Why Companies Fail to Innovate

What follows here is not so much a meditation but a collection of notes from an unstructured conversation about the reasons that companies fail to innovate.  The discussion strayed across a handful of entirely plausible reasons that intelligent people in organizations reject innovation.  So while this will likely be a bit more disjointed than my usual post ...


Managers are Trained to Optimize

Business schools train managers to optimize rather than innovate.  The difference is that optimization begins with an existing set of activities and seeks to make them more efficient, whereas innovation requires considering if an altogether different set of activities might produce a better outcome.

The practice of "scientific" management that is presently the dominant theory is entirely about optimization: Frederick Taylor watched as men shoveled coal, theorized what physical movements might be less tiring, experimented with different sizes and shapes of shovel, and the like to make the workers more efficient at doing exactly what they were already doing.   He did not pause to consider whether using a gasoline engine or geothermal energy might be more efficient than coal furnaces - there was no question of whether coal should need to be shoveled, just a question of how it could be shoveled more quickly.

The vast majority of business courses focus on optimization and efficiency, with maybe one or two chapters in the textbook that hint at innovation, but often shy away from it as if it is supernatural in nature and cannot be practiced or relied upon.  As a result, the managers with formal education in management practice what they were taught and are often rather uninspired when it comes to exploring entirely new possibilities.

As such, it is no accident at all that many of the CEOs who are legendary for pioneering new businesses and ignoring the well-beaten path of standard industry practices are not formally educated in the field of business.   Neither is it implausible that those who have formal training in business are very limited in their ability to innovate.


The Past is Safe 

I avoided making this my opening point, because discussions of this nature usually dismiss decision-makers as being ruled by ignorant fear - and then the discussion degenerates into a litany of complaints and stereotyping.  But in truth, those who have achieved positions of power by playing by the old rules are ruled by very well-considered fear that they may not prosper if the tules are changed.

Fear is not wholly a bad thing, because it keeps us safe from danger.   The man who strides into the high grass and refusing to "fear" the snakes is not brave man, but very stupid.  And before society made a mission of saving such people from themselves, many of them were removed from the gene pool by their own foolhardiness.

Fear is a survival instinct that gives us the inclination to avoid risk of harm.  But beyond a certain healthy measure it also gives us the inclination to avoid risk of any kind, preferring to do what is safe and familiar, and foregoing opportunities that are unusual and carry with them the possibility of failure.

Fear of this kind can be ignorant, as the paralyzed individual may not be aware of the facts (like, there are not any snakes in that grass) or may not know the way to proceed with caution to mitigate risks (walking slowly, probing ahead, listening attentively, etc.)

Dragging this meditation back to business - to continue doing the very same thing you did in the past, which has been proven successful by years of practice, is always less risky than trying to do something different.  You have no experience, no historical proof, that a proposed new way will be successful and are lead by careful consideration of this to cling to the present way ... and to reject innovation.


The Past is Proven

Along the same lines, the events of the past have resulted in evidence that can be perceived through the senses: we saw what was done, but can only imagine what might be done.  As such, when there arises a decision of whether to continue to do what has been done in the past versus trying something different, there's a lot more proof for the past and very little - none, in fact - for  the future.

A proposed future action is based on imagination, describing a plausible scenario, and speculating about the outcomes.   You simply cannot prove the results of something that has never been done before with the same level of evidence that you can prove the past.

And because we are geared to trust more in proven facts of the past  than unfounded speculation about the future, any choice between doing what is known and practiced versus what is unknown and unproven is weighted heavily against innovation.


Change is Difficult 

To state the obvious, a business is composed of many people doing many things in coordinated patterns.  It is comparatively easier for a single person to change his ways, break his patterns, learn new skills, and do the other tasks necessary to do things differently in future (though anyone who's tried to kick a habit will testify it's not as simple as it seems).

When a business wants to change its ways, many people must be trained in new skills, new facilities and equipment must be purchased, new suppliers engaged, new customers won, and new departments created and staffed.   It's a long, painstaking, and expensive undertaking to do something different, and much cheaper and easier to keep doing the same thing as before.

For that reason most businesses are steadfastly focused on their present operations, and very few have much sense of a future beyond the current fiscal quarter or year.   They do not question (and sometimes do not even remember) the reason that they do things as they presently do - and simply perpetuate their rituals without much thought unless some crisis makes them aware that they are becoming obsolete.


Many "Innovators" are Kooks

Perhaps the greatest barrier to innovation is the reputation and credibility of those who call themselves "innovators."   Most of them are narcissistic and undisciplined types who have a constant supply of quirky ideas and boldly propose that others should bear the labor and risk of making their wildest dreams into a reality.

Granted, to stereotype an innovator as a foolhardy imbecile is just as wrong as it is to stereotype an opponent of innovation as a fearful  coward.  But there are no stereotypes without prototypes, and there are plenty of them on both sides of the argument over innovation.

The way to tell the difference is that a bona fide innovator is a very thoughtful person.  He doesn't fall in love with an idea because it's his, because it's novel, or because it's cool - but because it makes sense.   He can describe the reason for making a change in terms of sound theory, and the course of action he prescribes is based on solid and plausible logic.

Unfortunately, such individuals are rare.  So instead, a different kind of self-proclaimed innovator tends to be dominant: the type who constantly comes up with wacky ideas he cannot justify, cannot explain in detail, and for which he cannot present a plausible argument.   These "idea men" don't bother with the details, but leave them for others to sort out - which is sure evidence that they have not invested much thought into them.

Experience with a few such characters often poisons an organization against innovation, and gives the fearful all the more reason to reject any innovative idea without investing the time to consider it.

***

A this point, my memory is spent.  I recall there being a few additional reasons that innovation has lost its appeal, and that organizations retreat to the comfort and safety of optimizing existing operations rather than exploring the possibilities ... but they've faded.   Perhaps they will return to me later.

The Abilities of a Leader

In a previous blog article I briefly mentions the four critical abilities of leadership.  I didn't elaborate on those at the time, as it would have been a distraction from the topic, but I've since had a few conversations about it and now have the sense that it would be useful, though a bit tedious, to elaborate.

Specifically, I wrote that.

The ability to lead is more easily measured in the behaviors of a person.  A leader can articulate his goals, define a plan to accomplish them, persuade others to contribute to the effort, and to maintain the morale of his followers over a long period of time.   Anyone who does less may be a boss or a manager, but is not a leader.

The elaboration follows.


The Ability to Articulate Goals

The ability to articulate a goal is critical to a leader because the accomplishment of a goal is the justification for the existence of leadership.   Simply stated, if you have nothing in mind to accomplish, you have no functional need of followers.

The use of the word "functional" may seem a little clumsy, but it is necessary: there are psychological needs that drive a person to seek to be in a position of authority ("authority" rather than "leadership" is another important distinction) - the desire to have a sense of esteem and power motivates many to seek to become leaders when there is no functional purpose in leading others.   This is generally not functional.

The notion of functionality is also critical to a follower's decision to get behind a leader.  And again, there are those who have no sense of purpose and low self-esteem who will readily obey to directions of others without considering whether there is a purpose or benefit to doing so.   But it stands to reason that in most instances the loyalty of a follower to a leader without a clear purpose is weak and temporary.

The term "articulate" is also significant, particularly in established organizations, because a leader does not necessarily invent a goal on his own but may be tasked by an organization to accomplish a goal - which the leader is then handed and expected to articulate to others.

In many instances, a leader derives a specific goal from a more general one - such as considering an organization's mission statement and discovering goals that would be supportive of the accomplishment of that mission.


The Ability for Form a Plan

There are many people who have grand visions of things they wish to accomplish, but no plan for how to go about accomplishing them.  Such men are dreamers, not leaders.

I should also stress that the task of the leader is to "form" a plan - not to "have" one on his own.   In some instances a leader may have a vision and seek the assistance of others in formulating a plan to achieve it - particularly where the leader lacks personal experience or knowledge in areas necessary to accomplishing a plan, it is wise of him to engage others in developing the plan.  This may be seen as leadership in two phases - to lead the team that forms a plan, then to lead another team to execute upon it once the plan has been formulated.

In the absence of a plan, leadership is short-lived: those who follow will feel that their loyalty has been misplaced and will drift off.   Not only with the leader fail in his present goal, but will have a more difficult time finding followers in future.

It can also be argued that an organizational leader may be given a plan, rather than being asked to form one.  This is particularly true of the lowered echelons of leadership.   But even then, my sense is that a leader considers the plan he has been given and exercises some judgment in determining that the goal would most efficiently be achieved by the original plan, or deciding to substitute some other plan to better effect its achievement.


The Ability to Persuade Others 

Once a goal is defined and a plan formulated, a leader must then attract followers whose support is necessary to execute upon the plan.   Otherwise, the goal will not be accomplished.

Cooperation is often taken for granted: that if the objective is attractive and the plan is sound, followers will fall in line.    Sometimes, it even works out exactly thus.   But in most instances, the leader must apply persuasion, to demonstrate that the goal is worthwhile, the plan is sound, and that their participation is both necessary and rewarding.

In commercial organizations, this step is often neglected.  Resources are allocated to a project, in organizations in which people are treated with no more dignity and respect than equipment or raw materials.  The promise of money or the treat of termination are often sufficient for a commercial leader to obtain the help he needs to execute his plan.

But even under those circumstances, persuasion is useful: a person who is bribed or threatened into doing something will not be truly motivated to give his best effort.   He will follow orders to the letter and do no more than necessary to earn the bribe or protect himself from the threat.

Far too many incompetent leaders reply on these methods, which explains why many organizations are minimally efficient in accomplishing their goals.


The Ability to Maintain Morale

The ability to maintain morale is critical through the execution phase of an undertaking.   It is human nature to have a high level of enthusiasm about accomplishing a goal, and then to see that enthusiasm wane.   For that reason, many things are begun that are never finished, or are finished but fail to achieve the outcome that was intended.

For that reason, morale cannot be assumed to be self-sustaining.   When there are delays, when the work turns out to be harder than inspected, when  there arises uncertainty that the plan will achieve the goal, people lose their enthusiasm and apply themselves with less diligence and vigor.

To be successful as a leader means seeing that the goal is accomplished, not merely starting off a process and then hoping that it turns out well without any further effort.   The leader must work to maintain morale throughout the execution phase.


Other Abilities of a Leader

I have given some consideration as to whether this set of four abilities are all that is required for a person to be successful as a leader.   Try as I might, I can't think of any other ability that is strictly necessary, though many skills contribute to these four.

Should I discover a fifth, I'll update this post or add another that references it.

Advertising Transformed

I approached Fons Van Dyck's book on the "new rules for the digital age" with some trepidation: there's been a great deal of hype about the way that advertising will be transformed by the new media ... there always has been, and yet nothing seems to have changed in over twenty years since the birth of the (commercial) Internet.   But the author makes a very good case that the nature of the market has undergone a radical change, but that most advertisers (and marketers in general) simply haven't caught on yet.

In essence, the digital age is one of transparency, whereas advertising is a practice that counted on opacity: the belief that the advertiser was the only source of information about his products was never entirely true, but was a serviceable perspective given that the mass media was funded by advertisers.   Consumers had very little opportunity to get objective information about products from those whose intentions were anything other than to wheedle them into purchasing, and had very little recourse or opportunity to warn others about false claims.   All of that has changed.

But that doesn't mean that advertising is dead, merely that the rules have changed.   In the present day, the advertiser is merely a voice in the crowd, and cannot spread disinformation or prevent the unfortunate truth from being spoken by anyone else.  The majority of information about their product reaches their desired audience from voices more credible than their own.   Neither, in competitive markets, can they count upon customers to come begging or tolerate their imperious take-it-or-leave-it attitude when there are many other sources that are more accommodating.

However, it is not strictly true that marketers have lost the ability to disseminate information - they still can, but do not have the same level of control.  Consider that Apple, which receives great word-of-mouth from legions of rabid fans, still spends about $1.1 billion per year in advertising to teach their loyalists what to say to others.    It's also been shown that the most communicative individuals in social media do not originate information so much as they pass along information they have received from the mass media, and the one percent of social media users who create original content are often heavily inspired by information they receive from traditional advertising.

It should also be considered that the burden of research has shifted to the producer.   That is to say that they cannot count on customers to undertake the effort to learn about their product, but must themselves undertake the effort to learn about their customers.   Rather than count on customers to discover them, they must be aggressive in communication that their brand offers a good price/quality ratio, inspire confidence, make their brand reliable and trustworthy.

In fact, the only reason an advertiser should be fearful of digital media is when it is their intent to be dishonest - to lie or to attempt to hide an unflattering truth.   Social media abhors dishonesty, will not tolerate impostors, and will inevitably expose them: but this is true of anyone who lies - critics as well as producers - and when a brand is unjustly denigrated, it can count on having many defenders.

Thus considered, honest advertisers likely need to do very little to accommodate the new rules of digital media: keep using traditional media to spread the word, and count on social media to spread it even further.   As to dishonest advertisers, there is no advice for continuing that practice in the face of an informed and communicative public who will recognize and squelch hype and disinformation.  And that's likely a good thing.

The Long-Term Effects of Discounting

I read another tiresome diatribe against Walmart's cost-cutting strategies and the way in which they drive down product quality and sell goods that are cheap and shabby in order to offer consumers low prices.   I don't disagree at all that this is exactly what has happened - but I would disagree with the suggestion that it is unilateral, or even the suggestion that this idea originated on the supply side.   Retailers seek to gain business by giving customers what they want and the price they are willing to pay - and their commercial success (profit) is the measure by which they have been successful in doing so.

That is to say that a customer who demands a low price is in the first place unwilling to pay for quality.  It's a garbage-in-garbage-out situation, in that if you are only willing to pay so much, the retailer (and manufacturers as well) can only put that much effort (and quality) into providing what you demand. So if you are willing to pay only $7.50 for a shirt, the manufacturer can pay only $7.50 on the materials and labor to manufacture that shirt - and that is if the manufacture has no overhead, no transportation costs, no general and administrative costs, and takes no profit at all from the transaction.  But if you are willing to pay $15.00 for the same shirt, the manufacturer can spend double the amount to create it - which enables them to use better materials, hire more skilled laborers (and compensate them fairly), and undertake necessary expenses in order to make a garment that has twice the quality.

The problem is that many customers are unwilling to do that: in seeking the lowest price possible, they provide insufficient resources to the manufacturer (and the entire supply chain) to provide more than the lowest quality possible.   The demand for high quality at bargain prices is self-contradictory and self-defeating.

And when this occurs on a widespread basis, the quality of all options to the consumer is diminished.   While there is still a broad choice in retail, such that a customer who genuinely values quality (and demonstrates with their actions rather than merely their words) has the option to shop at retailers in the quality, premium, and even luxury ranges.   They don't have to accept the low quality of a $7.50 shirt but can get better quality by going elsewhere to purchase a $15 or $50 shirt if they are willing to pay to have quality.

But consider the effects on cost-cutting on industries in which there are not that many options.   Domestic airlines are an excellent example, one about which customers frequently complain, and one in which the quality of service has diminished greatly over the past few decades such that some travellers still remember - and long for - the way things used to be when travel was a pleasant experience but came at a much higher price.

There are still a few international airlines (Singapore, Cathay Pacific, and the like) that undertake effort to make travel a more pleasant or at least less onerous experience.  But domestically, there seems to be no premium option.   Online travel agencies cater to the customer demand for the cheapest available flights, diminishing the revenue to the airlines, diminishing their ability to pay for the goods and services that reduce the unpleasantness of the travel experience.   And as such, I have not experienced nor heard of an airline that offers anything but a cattle-car level of quality to domestic travellers.

The original argument erroneously claimed that quality is reduced because corporations cut quality and maintain high prices in order to boost their profits - but I don't think that the fellow who made this argument took the time to glance at the income statement of the company he was criticizing.    Walmart runs at a profit margin of less than five percent (and closer to three) and has done so for decades.    Most domestic airlines are presently running at a loss, and must either raise prices or reduce quality further in order to be sustainable.

Moreover, many of those who whine about the situation continue to patronize the very brands they criticize: they castigate Walmart for the low quality of its merchandise, the low wages they offer their employees, and the low margins they offer their suppliers.   But they don't complain about the low prices they are getting.   And in so doing, the only thing that can be learned from their arguments is that such people simply do not have a good grasp of cause and effect.

Junk Science Junkies

Every so often, the topic of subliminal advertising comes up in a conversation about user experience, in which some well-intentioned but ill-informed person mentions the experiment conducted by "scientists" that proves subliminal advertising works.

What they are referring to is the Vicary hoax - in which a market researcher with no academic credentials (aside of an associates degree in business) pretended to use a tachistoscope (which he never actually used) to flash messages "eat popcorn" and "drink coke" on the screen of a theater, and reported an unusual increase in concession sales (he later confessed the numbers were entirely fictional).

This hoax is often mentioned in introductory marketing classes - and I'd go so far as to say that any professor who doesn't immediately bristle at the notion of subliminal advertising is likely doing a disservice to his students - yet in the "real world" of business, it seems that in my experience someone mentions the topic every six months with an air of dead seriousness.

Given that frequency, I feel reasonably safe in asserting that the business world, in general, is addicted to junk science.   Any promise of getting better returns is eagerly embraced without checking the facts behind the grandiose allegations of "scientific" proof - because those who wish to make money have a pronounced case of selective hearing.

There have even been instances in which I've switched on the projector and shown the Wikipedia article on James Vicary and his hoax.   And rather than apologizing and shutting up, as well they should, the person who brought up the topic insists "that's not the study I was referring to" and maintains there is real scientific proof out there somewhere - a nearly identical study done by real scientists who achieved real results.  Not one has ever responded to my request for them to email me a link to the research.

This is more than intellectual laziness, but a deeper form of self-deception that business people inflict upon themselves - and worse still, attempt inflict upon others who know better.

Over a century ago, Hugo Munsterberg wrote that business has very little use for science, on the grounds that scientists are too far removed from practical matters to provide them any useful guidance.   I have the sense this is not true today, and may not even have been true in Munsterberg's time.   The problem with science is not that the information is abstract and impractical (though early exploratory studies can be thus), but that science is disregarded unless it "proves" something that is already believed.

And while business does seem to have cracked open the door to let science into the conference room, it still remains steadfastly devoted to being given research that supports the opinion that was had before the research was conducted.   Those who fail to confirm existing beliefs, or who challenge them directly, are not hired to conduct research in future.

In that sense, there is in the present day an even greater need for science to remain purposefully aloof from the business world - and to maintain its integrity instead of fudging the results to retail clientele who want to be coddled rather than informed.   Let those who value knowledge seek it - they cannot, nor ever could be, forced to accept it.

Imitation Done Right

A post I wrote a few years ago about the difference between invention, innovation, and imitation has received a significant amount of attention, particularly in the negative light in which I cast the practice of imitation.   And rightly so, as I was rather bold in characterizing imitation as

"an individual of inferior intelligence or insight who is merely copying a pattern of behavior he doesn't understand and putting blind faith in his ability to achieve similar results."

Having been chastised for making that statement, and having meditated a bit more on the matter, it seems necessary to qualify that - but only by inserting the word "often." Most acts of imitation I have witnessed or heard about are indeed brainless mimicry.  But this does not rule out the possibility that imitation can be done in a well-considered manner and can have positive results - but to imitate effectively requires a considerable amount of diligence.


Step One: Imitation as the Basis of Learning 

Imitation is often the first step of human learning: an infant mimics the sound of human voices in order to learn to speak.  Parents teach their children to speak words simply by stating them and expecting the infant to copy - which the infant readily does when it reaches the stage of development at which motor coordination and cognitive development permit.

It is by this method that all human beings learn to speak - by first mindlessly copying the sounds we hear and uttering combinations of we don't understand, but to which others seem to respond.  It is not until later that we associate words to the things they represent and begin to form our own sentences.   An adult can learn foreign languages by cultural immersion (rather than classroom training) in much the same way - by hearing words we do not understand, repeating phrases to learn to make the proper sounds, and eventually understanding how to compose original phrases.

But before mimicry gives way to understanding, it remains a mindless practice of merely copying something we do not understand - which serves little purpose.   And this is the reason I had been so negative on the notion of imitation in the previous meditation: many people claim to be "strategic thinkers" who are merely imitating what they see without understanding it to any appreciable degree - they have taken the first step on the journey to intelligence, but seldom take the second, or any other.


Step Two: How Imitation Yields Knowledge 

Imitation to be strategic: we should not only observe the behavior, but also the results it is achieving, and then apply our critical and analytic faculties to determine whether there exists a causal relationship between the behavior and those results - and we must be diligent in our scrutiny.   This step is often missed, or consciously skipped because it requires a great deal of mental effort to accomplish, as well as the ability to reason things that are not immediately perceptible.

Many seemingly intelligent people assume that correlation implies causation without due analysis.   Superstition and luck are based on such poor reasoning: if a salesman was wearing a particular necktie when he closed two major deals, he begins to regard it as his "lucky" necktie and puts faith in the notion that wearing that particular tie has some contribution to his success in closing the deals.   It's a rather silly notion that one has anything to do with the other, but it is rather astounding how widespread this kind of sloppy thinking happens to be.

I cannot count the number of times in which a discussion about website design degenerated into this sort of thinking: suggestions such as "let us copy the fonts and colors used on Amazon" or "we should copy the page layout of Expedia" - as if the font, color, and layout had anything to do with their success.   It's no sillier than having a lucky tie - and perhaps it is even sillier because the connection between behavior and results is not known (the salesman with the lucky tie can at least cite two instances in which the tie was correlated to success in his personal experience).

What should be obvious is that if our aim is to achieve a given result, we must not merely witness behavior that coincides with the result, but apply our critical minds to determine if the behavior caused the result to occur.  I feel like I'm being a bit punctilious here - but given that this step is so often ignored or skipped, it seems necessary to be meticulous in making that point.

The sad truth is that sometimes imitation works out for the better even when we did not do this analysis - which leads to the notion that analysis is not necessary.   It's the same lucky-tie conclusion that what seemed to be necessary (or in this case unnecessary) is in fact so, and no further thought is necessary when imitating - even when we are imitating a practice of imitation.

And so, for imitation to yield knowledge - to say in fact that adopting a given behavior will achieve a specific result - requires a more significant amount of observation, analysis, and reasoning than merely noticing that the two happen to coincide.  And this must be done with objectivity and with a careful effort to avoid many common fallacies about causation.   But the process does not stop here.


Step Three: How Imitation (Can) Yield Results

At this point in the process, it has been observed that a given behavior coincides with a given result, and a careful analysis of causality has been performed to ensure that there is more than just coincidence, such that we have a plausible case for a cause-and-effect relationship between the behavior and the results.   But before confidently choosing to imitate behavior, one step remains: a comparative analysis to ensure that the situation in which we mean to implement the behavior is sufficiently similar to the situation in which the behavior caused the outcome.

To begin with a ludicrous example: it can be observed that high-octane gasoline makes a race car go faster - and those who understand the mechanics of internal-combustion engines can explain the reasons why it is so, establishing a causal relation between high-octane gasoline and speed.  An astoundingly simple-minded person might them jump to the conclusion that he ought to force-feed high-octane gasoline to a race horse to improve its speed.   I expect that I do not need to explain why this imitation will not work.

But then consider how many sites covet Amazon's one-click ordering process: the brilliant simplicity of being able to store payment and delivery options to give shoppers the ability, with a single click, to purchase an item.   It works wonderfully for items that have no configuration options, but even Amazon doesn't use one-click ordering for items that have to be configured (a shirt for which a person must specify size and color cannot be ordered with a single click) - and in those instances a one-click ordering system does more harm than good (many product returns from disgruntled customers who received items that were of no use because they were not configured properly).

Flaws in the comparative analysis can be very subtle.   Tradition and documented procedure often suffer from the failure to consider if the present situation is analogous to a past situation in which a given action had a given result.   As such the notion of consistency is flawed by its assumption that the present is exactly like the past in all the ways that matter and that past practices can simply be imitated to achieve the same results.

And yet, discussions about selling complex products such as investments portfolios and insurance policies invariably involve at least one person who claims "we should do one-click ordering, like Amazon," after which at least one other person must carefully (and often repeatedly) explain what should be painfully obvious: that one-click ordering isn't even a viable option for selling complex products.


Summary: Imitation Done Right

To boil all of this rumination down to a simple procedure, strategic imitation consists of three steps:

1. Observation - Witnessing the coincidence of a behavior and an outcome
2. Causal Analysis - Determining if there is a cause-and-effect relationship between the behavior and the outcome
3. Comparative Analysis - Determining if the cause-and-effect relationship will remain valid an effective under other circumstances

Skip any of these steps, and imitation becomes mindless and ineffective.