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Commercializing Innovation to Drive Growth
- Companies misidentify the cause of a declining rate of growth.
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.More often than not the threats to growth are primarily external. The industry may be maturing. The technology may be changing. New agile competitors are emerging. There’s an old saying up north: "When driving on an icy road don’t jam on the brakes. Just let the car's momentum work for you with gentle coaxing to maintain its track." The feeling of not being in complete control is disconcerting, but it's the key to avoiding a crash.
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.
The first mistake people make is looking too hard internally and not really understanding the external, technological and functional elements affecting a company. Once the true nature of the decline in growth is understood, then the appropriate companywide changes can be made. These changes often are very different than the ones that are made reflexively when only looking internally. And when they do look internally, they often look at the wrong things.
- Internal changes need to be made to accommodate the scale and scope of innovation sufficient to drive companywide growth. They are just different changes than the changes reflexively made in the "do something fast" approach.
- Companies experience increasing difficulty in innovating new products and services.
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.
- All innovation that drives growth begins and ends with the customer problem that a company is going to get paid to solve.
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.The current organizational zeal for "knocking down silos" – while there are reasonable arguments to do it for stable core businesses – often results in replacing leaders who have known those customers for 10, 15 or 20 years. This makes it increasingly difficult to innovate because it’s getting increasingly difficult to understand what the customer wants and what are the best ways to solve their problems. These communication challenges are bilateral as organizational layers and leadership turnover also make it difficult for the company to communicate its progress and challenges effectively back to the customer.
- The current HR model can contribute to talent flight.
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.
- A major impediment to an effective Talent management system is the current HR dogma that a homogeneity of personnel policies and compensation methods is required to avoid regulatory entanglements and legal liabilities. The many meritorious objectives of these homogeneous systems come at a high cost to innovation. A key to successful innovation is being able to reconcile these seemingly mutually exclusive HR goals.
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.
In the beginning of the current age of HR thinking, the "protect the company" aspects of HR were small relative to the job of optimizing the company's human resources. But as regulation and litigation began to overwhelm companies, the role of HR is now completely skewed toward protecting the company. Generally, the larger the company, the more protective the HR policies. The more protective the HR policies, the fewer the Talent, the less the innovation.
- The current HR model may work well for the established core business, but it is broken when it comes to innovation. An innovation initiative without fundamental changes in HR is highly unlikely to be able to sustain companywide double-digit growth.
- The failure rate for new investments and innovation initiatives is increasing.
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.Another dubious trend is reflexively applying management philosophies fashionable to the core business but unwittingly adverse to an innovation initiative. One example is leadership's fear of being labeled a "micromanager." In the modern management lexicon, being labeled a micromanager is a potent pejorative that calls into question if you fundamentally have the stuff to be a leader. While avoiding micromanaging in a relatively stable environment of the core business has merit, it can be a disaster when used in an innovation initiative. Leadership can delegate most of the details to their bus drivers on a familiar bus route, but you can bet Lewis and Clark paid close attention to every detail of their journey.
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.
Using a highly-delegated management style on an innovation initiative almost always results in a launch-day disaster. Too often, when company leadership is far away from the day-to-day work of innovation initiatives, leadership may truly believe everything is going great right up to the launch day. Then, amid the fanfare and celebration, they find the innovation doesn't work or is woefully incomplete.
- Leadership must be ongoing, contemporaneous, and fully engaged from beginning to end in an innovation initiative. There must be frequent and highly-visible milestones that test outcomes, not just performance, relative to goals. One of the best ways to guarantee success of an innovation initiative is to eliminate all the possibilities of failures, and one of the best ways to eliminate the possibility of failure is to anticipate and react to failure every step of the way.
- Companies face a decline in market and financial power while competitive threats are increasing.
- Historically, declining growth has resulted from a loss of market share to a contemporary rival with a similar market position and market power. The trend today is that growth is being lost to smaller, more agile, more innovative companies. A large number of really good innovators are nibbling away at your new business growth opportunities – like being attacked by piranhas – the response to which requires completely different tactics than outmaneuvering an established rival.
Gone are the days that a price cut or great new marketing campaign can re-establish growth against an equally well-established peer in the market. Why? Because in most cases today growth is found in a tangential new market or a tangential new product or service. Your advantages in market power and access to capital are diluted in these new markets and these advantages will not typically be enough to fend off a swarm of small agile innovating companies.
- You need to fortify your market and financial advantages with your own innovation. You don't necessarily have to beat their agility and innovation, but you need to get very close. An acquisition transition team was once shocked to hear its visionary CEO direct that when the transition of the small newly-acquired company was complete, the large acquiring company was to be more like the small acquired company, not vice versa.