When the rate of growth declines, businesses often leap to the conclusion that their problems are internal. They start reorganizing, bringing in consultants, changing leadership, punishing talent and preemptively capitulating on new initiatives. There is an almost irresistible drive to "do something, fast!" Succumbing to those feelings only ends up making things worse.
Many innovation projects fail at the start because leadership doesn't recognize that the company actually is being run pretty well and was busy reorganizing the core business not reorganizing for innovation. Worse, the company was attempting to reorganize the core business at the same time a substantial innovation effort was undertaken.
Companies and leaders often believe innovation has suffered because some employees are not doing their jobs well. They may believe that the developers are no good, the marketers are no good, or the sales force is no good. But generally, these companies are filled with great people working hard and doing a great job. Typically the reason there is difficulty innovating, quite simply, is that as an organization has grown it has added in several layers of organizational structure between the customer and the leadership. You can't commercialize innovation to drive growth in a company if its leaders are not hard-wired to the customers.
In a 50-person company, the customers typically have nearly direct access to company leadership. That allows leaders to hear about issues, problems or opportunities. As a company grows, layers of management grow between the decision-making leadership and the customer. At larger companies where owners and leaders are rarely the same people, the challenges of size are exacerbated by higher rates of turnover in leadership because professional leadership tends to turnover more than owner-leadership. Turnover results in leadership increasingly having less experience with individual customers even if the organizational layers are well-structured and transport customer information.
Increasingly, businesses are driven by talent. Identifying, recruiting and retaining talent always has been important and is widely recognized in any successful company leadership. Problems start as leadership begins to think of talent as a people with a collection of skills to perform specific tasks rather than focusing on what fundamentally drives some people to excel in their areas of interest.
One way to put this is, most people have talent, but a relatively small number are Talent (with a capital "T"). It takes skills, talent, aptitude and training to execute a complex repetitive task on an assembly line, but Talent has a different type of talent that can write a screenplay, or invent a new process or product. Both types of talent are critical to company performance, but leveraging Talent adds the element of understanding more complex motivational factors to the equation and is critical to innovation.
Almost by definition growth occurs when something new and creative is happening. This calls for people who can invent and create something new rather than do something well repeatedly. It is this ability to invent and create something new which distinguishes Talent. As companies get larger, and especially as they access public capital, leadership tends to come from the manufacturing and finance sectors that use excellent tools like Six Sigma to optimize repetitive processes in a mostly stable environment. This is an environment that thrives on the talented, but not necessarily on Talent. This leadership can have difficulty distinguishing the two types of talent and may not put sufficient emphasis on developing distinct systems to get the best results from each type of talent.
Leadership typically believes innovation is faltering because Talent is difficult to recruit or leaves an organization for all the usual reasons: They’re not sufficiently compensated, they’re not appreciated, they are frustrated at all the organizational barriers than prevent them from inventing and creating something new, and so on. While all of these can be factors, the current organizational structure of many businesses is simply fundamentally not set up to leverage Talent.
Further, Talent management systems must be substantial and gimmick free. It takes more than letting people come to work in their pajamas or bring their dogs to work to have sufficient Talent onboard to innovate to an extent required to drive renewed growth.
I once asked a very valuable programmer to help describe the work environment for a job description that would include the “code words” to recruit only other Talent. The result was very illustrative in that it did not mention compensation, office comforts, or work flexibility. It said: “clueful management that enthusiastically provides great tools, systems and support for you to do the best work of your career.”Human resources departments traditionally are expected to identify, recruit, retain, nurture and cherish talent. But they also are expected to do such things as keep employees in line, protect intellectual property and protect the company against employee liability. They are expected to be your priest and your policeman at the same time, a system that at the core is in conflict and dysfunctional.
One KPMG study showed that 83 percent of mergers and acquisitions did not increase shareholder returns. Another study by A.T. Kearney showed overall negative shareholder returns on mergers and acquisitions.
The trend toward increasing difficulty in innovating is typically blamed on the government, the lawyers, the Talent, the market power of entrenched rivals, and so on. And while these have always been factors adversely affecting innovation that certainly aren't getting better, the most likely causes of innovation failure almost always are internal to the company.
The reality is that if a business undertakes an innovation project within an existing declining-growth organizational structure, it pretty much is guaranteed that the first couple of innovation initiatives are going to fail. Running your company's core business is like driving a bus route. You might have to deal with unexpected weather, accidents, traffic changes and such, but you know every day where you are going and what it takes to get there. Innovating to drive growth is more like the journey of Lewis and Clark. You have no idea what's over the next mountain, what you're going to need when you get there, or how far you have to go to get to your destination.