Strategy = Execution

The Breakthrough: The Methodology of Creativity

Content matters. It’s the backbone of any initiative. In strategy execution, you develop a Minimum Viable Product (MVP) that is based on at least one innovative breakthrough. This process starts with systematically gathering innovative ideas to foster a constant flow of creativity. But is it even possible to harness creativity and squeeze it into a timeboxed process? Yes, it is, and I’ll show you how.

Fostering creativity is not the same as hoping for a miracle. It takes physical and mental space to foster creativity. This may strike you as paradoxical, because creativity and stress do not mix and I keep emphasizing the need for speed—after all it should take only 3 to 5 weeks to complete Accelerator 2 of the Strategy Execution Model. Yet fostering islands of creativity in this phase is a must, and it can be done. If you take the approach explained in Strategy = Execution), you will be creating a climate of continual improvement, renewal and innovation. Fostering creativity is not the same as hoping for a miracle.

Pool of ideas

It’s more productive to select and harvest ideas that were proposed long ago and have been germinating than it is to hope for a miracle during a short afternoon workshop you crammed into your schedule. That’s why you should set up a suggestion box where everybody can leave ideas. This provides you with a wealth of ideas to choose from during this phase. Generating ideas should be possible anywhere, anytime. Creativity must be part and parcel of Running the Business. It is a continuous process just like delivering value to your customers. If your plan says the brilliant idea has to result in a rollout in Project Week 3, you are trying to force something that can’t be forced.

The worst predictors

The selection of ideas is a balancing act. It is the same type of process as the selection of portfolios which I described in Accelerator 1. Essentially, you want to strike a balance between ideas for Type 1 Change (Improvement), Type 2 (Renewal) and Type 3 (Innovation). Another way of looking at this is to create a balance between ideas that have a high chance of success in the short run (Type 1) and those whose chances are lower (Type 3). Type 2 is right in between. The high uncertainty of Type 3 (radical innovation) forces us to draw up a list of 20 ideas and then select no more than five of them for actual experimentation. Incidentally, this selection process is one activity that should definitely not be done in a top-down way! Research by Stanford professor Justin Berg shows that managers and board members are the worst predictors of which ideas are going to prove successful. Lower-level peers are much better at this. That’s good to know before someone suggests inviting the Board of Directors to take part in the selection of ideas. Don’t forget that it was board members who rejected both Harry Potter and Star Wars!

Serendipity

Don’t stifle serendipity. Penicillin was discovered by accident. There are ways of increasing the odds of such fortuitous accidents. One of the most important is knowing which way you’re headed. The better your sense of direction, the more receptive you are to other ideas that pop up along the way. It’s a flexibility that makes you comfortable with being out of your comfort zone.

Timing

Critiquing ambitious and creative ideas that can lead to a breakthrough is healthy. However, it’s dangerous to do that too soon. Generating ideas is a different process than selecting ideas. Marty Neumeier, an expert in innovation and design thinking, has identified six factors that can stifle the imagination during brainstorms: an unfounded conviction, a lack of technical know-how, a rigid mental model, cafeteria behavior (this, but not that—stripping an idea of its coherence), fear of failure, and a fixation on the right answer.

Create a logical customer journey

Customer Journey Mapping has been around for a long time, but its popularity has rapidly increased thanks to digital innovation. The traditional marketing and sales funnel (Attention, Interest, Desire, Action), which steers customers to your product, hardly even exists anymore. Brand loyalty is no longer something you can count on.

Customer Journey Mapping helps you to analyze and innovate customer processes. Make sure to map out the entire customer journey. Analyze every touchpoint through every channel to judge whether this is where customer satisfaction is made or broken. 

By putting yourself so completely in your customers’ shoes, you are sure to expose any inconsistencies in your service and between channels (web/mobile/social media/phone/store). Figure 1 depicts the Customer Journey Mapping process.

Obviously, you want to find the points of delight with the biggest impact and uniqueness, while removing the points of pain. There are two takeaways here. One: ensure enough peak experiences that deliver on the brand’s promise and meet the most important customer needs. (Keep in mind, by the way, that 20% of your customers’ needs usually determine 80% of their satisfaction. Which means you really need to pinpoint which 20% these are.) And two: your customers’ final experiences during the final touchpoints largely determine their perception of the overall experience. Figure 2 shows which touchpoints in the customer journey have the biggest positive and negative impact.

Turner’s Jacques Pijl shares his latest blog on innovation. How can mature organizations organize radical innovation?

As I argue in Strategy = Execution, radical innovation requires a separate, autonomous execution strategy, independent from the existing organizational structure. A two-track approach, so to speak. Why is that, you ask? Because radical innovation happens at a different speed and with a different intensity than the day-to-day.

In Strategy = Execution, I distinguish between three types of change: improvement, renewal and radical innovation. Radical innovation (Type 3 Change) in particular has preoccupied organizations. There are many different strategies for organizing and managing such change. Most recently, new digital business models have been the main drivers of innovation, putting successful innovation at the top of every boardroom agenda. Innovation gurus have seized this opportunity and, either deliberately or inadvertently, created a hype around innovation. They’ve suggested that the creativity and brilliance needed for successful radical innovation are smothered by structure and management. They’ve vilified metrics as the ultimate death knell. This misconception has created a tendency to indiscriminately try out all kinds of ideas, at enormous financial and intangible cost.

Such innovation gurus had free rein until Eric Ries published his bestseller The Lean Startup.
The basic idea behind his excellent innovation method is validated learning: a way for startups operating in uncertain conditions to prove that they are making progress. This is much more practical, accurate and rapid than market forecasts or classical business planning. It’s all about learning. Anything extraneous—that is, not required for learning from customers—is eliminated. Validated learning is learning based on the actual development of the organization, substantiated by real customer data. All a startup does is carry out experiments to learn and successfully navigate the company through a period of uncertainty.

Radical innovation

In practice, Type 3 Change, digital innovation, is organized and managed in many different ways. Figure 1 details the various organizational and managerial forms we came across in our research. To do well, you need to organize a healthy dualism. Running your existing business model and implementing changes to this model (Types 1 and 2 Change: improving and renewing), are aimed at fully leveraging your current business model. Your existing organization can handle this. But Type 3 Change is of a different order. This is about radical innovation, introducing new business models, radically changing the way you do business. This type of change can only be achieved through a differentiated, autonomous execution strategy, separate from your regular structure but with at least a minimal interface to facilitate linkage and cross fertilization. This is not to say you shouldn’t foster innovation in your regular organization, but don’t put all your eggs in that basket.

Institutionalize dualism

How do you organize management of all three types of change in relation to day-to-day executive management? How do you organize Changing the Business in relation to Running the Business? The solution is to institutionalize dualism. Figure 1 lists the ways in which Type 3 Radical Innovation can be organized; this is crucial for established organizations to survive. But startups become scale-ups and there comes a day when they’re established companies.

As you can see, the organization formerly known as Google has opted to explicitly differentiate its established revenue and business models (like Google Search and YouTube) from its Type 3 innovations (like Google X and Google Capital) by introducing a new corporate structure called Alphabet. This is an excellent example of strategy execution that requires differentiation into the three types of change. Google can leverage its existing revenue and business models using Types 1 and 2, while simultaneously ensuring that it leverages Type 3 innovations, its moonshots, in ways best suited to that particular business model. Type 3 innovations may for this reason always remain separate organizations that are never integrated into a larger, existing business unit.

Shareholders also like this logic and transparency, because it makes clear which risks pertain to which division. By rigorously separating its activities, Google—or Alphabet, rather—can protect its brands and experiment with them.

Management thinker John Kotter advocated this dual operating system in his 2014 book Accelerate (XLR8). In his dual operating system, regular execution operates separately from, yet in conjunction with, innovation.

Roles

Another great example of this two-track approach comes from Alex Osterwalder, inventor of the Business Model Canvas, in his successful book Business Model Generation. In his blog on the Strategyzer website, titled “6 Roles That Can Position Your Company for The Future,” he presents a modern organizational chart. It shows how the two separate tracks work, and what improving and renewing existing revenue and business models (Types 1,2) and innovation (Type 3) look like organizationally. On the Innovation side of the chart, Osterwalder distinguishes six modern roles: the Chief Entrepreneur, the Chief Portfolio Manager, the Chief Venture Capital, the Chief Risk Officer, the Chief Internal Ambassador and the Entrepreneurs.

All these forms and models meet management’s needs to purposefully separate operation of the existing business model from the timely innovation of new business models in order to survive. They prefer some form of slight interaction between the two “engines” to maintain a relationship and enable cross-fertilization.

A and B agendas

A very practical example of dualism is the A and B agendas used by one manager I spoke to. The A Agenda at a meeting deals with day-to-day executive management, while the B Agenda deals with progress of the 3 Types of Change, that together determine the Execution Agenda. This highly systematic approach kills several birds with one stone. It keeps Running the Business and Changing the Business separate, while distinguishing between the three types of change and between short-term and long-term goals. This is the most practical application of agile strategy execution I have ever seen. But whatever innovation structure you decide on, always make sure you create a second speed, a second track, for radical innovation (see Figure 2).

As a result, the organization will end up with a robust two-track approach, each running at its own speed. It’s quite a radical step to consistently implement this approach in your organizational structure. Some organizations will find it easier to live with this type of ‘healthy schizophrenia’ than others, but it really is the best way to use your existing workforce to generate radical innovations. If it sounds complicated, that’s because it is. All workmanship gets complex now and then.

GE example

General Electric is a good example. In mid-2015, the company announced plans to sell most of its finance unit and focus exclusively on industrial manufacturing. At the time, the GE Capital business unit was good for half of the overall turnover, but the company decided to retain only part of its aircraft and equipment lease operations. In 2018, these activities were forecast to bring in 10% of its earnings: a real sea change.

But GE’s industrial segment is also undergoing a radical transformation. These days, many of the machines GE manufactures—deep-water oil-drilling equipment, military and commercial jet engines, and trains— are equipped with sensors that collect data. So, GE developed Predix: predictive maintenance software that uses this data to monitor performance and identify opportunities for improvement. GE now has a new Digital Business Unit, which is exploring the possibility of offering deep-sea drilling as a service rather than a product.

And let’s be honest: if the establishment had approached modern strategy execution professionally, the media industry would have created and marketed Blendle and Netflix itself instead of wasting a decade daydreaming about new business models. And Hilton would have come up with the Airbnb model, and the Amsterdam Taxi Dispatch would have thought of Uber.

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