Can Innovation be Managed?

This is a good question, one well worth answering, particularly for established enterprises running successful lines of business, the target audience for my recent book, Zone to Win. But before we get to that question, let me first tackle a much simpler one. Can innovation—specifically, the sort of disruptive innovation that catches the next wave of technology change—be mismanaged? To that question there is only one answer, one on which we will all agree—hell yes!

So, before we dig into how established enterprises can successfully manage innovation, let’s review four proven ways they can mismanage it:

1.  Put a product manager in charge of the next-generation product. This seems like a perfectly good idea. It is, after all, what product managers do for a living. But the role of product manager only works for sustaining innovations where it is supported by the inertial momentum of the enterprise. When you ask it to champion a product that goes against that inertia, when it must challenge the status quo, it simply does not have the heft to post up against the incumbent regimes in sales, engineering, marketing, or professional services.
2.  Declare it a pet project of the CEO. This solves the posting up problem, for sure. No one wants to get on the wrong side of the Big Cheese. As a result, the product gets fast tracked, racing through its incubation phase, getting whatever engineering resources it needs, riding a red carpet to market where every account executive is assigned a special quota just for it. We are going to crush it! Unfortunately, that is exactly what happens. An immature product in an emerging category with no ecosystem of support is launched across a global footprint, hopelessly overloading its core team, exposing it to any number of demands it is nowhere near ready to meet. The result is, well, a mess, from which the sales teams quickly retreat, and for which the rest of the enterprise must simply apologize.
3.  Acquire a hot company and promise to leave it alone. At first this solves quite a lot of problems. The product is more mature, as is the team, and the acquired sales force can overlay onto the existing account teams to sell in the next generation offering. What could go wrong? In a word, culture. Despite everyone’s best intentions, the ambitions of the new and those of the old simply typically do not mesh, rifts open, productivity goes south, and growth goes sideways. Eventually the CFO points out that we are nowhere near making the numbers that justified the acquisition, so professional management is needed, resulting in the exit of whatever talent is left.
4.  Make a major acquisition of a company with real traction in the new category. This is actually the most likely to succeed of the four, but it requires making a big bet because you have to pay up for shares inflated by future expectations by spending shares that whose value has been hard earned through real cash flow. It also involves taking a big risk on the founding team, some of whom you have just made very rich. Yes, you can impose golden handcuffs, but don’t kid yourself—many an acquired entrepreneur has vested in peace, leaving the day after the lock-up expires. You need them instead to become part of the go-forward management team, or at minimum, you need to develop the next level down in their organization to step up and replace them. Neither is an easy task, but to be fair, neither is an impossible one either. That’s why this is the best of the four “mismanagement” options.

So why am I being so hard on people here? Because in the midst of all this there is another path, a management approach to disruptive innovation that has absolutely kicked butt for forty years, with a proven track record that blows away anything you could compare it with, one that everyone has heard of, everyone knows, and one which virtually no enterprise management team actually implements! 

I am referring, of course, to venture capital.

Now, let me clear. I am not referring to the venture capital financial model. That is a uniquely privileged situation that no publicly held enterprise can hope to approach. VCs are like baseball players at bat—the very best of them fail more often than they succeed and still garner outrageous compensation. That is not true of public company CEOs. Indeed, while a VC needs to win maybe once out of every two or three times, public company CEOs making big bets need to win every single time! Given that, what could they possibly learn from VCs?

The venture capital operating model.

Venture capitalists have been successfully managing portfolios of disruptive innovations ever since the 1980s by adhering to the following principles:

• Fund entrepreneurs and business plans, not labs and project managers.
• Create independent operating units with all functions supplying dedicated resources to an empowered GM.
• Do not use the success metrics of scaled businesses to measure the progress of a scaling business.
• Never fund anything annually. Fund only to the next material milestone, leveraging an Incubation Fund managed by an Incubation Board.
• Never leave entrepreneurs unsupervised. Have an Incubation Board member meet with each GM once a month to dig into what is working, what is not, what has been learned, and what is being tried next.

To integrate these principles into an established enterprise’s annual operating plan does require reengineering a number of practices, something described at length in the Incubation Zone chapter of Zone to Win. Following that playbook allows management teams to steer clear of innumerable rat holes that their current practices create, and to develop legitimate prospects for success in the short, medium, and long term. In short, this is a great operating model for incubating disruptive innovations inside an established enterprise, and you are crazy if you don’t implement it.

That’s what I think. What do you think?

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Geoffrey Moore | Zone to Win | Geoffrey Moore Twitter | Geoffrey Moore YouTube