Large organisations find it so hard to innovate, according to Dr. Jeanne M. Liedtka, because of the “physics of growth”. Dr Liedtka, who is currently running an MOOC on Design Thinking which I am taking, says there are critical differences in the way VCs and large corporates approach innovation. VCs understand that their ability to predict success is poor (success rates of one or two ventures in 10 are typical). Therefore they adopt some key practices to improve their odds:
- Betting heavily on individuals with good experience of both success and failure
Keeping bets small and affordable until they have better data - Making sure if they don’t succeed that they fail quickly
In contrast large organisations are optimised for execution. This means, she says, they love big ideas which makes sense from their perspective: focus and control are key and concentrating on one or two big things is much easier than on many small things.
But there are some terrible side-effects with this approach when in comes to encouraging genuine innovation:
- Big ideas, by their nature, tend to have been found by other competitors already
- Customers are terrible at envisioning things which don’t exist
- “If you insist on home runs you won’t get many singles, let alone home runs”
- When the ratio of resources invested gets too far ahead of knowledge possessed “bad things happen”
All of this discourages learning in managers – and learning is the key mindset for innovation. After all, she says, you don’t learn to juggle with flaming torches but with bean bags!
Large companies also thrive on analysis. But we don’t have enough data on genuinely new things to do any coherent analysis on. When managers are challenged to support a new big idea with past data the temptation is to make it up.
All this leads, she says, to trapped managers in a kind of growth gridlock.
The chart below summarises the two approaches. “Geoff’s” cycle (the VC or entrepreneur perspective) starts from an open mindset and is strong on varied experience and customer empathy – which means being deeply interested in the lives of customers are people.
In contrast “George’s” cycle (the large corporate perspective) starts from a fixed mindset (aka deep expertise which is so successful in an execution setting) and relies on customer data. You can read the results for yourselves.
This is one of the best descriptions of the fundamental mechanics of the innovation process that I have yet seen. The good news, according the Dr Liedtka, is that all of this can be taught and there are many examples of large corporates making innovation work in exactly this way. I’m looking forward to the rest of the syllabus.