How to kill Innovation - Drown it in Operations!

The word you will read a lot below is partner. That is a key term, as we are not dealing with machines but with people. Imagine a blissful marriage with thriving children, flourishing, fostering mutual growth and: joy. Now, picture this same marriage covered by binding legal contracts, well defined deliverables, clear milestones and well planned timelines. Now imagine the stonger partner is also mainly driven by self-interest… It’ll be loveless, business-like and purely transactional. Would you expect anything beautiful coming from this?

Instilling a culture where disruptive innovation can thrive

I feel very privileged that my job is to work a with true innovators, most often at brilliant startups. While trying to find the best possible fit between them and my company, we both learn a lot. In doing so, I have also learned to look at things from the perspective of the startup, and I would like to share what I got so far. Hopefully for the benefit (and I hope nice reading) of all who try to co-create a better world.

The partnership between large(r) corporations and startups is not just beneficial, but is nowadays essential for driving disruptive innovation, and staying competitive. And most so for becoming a more sustainable company. You know that I firmly believe large(r) corporations must first live a Theory Y mindset and adopt the characteristics of “Red” organizations to thrive in such co-creation efforts. Also it must realise the power balance, and be willing to give in, as the bigger brother. Because “leaders eat last”…

Just look at several of my earlier articles, which focus on these aspects. By creating a psychologically safe environment and really embracing flexibility - with all the insecurities that come with that! -, and taking the unique strengths of startups, big(ger) companies can better sail through the complexities that characterise the VUCA world we now live in.

Also, to effectively manage the Ambiguity that arises when disruptive startups are brought into the fold, it is essential to establish a truly Ambidextrous organization. This means avoiding half-hearted attempts, such as having “a department” or “a team” handle this type of deep innovation while following the same (rigid) rules as the rest of the organization. A department adhering to conventional processes, finance systems, and operational structures cannot effectively engage with the exploratory nature of startups. It needs a different culture as well, closer to that of startups. In many companies, Innovation Processes are a descendant of Operation Processes. Think Stage-Gate, and the need to reduce risk as early as possible, avoid insecurities. This is because the base of the company typically operates in “exploit mode,” whereas the startup, and those working with it, are in “explore mode”—two very different worlds that logically require distinct approaches. Using Operations Processes will act as a brick wall here.

I am very aware that this can seriously clash, and it is up to the leadership to establish the needed structure, shield, no: protect, the “explore” part from the “exploit” part.

Co-creation, but then for real

In today's VUCA world, the collaboration between (large) corporations and startups has become crucial for survival and success. Big corporations, often entrenched in their established processes and structures, need the agility and innovative spirit of startups to drive disruptive innovation. They may - still - believe they can do this on their own. But no, they cannot, however big they are. And I see more and more organisations that have realised that. It is a completely new way of thinking, working, being, for many (top)managements. For sure. But it is one with many benefits!

It is critical to realise, that this co-creation fundamentally relies on creating an environment of equality and psychological safety for all stakeholders.

Let’s start with a definition: true co-creation involves a collaborative process where multiple stakeholders, such as companies, startups, customers, suppliers, and other partners, work together to create sustainable value through shared innovation and development. This value does not only need to be sales or profit, it can equally be societal value! And think reputation…

Now, what I list here will have been repeated many times. Still I think I need to show it.

Co-creation is characterized by the following key elements:

1. Shared Goals and Vision: All parties involved in co-creation must have a shared understanding of the goals and a shared vision of the desired outcome. This alignment ensures that everyone is working towards the same end goal. For large corporations, embracing the fresh perspectives of startups can lead to breakthrough innovations that align with future market needs. And the smaller partner benefits from the expertise, power and also market access.

2. Active Participation and Engagement: Co-creation requires the active participation and engagement of all stakeholders. This means that each party brings their unique insights, knowledge, and expertise to the process, resulting in a richer and more diverse pool of ideas and solutions. Startups, with their nimbleness and cutting-edge ideas, complement the extensive resources and market reach of larger companies.

3. Open Communication and Transparency: Effective co-creation is based on open communication and transparency. Stakeholders must be willing to share information, feedback, and resources freely and openly to foster trust and collaboration. Adopting a Theory Y mindset, which emphasizes trust and empowerment, is critical for creating an environment conducive to open collaboration.

4. Iterative Process and Flexibility: Co-creation is often an iterative process that involves multiple rounds of feedback, prototyping, and testing. Flexibility is critical as the process may require adjustments and refinements based on stakeholder input and changing circumstances. The ability of startups to pivot quickly is invaluable in these iterative cycles, helping larger corporations adapt more swiftly to market changes.

5. Mutual Benefit and Value Creation: The ultimate goal of co-creation is to create mutual benefit and value for all parties involved. This could be in the form of improved products, services, customer experience, or market positioning. When both large corporations and startups recognize and harness the value each brings, they can achieve far more than they could independently. This also means that exclusivities demanded by the bigger partner that may be detrimental to the smaller should be avoided. It needs to be balanced, or it will not work.

The Absolute Need for Psychological Safety

A cornerstone of successful co-creation is the establishment of psychological safety within the collaborative environment. Psychological safety ensures that all participants feel safe to take risks, voice their opinions, and share their ideas without fear of ridicule or retribution. This is especially important in VUCA times, where uncertainty can heighten anxiety and discourage open communication.

1. Encouraging Open Dialogue: Psychological safety fosters an atmosphere where open dialogue is encouraged, and all ideas are valued. This allows startups to bring forward innovative and potentially disruptive ideas without the fear of being dismissed by the larger corporation.

2. Building Trust and Collaboration: When team members feel psychologically safe, trust is built, and collaboration is strengthened. This trust is essential for effective co-creation, as it encourages stakeholders to share information and resources freely.

3. Enhancing Creativity and Innovation: A psychologically safe environment enhances creativity and innovation by allowing all participants to experiment, fail, and learn without negative consequences. This iterative process is crucial for developing groundbreaking solutions in a VUCA world.

4. Supporting Diverse Perspectives: Psychological safety supports the inclusion of diverse perspectives, which is vital for co-creation. Startups often bring unconventional viewpoints that can challenge the status quo and drive innovation. Large corporations must create a safe space for these perspectives to be heard and integrated.

And this may sound logical, even obvious, but it really isn’t a given. That is where X and Y, and Blue and Red come in…

Theory X vs. Theory Y in Co-Creation

In the context of co-creation, the Theory Y mindset, which assumes that people are naturally motivated and capable of self-direction, is essential for fostering a collaborative environment. When a large company operates with a Theory Y approach, it is more likely to value the startup’s contributions and create a partnership based on trust and mutual respect. This mindset is particularly crucial in VUCA times, where flexibility and innovation are paramount. Also, psychological safety is easier created and maintained.

Conversely, a Theory X mindset, which assumes that people are inherently lazy and require constant supervision, can stifle creativity and undermine the co-creation process. This approach can lead to micromanagement, distrust, and a lack of genuine collaboration, ultimately hindering the innovation process. And creating a psycologically safe environment for all stakeholders will be challenging. If this is not accepted as a given, the cocreation will die.

Red vs. Blue Organizations in VUCA Times

Red organizations, characterized by flexibility, adaptability, and a focus on innovation, are more likely to succeed in co-creation efforts, especially in VUCA times. These organizations prioritize collaboration, open communication, and shared goals, aligning well with the principles of co-creation.

On the other hand, Blue organizations, which are more rigid, hierarchical, and control-oriented, often struggle with co-creation. Their focus on maintaining control and prioritizing their own goals can lead to a loss of trust, an imbalance of benefits, and reduced innovative strength. This ultimately hampers the effectiveness of the collaboration and can lead to the failure of the co-creation project.

Ambidexterity

An ambidextrous organization is one that effectively balances two distinct modes of operation: exploitation and exploration. Exploitation focuses on optimizing and refining existing processes, products, and services to enhance efficiency and profitability. Exploration, on the other hand, emphasizes innovation, experimentation, and the development of new products, services, or business models. This dual capability allows the organization to maintain current performance while simultaneously adapting to changes and seizing new opportunities. Such organizations create separate units or structures for these modes, each with its own processes and culture, but ensure they are integrated strategically to support overall organizational goals.

So, in summary: first get the basics ready: psychological safety, in a Red organisation, and with a Theory Y mindset. Only then you can embark on true co-creation, especially with (much) smaller partners like startups. The moment the bigger partner puts its own interests first, the cause is lost.

Time to do some serious soul searching. Honest introspection, prefably aided by broad stakeholder feedback of current and past co-creation projects. Be ruthless, nobody wins if you paint a too rozy picture.

[Thank you, Waltraud Glaeser ?? for your valuable sparring and input! It is clear that the VUCA world needs Vision, Understanding, Clarity and Adaptability. I would add: it also needs Bold Honesty, Psychological Safety, (uneasy levels of) Openness and True Co-Creation! However tough that is, however it conflicts with the ways of business as we know it, or as has been tought all too long in business schools… Former students and teachers (should) know by now that you have to constantly unlearn and relearn to stay relevant in today's world. Because the future is not what it used to be. Thanks to Jean-Loup MASSON for hinting me towards the ineffectiveness, but also reason for, “innovation processes based on operation processes”.]