Cultural Barriers To Enterprise Innovation (Part 3 of 3)

In two previous posts, I outlined several cultural barriers to innovation. The first post covers fear of failure and expected value bias. These cultural barriers are alone sufficient to stifle innovation. In the second post, I describe the business case bias and execution bias which both prevent new, innovative ideas from taking root in the enterprise. 

In this third post, I’m going to complete the analysis of cultural barriers by covering alignment bias, retirement bias and strategic fit bias. 

5. Alignment bias

In my recent work with large enterprises, I’ve noticed the executives and managers there use a word that I’ve not heard very often in a startup environment. The word is alignment. 

Alignment sounds like a good thing. After all, if you are working in a large organization, isn’t it a good idea to have everyone pulling in the right direction? Who could argue with the idea of everyone working together, all on the same page? It sounds like baseball and apple pie. 

Managers in the enterprise seek alignment. They talk about it as if it is a desirable state of peace and harmony. It’s a place where all managers and business leaders are holding hands, walking in lock step and signing Kumbayah. 

Kum bay ya, my Lord, kum bay ya;
Kum bay ya, my Lord, kum bay ya;
Kum bay ya, my Lord, kum bay ya,
O Lord, kum bay ya.

Ah, you can almost feel the peace and harmony. 

Why do managers value alignment so highly? I’m not really sure, but I think the manager’s motivations are political. If you are interested in job security, you don’t want to take risks. You don’t want to stand out. You don’t want to pursue a hunch, an inspiration or an idea, unless you have cover. Cover means covering your ass so if things go bad, you aren’t going to take the blame. Seeking alignment is a reasonable thing for a manager to do. The manager is acting in self-preservation. I get it.

But here’s the problem. Disruptive innovation doesn’t happen this way. 

Most truly disruptive ideas are strongly ridiculed by the parties who are currently in power. Disruptive ideas, ideas that truly change things, are considered stupid, reckless, boneheaded, silly, even impossible. This is why they are disruptive ideas! 

Thinking about my corporate and startup career, if I sought alignment for any of my new ideas, I would have never achieved it. Given these facts, I would have to make a decision, do I want to pursue this idea or do I want to be in alignment with my boss, my peers, my organization? You can’t have both. The reality is you need to make a choice. 

I challenge the premise that harmony is a desirable end state for the enterprise. If we are together, and we are holding hands, and the titanic hits and iceberg, are we going to be ok? Of course not.

The goal is not alignment. The goal is to get results. Most of the time, this means growth. New engines of growth. New markets, new products, new customers, new, new, new, growth, growth, growth. If innovation isn’t growth, then what is it?  

Growth is painful. Growth is not neat and orderly. Growth is messy. So much so that I submit if you have perfect alignment throughout the organization, then by definition you are not being innovative. Show me a manager who highly values alignment and I’ll show you one who doesn’t deliver growth. 

Here are some of the characteristics of organizations that appear to value alignment over results. 

- They receive their strategic plans and marching orders from the corner office
- They employ waterfall development processes
- They spend at least 5 times as much energy on internal alignment activities than on obtaining insights from customers
- They value total quality, zero error rates and six sigma
- They believe failure is not an option
- They pursue political goals and not business results 

I know this sounds harsh, but let me reiterate that I’m not judging managers who seek alignment in the enterprise. They are acting reasonably within their environment. The problem is not with them, it’s with their environment.

The alignment bias means managers value alignment more than results. This ties into another observation previously made where those who are good at disruptive innovation are not good at politics. 

Startups don’t try to achieve alignment. They strive to achieve results. Alignment develops as a consequence of getting results. Traction, hyper-growth and other measures of results create alignment naturally as everyone learns what works. Metrics create a meritocracy where the best ideas win, not the ideas from the people with the best titles. Because of the constant existential threats that exist in startups, getting results is what matters, not political states of harmony and alignment. When the startup is winning, everyone is aligned. 

6. Retirement Bias

When I was 28, I had a pretty good job. I was Vice President of Marketing & Strategy at Experian, a multi-billion, global information services company. I was the youngest VP in the company. My boss, a general manager of one of the business units, had to get special permission to hire me because I was so young. He saw something in me but he had to cover his ass in case it didn’t work out. After a brief interview, his boss was sold. I guess I fooled her.

A few months later, I had developed an ambitious plan for our fledgling business unit. It was bold and risky. But I didn’t see it that way. My ideas were based on customer insight. Prior to working at Experian, I worked in marketing at AT&T Wireless, one of the target customers. So, I had deep customer insight because I used to be one of Experian’s customers. For this reason, I was pretty confident my plan was solid. But it was not without risk. 

I presented the plan to the other executives in the category, a collection of five related business units. I was up all night, tossing and turning, worrying about how my presentation would be received. It was a big deal for me. 

When I was done, the group kicked it around. To my disappointment, the enthusiasm for my plan was low.

“The plan sounds reasonable, but there are a lot of unproven elements. I think it’s too risky,” was the essence of the sentiment in the room. 

“Too risky?” I thought. Our current revenue growth is negative 20% year-over-year. What are they worried about? It seems to me that the greatest risk is doing nothing. Has anyone else put forth a plan that addresses or severe growth problem? No.

In the following days and tried to peel back what was underlying the negative feelings about a more aggressive growth plan. I kept digging until a had a heart to heart with my boss, a straight-shooting Indian engineer and businessman. 

“Look, I’m the last remaining executive from Metromail, the company Experian acquired six months ago. I have a contract that guarantees certain cash and equity compensation provided that my business doesn’t go to hell. If your plan works, I won’t benefit that much. But if it fails, I will lose a lot of money. I’m about a year away from retirement and I don’t want to do anything to rock the boat.”

That, my friends, is the retirement bias. Even my brilliant plan wasn’t enough to overcome his bias, or the bias of any other executive in the room. As long as comfortable executives who have “with cause” clauses in their contracts are making the decisions, then the enterprise will have difficulty being innovative. Every enterprise I know has this arrangement with their most important and most valued executives. 

7. Strategic Fit Bias

I recently participated in an innovation team meeting at a large consumer insurance provider. Three months prior to the meeting, we trained the innovation team in lean startup principles. To their credit, the team had implemented the principles as instructed. They had designed, executed and analyzed five different customer experiments. They had uncovered a significant amount of meaningful customer insight. I was very proud of them. It was deeply rewarding.

After a review of the insights uncovered during the process, the conversation turned to what’s next. 

“I don’t think the business model fits within the overall strategy for (parent company). I just don’t think they would be interested in this business. I don’t think they will see it as a strategic fit,” said the senior-most manager at the table. Of course, he was thinking about their deliverable presentation to the CEO, just a short four months away.

This is the strategic fit bias. I see this bias all the time. It’s possible the strategic fit bias has killed more good ideas than any other bias I can think of.

The strategic fit bias is when you analyze a business model not based on the merits with customers, but by using an imaginary “strategic” plan as a determinant for whether a given business model is worth pursuing. In my opinion, this is a big mistake.

Let’s analyze the manager’s comment for a moment. 

Who is they? Presumably, this is the CEO and his direct reports.

Do you know what “they” are really thinking? Are you a mind reader? 

What were the parameters given for this project? Have we achieved the objectives? 

How is corporate strategy determined? Is it constant or does it change over time?

What happens to your strategic fit analysis if the CEO is fired or leaves the company? 

Making a go, no-go decision on a business model based on strategic fit seems to me like trying to hit cupid with an arrow while riding a dolphin. I’m not sure where cupid is, or if he even exists, but I’m going to make sure I aim closely at the target so I can hit it. It’s ridiculous.

Corporate strategy changes all the time. Enterprises regularly vacillate from sticking to core competencies to diversifying their portfolios. From outsourcing to insourcing, from organic growth to mergers and acquisitions. Every time the CEO changes or there is a new McKinsey report, companies change their thinking about what businesses they are in and what business models they like or dislike. There is nothing static is a corporate strategic plan. They are updated every three to six months!

Instead of following the lean innovation process of developing hypotheses and running customer experiments to find a scalable, repeatable business model, this executive is falling back on old habits by trying to read the political tea leaves to shortcut the process. This is a recipe for failure. It’s also a really bad way to validate a business model. 

In this matter, my recommendation couldn’t be more clear. Follow the process to discover and validate a scalable, repeatable business model in the designated area. Let someone else decide if this great, rapidly-growing business is a strategic fit with the mother ship or not. If it’s not, there are many options including bringing in outside investors and partners or selling the business for a nice profit. Just focus on building a great business and everything else will work out just fine. If you build a great business, it’s highly probably that you’ve discovered a new market trend before anyone else has.

Key Insights

  • Gaining alignment is not an innovation objective, it's a political one
  • Those of us who are good at innovation are usually horrible at politics
  • Leaving big decisions to older, wiser executives can create a fundamental conflict of interest for the corporation
  • Applying strategic fit criteria in the early-stages of an innovation project only stifles innovation. Let the idea evolve on its own and decide later if it fits into the strategic game plan 

What These Biases Mean In The Enterprise (next post)