Dear Corporate Executive,
You should be commended. You decided that your business needs innovation and you’ve taken action to make it happen. You created an innovation team, you set them up in a funky office, you gave them all the Design Thinking, Lean Innovation, and Disruptive Innovation books and articles, and you have left them alone to make sure that they aren’t infected by the corporate antibodies that plague those working on the day-to-day business.
But nothing is happening.
Or maybe something is happening but it’s not what you need or want.
You are frustrated.
Your team is frustrated.
This is not going well and if the team doesn’t turn things around, you’re shutting it all down. After all, you have a business that needs your attention and management and if you don’t keep your eye on that ball, there won’t be a future for the business.
I understand. I’ve been there. Lots of leaders have been there.
And you’re right, something does need to change.
And that change starts with YOU.
As a leader in an organization, there are 3 thing YOU must do in order to have a chance at innovation success. YOU need to do these things because only you have the organizational authority, influence, and power to make these decisions and support and defend the actions required to deliver on them.
Note that I use the word “chance.” Doing these 3 things is not a guarantee of success but, I promise you, NOT doing them does guarantee failure
Talk about what Innovation will enable, not just why it’s important
Your innovation team knows that innovation is important, they desperately want to do it, and they’re working hard on it. But they need direction and the rest of the organization needs to know why the team is doing what it’s doing and why you’re giving them the resources.
Doing this requires that you go beyond explaining why innovation is important. We all know that innovation is essential to an organization’s long-term success. We also know that we should eat 5 servings of vegetables a day and floss twice daily. Knowing that something is important isn’t the same as doing something that is important.
Instead you need to set the vision for what things will look like in the future, after the innovation has taken hold. You need to show everyone how things will be better in the future because of the changes being made today. You need to give everyone something to believe in and work towards.
Consider Tennant, maker of the small bluish-green Zamboni like machines you see cleaning floors in office buildings and airports. They were founded in 1870 as a supplier of hardwood floors and invented floor scrubbers in the 1930s. For over 120 years, they worked to fulfill their mission “to become the preeminent company in residential floor maintenance equipment, floor coatings, and related products” and they enjoyed a nice steady business as a result.
Then, in 1999, Janet Dolan was named CEO, becoming the first non-family member to run the company. As a long-time member of the Board, Ms. Dolan knew the company well and she also knew that it was facing increasing competition and price pressure. So, with the support of the Board and her executive team, a year after she took the reigns, Ms. Dolan announced a new mission for Tennant: “To bring to market sustainable cleaning innovations that empower others to create a cleaner, safer, healthier world.”
That’s a pretty big change from floor maintenance, coatings, and related products.
And way more insprising.
So what happened?
Revenue decreased from 2000 to 2001. Then it plateaued from 2001 to 2002. So far not so good, right?
In 2002, Tennant launched 2 new products — one that cleaned floors with 70% less water and 90% less detergent but resulted in significantly lower labor costs, and a carpet cleaning scrubber that used less water and detergent but which decreased drying time from 18 hours to 30 minutes.
Neither of these innovation would have been possible under the old mission because it defined Tennant as a company that made (and sold) “floor coatings, and related products.” But both were spot-on with the new one mission, one that defined the company as an enabler of a “cleaner, safer, healthier world.”
The result? A steady upward climb in revenue from approximately $400M in 2002 to $701M in 2008
Yes, Tennant did many other things (restructuring, altering their manufacturing process and supply chain) during that time period that also contributed to their growth. But you can’t cut your way to a nearly 10% CAGR. You innovate your way there. And Tennant’s new mission made that possible.*
Quantify what Innovation must deliver
“Money talks, bullsh*t walks.”
– Some guy in my 12th grade French class (I have no idea why this was said in the context of a French class but I do remember it better than most of the French I learned).
Yes, innovation is fun. But innovation for the purpose of having fun is a hobby. You’re innovating because you need to grow your business. So treat innovation like a business and give it a target.
That target is known as the Growth Gap.
The Growth Gap is a concept which was, as far as I can tell, introduced in Robert B. Tucker’s 2002 book Driving Growth Through Innovation: How leading firms are transforming their future and is one of the most important and simple innovation tools I’ve seen used.
In fact, you’ve probably already calculated your Growth Gap. You just do’t know it. Yet.
Start with your future revenue goal (you probably set this during your annual strategic planning process as the goal for 3–5 years from now). Now subtract your current revenue. Then, subtract the expected revenue of everything else in your pipeline. What’s left is your Growth Gap, aka the amount of revenue that innovation (i.e. stuff you don’t yet have funded or in the pipeline) needs to deliver.
NOTE: there are far more precise and complicated ways to calculate the Growth Gap but this was is quick and will get you to an answer that is more right than wrong.
Several years ago, I worked with a global athletic company that was already well known for its innovations but which was trying to become more systematic in their efforts and more diligent about investing in Breakthrough and Disruptive innovation. The team and its C-Suite sponsors knew that additional investment was required to fund Breakthrough and Disruptive innovation but senior leaders were hesitant to allocate the cash.
So we calculated the growth gap.**
At the time, the company had $25B in revenue and the stated goal of growing to $50B in revenue in 7 years. According to their strategic plan, they had line of sight to an additional $15B in net revenue (new revenue from new launches less revenue losses from declining and discontinued products) resulting in an estimated $40B revenue in 7 years. From there, the math is pretty easy $50B promised minus $40B predicted equals $10B Growth Gap.
This means that management had to believe that they could create and scale 2 new Facebooks (based on Facebook’s revenue at the time) in the next 7 years.
With the need for innovation quantified, the coffers opened and innovation investment, activity, and results sky-rocketed.
Get involved in the work
Yes, you have a lot on your plate. No, that does not give you the right to delegate innovation.
If you have set a vision for what the business looks like as a result of innovation and you’ve quantified what innovation needs to deliver for your business then your innovation team IS a business and you need to be involved
But you do have a lot on your plate.
And you’re probably already involved in innovation governance processes like sitting on an Innovation Council, reviewing learnings from innovation projects, making small investments to get to the next learning stage, asking different questions in innovation meetings than you do in your regular business review meetings, and celebrating “failures” instead of brushing them under the rug.
Good for you! (no really, I mean that).
But are you getting your hands dirty? Are you leaving the office to see innovation at work? Are you going into the market to talk to the people you want to serve?
How much of your time are you spending on innovation? If, like the executives in the above example, you expect 26% of your future revenue to come from innovation, are you spending 25% of your time with the innovation team? 10% (i.e. 4 hours per week or 2 days per month?) 2.5% (1 hour per week or a half-day a month)?
Spending time outside of meetings and inside the work of innovation can make all the difference. In one case, it made a nearly $1B+ difference
I started my career at P&G working on a product code-named DD-1.
In my first year at P&G, we launched DD-1 into test markets in Cedar Rapids, Iowa and Pittsfield, Massachusetts. And those test markets went extremely well. So well in fact, that we experienced product shortages and the emergence of a strange gray-market of DD-1 products.
At the same time, we were working with IRI to run DD-1 through a BASES test, a standard modeling exercise that sought to forecast initial and on-going revenue for new products and a standard step in the process for securing launch approval.
Since the test markets were going so well, we were confident that the BASES results would be equally strong and moved forward with putting together a launch recommendation for the new brand. We even scheduled a meeting with the CEO and COO to get their signatures on the launch aprpoval document
Then the BASES results came back. And they were bad. Historically bad. Perhaps the worst results in the history of P&G.
But we were not deterred. We had the real-world results from our test markets and we confidently and optimistically plowed ahead.
DD-1’s leadership team presented the launch reco, including BASES results, to the CEO and COO. They explained that we did not believe that the BASES results were accurate because they used the re-purchase cycle of canned aerosol dusting sprays as an analog to the re-purchase cycle of DD-1 cloths and data from the test market (real world data! real usage data!) told a very different story. They asked for approval to launch.
The CEO said no.
The CEO believed the BASES results. BASES had always been accurate for all previous launches (keep in mind 99% of previous launches were incremental improvements to existing brands). The launch was cancelled.
Then, the COO spoke up. He believed the test market results and agreed that there was a flaw in the BASES methodology. He believed DD-1 should launch. He would take responsibility for its launch and its results.
The CEO acquiesced.
Swiffer was launched in 1999
Today, it is closing in on the coveted $1B Brand status.
Why, when presented with the same launch recommendation, did the CEO and COO make two different decisions? The COO spent a few hours one day in Cedar Rapids Iowa. He saw the test market results playing out live, he spoke to the people who drove from store to store to find refill cloths. He experienced the innovation instead of just reading about it.
So, my corporate executive friend, do not give up. Step up and lead (yes, even more than you have). Paint the picture of how innovation will shape your business’ future. Quantify what it must deliver so that you can make informed (and realistic) investment decisions. Get your hands dirty because even a few hours of working in innovation, alongside your team, can make all the difference.
Success is possible. You must lead the way.
*This story is based on two case studies by HBS professor, Lynda Applegate: Tennant Company (February 2010, revised January 2014) and Tennant Company: Innovating Within and Beyond the Core (June 2010, revised August 2011)
** Numbers have been changed to preserve confidentialilty