Tuesday, October 23, 2007

In the CEO's shoes

I've struggled for a while to understand why there is so much positive talk about innovation from senior executives and so little direction and follow up provided to their staff. I constantly see announcements in the press and interviews from CEOs about the importance of innovation within firms that I know aren't funding any new innovations or ideas, that are in fact almost hostile to innovation. So I decided to place myself in their shoes, in the "walk a mile in his moccasins" theory.

If I am a CEO of a large corporation under attack by US competitors, foreign competitors and startups, I want to protect my position. I can do that by: 1) creating really interesting new stuff or 2) building walls to protect what I've already accomplished. The best way to create new stuff is to innovate. The best way to protect what I've got is to drive others out of the market or find other defensive positions.

Innovation is interesting, but very risky. Wall Street demands that I at least seem interested in innovation, so I will talk about it quite a bit. However, innovation requires significant investment and change, and my organization isn't too good at either. If we spend a good deal of time innovating, we may take our "eye off the ball" with our existing products and services and anger our customers. Also, innovation requires a lot of risk - what if we make some big investments and they miss the mark?

Defending an existing position is easier and safer (it appears). We'll add to the marketing budget to tell people why our widget is better than the other widget. We'll seek to cut costs by outsourcing production. We'll implement lots of continuous improvement processes to squeeze out costs. We'll lobby Congress to raise import restrictions and demand greater equity from overseas competitors. After all, if we put in place a cost reduction program, and can just hold on to existing market share and margins, profits will increase.

If we invest in an innovation initiative, we'll either succeed or fail. Success is problematic - the markets are uncertain, risks are high. What if we enter the market too early or too late? A small mistake in innovation can cost us dearly. However, even a big miss on cost cutting still results in some lower costs, most likely without a huge investment.

So, our strategy will be: externally, talk about innovation and its importance to the firm. Point out past successes that we can identify as innovation. Indicate vague plans for new products and services that are in the pipeline. Perhaps even name an innovation leader. Internally, work like crazy to outsource, cut costs, eliminate risks, become more "lean". For the internal staff, we'll implement Six Sigma and call it "innovation". After a year or so the focus on innovation on Wall Street will go the same way as SarBox or some other management fad, and we'll be OK.

Now, if only someone could help me get this @#$ iPod to work with Google...
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posted by Jeffrey Phillips at 5:30 AM


Blogger Paul Williams, PMP said...

Are you working in the cube next to me? ;-)

10:34 AM  
Blogger Oopala said...

Jonathan Swift would enjoy reading your piece, but there's entirely not enough references to eating babies. I like to call what you discuss "faux innovation" which is the wafer-thing veneer applied liberally to a pile of brown malarkey to keep things looking rosy, even when they stink to high heaven. I cross-posted on your piece to http://blog.innovators-network.org The Innovators Network is a non-profit dedicated to bringing technology to startups, small businesses, non-profits, venture capitalists and intellectual property experts. Please visit us and help grow our community!

Best wishes for continued success,

Anthony Kuhn
Innovators Network

4:43 PM  
Anonymous Anonymous said...

It all depends on how much risk you are willing to take. Of course, you have to protect and maintain whatever it is your company has already accomplished so far. Many people feel that when things are going quite well, there's no reason to rock the boat. On the other hand, if you have nothing to lose, introducing an innovation seems to be the best way to go.

3:40 AM  
Blogger Dr. Lauchlan A. K. Mackinnon said...

Hi Jeffrey,

I think that the other part of the logic(which I am sure you address with CEOs) is that doing nothing is also risky - their competitors move ahead with new products, services, and markets. If the question is managing risk, the best approach is to find a way to innovate effectively and repeatably.

7:03 PM  
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