Why Your Innovation Lab Might Be Failing

Source: Wikimedia

Vip Vyas and  Diego Nannicini of Distinctive Performance have written an interesting blog post titled, "Is Your Innovation Process a Corporate Illusion?" for INSEAD's Knowledge website.  The authors examine why some companies have shut down their innovation labs, after achieving less-than-desirable results.  Vyas and Nannicini offer several different explanations for the underperformance of these labs, but I find one explanation particularly compelling.  They argue that the leaders at the lab often lack credibility with the managers in the core business.   Here's an excerpt: 

In their efforts to promote a culture of creativity, companies may establish unintended physical and psychological distances between their main business operations and the innovation lab’s activities.

Setting up the lab as a free-thinking island, or tasking it with forwarding critical initiatives, is a key strategic decision. Without a clear pathway for connecting to the core business units, the innovation lab can find itself generating orphan products that fall into no man’s land. Even worse, the lab becomes nothing more than an expensive showcase, running public tours and hosting product demo kiosks.

The takeaway: An innovation lab needs solid executive sponsorship and advocates from mid-level management to effectively integrate solutions into the existing organisation.

To accomplish this feat, one has to insure that the leaders of the both the lab and the core understand one another.   After all, they often speak different languages, use different metrics, and have very different risk tolerance levels.  They also use quite different methodologies for making decisions.  Fostering understanding and appreciation of each other's methods, processes, and mindsets is essential for effective cooperation.   Otherwise, innovative ideas will wither on the vine. 

How Big is Your Idea? Will it Move the Needle? The Questions That Stifle Innovation

Early Career Failures: Do They Make You Stronger?

Source: Osan Air Base

We all have heard the old adage: What doesn't kill you will make you stronger. Researchers at Kellogg School of Management have tested whether that is indeed true when it comes to early career failures. They did so by examining a very unique dataset. Dashun Wang, Benjamin Jones, and Yang Wang have examined research grants provided by the National Institutes of Health (NIH).  The paper, published recently in Nature Communications, is titled, "Early Career Setback and Future Career Impact."  The scholars compared scientists awarded grants early in their career to those who narrowly missed out on achieving a grant.  Here is what they found, as summarized by Kellogg Insight:

To figure out just how much of a difference these early successes or setbacks made to a scientific career, the researchers traced the careers of 623 near-miss and 561 narrow-win scientists.  Notably, it turned out that the two groups published at similar rates over the next 10 years—not what you’d expect, given that narrow winners got an early leg up from their NIH grant funding. Even more surprising, scientists in the near-miss group were actually more likely to have “hit” papers (that is, papers that cracked the top-five percent of citations in a particular field and year). In the five years after they applied for NIH funding, 16.1 percent of papers produced by scientists in the near-miss group were hits, compared to 13.3 percent for the narrow-win group.

The researchers went on to rule out some of the possible explanations for this finding.  For instance, they demonstrated that the finding is not attributable to attrition by the "near-miss" scientists... i.e., it is not explained by quitting on the part of some of the researchers who did not receive grants early in their career.  They conclude that the career paths of these "near-miss" scientists suggests that they indeed did become stronger through adversity.  Somehow, the early career failure inspired them to persevere, led to key learnings, and/or helped them understand their own strengths and weaknesses.   As a result, they overcame the failure and went on to achieve considerable success.  What an uplifting finding for all of us... the old adage is not just a cliche...there is real truth there apparently! 

How Do I Assess This Firm's Culture Before Taking a Job?

Source: SHRM

Joann S. Lublin wrote a Wall Street Journal column last week about assessing the organizational culture of a firm at which you are considering taking a job.  She offered five tips for how to identify warning signs that a culture might not be the right fit for you.   I thought her first strategy was particularly useful.   Lublin argues, "Identify Who and What Count."  Here's an excerpt:

To grasp unwritten norms, discern what is acceptable behavior—especially for rainmakers, said Gail Meneley, co-founder of Shields Meneley Partners, a career-transition firm. She recommended inquiring whether sales stars operate under looser standards, such as completing deals without required internal approval.

“You may feel uncomfortable working for a business where there are different rules for different people,’’ she cautioned.

Small but significant gestures can offer hints about what behaviors matter. In 2017, Brad Neuenhaus became chief business officer of MindEdge Learning Inc., a provider of online education. He did so partly based on a company lunch he had attended as a customer. He recalled being impressed when a MindEdge leader exhibited respect for employees by clearing their plates.

“I wanted to be part of their organization,” Mr. Neuenhaus said. “Culture starts at the top.’

You might think that such small gestures don't matter, but in fact, they often can signal a great deal about the interpersonal and cultural dynamic at a company.  I had a boss who once said that he used to pay close attention to how someone treated a waiter or waitress at a restaurant during an interview process.  These things do matter.   At the end of the day, your antenna should be up at all times as you assess cultural fit. 

Simplify to Amplify: The Spindrift Story

Source: Flickr

I recently listened to a particularly intriguing episode of Guy Raz's How I Built This podcast.  Raz interviewed serial entrepreneur Bill Creelman, founder and CEO of Spindrift - the sparkling water company.  I found one particular part of the Spindrift growth story quite compelling.  Creelman explains that the company had started to take off, and then he made the courageous and intelligent decision to exit one of the firm's two product lines.  

In the beginning, Spindrift sold both a sparkling water product made with real squeezed fruit, as well as a soda product (albeit one with less sugar than mainstream soda brands).   The interesting part of the story is that the soda product line was quite profitable, and it was generating millions in revenue for the company.   Yet, Creelman decided that that the brand positioning needed focus and clarity.  He called it a "simplify to amplify" strategy.   Creelman explains, 

Source: spindriftfresh.com

"That was a really important moment for us... we had a very low sugar soda, but even that, among our team, that was confusing. We had people who would say, you know, I don't drink soda. And we would say, well this isn't a soda... So, we made the hard decision to shut down about a $5 million business, super profitable, and just focus our resources on the sparkling water... The risk was for us that if we didn't stand for one single thing that we were going to go down the path of so many other businesses where you sort of try to do everything pretty well and nothing really, really great."

As I've written before on this blog, far too many companies try to be all things to all people.  They would never exit a profitable business, even if it meant a clearer competitive positioning that would be more sustainable in the long run.   Creelman made a smart move, sacrificing in the near term for the sake of a smarter strategy for competing in a confusing and highly competitive marketplace.  

Failing to Change When Faced With Negative News

Source:  Flickr

I recently read about a new study by Bradley R. Staats and his co-authors titled “Maintaining Beliefs in the Face of Negative News: The Moderating Role of Experience” in Management Science.  They set out to study how decision-makers react when faced with negative news.  The scholars chose to look at how expertise affects our likelihood to adjust our behavior in light of new negative information.  They assembled an interesting database about cardiac stent use in Pennsylvania from 2003-08 involving nearly 400 cardiologists. During this time, the Federal Drug Administration (FDA) recommended that doctors reduce their use of drug-eluting stents, but it did not ban the use of these devices.  The scholars set out to see how much the FDA's announcement affected behavior.  In particular, they wanted to see how experts reacted, as opposed to doctors with less experience.  Would overconfidence lead some experts to discount the new negative information?  Here's what they found: 

"For each standard deviation increase in experience, cardiologists were 6.3% more likely to use the drug-eluting stents before the FDA warning. Afterward, their use of the stents fell, but they were still more likely — 2.8% for each standard deviation increase in experience – than average to use the drug-eluting stents."

An article on the University of North Carolina's Kenan-Flagler Business School website summarizes the results and implications of this study:

It’s a kind of paradox. Are more experienced individuals – because of their presumably greater expertise – more likely to change their behavior when confronted by new information? Or are they more likely to resist new decisions because they’re confident about relying on their experience?  That’s the fundamental question tackled by Brad Staats, professor of operations and faculty director of the Center for the Business of Health at UNC Kenan-Flagler.  “Ideally, when you receive new information, you quickly adjust your decision-making – and you would expect the most experienced people would do so most accurately,” says Staats, “but our research indicates that might not be the case when they get negative news.”

Preparing for a Meeting: You Do Better When You Anticipate Conflict

source: pexels

This week, I read an interesting interview with several scholars from the Kellogg School of Management. In the interview, Professor Cynthia Wang describes an interesting study that she conducted with Denise Loyd, Katherine Phillips, and Robert Lount, Jr. They published their findings in an Organization Science paper titled, "Social Category Diversity Promotes Premeeting Elaboration: The Role of Relationship Focus."   Wang reports that people tend to prepare better for meetings when they anticipate interacting with others with whom they expect to have conflicting views.  This preparation and introspection leads to better decisions.  Here's Wang commenting on the research:

Sometimes conflict can actually be productive. When you go into a group meeting with somebody who is very different from you, the assumption that there’s going to be a conflict actually leads to better outcomes because you prepare better. For example, in one study, Katherine Phillips and I gave people tasks and said, “Hey, you’re going to be working with a stranger from the opposite political persuasion.” We then saw that knowing this leads you to start preparing a little bit more for the discussion, because you assume that there is going to be conflict. This drives better decisions in the end, because you’re more prepared and more introspective. On the other hand, if we come from the same group, we don’t challenge each other as much.

The Charade of Consultation

Years ago, my friend Mike Watkins, author of the best-selling book The First 90 Days, coined the term "charade of consultation."  He used it to describe instances when leaders would hold meetings, ask for input and advice, and yet do not genuinely provide an opportunity for those participants to influence the final decision.  He described these situations as a charade because the decisions were pre-ordained, a fait accompli.  Leaders were simply using the meetings to pretend that they were giving employees voice in the decision-making process.  Somehow, they thought that soliciting input would build buy-in, without recognizing that employees would see right through the charade.  

What are the negative consequences of engaging in a charade of consultation?

1.  Leaders diminish the extent to which their employees trust them.  That loss of trust adversely affects commitment, engagement, and morale.  

2.  Implementation efforts falter, because employees have not bought into the decision that was made.  They perceived the decision process as unfair, and therefore, they fail to commit the selected plan of action.  

3.  Employees opt out of future opportunities to participate in decision-making processes.  They think to themselves, "What's the point?  They aren't really listening to us anyway."   

4.  Leaders find themselves only hearing from people that agree with their proposals and plans.   Dissenters have opted out, and thus, leaders find themselves operating in an echo chamber. 

Does this mean that leaders always have to do what employees think is best, over their own better judgement? Of course not.  The opposite of the charade is not workplace democracy.  It's a thoughtful, robust, open process of dialogue and debate.  After hearing diverse viewpoints, the leader can then make a more informed and prudent decision.  

Is Avoiding Losses Actually a More Significant Motivating Force Than Realizing Gains?

For decades, psychologists and behavioral economists have proclaimed the importance of loss aversion, one of the most prominent cognitive biases identified by researchers. However, a recent thought-provoking article in Scientific American by David Gal challenges the conventional wisdom. Gal writes about the research he has conducted with David Rucker and published in the Journal of Consumer Psychology. 

Source:  Blue Diamond Gallery

Gal argues that, "Loss aversion is essentially a fallacy." The statement surprised and intrigued me. Could it really be true that such a prominent theory was incorrect, and that a great deal of evidence existed to contradict it? Gal explains in more detail:

That is, there is no general cognitive bias that leads people to avoid losses more vigorously than to pursue gains. Contrary to claims based on loss aversion, price increases (ie, losses for consumers) do not impact consumer behavior more than price decreases (ie, gains for consumers). Messages that frame an appeal in terms of a loss (eg, “you will lose out by not buying our product”) are no more persuasive than messages that frame an appeal in terms of a gain (eg, “you will gain by buying our product”).

People do not rate the pain of losing $10 to be more intense than the pleasure of gaining $10. People do not report their favorite sports team losing a game will be more impactful than their favorite sports team winning a game. And people are not particularly likely to sell a stock they believe has even odds of going up or down in price (in fact, in one study I performed, over 80 percent of participants said they would hold on to it).

To be sure it is true that big financial losses can be more impactful than big financial gains, but this is not a cognitive bias that requires a loss aversion explanation, but perfectly rational behavior. If losing $10,000 means giving up the roof over your head whereas gaining $10,000 means going on an extra vacation, it is perfectly rational to be more concerned with the loss than the gain. Likewise, there are other situations where losses are more consequential than gains, but these require specific explanations not blanket statements about a loss aversion bias.

Perhaps most interestingly, Gal goes on to offer an explanation for why loss aversion has become such a prominent principle generally accepted by many scholars as truth.  He explains that another key cognitive bias, confirmation bias, has been a major factor. Scholars have tended to look for evidence that confirms and bolsters the theory of loss aversion, while dismissing or discounting contradictory or discordant findings. Other social forces too have helped to maintain and preserve the conventional wisdom. Gal concludes, "Wrong ideas can persist for a long time despite contrary evidence, and therefore, that there is a need to critically assess accepted beliefs and to be wary of institutional consensus in science and otherwise."

Working Backwards to Innovate at Amazon

Recently, Lisa Eadicicco wrote an article for Business Insider titled, "This is the test Amazon uses to decide which ideas are worth turning into new products."  She describes the "working backwards" methodology that Amazon routinely uses during its new product development process.  Here's an excerpt: 

And while Amazon's product portfolio may be larger and more diverse than ever, there's a simple process the company uses to figure out which ideas are worthy of becoming real products: writing a press release.  This is what has come to be known as the "working backwards document" within Amazon, a mock press release that describes the product and the problem it's trying to solve.

"Everything starts as a working backwards document," Miriam Daniel, Amazon's vice president of Alexa and Echo devices, recently said to Business Insider following the company's fall product launch event. "The reason we write a press release is, when we read it, we want to be able to say as a consumer, 'Wow, I want that.' We write with that end in mind."

All of the devices Amazon unveiled during its event at the end of September started as a working backwards document, says Daniel. The goal of the working backwards document is to help the product team focus on what the main use case for a particular product would be.

Often, at Amazon, they not only draft the press release as part of this working backwards process.  They also write the frequently asked questions document that will be provided to customers if the product/service is built.   These documents help Amazon's managers envision how customers will react to the new product, and in particular, whether it will fulfill a customer need or alleviate a key pain point for users.   

I wrote about the working backwards approach in my book, Unlocking Creativity.   It's a powerful technique that can help individuals step back and gain some distance from a challenging problem.  They can look at the problem in a new way by jumping forward in time and trying to predict how others will react to our solution at that point in the future.  For more on how and why this type of approach is worthwhile, check out the video below: