I consult with companies of all shapes, sizes and ages that look for new ways to start thinking and acting more like start-ups than has-beens. Again and again, I hit a huge obstacle:
How to bridge the gap between start-ups, which focus intensely on the opportunity they exist to exploit, versus the traditional big-company bias toward diffusion and diversification?
In other words, too many big complex firms don’t know how to focus at all.
If you look up the dictionary definition of “focus,” you find 3 meanings:
1) “A main purpose or interest.”
2) “The point at which rays of light, heat or sound converge or diverge, sharpening the resolution of an image in a mirror or lens.”
3) “A state or condition permitting clear perception or understanding.”
Question: What does it take to get a large organization and the people in it to focus?
Startups show big companies how faster beats better.
By which I mean, to focus on projects as opposed to products or processes?
Answer: An honest-to-goodness, top-to-bottom, soup-to-nuts, inside-out, all-encompassing cultural sea change.
Why?
Because my experience in trying to transform huge lumbering incumbent organizations so they can move more nimbly to market, and fend off the challenges posed by disruptive new entrants, teaches a lesson. The greatest threat to existing business models (and companies’ very existence) isn’t external so much as internal.
Or, as I like to say, a bit sadly, “Culture eats strategy for lunch.”
A Case in Point
Let’s take, for example, an aspiring corporate entrepreneur who has a project, which for a variety of reasons, he or she is totally hot on.
So the aspiring corporate entrepreneur knows just what to do.
She knocks on her manager’s always-open door and makes her pitch.
And then?
Well…in my experience and probably yours, even if and when your manager totally gets it what’s the likeliest best-case scenario?
Bingo! You’ve just hit the jackpot:
If you’re totally, incredibly lucky and/or plucky, you’re going to be awarded the totally divided attention of 8 engineers and designers.
Who just happen to be tasked with devoting, at most, one-quarter of their time to your project.
I call this the “Spread The Peanut Butter Principle” of innovation.
Why?
Why indeed?
Well, because in the reality of large corporations, from the point of view of a middle-to-senior manager resource-allocator, taking the absolute risk of stacking so much talent against an unproven idea is just too much risk to bear. There’s no corresponding pay-off because the uncertainty of success is simply too great.
Portfolio Strategy
Okay then.
From the vantage point of a corporate resource allocator, this utterly ambiguous response – somewhere between a “no” and a “yes,” is entirely rational.
Hedging your bets is what all portfolio managers do — that is, after all, their job.
And that is, after all, nothing more or less than what venture capitalists do.
VCs diversify their portfolio of bets, operating under the perfectly reasonable assumption that their “hit-rate” will be anywhere from 3% to 5%, on a good day.
It’s strange, when you think about it, given that something like 90% of Fortune 100 companies currently fund or operate venture capital arms or divisions.
All of which are funded and operated by corporate headquarters under the assumption that the standard start-up hit rate will apply to their investments, or bets.
No big deal.
But when it comes to making internal resource allocations, which involve making bets on the smarts and stick-to-it-iveness of their own people, companies simply throw the whole VC model right out the window.
And a far more traditional set of metrics kicks in, which leads resource allocators to not only be risk averse, but to be rewarded and compensated for being risk-averse.
I can’t tell you how many times I’ve asked senior managers to explain this totally absurd disconnect.
Why, I wonder, are they so willing to accept the miss-more-than-hit nature of VC investing but can’t tolerate a similar risk profile when it comes to internal projects?
I’ve found it’s a question they really can’t answer, because they’ve never really considered it.
Okay. Next question.
Too Many Chiefs and Not Enough Indians
So let’s go back to this particular passion project, which as of this minute has been given a tentative green – or that would be amber – light from the higher-ups at the big company.
What happens next?
What happens next, happens inside silos. At any large institution there are silos, governed as feudal fiefdoms by powerful chiefs. So it will be the urgent and crying needs of those chiefs – for resources, credit, glory and profit – that will drive the decisions of resource allocators.
Given the nature of the beast, if they don’t, heads will roll. And those won’t be the heads of the department or function leaders.
Now at a start-up, everything’s different – it’s precisely the reverse.
At a start-up, the customer’s voice speaks and indeed shouts the loudest, and their crying needs are going to be met first.
At every large organization, personal and professional success is inevitably hitched to the success of the function.
If you’re in HR, you’re tasked with performance against a set of metrics devised exclusively for HR, by HR. Metrics that only make sense from the point of view of that functional imperative, as opposed to a meet-the-needs-of-the-customer imperative.
So in most big corporations, the functions run the company for the functions. That behavior defines a siloed culture.
Whereas in most start-ups, the entire outfit is focused first on customers and the opportunity they’ve developed to meet the needs of customers.
Another Case in Point: GE Fastworks
At GE, a few years ago, we launched a program called Fastworks as a way of taking the idea of the “lean start-up” concept from serial entrepreneurs and applying it in the cultural context of a large corporation.
The point was to start to have strategy eating culture for lunch, as opposed to the other way around.
Lean start-ups are not about developing business plans. They’re about embarking on a search and a journey for new business models.
They’re about experimentation, and about creating a continuous customer feedback loop.
And they’re about very rapidly iterating a series of “minimally viable product” designs. Then they’re about being flexible enough to “pivot” away from your original concept in response to that feedback.
As the idea started taking off among the start-up/incubation communities, at GE we became one of the first big organizations to adapt the concept to speeding innovation in the cultural context of a vast global enterprise.
Key to the success of the venture, we knew, was focus.
Which meant keeping our ears close to the ground, and close to the customer.
So if customer feedback told us our business or market or product hypothesis wasn’t working, we listened and changed what we were doing accordingly, and quickly.
Because in the 21st century, faster can actually beat better.
I’ll be writing more about Fastworks in future posts, as well as other initiatives to tackle that challenge with similar solutions.
At this stage of our journey together, suffice it to say that we changed traditional financial systems to make them more responsive to customer needs.
We revised traditional leadership roles and responsibilities so that engineers and project managers gained greater autonomy to experiment and test in real time against real customers and real customer needs.
Along the way, we enabled a way forward for a century-old major manufacturing company. We had struggled to get back to our manufacturing roots and recapture some of that hands-on, down-and-dirty, making-real-things juice of our glory years. When we enabled strategy to finally start eating culture for lunch – in so doing, we got leaner, not FASTER!