Addressing ambiguity

Can large businesses innovate? Not ‘are they good at it’, but ‘can they’?

Businesses want to innovate to make money. So they do what comes naturally – offer their innovators financial rewards. But financial rewards undermine innovation. Not just prove unhelpful, but actually undermine it.

London Business School Professor Lynda Gratton has developed compelling evidence to show how innovation is hindered by extrinsic motivation – the possibility of a pay rise or a promotion, for example – because the individual will focus on how he will be evaluated, usually in direct competition with others: “Creativity is most free-flowing when people are inspired and self-motivated, and enjoying the process itself, rather than under pressure to deliver what someone else wants”, she points out.

So businesses aren’t good at rewarding innovation because they don’t understand the innovator’s motivation. But that alone doesn’t mean that businesses cannot innovate. Lynda Gratton has spent a long time looking at those models of internal competition so beloved by larger organisations, and how encouraging competition can suppress creativity and hinder performance. Gratton states “the best performance is actually proven to come through collaboration. If more than 32% of team members are competitive, collaboration will not work”.

Even if 32% sounds suspiciously precise, the principle is sound. Internal competition (such as competing P&Ls), almost always backed up by direct financial incentives, is consistently trumped by collaboration within and across businesses.

Last month New York Times columnist David Brooks said that businesses were architects of their own doom for promoting competition, arguing “competition has trumped value-creation and the competitive arena undermines innovation”. He pointed out that we shouldn’t be looking to compete – because we should concentrate on defining a niche market – creating and dominating that niche.

So it’s not just failing to understand innovators that large businesses are doing wrong, it’s their continuing reliance on internal competition to drive growth. But isn’t there still hope for businesses, provided they abolish internal competition and try harder to find the right motivational systems?

Here’s where it gets really tough for those larger businesses. They got to be that size by developing advanced systems to address uncertainty and volatility. As changes gathered pace, they deployed a range of traditional management techniques and increasingly algorithms to improve their ability to react to and evolve in a world increasingly marked by uncertainty and volatility. The entire management structure was built to improve the organisation’s ability to deal with uncertainty and volatility. And by being better at coping with these than their competitors, they got to survive and even prosper when uncertainty and volatility seemed to be dominant in a changing world.

But now it’s ambiguity that’s knocking businesses for six. Uncertainty is not knowing which number will come up on the dice. Ambiguity is not knowing how many dice there are, or how many faces on each dice, or even what the numbers mean on each face. Go back to David Brooks’ comments now and “concentrating on defining a niche market, creating and dominating that niche” becomes the new purpose for business. Now larger businesses’ ability to handle uncertainty and volatility don’t count for much. Because while they’re dealing with those threats, innovators are coming along redefining entire business sectors by creating and dominating those niches.

Entrepreneurs seek out ambiguity, because that’s where their agility, lack of corporate overhead and speed off the blocks allows them to spot, create and dominate niches. In a time of intense ambiguity, larger businesses need to get better at managing a portfolio of innovation, allowing their most innovative people to explore and define new niches. That’s going to require not only the HR department to re-examine reward systems, and the COO to re-examine a company structure of competing P&Ls, but also the whole Board to re-examine how the business is measured and the CEO to develop a tolerance or even a taste for ambiguity. We will need to innovate organisational structures and behaviours, reward systems and hierarchies at the same time in order to succeed. And we will need to finally bury the idea that internal competition is valuable.

So what we can we do right now? Let me finish on a pragmatic note – a few learnings from my time as an innovation catalyst in a large creative organisation as well as my time as an entrepreneur:

  • mix it up; move people around physically and organisationally; form and re-form teams with different disciplines; distribute HR and finance throughout the building; put left-brain people and right-brain people next to each other
  • provide official channels (like corporate social media channels such as Yammer) for ideas-sharing and internal communication; and let unofficial channels prosper; understand that some of these initiatives will fail
  • provide space and time and encouragement for groups to come together to think; look for new corporate strategy to come from these impromptu groups
  • implant “innovation catalysts” – events; people; or ideas; or stimulus to think differently
  • encourage different thinking in areas outside your core business focus; innovation often happens in the “white spaces” between what we think we’re supposed to do each day
  • openly celebrate the outputs of all this new thinking; praise the ideas and the innovators; show staff that their thinking is valuable and is contributing to new energy within the company
  • ensure the CEO, CFO and COO are seen to buy in to the approach

TOTs’ businesses are booming

In tough economic times, it’s the TOTs that Britain should be turning to for inspiration and business success. No, not one-year-old toddlers, but one-year-old businesses. In this case TOT stands for Twelve months old, Optimistic and Technologically-minded (no, I don’t like the acronym either, but I do sign up to the thinking).

Henley Business School research into the success of small businesses identified the TOT, a new breed of agile start-up rooted in tech, as having the potential to add at least £360 million to the UK economy in 2012. Henley surveyed 253 start-up business owners (11-16 months old) last October and found that over half of TOTs predict revenues up by 30% or more in the next year. With the average TOT employing four permanent staff, between 40,000 and 70,000 new jobs in 2012 could be created by TOTs.

Henley Business School’s Professor Dominic Swords says: “TOTs have made it through the teething phase and have a different mindset that will challenge traditional businesses. They see opportunities in challenges, showing the benefits of a positive attitude in winning market share and leading a growing business.”

Here’s to the Crazy Ones

“Here’s to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes.

The ones who see things differently. They’re not fond of rules. And they have no respect for the status quo. You can quote them, disagree with them, glorify or vilify them.

About the only thing you can’t do is ignore them. Because they change things. They invent. They imagine. They heal. They explore. They create. They inspire. They push the human race forward.

Maybe they have to be crazy.

How else can you stare at an empty canvas and see a work of art? Or sit in silence and hear a song that’s never been written? Or gaze at a red planet and see a laboratory on wheels?

While some see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do.”

The text is from the 1998 “Think Different” Apple ad that marked the beginning of Apple’s re-emergence as a technical giant thanks to the return of Steve Jobs. I don’t think it’s possible to over-estimate Steve Jobs’ impact on the worlds of technology and business. Not just in what he did, but in the way that what he did inspired or enabled so many others to make great things in whatever they did. The human body is fragile but the human spirit can, occasionally, soar to dizzying heights. RIP Steve Jobs.

Stuck on Silicon Roundabout

Yesterday Business Insider published their 2011 Digital 100: The World’s Most Valuable Startups. The top 100 are ranked by estimated valuation. The top 4 contains no surprises – Facebook, Zynga, Groupon and Twitter. A couple of small surprises feature in the rest of the top 10 – sites like Wikipedia (difficult to value a non-commercial organisation) and an analytics company called Palantir which I hadn’t heard of before.

Least remarkable was the dominance of Silicon Valley addresses. Now and again start-ups from outside the Valley pop up – Chicago, Washington DC and Paris all feature as top ten start-ups’ locations. New York, Finland and Sweden appear in the top 20. Seattle, Moscow and Shenzen, China feature in the top 50.

You’re probably seeing where I am going with this now – looking at home. You have to get to number 65 to find the first British company – Mind Candy, the founder-owners of Moshi Monsters, has an estimated value of £250m – and then on to number 86 to find the second –, an lesser-known online gaming company. One more – Shazam – at number 91 and that’s it from the UK.

Now there are plenty of countries without a single company in the top 100, so maybe I am being harsh on Britain. But then maybe not – how is it that a country with such a rich seam of creativity, with such an apparently vibrant tech scene on the street, cannot manage to grow companies to any significant value – or at least not more than three? Google’s Eric Schmidt was in Edinburgh last month blaming it on our education system not turning out engineers. And there’s a broader view that British entrepreneurs tend to sell out too early, before their companies reach the nine-figure-plus valuations that get you soaring up this sort of list.

Whatever the reason, we’re punching below our weight on the world start-up scene and we need to work harder on finding the reasons why…