Managing Corporate Innovation
After years in engineering and supply chain, my first position within a marketing department was to develop and document a commercialization process for the product and engineering teams to follow during new product development. The goal was to encourage them to consider the commercial product launch at the beginning of and throughout the development. The company had a stage gate process used to document opportunities, monitor engineering spend, and make updated decisions about further investment during projects. A stage gate process is characterized by work being done in a stage (i.e. business plan, detailed design, field trials) and then reviewed at a gate where the decision is made to move to the next stage, or not. The process included the following stages: inception, business case, preliminary design, detailed design, field trials, and launch. At the end of each stage a gate meeting was held to approve or deny moving to the next stage, the approvers being engineering, marketing, manufacturing, and operations management. Since this position, I’ve been interested in how companies foster creativity, introduce new products, and manage their innovation. In today’s world where knowledge and outsourcing of manufacturing, distribution, and delivery is readily available, innovation is the only way that companies can create a sustainable competitive advantage.
Gain Innovation Efficiencies?
While I worked at Weatherford as a product manager, one of our largest competitors underwent an entire business transformation. The change in strategy/organization included many changes to their innovation process. The CFO of the company was quoted during the time about the change
“The company launched an initiative ... which was designed to present a single face to customers and to allow the company to operate much more efficiently.”
Financial and operational efficiency went down to the engineering investment level as well, they implemented a new enterprise wide product development process. The changes increased documentation requirements, number of people involved in decisions about innovation, and required strict process adherence greatly increasing the work associated with the process. The stakeholders felt like the new implementation would increase the enterprise understanding of where their R&D investment was going and ultimately the return on investment.
My understanding, from industry colleagues, of the result was the exact opposite. The effort increased the number of gatekeepers at each approval meeting, the amount of documentation required, and the structure surrounding the decisions. After implementation, one engineering manager told me that she was “adding a year to every development to accommodate the new process”. Even if it was only 6 months, adding this amount of time just for documentation to a new product could, and likely did, push the new product outside the window of opportunity. Shortly after this, some of the operational groups sidestepped the process by creating their own engineering group to meet the needs of their market. Without this, the burden of the process would have slowed their ability to meet the needs of a fast-changing marketplace.
Prior to the transformation, this competitor was known as the most innovative company in the industry and had several category changing technologies. During this time I was able to manage and oversee many innovative products, but I never saw this competitor equal their previous innovations.
When it comes to corporate innovation, what is more important: tracking every penny of investment or speed of innovation? While accounting and accountability are important, innovation is the key to a sustainable competitive advantage.
As a product manager who is interested in business, innovation, and the process of business success I look back on the changes that this company made and analyze how those decisions affected the business. I believe there are several symptoms of the innovation bureaucracy they created that resulted in a stunning lack of innovation.
Innovation through Committee?
I’ve referenced The Fountainhead before, but one of my favorite quotes from the book comes from a businessman talking to Howard Roark, the protagonist, about business board of directors, i.e. committees:
“Have you ever known a board to do anything? . . . Have you ever known a board to do anything at all? . . . All I mean is that a board of directors is one or two ambitious men—and a lot of ballast. I mean that groups of men are vacuums. Great big nothings. They say we can’t visualize a total nothing. Hell, sit at any committee meeting”
The CFO’s statement about the transformation centered around driving efficiency. If this was the goal, they felt that increasing the gatekeepers at every innovation decision resulted in a committee overseeing innovation.
Innovation is successful when the new technology meets the needs of a large group of customers. Understanding of the market that those customers make up is critical for making the right decisions about how to invest in new products. In most cases, during these approval meetings, the product manager presenting the engineering project/opportunity is the only one in the room that knows the market. While the engineering, marketing, safety, and product line executives may be best in class at managing their teams, they’re not going to be more knowledgeable about the market than the product manager. So, they will have to make their decision based on the presentation being given, which I would assume would not have been prepared if the product manager didn’t believe in it. If this is the case, what grounds will the committee have for canceling the project? While this is the actual case, each person on the committee will want to make sure they look like they’re adding value. This will result in additional “busy” work on the product manager, which usually will add no value to the innovation.
One argument could be: “there are other projects that provide a higher return.”" The evidence for this would come from the business cases being presented. If so, why have a meeting? Line up all the ROIs for the projects being reviewed and pick the best ones. No meetings necessary, email the project teams whose projects have been canceled and assign them to the more important ones.
My point is, having a grand production of a product update meeting with a huge amount of decision makers is a waste of everyone’s time. The monitoring of R&D could be handled in a much more efficient manner.
Innovation Through Process?
Any time business is focused on efficiency their goal is to implement processes that reduce waste, increase the ability to gather data on work effort, and systemize business processes. “Let’s make it as easy as possible for anyone to follow this process and we’ll get the same outcome every time.” The difficulty with innovation is that not just anyone can do it. With completion tools, for instance, it takes a keen understanding of the customer base, the challenges the tools experience downhole, the forces exerted from the challenges, the existing products and solutions, and relative costs of different design directions. If the team working on the challenge is missing one of these pieces of the puzzle it could result in taking too long to develop the solution, creating a viable solution that is too costly for the market, creating a solution that only works for part of the market, etc. For any technology, there is a very small set of engineers and product managers that can create a good product. Just having the right process, will not make up for lacking these qualities on the team.
I’ve been listening to the How I Built This podcast for a while and I am currently reading the book based on the interviews. One overarching theme in the book and across the interviews is that the successful startup founders were, in some way, uniquely suited to address the issue their company solved. Professional or life experiences have equipped them to understand the markets, products, and how to deliver them in a way that enabled them to succeed. This applies to product leaders and teams within a corporation as well. Without these qualifying experiences the team will be slower to respond to the needs of the market.
Relying on an innovation process too heavily allows teams that aren’t very good to hide behind the process. If a company develops a process that requires a huge amount of documentation, analysis, and presentations, it is easy for the process to become the focus of people’s effort. Teams, engineers, and product managers can and will become very proficient at following the process. Wonderful presentations, business cases, and design documentation are the result. The difficulty is that the purpose of innovation is not to have the best presentation, business case, or documentation that is presented internally. The purpose of innovation is to make money. So, if the company is focused on the process and teams perform the process at a superior level, how do you fire them when their projects do not convert?
Another symptom of a heavy process focus is that it becomes a crutch for middle management. It is easy to defend a group of employees that are following the process to a T. It is harder to decide who is the most innovative, forward thinking, team members that are going to help grow the business with their efforts. The process allows poor managers to maintain the status quo, and therefore their positions. “How can you question my management when my teams are following the process?”
Reed Hastings, the CEO of Netflix, was discussing his early management efforts at Netflix and how he was trying to create too many processes for managing the business. He said “we were trying to dummy-proof the system, and then eventually only dummies wanted to work there.”
The downfall for the business is that the creative thinkers and tinkerers will get bogged down in the documentation, useless presentations, and meetings with gate keepers that don’t know the market, competitors, or the tools being presented. If they’re able to find an environment that will foster their creativity and let them innovate, they’ll leave. The loss of these creatives will further slow the innovation, impacting the future of the company.
How should you manage innovation?
Having a process to report, measure, and discuss product innovation is necessary for the business to understand where their R&D capital is being spent and how successful it has been. The goal is to let innovation happen with as little of “overhead” as possible. The best way I’ve seen innovation happen is when a talented product team, led by a strong product manager, is given the freedom to respond to a market as quickly as possible.
The product manager’s goal is to use their knowledge of the market to optimize the product portfolio through new product and sustaining engineering, support to the sales team through technical and commercial guidance, market the products, and communicate with supply chain to ensure the proper supply is in place. In my experience, product managers are given an R&D budget through the sizing of their engineering team. They must manage their engineering spend within this constraint, if there is a large product that will require investment beyond the original budget, it is up to them to sell the opportunity. The product manager shall have complete communication with sales & operations, either delivering technical support, commercial guidance, or direct communications with customer, or receiving market intelligence. Listening to the sales team is a key part of success, making sure the product development meets the needs of their customer. Finally, a clear understanding of the supply chain is critical to meeting the revenue and profitability goals of the product line. Understanding demand, through communication with sales, to forecast inventory is important to taking advantage of a growing market. Once the product is established, optimizing inventories will be critical to reducing working capital.
These are the actions that the product manager must be held accountable to with revenue, profitability, and growth targets as the metric for their success. When managing them, reviewing the current projects, communication with the interested parties, and the support provided with the lens of how well the product line is performing should be the basis of how they’re judged. Requiring formal meetings where their ability to fill out paperwork or present detailed financial forecasts shouldn’t be how they’re judged. If they’re not meeting their financial metrics or creating an environment for clear communication between groups resulting in quick innovation, then maybe someone else could perform better.
Overall, product managers need to be managed just like everyone else. Set goals, communicate throughout the process of achieving these goals, and hold them accountable if the goals aren’t being achieved. Setting a process in place and believing that innovation is going to pop out the other side is a recipe for a stagnant product pipeline. This mentality has to be a big reason for why small companies are known for driving the most innovation and large companies fall behind.