Executive Summaries"
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In the early 2000s, faced with an alarming gap between its growth goals and what its innovation pipeline was delivering, Procter & Gamble created a “new-growth factory”—a network of novel structures and capabilities to rapidly shepherd new products and even business models from inception to market. The resulting innovations range from a 33-cent razor for customers in emerging economies to Tide Dry Cleaners—establishments with drive-through windows and 24-hour drop-off and pickup.
Brown, who is P&G’s chief technology officer, and Anthony describe the factory’s components and practices: new-business-creation groups, entrepreneurial “guides” to help them, an innovation manual, a disruptive-innovation “college,” and more. They also offer six lessons for leaders seeking to set up new-growth factories of their own.
Although the factory is still ramping up, its early successes suggest that collective creativity can be managed—and can generate sustainable sources of revenue growth no matter how big a company becomes.
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Although most managers publicly acknowledge the need to explore new businesses and markets, the claims of established businesses on company resources almost always come first, especially when times are hard.
When top teams allow the tension between core and speculative units to play out at lower levels of management, innovation loses out. At best, leaders of core business units dismiss innovation initiatives as irrelevancies. At worst, they see the new businesses as threats to the firm’s core identity and values.
Many CEOs take a backseat in debates over resources, ceding much of their power to middle managers, and the company ends up as a collection of feudal baronies. This is a recipe for long-term failure, say the authors. Their research of 12 top management teams at major companies suggests that firms thrive only when senior teams lead ambidextrously—when they foster a state of constant creative conflict between the old and the new.
Successful CEOs first develop a broad, forward-looking strategic aspiration that sets ambitious targets both for innovation and core business growth. They then hold the tension between innovation unit demands and core business demands at the very top of the organization. And finally they embrace inconsistency, allowing themselves the latitude to pursue multiple and often conflicting agendas.
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A few years ago the software development company Intuit realized that it needed a new approach to galvanizing customers. The company’s Net Promoter Score was faltering, and customer recommendations of new products were especially disappointing. Intuit decided to hold a two-day, off-site meeting for the company’s top 300 managers with a focus on the role of design in innovation. One of the days was dedicated to a program called Design for Delight.
The centerpiece of the day was a PowerPoint presentation by Intuit founder Scott Cook, who realized midway through that he was no Steve Jobs: The managers listened dutifully, but there was little energy in the room. By contrast, a subsequent exercise in which the participants worked through a design challenge by creating prototypes, getting feedback, iterating, and refining, had them mesmerized.
The eventual result was the creation of a team of nine design-thinking coaches—“innovation catalysts”—from across Intuit who were made available to help any work group create prototypes, run experiments, and learn from customers. The process includes a “painstorm” (to determine the customer’s greatest pain point), a “sol-jam” (to generate and then winnow possible solutions), and a “code-jam” (to write code “good enough” to take to customers within two weeks). Design for Delight has enabled employees throughout Intuit to move from satisfying customers to delighting them.
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No investment in innovation is ever a sure bet. Typically, innovation success rates are low, and returns are slow to materialize—if they’re generated at all. This makes innovation initiatives hard to justify when money is tight. But even then, it’s still possible to launch new offerings that excite customers. The trick is to find the promising assets you already have in hand.
According to strategy consultant Lance Bettencourt and consumer-products executive Scott Bettencourt, almost every company has previous discoveries with overlooked market potential. The six most common types of in-hand innovations include products that failed to launch because of particular circumstances, which may have changed since then; previously developed capabilities and features addressing customer needs that have recently risen in prominence; products that customers like for unexpected reasons and that could take off if repositioned; extras created for bundled offerings that could be spun out as stand-alone products; separate components that could be combined into an enhanced offering; and overdesigned products that could be simplified to help the company reach new customer segments.
With such innovations, much of the work has already been done. They can be brought to market with relatively minimal effort, resources, and risk and swiftly boost a company’s bottom line.
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When an executive makes a big bet, he or she typically relies on the judgment of a team that has put together a proposal for a strategic course of action. After all, the team will have delved into the pros and cons much more deeply than the executive has time to do. The problem is, biases invariably creep into any team’s reasoning—and often dangerously distort its thinking. A team that has fallen in love with its recommendation, for instance, may subconsciously dismiss evidence that contradicts its theories, give far too much weight to one piece of data, or make faulty comparisons to another business case.
That’s why, with important decisions, executives need to conduct a careful review not only of thecontent of recommendations but of the recommendation process. To that end, the authors—Kahneman, who won a Nobel Prize in economics for his work on cognitive biases; Lovallo of the University of Sydney; and Sibony of McKinsey—have put together a 12-question checklist intended to unearth and neutralize defects in teams’ thinking. These questions help leaders examine whether a team has explored alternatives appropriately, gathered all the right information, and used well-grounded numbers to support its case. They also highlight considerations such as whether the team might be unduly influenced by self-interest, overconfidence, or attachment to past decisions.
By using this practical tool, executives will build decision processes over time that reduce the effects of biases and upgrade the quality of decisions their organizations make. The payoffs can be significant: A recent McKinsey study of more than 1,000 business investments, for instance, showed that when companies worked to reduce the effects of bias, they raised their returns on investment by seven percentage points.
Executives need to realize that the judgment of even highly experienced, superbly competent managers can be fallible. A disciplined decision-making process, not individual genius, is the key to good strategy.
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A growing body of research shows that end users—customers, clients, patients, and others who benefit from a company’s offerings—can be important allies for leaders. By serving as tangible proof of the consequences and purpose of employees’ efforts, end users motivate people to work harder, smarter, and more effectively.
In his research, the author invited a scholarship recipient to spend five minutes visiting with university fundraising callers, who generally had no contact with the beneficiaries of their efforts. One month later, callers showed, on average, 142% increases in weekly time spent on the phone and 171% increases in money raised.
Leaders are not lone heroes who must rally their employees to do great things. They need partners who can enhance the meaning employees derive from their jobs. End users can inspire workers by demonstrating the impact of their efforts, showing appreciation for their work, and eliciting employees’ empathy for them.
To outsource inspiration effectively, leaders must identify end users (both past and present), collect their stories, introduce them to employees across the organization, and recognize workers’ impact on customers’ lives.
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The “free” business models popularized in the digital world by companies such as Google, Adobe, and Mozilla are spreading to markets in the physical world. How should established companies respond? The authors have found that some are too quick to offer free products of their own. Many more either don’t move quickly enough or simply fail to respond at all, even when they have the resources to win a head-to-head battle. Consider the reluctance of almost all U.S. newspapers to counter the attack on their classified advertising business from Craigslist.
To determine the level of threat posed by a free-product rival, a company should assess the rate at which its own paying customers are defecting versus how quickly the entrant’s user base is growing. Most incumbents can fend off the assault by introducing a better free offering and generating revenues and profits through up-selling, cross-selling, selling access to their customers, and bundling the free product with paid offerings.
Embracing free strategies is not easy for managers at established companies. One obstacle is the profit-center structure, which makes it impossible to consider a product’s revenues and costs separately. Another is the cost accounting system, which is not good for identifying the actual expense of generating additional offerings. To overcome these challenges, managers can push profit responsibility up, push revenue and cost responsibilities down to separate groups, and step back from the cost accounting system. They may find pricing flexibility they didn’t realize they had.
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The bottom of the economic pyramid is a risky place for business, but decent profits can be made there if companies link their financial success with their constituencies’ well-being. To do that effectively, you must understand the nuances of people’s daily lives, say Rangan and Chu, of Harvard Business School, and Petkoski, of the World Bank.
Start by dividing the base of the pyramid into three segments according to people’s earnings and related personal needs:
- Low income: 1.4 billion people, $3 to $5 a day
- Subsistence: 1.6 billion people, $1 to $3 a day
- Extreme poverty: 1 billion people, less than $1 a day
Next, consider the roles of various groups in the value-creation relationship: consumers, coproducers, and clients. Specific strategies work best with people in certain roles and at particular income levels.
Success requires appreciating the diversity at the base of the pyramid and the importance of scale in undertaking ventures there. Witness Manila Water’s success in the Philippines and Hindustan Unilever’s in South Asia. Failure to appreciate those elements can foil base-of-the-pyramid ventures, as Microsoft and Procter & Gamble each discovered.
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Bhasin was the head of GE Capital in India when, in the late 1990s, he had a vision for the future of a small division that was providing back-office services such as processing car loans and credit card transactions for the local market. GE Capital was the first foreign-owned financial services company that had been allowed into India. Considered an experiment by the government, it was hypervulnerable to changes in policy and philosophy. Bhasin wanted to find a safe and sustainable means of growth. The eager, ambitious talent pool he could see all around him, both inside the company and across the country, gave him an idea: Why not take advantage of that resource to offer support services to GE Capital all over the world?
The people he turned to for advice were uniformly discouraging. How, they asked, could he build a facility on the scale he would need, hire huge numbers of people and train them to Six Sigma standards on products they knew nothing about, and gain access to telecommunications and infrastructure at a level then unheard of in India? Undaunted, Bhasin pressed on, and today Genpact, which was spun off from GE Capital in 2005, directly employs 43,000 people and serves 400 other companies in 13 countries.
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Why is it that so many smart, ambitious professionals are less productive and satisfied than they could be? Thomas DeLong, an academic and consultant to executives, and Sara DeLong, a psychiatrist, argue that it’s often because they’re afraid to demonstrate any sign of weakness. They’re reluctant to ask important questions or try new approaches that push them outside their comfort zones.
For high achievers, looking stupid or incompetent is anathema. So they stick to the tasks they’re good at, even while the rest of the organization may be passing them by. In short, they’d rather do the wrong thing well than do the right thing poorly. They get stuck in this unproductive and unfulfilling pattern and can’t break free.
Of course, leaders in organizations bear some of the blame for this type of play-it-safe mind-set. They don’t always want to hear that a person is struggling, nor do they necessarily reward risk taking, even though they might pay lip service to innovative initiative.
The authors outline several steps that individuals can take to shake off fear and paralysis, including looking at past negative experiences from somebody else’s point of view and seeking out safe ways to allow themselves to become vulnerable.
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