

There are plenty of ways to find people who are really good at day to day operations, and those folks are vital.  There are also ways to find people who are good and passionate about innovation, and many times the Venn Diagram of these two segments leaves little in the middle.  Put the right people in the right jobs, and give them the training and development they need to do good innovation work.

  • How do we find people who are good at innovative work?  There are a number of assessments (FourSight, KAI, some Myers-Briggs, my own Innotraits assessment) to help discover who is more likely to be a good innovator.  Rather than choose people that are trustworthy or have delivered in the day to day model, take time to find the most passionate, most capable and most motivated people who can lead change.
  • Develop real training to build skills.  By now, everyone in your organization knows how to do lean, agile and six sigma.  They have been trained in all kinds of tools and processes, but have little to no training in creativity, trend spotting, synthesizing various data points to create a new vision of the future, understanding customer needs or the customer journey, good idea generation, prototyping and so on.  Innovation is challenging and complex, moving from a very nebulous world of trends and needs and emerging capabilities to a very definitive set of features and requirements.  This process requires skills that are not being developed in the educational system or in corporate training.  
  • Develop a process or at least define a consistent set of tools.  I am a firm believer in defining a fungible innovation process - a set of steps to help ensure that innovators complete a set of activities and learnings before they recommend an idea.  We do best what we do regularly, so innovators need consistent methods and tools just like anyone in any other business process.

 
 The difference between one off projects and building an innovation process

So, you'll now see that the difference between an innovation project and building a process is a difference of degrees.  You'll need to do much of what is listed above to conduct a reasonable innovation process, but if you don't plan to make it permanent much of this can be stood up and executed and then folded away in little time, with little impact to the organization.  Building an innovation competency requires more investment, more impact to the organization and something that sustains this capability, which requires more time and energy from executives, a consistent budget and incorporation into strategy.

The real challenge in what I've written is in culture.  You can find great people, have great leadership, have some interesting innovation processes or tools and do innovation occasionally if the culture will alllow it.  You can have all of those things and do little or no innovation if the culture has enough resistance.  You can fail on many of these aspects and still do innovation if the culture expects to do innovation and embraces the risk.

Why is so much innovation work so temporary?

It's difficult to build an innovation capacity that lasts, for a number of reasons.  Much of the "memory" in a company is based in its culture, and culture takes time to build, and time to retrain.  We all know this, either instinctively or because we've tried to change a culture.  If your culture is not tuned and ready to embrace innovation, you will at best succeed with a few disparate innovation projects, mostly manned by people who are comfortable overcoming the resistance.

Executives can help, but are also a bit helpless.  They know that innovation is important, and realize that innovation requires a supportive culture, but most executives are in their roles for such a short period of time that they can't create the amount of change necessary to sustain innovation.  They aren't to be faulted for focusing on shorter term innovation projects or other work.

The better answer is that building a true innovation capacity takes funding, commitment, engagement from a succession of executives, and a culture that embraces innovation. 

 

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posted by Jeffrey Phillips at 11:12 AM 0 comments

Wednesday, November 10, 2021

The great GE innovation experiment

 GE, once a large conglomerate, has announced that it will divide itself into three companies, a healthcare company, an energy company and an aviation company. There are a few things I'd like to comment on about this announcement, but what is really interesting (at least from an innovator's point of view) is that we get to have a live experiment about the innovation capabilities and capacities of three sister businesses, all entering the market at the same time. 

Here are a few things we can learn:

  • We can discover if being relieved of corporate overhead really matters to the individual businesses. 
  • We can find out if the three companies become little GE corporate clones or pave their own way.
  • We can also find out which leaders will adopt innovative measures, and change the cultures of their businesses, and which will "stay the course".

A word about the change in the marketplace

But first, as the advertisers used to say, a brief word about what this calving of a behemoth into three still very large companies says about the market and competition.  When the pace of change was slower, and change was more predictable, getting to economies of scale and growing a conglomerate made sense. This "history" as I am describing it, takes place in the 1950s, 1960s and 1970s, and probably began to end in the 1980s. As change accelerates and there's an increasing need to be agile or nimble, getting smaller and faster is key. As several commentators have noted, the future belongs to the fast, not the large.

If you needed evidence that competition, the pace of change, the need for agility and new business models is creating profound change, look no further than the house that Jack Welch built, which is being broken down and sold for parts.  All business must be fast, agile and innovative.

This division of the company is meant to make the new, smaller companies more focused, faster and more agile.  The question in my mind is:  what do they change?  Do these firms retain their existing processes, decision making models, org structures and so on, and hope to get more done with less cost?  Do they strive for greater efficiency, or do they dramatically rethink their cultures and become more innovative?

An experiment, hosted in real time

Scientists long for such a naturally occurring and easily observable experiment.  We've got a doozy.  Three new companies will be launched from the mother ship of GE.  They will bring with them the same people, the same products, the same culture as they had when they were operating divisions within GE.  They will also bring along existing decision and risk models, investment models, hiring structures and policies, pay scales, and more, as a legacy of the GE mothership.  In other words, they'll bring along the existing leadership and the existing corporate culture.

The folks who are the leaders of these businesses will (probably) remain the same as they were when launched, so the executives aren't likely to change dramatically.  This means that we're likely to see one of a few scenarios:

  1. The individual businesses reform themselves as mini-me's, built and organized and operating like GE did previously, with the hope that the GE brand and historical power, and some operational improvements are what is necessary to succeed.
  2. The individual businesses double down on efficiency, now that they no longer have to pay the corporate tax.  They strip down and operate as efficiently as possible, using lean practices and six sigma guidance (already well embedded) to improve operating margins.
  3. The individual businesses decide that scale is the only way to play, so they go on an acquisition binge.  It would not surprise me to see one or more of these businesses attempt to get bigger faster, since that too is a legacy of the GE business thinking.
  4. The individual businesses attempt a radical rethinking of how they work and operate in their chosen industries, and aim for more growth, driven by new products and services powered by innovation.  This will require the most radical change, since it attacks the decision making, cultural and risk factors that the organization may want to cling to from the mother ship.

The experiment we'll all watch is:  what works?  Getting smaller faster?  Getting larger through acquisitions?  Trying to become more innovative?  While I realize that the different businesses are in different sectors and therefore the competition is not the same, it won't be difficult to understand the decisions that the executives make, and see the results that occur.

What does Wall Street want?

My bet is that there is a lot of institutional pressure to grow margins, but these new companies aren't working in greenfields.  They are going up against established competitors that have competed with GE for years. Many of their competitors are much more aligned to their industries than GE as a whole was, so the competitors are more optimized to compete, and may make reaching for cost gains difficult, even without the GE corporate tax.

Michael Treacy built on Porter's work to argue that there are three interesting competitive positions:  product leadership, operational excellence or customer intimacy.  Which will the three companies choose?  The bias will be (I think) for operational excellence, since much of that is in GE's DNA, and cultures are difficult to change.  For some of the businesses, customer intimacy could be an option, but this avenue adds cost and changes the dynamic with customers.  Product leadership (the strategy most closely linked to innovation) seems possible but perhaps the most difficult to justify, especially in the short run, as there will be a lot of pressure on the new CEOs to demonstrate strong margins and to raise their respective stock prices.

Which matters most - executives, strategy or culture?

The final item that will be interesting to watch is to determine which matters most - the leadership and executives and the direction they want to go, stated strategies and how they are implemented, or how much of the legacy culture remains in the smaller businesses and how much resistance these cultures present to any change.  My bet here is that it will be difficult to change the culture, and only committed executives who are willing to create a burning platform and regularly engage with their teams will move their cultures.  And with a background and culture like GE's, it will be difficult to change, but I think necessary to change.

All in all, a very interesting experiment to watch, one in which we may witness several different strategic directions from the different corporate "sisters".  

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posted by Jeffrey Phillips at 12:52 PM 0 comments