A discussion about innovation and the organizational immune system
So why is disruptive innovation so hard? Well, two reasons:
Because it means radical change, and
Because your organization’s immune system is programed to protect the status quo!
The immune system in our bodies is a collection of structures, processes, and other controls designed to protect against potentially damaging foreign bodies, which are typically the cause of diseases. When functioning correctly, the immune system identifies various threats and kicks in to fight off foreign invaders.
I will not go into the detail of innate immunity and adaptive immunity, except to say that you are born with one, and the other is learned. Adaptive immunity first needs to recognize, process the threat, and then respond by creating antibodies specifically designed to target the threat. Once the threat is neutralized, it then remembers what worked and then makes sure the same threat doesn’t harm us again in the future.
But sometimes, the immune system goes rogue and causes what is called autoimmune diseases. When an abnormal immune response starts attacking normal bodily functions or things that are good for the body, we have a problem! So why do I mention this? It is a reminder that great things that we think protect us sometimes make the wrong decisions and act to our detriment!
Like the human body, organizations also have an immune system that pretty much does the same as the human body's immune system! Organizational immune systems are all Adaptive and what was learned is great under normal circumstances. Still, when a shift happens, and old rules do not apply or make sense anymore (like with the shift to the digital age), the organization’s immune system often becomes an autoimmune disease, and yes, disease is the correct word.
The organizational immune system is a significant reason why change and new ideas (even if they are good ones) fail within organizations.
So what does this have to do with types of innovation — actually, a lot!
When an innovation is part of the organization's normal functioning, the organizational immune system recognizes it as such and allows it to happen. The more foreign it becomes, the more likely we are to see the organization's reaction as a collective towards what’s busy happening.
If what is happening is threatening the status quo in any way, shape, or form, expect an immune response!
Just like the human immune system, there are two parts of the organizational immune system. The defined control environment acts like the innate immune system and will stop anything that looks like it’s against the rules (controls). There is no inquiry, analysis of if it’s good or bad, if it may benefit the organization. The response is a flat response — it’s against the rules; therefore, it’s not allowed, kill it by any means!
The more complex (adaptive) organizational immune system is much more sinister if it goes wrong. It’s the part of the organizational immune system that remembers the pains of the past, remembers what it took to get to the status quo, and will do anything in its power to keep external influences at bay, no matter how beneficial it may be, the tough of past pains are enough to put it into action.
Don’t get me wrong; the organizational immune system is vital as it protects the organization's core activities. After all — these activities are what made the business what it is today. Without them, the organization would not have grown and succeeded in the past! The problem is that when new ideas challenge the existing activities (or the position and power of those who control them), the immune response kicks in — the response is unanimous and deadly — attack!
You may change the rules to allow the new ideas and legitimize them. That will sort out the innate organizational immune system, but that would not stop the more subtle resistance to change that the complex adaptive (deep memories of people) organizational immune system offers. Incidentally, most organizations forget to change the rules during changes, and then they have to fight both parts of the immune system.
I said more subtle, not it’s none less real. Expect responses like:
- Remember last time we tried something like this.
- This will never work here because…
- You want to introduce this new XXX, but that competes with our VERY successful YYY; that’s just dumb.
- You are changing my success metrics unilaterally.
- We are good at YYY; why do XXX?
- Over my dead body, will you do this in my unit/department/division (incidentally, that can be arranged.)
The responses are easier to spot if it is direct as the above examples. But the immune response is often much more subtle. The response is the confluence of antibodies consisting of corporate culture and politics, personal influence, and sometimes even fear-mongering and blatant sabotage blended in different proportions.
As we said before, the response is often subtle but sometimes blatant if the driver can gather enough support and followers to make a stand. Subtle or flagrant — if you are fighting this, you will most likely lose the battle.
No matter who suggests what measure to overcome the immune response of an organization — there are times that you don’t fight it.
Does that mean giving up?
No — but don’t set yourself up for failure — and here is where the different types of innovation come into play.
If we use the four types of Innovation Clayton Christensen defined (Efficiency, Sustaining, Potential, and Disruptive (or Empowering) Innovation, it is vital to understand what you are busy with and how you will tackle it within the context of the organizations.
Note that what some see as being disruptive are seen by others as being empowering. Their new position empowers the owners of the disruptive business. There is no difference between empowering and disrupting innovation except for the angle from which it is viewed.
Disruptive Innovation is the seed from which new businesses sprout; it transforms complex and costly products that were previously available to only a few people into cheaper, simpler, and more available products to a larger audience. Disruptive Innovations builds, create jobs for people who build, distribute, sell and service these products.
Organizational immune systems are not an issue in this instance because the organization is new and still has to develop an immune system.
As the organization grows, it changes from an entrepreneurial venture into a more formal company, with formal structures and the need to formalizes and systematize everything starts; this is the embryo out of which an organizational immune system grows.
Sustaining and Potential Innovation
Next up is Sustaining Innovation; in this context, we can include potential innovation here for now. Sustaining Innovation is when we first take the basic products and services we built as a start-up and make them better. We add more features to appeal to a more significant and more formal market segment and eventually start to replace old products with ‘new’ products or services.
I say ‘new’ with reservation because often it’s just a little bit different, not really new — let me put it in context — how much different (except for the petrol-heads) is the new BMW models from the models they replaced? Most of us would struggle to spot the difference in the exterior of the vehicles, much less the differences under the hood.
Sustaining Innovation is about keeping customers happy and the economy vibrant. In real dollar terms, this accounts for the most innovation out there, but in reality, it’s a zero-sum game when you evaluate their effect on jobs, capital, and, dare I say, progress.
Much of what most organizations are doing when investing in product and service development is Sustaining Innovation. Unless it really comes up with something radical (in which case you can argue it's Disruptive Innovation), it’s pretty much part of business as usual, therefore safe. Resultantly you can expect little immune response. Yes, there usually are a few skirmishes as fiefdoms are affected, but it’s pretty much corporate politics as usual, and it eventually settles down.
Using the capabilities built for existing markets in a new setting is what Potential Innovation is all about. Find someone with a major pain that you can alleviate with your existing product, strip the bits that the new customer segment doesn’t need (otherwise, it becomes clunky), and put in a lot of effort to fill the gaps you don’t address. Potential innovation creates something new even though it is based on something old. The great advantage is that you have reference customers aplenty for the old product, and pragmatists take the word of other pragmatists when they make investment decisions (they don’t trust visionaries).
What typically happens as organizations grow, mature, and, dare I say, get fat and lazy is that it becomes more difficult to remain as profitable as when we first started.
Yes, I know the first response is always that we have much more competition (sic), and or products are becoming commodities (sic, sic). These two responses are always the first responses, and then after much debate, we concede that the organization has become fat and lazy!
At least the first step to recovery is to acknowledge that you have a problem, which usually is where the next type of innovation kicks in!
Efficiency Innovation aims to reduce the cost of making, selling, and distributing existing products and services. Efficiency Innovations almost always cut the number of jobs in a specific role because the easiest and most cost-effective way to do this is to automate. We want to do more (or at least the same amount of work) for less cost, and inevitably this means fewer people in the process we automate. When we get this right, we free up capital to either do other things or show more profit.
Efficiency Innovation drives are often forced actions, and everyone knows that there is no other way for the organization to survive. If not done in dire circumstances, those whose jobs are in danger will push back and often push back hard!
Unless you have the means to show that the rationalization will not mean that people will lose their jobs, you are in for a tough time — but if you have the unwavering support of your management team, it’s not that bad.
The better response would be to ensure people that they will not lose their jobs but that after re-skilling, they will be able to do better and more meaningful work (their reward for the sacrifice). That, in turn, unlocks new potential for the organization (the organization’s compensation for the painful process), this type of initiative does not have to be that difficult or painful.
The problem with Efficiency Innovation is that it’s an investment with a diminishing return; you can only rationalize so much or automate so much or scale down so much before you have nothing left but a broken system.
By all means, do improve efficiency — you have to, it’s the way you get the last pound of flesh, but that is all that it is.
Organizations that often do projects like this (often driven by Lean Six Sigma adoptions) are so impressed that this is all they want to do. Doing efficient projects becomes part of the organizational immune system, and there is resistance to any other type of innovation. Everyone will always say — let’s instead do this — at least we know it works, and it works for us!
But ‘what if’ innovation really challenges the status quo, both in the market and in the organization?
You could quite rightly remind people of their earlier objections — which was that you couldn’t because you have so much more competitors, and your product is becoming a commodity — and by all means do so; however, it will not really make a difference.
The only way to outcompete new disruptors in your market is to develop an innovative (and in turn disruptive) non-commodity product, but we suspect (know) it would fall on deaf ears. There is no one as deaf as those who do not want to hear!
This is where things get interesting — the immune system refuses to change its response to the threat. The reaction is we have to keep it out, and the only tools we have are to do more of the same (Sustaining Innovation) or to form a lager for safety and to consolidate (Efficiency Innovation).
It worked in the past — so it must work again! Right?
Strange how there is no one left in the organization who remembers how we ‘did it to someone else when we were a start-up’!
We forget how empowering, Disruptive Innovation can be and how it creates the seed from which new opportunities sprout.
We just cannot think outside the box and transform our complicated, costly products and services that we are struggling to find new markets for (we can barely keep existing customers using it). And you want to do it cheaper — are you crazy? We are barely making ends meet as it stands — unthinkable (and we have already cut all the fat out with efficiency innovation).
What you want to make it simpler, that’s dumbing it down; customers will reject that and how degrading. No-no — it’s much safer in the laager or fort, fighting the enemy!
We look at the start-up causing all the pain, and now we call their Empowering Innovation — Disruptive Innovation.
So here is the reality of innovation types:-
Efficiency Innovation pays off quickly, but it becomes more and more challenging to get real ROI out of their innovation type as time goes on. In the beginning, it yields quick results, but it is an investment with diminishing returns.
Sustaining Innovation keeps the cash flowing, but it takes longer and doesn’t really create something new; Sustaining Innovation is great for extending your product or service life. Still, eventually, it will become stale, clumsy, and customers will have little or no appetite to buy it.
Potential innovation is pretty similar, although it does create new value as old products are taken into a different context/market; the plus with Potential Innovation is that you are at least doing something new in that market (even if it’s based on what you have done for some time in another), so products developed here has got more legs and potentially will last longer than the products they are based on.
For long-term success, if fuelled (empowered) by disrupting ideas! Organizations need to out-invent their own, most successful products and services — sooner is better than later — but definitely, before the competition does. If done right, they can call it Empowering Innovation (rather than Disrupting Innovation.)
OK — so there’s no way out of it — you have to disrupt yourself!
And that’s the most challenging thing to do. The might of the organizational immune system will fight it; fighting diminishes energy and resource. Eventually, your new and bright idea has no chance to make it to the shelf. The sad thing is that it’s not even the competition that caused that — it’s your own organization!
So what is to be done?
It’s here that the experts differ and are quite verbose about what they propose. So seeing that we have to take a position — here are our thoughts on the matter.
Don’t set yourself up for failure — don’t do disruptive innovation within the constraints of the immune system. Use the resources and capabilities of the organization but make sure you create an innovation environment that is totally (first prize) free from the governance and controls of the organization.
But that is not enough!
Because managers are part of the immune system, and you should not underestimate their influence over and control of organizational capabilities and resources, you have to create a system where they have little (no) say in what happens in this innovation environment!
It sounds harsh, and we know that many people will disagree with us but let us motivate our position!
I said management, not the leadership of the organization. The leadership (executives/board) should have a say — it’s their job to make sure that there is a balanced investment in the four types of innovation we highlighted above — it’s the only way the organization will survive. They also have to ensure that investments in innovation are in line with the organization’s strategic direction!
From a strategic perspective, set budget apart for each of the four types of innovation. If you are in trouble, allocate 50% of the available budget to disruptive innovation OR potential initiatives (one of two max). For a short period of time (3 to 8 months), use the rest to claw you out of trouble, focusing mainly on efficiencies. But make sure that after the period you decided is necessary to improve cash flow, reallocate funds for sustaining initiatives. If you are still OK, split it four ways.
Innovation budgets (all four of them) MUST BE sacrosanct; you can’t raid them for anything else — no exceptions! If you do, you are stealing from the future, and that’s not only immoral to steal from future generations; it’s also plain dumb!
Back to the innovation space.
Create a completely separate innovation company or a business unit with some of its own resources (running the innovation space, coordinating initiatives, measuring, and reporting).
Something like PARC (and we are talking about the new independent wholly-owned Xerox company, not the old division/subsidiary that did amazing stuff, that others raided and exploited and mostly non-Xerox companies made money from*) or SKUNKWORKS® like the Lockheed WW2 example — still part of the company but with very different rules and a Chinese wall between Skunkworks and the rest of the company (read the rules of skunkworks of the Lockheed website).
The key to an innovation environment is that it must be separate, must have its own management, some own resources BUT with this difference. Here are eight things to get right:
1. Make it mandatory for everyone in the organization to spend a set amount of time on an innovation project ( in-company or in the innovation hub). Ensure that the best technical resources work on disruptive innovation projects (at least initially — you will soon see who can and who can’t work in less structured environments) because you want your best and brightest to work on the company’s future!
2. Detach people to the project — meaning they don’t report to their regular manager for their time on the project.
3. It is best if project work is a fixed block to do something meaningful in the innovation space (we suggest between one and three months).
Now let us break the list here — because it is crucial to handle the objections that will immediately be made against just these three recommendations.
The first objection is that this is not feasible because we are already stretched with the resources we have — now you want to take them away to do something else. That means we need more people, more budget to do it with, and where are we going to get it?
My best and brightest are needed to keep the lights on; I only have one of Joe! Great, we just identified a major organizational risk; start training another Joe right now! Get people to become multi-skilled. And about the lights, identify the root causes of problems so that you don’t need to firefight anymore, for fat too long you have not addressed the real issue! You are the manager of this division; why do you allow this risk to remain!
In the beginning, all the objections may be well and true — but remember that Efficiency Innovation projects are also mandated, and automation removes work from people, don’t retrench people, use them better! If you retrench them, you may save a few dollars, but you will get no further positive benefit from the improvement made. Up-skill lover-level people to do more complex work and free up your specialist to innovate and solve problems; problem solved!
4. Don’t tell people which project they must work on; let them choose. If you have an interest in something, you will be more innovative and more productive. Some organizations post ‘vacancies,’ and people need to apply for them, it sometimes works well, but in other environments, this is a disaster. Be sensitive to your corporate culture.
5. If you are on ‘detached duty’ — you are in a bubble, it does not mean that you do your regular job after hours! If you have key-person dependencies — remember you have just highlighted it — it’s a risk, so address it immediately! The executives need to be very strict about this!
6. Measure the manager on the contribution that their team members made in innovation projects and make this a substantial part of their annual reviews (we suggest between 33 and 50% in the beginning, at least until the immune system adapts to the new reality). Remember, what gets measured gets done (W E Deming).
7. In the ‘Innovation Company’ — don’t just innovate, build MVPs, take products to market even if they compete with the existing products and services AND give the innovation company an unfair advantage, expose them to your client list! Part of changing the immune system is to get the establishment ready to say — it’s incredible when can we take the product over and run with it!
8. Last but not least — AND THIS IS VERY IMPORTANT — the purpose of the innovation company is to feed and seed the established company with new and fresh products and services. If the idea flies, hand it over! The board needs to fervently resist the urge to spin the innovation unit off as a separate company to be listed! If you do- the immune system will NEVER trust you again — YOU JUST KILLED YOUR CASH COW!
It’s mostly OK to keep Efficiency and Sustaining Innovation part of the company's normal operations, but once again, make sure that expectations are clearly defined, and you measure outcomes against efficiency and sustaining innovation targets.
This article is part of a series exploring the use of Agile ADapT™, a Digital Transformation Method for incumbent organizations struggling to compete in the digital age.