Do you think organizations should allow unfettered innovation? Or should they impose constraints on innovation? It may sound counter intuitive, but some constraints on innovation are very good. Recently, I worked with a client where the problem was too much innovation. They spread themselves so thin that a lot of their innovation was wasteful. It reminded me why unfettered innovation is bad, really bad?
Peanut Butter Example
The incident also reminded me of a leaked memo from Yahoo! In the memo, one of the Yahoo executives chided the company for spreading itself too thin. He used the analogy of spreading peanut butter evenly to show how Yahoo! was not making mindful choices. It was allowing too many projects to compete for resources. The unfortunate truth is that many firms are guilty of this sin.
Weeds Vs Plants
Why are weeds undesirable? It is because they provide no benefit and do more harm to plants you want. Weeds steal nutrition, sunlight, and water from the desired plants. This is why you kill the weeds. Unworthy projects are like those weeds in your garden. For a typical company, it is a slow poison that slowly but surely kills the business. Would you provide water and fertilizer to weeds? Then why would you allow such projects in your business?
When Innovation Projects Destroy Value
In the case of my client, the marketing folks could ask R&D to make many minor changes to the product. And since all the innovations were customer requirements, it seemed the right thing to do. But when I asked the team to do a Pareto analysis of value addition versus resources spent on innovation, a surprising picture emerged. As expected, a substantial number of innovation projects had a negative contribution. In effect, the organization was providing innovation and customization for their customers even when the payoff was negative.
Is the Customer Always Right?
The marketing folks had no idea about the financial implications of their innovation requests. They were working on the assumption that the client is always right. It is a good rule of thumb, but you should not forget the fact that some customers should not even be in your portfolio. The only issue was that they didn’t prioritize their customers by the value added per customer. As a result, the organization was spending too much on innovation.
What Kind of Innovation Barriers Do You Need?
This example provided a clear reason why you need to have sufficient innovation barriers that make it difficult for an innovation project to be born. Such a restriction will force people to become better at judging which projects to undertake and which ones to not.
A reasonable barrier should force the champion of an innovation project to lay down the rationale and the future upside. Such an approval process should also ensure that the costs and capital expenditures are appropriately assessed. If a project makes sense on a net present value basis, it should be allowed. If it makes no financial sense, it should be killed.
Should Strategic Projects Have No Barriers?
Sometimes people use the phrase, ‘but it is a strategic project” to portray the rationale for a project. I am often perplexed by this argument. How can a project that is strategic be good for business for one set of reasons but provide no value addition?
A project is strategic because it helps the business move in the direction that is right for the firm. So if the overall direction is good for the business then how can it be a net loser?
Newell was reaching the limits of its strategy around the end of the last century. It had to find a new approach to winning in its business. It decided that it needed to buy a company with better brands and honed it on Rubbermaid. While the strategy may have been the right one, Newell paid too much for Rubbermaid due to which it destroyed immense value over the next several years.
When do you need unfettered innovation?
There are times when you need unbridled innovation. In fact, you need unrestricted innovation at the beginning of an industry. It is essential before the emergence of the dominant design. At such times, you need to experiment to find the winners. There is enormous uncertainty. Every company deals with technical, operating, customer, and financial uncertainty in that period. That is the time when unfettered innovation is indeed required.
Think of health monitoring device industry in the early stages. No one knew if the right device would be work on the arm, or on the wrist, or be kept in a pocket. There was significant uncertainty about technology and its ability to measure body functions. As a result, companies were experimenting. And the barriers to innovations can be lowered in such situations.
There is a need for the right internal barriers to innovation in your business. The appropriate restrictions depend on the industry, its life cycle stage, and your strategy. Are the barriers to innovation in your firm appropriate for your business?