I decided to pick up “Driving Innovation from Within: A Guide for Internal Entrepreneurs” by Kaihan Krippendorff.
Today is the slowest day of your life
The beginning is lovely.“Today is the slowest day of your life.” Combine that with the conclusions that growth by acquisition holds little value for investors, the old ways of organising are dying off, and formal, structured innovation programs such as hackathons and incubators are often nothing more than “innovation theatre,” doing very little to actually drive real business impact. The path of self-directed, employee-generated innovation has historically been far more prevalent than we understood. Indeed, the innovative ideas of employees have done more to shape society than those of entrepreneurs. Only eight of the thirty most transformative innovations were first conceived by entrepreneurs; twenty-two were conceived by employees.
Employees drive innovation
But a 2018 study of 677 strategy leaders by CB Insights found that employees are a more important driver of innovation, as shown in the study’s “Top 10 Sources of Innovation”:
- Competitive intelligence
- Academic partners and/or scientific literature
- Industry analysts
- Accelerators & incubators
- Corporate venture capital
- External ideation consultants
- Bankers & VCs
The true story of innovation
To tell the true story of innovation, the authors would have to say that employees conceive the innovations, communities composed of corporations and institutions build them. Then the competition takes over to scale them. Read the last sentence; competitors take over. Then, through a battle of players seeking to commercialise the innovation, the innovation scales. Wouldn´t it be better for you to develop and grow the ideas of your employees?
Innovative companies that do not outperform their peers heavily tout highly visible efforts to increase innovation. Their Silicon Valley-style incubation centres, internal business-plan competitions, and colourful open-office layouts offer physical evidence of their innovativeness; all of this attracts public attention but proves insufficient to drive superior performance.
Their macro-study of research on the topic shows a statistically significant link between your level of internal innovation and four organisational structural drivers:
- Innovation resources (money and employee time) to pursue innovations
- Rewards that encourage entrepreneurial behaviour
- Allowance of risk-taking
- Organisational freedom
Most innovative companies, whether average performers or outperformers, implement the common practices of giving employees free time to work on special growth projects or organising competitions in which the winners receive time and investment to pursue their ideas.
The point of intrapreneurship
Startup companies are young, disruptive, and risk-taking. But once they find a business model that works, they start repeating that model in order to scale up. To do this, they turn to the bureaucracy they once scorned. However, as they continue to grow, four factors come into play that invigorate internal innovators and give them a great advantage:
- They have a scale that entrepreneurs cannot easily match.
- They have access to multiple capabilities under one roof, tapping technology and experts from across the organisation.
- They can take advantage of the resources their company has to invest (academics call these “slack resources”). Entrepreneurs must fundraise continually.
- They can diversify risk. By making multiple bets, knowing some will fail, but others will work, they can make the returns from innovation predictable.
Research into “entrepreneurial orientation” (EO) and “intrapreneurial intensity” (II) shows that higher levels of internal entrepreneurialism drive faster growth, increase economic value added (EVA), and produce higher returns (total return to shareholders, or TRS).
The author suggests the IN-OVATE framework:
Intent: Turn your employees into intrapreneurs. Facing early obstacles, many would-be internal innovators abandon their original intent.
Need: Communicate simple statements of purpose that describe what the market needs. Most employees do not understand what kinds of innovations their organisations need. Fewer than 55% of middle managers can name even two of their company’s top strategic priorities.
Options: Generate disruptive business ideas in hallways, not boardrooms. Would-be internal innovators often grow frustrated because they become fixated too early on a few innovative ideas—or even worse, just one.
Value blockers: Predict and neutralise business-model conflict. It is commonly accepted that innovative ideas are inconsistent with, and therefore disruptive to, a company’s current business model.
Act: Adopt an act–learn–build approach (rather than prove–plan–execute). Established organisations tend to ask employees to prove an idea will work before giving them permission to take action.
Team: Assemble agile teams instead of siloed, hierarchical structures. Corporations hamper internal innovation by the nature of their structure.
Environment: Shift to open platforms that allow employees to rally resources. Getting support for new ideas is politically complicated because the leadership behaviour, types of talent, organisational structures, and cultural norms that help established organisations sustain their core operations also tend to hinder internal innovativeness.
It’s not the same as entrepreneurism
- You have two jobs, not one. In all likelihood, you will have to maintain ongoing management activities while simultaneously pursuing something new.
- You have one investor, not forty.
- While entrepreneurs seek supporters for their idea, internal innovators seek ideas for their supporters.
- Internal innovators are rarely involved from start to finish.
- Internal innovators struggle to launch but can scale with speed.
The core process is simple
- They discover new opportunities.
- They evaluate and choose
- They take autonomous action to move
- They mobilise resources while operating within a dispersed environment;
Internal innovators are different
Traditional entrepreneurs are distinguished by three critical attributes: innovativeness: market awareness and proactivity: It probably comes as no surprise that research shows that internal innovators share those three qualities. Internal innovators think differently.
They may appear to take high-risk gambles, but they are very deliberate about when and how to do so. They excel at calculating risk and then making thoughtful bets. Internal innovators approach risk differently for another reason. Even if you are comfortable with risk, your company may not be. And since you are risking your employer’s capital, not your own, it’s your company’s risk profile.
They found the key trait that separated successful internal innovators from frustrated ones was that they viewed the political challenge simply as part of the problem-solving process. Your internal innovation journey will look less like banging down the doors of funders and more like carefully navigating a complex, interconnected network of internal stakeholders.
Breaking the rules
You will also have to balance between incongruent systems of rules: what is formally allowed and what is best for the company. Internal innovators often have to step outside of the norms and bend or even break the rules, but they are very clear that they do so for the benefit of the organisation.
Successful innovators understand that, that barriers can crop up at any time, there is usually a natural flow to the sequence of events, a sequence that outlines a pathway of innovation.
The book then gives you a complete toolset to become an internal innovator. Here are a few highlights:
- Invention requires a long-term willingness to be misunderstood.
- When faced with an unexpected challenge or opportunity, do you step into the kitchen or go home?
- Lucky people generate their own good fortune via four basic principles. They are skilled at creating and noticing chance opportunities, make lucky decisions by listening to their intuition, create self-fulfilling prophesies via positive expectations, and adopt a resilient attitude that transforms bad luck.
- Spotting a market need is not enough. That need must also match a strategic need for the company.
- Adopt the “top-management perspective,” which means that you step up and think like your CEO.
- Ask yourself: What are my organisation’s unique capabilities (not as defined by its industry) that can be leveraged to make an idea work?
- You want to understand your organisation’s time horizon.
- Imagine–Dissect–Expand–Analyse–Sell spells “IDEAS.”
- Do good. Working to solve social problems is the source of inspiration for many internal innovations.
- Apply an abandoned innovation. Your organisation has a junkyard filled with failed innovations.
- You have to look at how close your products are to an existing product/sales channel.
- To drive sustained growth, companies need to pursue a portfolio of ideas across the spectrum.
- It’s not an experiment if you know it’s going to work.
- Colin Powell believes that in fast-moving, uncertain environments, waiting for 80% confidence is unreasonable and risky. He advocates a “40–70 rule.” As soon as you have enough data to be 40% confident, use your gut and act. If you have waited to be 70% confident, you have taken too long.
- The real damper on employee engagement is the soggy, cold blanket of centralised authority. In most companies, power cascades downwards from the CEO. Not only are employees disenfranchised from most policy decisions, but they also lack even the power to rebel against egocentric and tyrannical supervisors.
- Don’t limit yourself to products. Companies that make innovative lists but fail to outperform competitors seem to focus efforts on product-driven innovation,
- Don’t overlook your scale. Don’t copy startups—innovate in areas in which your scale creates an advantage.
- Don’t isolate. Innovative companies that fail to outperform talk often of separating innovations in incubation labs and innovation centres.
- Ensure you are prioritising innovation: look at your meeting agenda. Check that somewhere toward the top you have carved out space to discuss innovation efforts, so they aren’t squeezed off the table in your rush to end the meeting on time.
- Nearly all of the internal innovators they interviewed cited a leader’s willingness to accept risk-taking and failure as key to unlocking employee innovations.
- You have to catch people making mistakes and make it so that it’s cool. You have to make it undesirable to play it safe. That is from “Little Bets“.
- The importance of your mission statement and its alignment to innovation and intrapreneurship.
- Autonomy and proactivity are norms encouraged by nearly all innovative outperformers.
- General Stanley McChrystal found that reorganising the tight, hierarchical structure of the Joint Special Operations Task Force into a “team of teams” made his forces more effective at fighting agile, asymmetrical enemies.
Drivers of innovation
The question we are struggling with is where innovation ends, and intrapreneurship begins. There are lots of overlap. These are the proven drivers of internal innovation.
- Talent: If you can access the type of talent naturally adept at innovating, you will have a better chance of succeeding.
- Structure: However, even if you have the right talent, if they must operate under structures that hinder their attempts, they will be ineffective.
- Culture: Even with the right talent and empowering organisational structures in place, your team’s efforts will be frustrated, and innovation is likely to fizzle out if you do not also support them with the right culture. The culture should celebrate innovative thinking en encourage people to take action without asking for permission or waiting for direction.
- Leadership: Under the right structures, and supported by the right culture is still likely to produce only temporary success if you do not also find leadership. Leadership should prioritise innovation.
- Innovation resources: the ability to access the resources (capital and time) needed to pursue innovation.
- Rewards: incentive systems that reward innovation.
- Allowance of risk-taking: Do you get a promotion when an innovation attempt fails, or does it hurt your career?
- Organisational freedom: Novel ideas often demand a cross-functional team with loosely defined roles.
- Vertex Pharmaceuticals launched VOICE. Employees who have their ideas selected go on to build cross-functional teams, develop refined proposals and execute their business plans.”
- PPG, an innovative coatings company whose products cover everything from your mobile phone to your desk, launches innovation challenges in which teams from research centres across the globe compete to find solutions to common problems. They hold idea-sharing parties where researchers and salespeople interact to explore new uses for technologies. They manage their innovation funnel like a “bow-tie”9—in from the left, a flow of many ideas narrowing down to a few that have enough potential to warrant launching, and out to the right, an expanding revenue flow that will come from new products as they scale.
- To foster market awareness, Starbucks hosts an internal platform called Workplace to enable employees to share insights.
- Adobe received considerable press for its Kickbox program—literally a box containing money (a $1,000 gift card employees can use to validate their idea), innovation tools and templates, caffeine (a Starbucks gift card), and sugar (a candy bar). Michael Schrage’s model of conducting a “5 × 5 × 5” experiment (giving 5 people $5,000 and 5 weeks) is popular among many of the author´s clients.
- Tencent not only tracks the ROI of its projects but also looks at values such as “perception as innovator” and respect from peers.
- Activision Blizzard, for example, celebrates successes and accomplishments of employees and innovators in more creative ways. Their offices are filled with symbolic trophies like swords, ceremonial steins, rings, shields, and battle masks to mark an employee’s efforts. To cultivate an innovative culture, Activision Blizzard has, among other things, designated three employees with the title Loremaster. Their job is to “empower the other dungeon masters across the company so they can execute on their awesomeness.”
- Amazon culls staff every year, creating an environment one former Amazon human-resources director described as “purposely Darwinian.” Another interesting practice that Amazon implements to encourage organisational freedom is to be technology agnostic. Amazon follows the opposite approach, allowing employees to use the technology they think suits the project best.
- Heier, the Chinese consumer-electronics and appliance manufacturer that has surged in recent years to reach $30 billion in revenue and $20 billion in profit, with eighty thousand employees, considers its employees to be “micro-entrepreneurs” who run three thousand “micro-businesses.”
- Illumina (the genomic company credited with helping bring down the cost of sequencing a human genome to $4,000 from $1 million ten years ago) adopts values—“innovative, collaborative, fast,
- To encourage market awareness, Coloplast encourages employees to find a patient to visit once a year for a conversation in the patient’s home over a cup of coffee.
What we are learning from the literature review is that there are a number of consistent factors that impact entrepreneurship. The key lesson from this book is that you should utilise one of the key drivers of innovation, which is you people and that there are plenty of examples of good practice to ensure that you do.