Why Your Organization is (Probably) Failing at Innovation

10x vs. 10%: Divergent Pathways

Ken Norton, a senior operating partner at GV (formerly Google Ventures), gave a keynote speech to industry leaders at a project management conference in September 2015. The main thrust of Norton’s address was the concept of “10x vs. 10%” or what he saw as the pitfalls of the business practice of choosing the safe bet over the risky proposition.

“Kodak was a 10% company, but they needed to be 10x,” said Norton in his speech. “10x is a moonshot, an order of magnitude improvement. If you’re only thinking 10%, you’re taking the obvious path that everyone else is on. 10x requires a whole new mentality. If Kodak executives had asked what it would take for the world to snap one trillion photos a year, a new understanding would have emerged.”

We’ve seen time and again that companies enamored with incremental growth will eventually be surpassed by companies that take “moonshots”—usually disruptors from outside of the industry. Instead of experimenting in order to make smart bets on high-growth opportunities, 10% companies take the safe path and try to avoid losses.

What If You Think 10%?

The business landscape is littered with organizations that enjoyed massive success for an extended period of time, only to fizzle out when target customers latched onto more innovative options.

Everyone of a certain age remembers meandering about in our local Blockbuster on a Friday night, rushing to grab sought-after new releases or finding a hidden-gem comedy to rent for a few days. It was a weekly ritual that perfectly married our love of movies and our desire to watch them at home, on our own time.

Disruptors have a way of turning 10% companies’ assets into anchors. Blockbuster was living off of late fees and had an unbeatable network of physical stores...until Netflix bankrupted them with a new business model that eliminated the fees and turned retail locations into a giant liability. One of the most amazing moments between the two companies is when Netflix tried to sell itself to Blockbuster in order to become their streaming arm...and Blockbuster said no. Blockbuster simply couldn’t imagine a world without late fees and physical stores.

The genius of Netflix is right at the moment where they became the undisputed kings of movie rentals, they were already disrupting themselves by pivoting to streaming. They did it again when they pivoted to creating their own content. Netflix operates with a 10x mindset.

How Can Your Company Implement Innovative Ideas?

Being an innovative, exponential company is about more than simply dreaming up the next big idea. Instead, the true measure of success is implementation—which requires a transformation of your company’s entire culture.

Think about some of the most innovative companies we know: Apple, Google, and Amazon. Their cultures were built from the ground up to foster innovation. This gives them a tremendous advantage vs. legacy organizations.

We’re not here to say that reimaging your company’s culture is easy—in fact, quite the contrary. This is a multi-step process that begins with re-imagining the way your set, track, and achieve goals. The good news is that the exponential organizations we work with already have a system in place.

Being an innovative, exponential company is about more than simply dreaming up the next big idea.

Use Objectives and Key Results (OKRs)

This is a system that tracks individual, team, and company goals and outcomes in an open and transparent way. The Objectives and Key Results (OKR) method was invented at Intel by CEO Andy Grove and it eventually found its way to Google via venture capitalist John Doerr in 1999. Grove introduced the OKR process by asking two simple questions: Where do we want to go? How will we know we’re getting there?

Objectives can either be specific or vague. The key results that support each objective, on the other hand, must be specific, measurable, and timebound. It must also be true that achieving the key results means that the objective has been accomplished—and this is one place where teams often have trouble.

For example, if your objective is to increase sales, your key results might be to form three strategic partnerships this year and run ten new outbound campaigns this quarter that increase sales by 10% each. We can imagine, however, that forming strategic partnerships might not have an actual impact on sales. Running ten outbound campaigns that increase sales by 10% each, on the other hand, will clearly have an impact on sales.

Another thing that many organizations find difficult about OKRs is that they require transparency in order to work best. At Google, anyone can look up Sergei and Larry’s OKRs and even see how they’re performing against them. Most legacy companies simply can’t imagine being this transparent.

OKRs clarify goals and align everyone so that they’re all rowing in the same direction. This is especially important with innovation initiatives, where different groups may be charting their own, competing paths. JPMorgan recently shuttered it’s Finn app focused on Millennials, for example, because it competed with their core product. “Imagine if you were running the checking account business for Chase and then some other internal group is like, 'I'm going to launch a checking account, but don't worry, it's just going to be for millennials. I swear it won't impact your business. And you, as the head of the checking account business, have no say into what it is, how it is structured.”

OKRs have been proven to deliver sharper focus, more powerful insights, and more easily-implemented improvements.

It’s exactly this environment that fosters 10x outcomes—in stark contrast to traditional corporate environments concerned with secrecy, complex approaches to problems, and goals that are often far too broad.

Always Experiment

Assume nothing, question everything. But while that might be a fine platitude for life, in business it isn’t so cut and dried. In order for progress to be made and new ground to be broken, companies often have to make assumptions about their customers—while, yes, questioning everything. What’s important is testing those assumptions with controlled experimentation.

That experimentation should equate with a constant state of healthy growth. Companies that tend to play it safe (10%ers) work hard to create a static environment of predictability in order to reduce risk and maintain the status quo. But our fast-changing world requires companies that utilize emerging technologies in a scientific, data-driven process to find their way to innovation. Companies that are constantly experimenting with bottom-up ideas are actually reducing risk, as opposed to top-down thinkers.

Evidence of this can be seen with the retailer JCPenney, as told by the Harvard Business Review in a 2014 issue. CEO Ron Johnson left Apple to join JCPenney in 2011, implementing an audacious plan that eliminated coupons and clearance racks in favor of branded boutiques, along with new technology that phased out cashiers. It was a top-down plan that aimed to usher in massively successful results and it was implemented by a CEO with experience and intuition on his side—but 17 months later sales plunged, losses soared, and Johnson lost his job.

The simple explanation is that JCPenney’s customers didn’t want these changes.

The catastrophic results of JCPenney’s retail makeover highlight the importance of knowledge over intuition.

Had the company conducted advanced testing of the components of the overhaul, it might have averted disaster.

Johnson had the right resume. Before attempting the JCPenney overhaul, Johnson managed Apple’s new retail operations. Along with Millard Drexler, he prototyped a store, then tested, retested, designed, and redesigned it based on customer data and feedback. The first Apple store opened in 2001 and achieved colossal success, with hundreds of stores currently operating in multiple countries.

The good fortune of the Apple store can be largely attributed to the Lean Startup concept of building, measuring, and learning using ideas, code, and data. This method left room for the Apple visionaries to fail early and learn from those failures—which is a crucial prerequisite for experimentation. It’s fascinating that Johnson didn’t practice this same approach at JCPenney.

When Companies Successfully Innovate

It’s not all doom and gloom for legacy organizations, but the rate of change is picking up. This is the slowest the world will ever move.

Successful companies are increasing their internal metabolism in order to keep up. A 2015 global report by Capgemini Consulting and Altimeter reveals “an illustrative example of well-focused, integrated innovation at Walmart” In this case, Walmart Labs—Walmart’s in-house innovation center—enables e-commerce innovations to be seamlessly utilized by its online sites. A Walmart Labs team was able to develop an internal search engine in nine months, which resulted in 20 percent more online sales.

Then there’s AT&T, a communication giant that has dealt with endless competition. Establishing a network of “Foundry” innovation centers around the world has helped AT&T to cut the time from idea to launch, while the company’s numerous collaborations with start-ups continue to deliver successful solutions like a personalized video bill service and a self-optimizing network. Perhaps most importantly, the Foundry created a culture of innovation and creativity inside the AT&T organization: a truly exponential result.

A Walmart Labs team was able to develop an internal search engine in nine months, which resulted in 20 percent more online sales.

“The advent of thriving technology hubs, and the appetite of new digital entrants to relentlessly disrupt and innovate, has created an innovation ecosystem that traditional organizations can tap into,” says Fernando Alvarez, Global Chief Digital Officer, Capgemini Consulting. “By combining the culture and approach of innovation centers with the budget fire power and access to customers that they enjoy, traditional organizations have an excellent opportunity to innovate and re-energize their capabilities.”

Innovation: The Big Picture

The trick is to bring the culture of the parent company along, so that the mothership embraces these new developments rather than watering them down and/or killing them.

Long-standing companies are able to remain successful thanks to a staunch willingness to not only experiment, but take calculated risks in an effort to grow 10x instead of 10%.

Had Kodak or Blockbuster done the same, there’s a good chance we’d still make it a Blockbuster night and enjoy true Kodak moments.

This article was originally featured on ExOWorks in July, 2020.