Too much positivity increases Risk

The article Organizational Culture: An Overlooked Internal Risk in Business Week has useful data about how employees tend to hide bad news:

Nearly half of executive teams fail to receive negative news that is material to company performance in a timely manner because employees are afraid of being tainted by being the bearer of bad news.
Only 19 percent of executive teams are always promptly informed of bad news material to company performance.

The article points out that the corporate culture drives this behavior and the employee intent is not likely malicious. Clearly, there is a confirmation bias in most organizations. The article points out that there are likely to be several reasons for this:

It affirms your preexisting emotions (you wanted the meetings to go well and believe in the strategy)
it reflects well on your own performance (it’s your job to communicate in a compelling way)
it is not incorrect (generally speaking, the meetings went very well)
perhaps you don’t believe your CEO is interested in hearing contrary feedback.

The survey shows that breaking down this communication barrier brings measurable benefits to the organization. The article suggest that managers should encourage employees to speak up, help eliminate the fear of retaliation (through actions, not just words) and educate employees how to speak up / escalate issues constructively.

So what specifically can be done? We can encourage skepticism and questioning in R&D teams. We can reward failure to encourage risk taking and communication of bad news. Furthermore, a questioning environment actually is shown to drive innovation.

What Makes Teams Smart

An interesting paper in Science extends the concept of intelligence to teams and defines Collective Intelligence. Based on study of 699 people working in small teams of 2-5 people, the study found that team intelligence is driven by three factors:

Social sensitivity of team members increases team intelligence. More sensitive the team members are about social cues such as facial expression, the better the team performs
Teams where everyone participated in the discussion were more intelligent. If few people dominated the discussion, the collective intelligence went down. This is something R&D managers should keep in mind. It is very easy for managers to dominate team discussions.
Teams with women members were more intelligence than others. This is likely because women tend to have higher social sensitivity than men.

Equally interesting is the list of factors that does not drive team intelligence. (via MIT Sloan Review and
What Makes Teams Smart):

Interestingly, the researchers found that collective intelligence wasn’t strongly correlated with the average intelligence of the individuals in the group — or with the intelligence of the smartest person in the group. They also found, as they wrote in Science, ”that many of the factors one might have expected to predict group performance — such as group cohesion, motivation, and satisfaction — did not.”

So what can you do about improving team performance? Check out the article How to Keep Your Team Loose. Or this one on where to focus on driving performance.

Hotbeds of Innovation

The Strategy + Business article Hotbeds of Innovation has some useful benchmarking information about how large corporations are accessing innovation from outside. We have talked about Intel and others in the past. Here are some more:

Called “ecosystem investing” by some innovation executives, it refers to the increasingly complex network of suppliers and innovators supporting large companies.
In this model, well-established U.S. companies are creating strategic partnerships with startups and small companies whose technologies and skills can help the large companies expand their own capabilities.

The idea is to gain access to the technology through strategic partnerships and alliances:

The goal of the incumbents is to systematically target emerging technologies and “harvest” ideas without having to take on the risk of acquiring the smaller companies. Sometimes the large company takes an equity stake, and its top executives may sit on the small company’s board or mentor its top management. Alternatively, it may seek to license the small company’s technology or buy its products and distribute them to global markets.

Here are a couple of results. First from J&J:

Ortho-McNeil Inc., a J&J division, invested the modest sum of US$40 million in Metabolex Inc., a privately held biopharmaceutical company based in Hayward, Calif., so the two companies could collaborate on the development of compounds used to treat type 2 diabetes. …
In June 2010, Ortho-McNeil received an exclusive worldwide license to commercialize several Metabolex drugs, including the diabetes compound, for about $330 million. That’s far less than the $1 billion a pharmaceutical company typically spends to develop drugs internally, and far more than Metabolex could have expected to bring in on its own.

Second from Intel:

Intel was able to dramatically increase the clout of its ecosystem investment strategy recently when it teamed up with 24 other venture capital (VC) firms as part of the company’s “Invest in America” alliance, Intel’s commitment to promote U.S. competitiveness by supporting technology development and creating jobs for college graduates. Intel put up a mere $200 million of its own money, but the VC firms pledged to match that investment, for a total of $3.5 billion over several years.

Some best practice info about R&D and innovation

The post Six Myths of Corporate R&D at Corporate Executive Boards has a convenient list of best practices for encouraging innovation as opposed to incremental improvements. I have arranged them in three categories and my comments are in parenthesis:

Encourage learning

Organize R&D functions to encourage learning instead of alignment with corporate strategy (I am not sure both are mutually exclusive.)
Encourage R&D staff to form informal networks inside and outside the corporation. (Good point, but difficult to do.IP Control will need to be a constant focus).

Take more risks with investments

Increase investment on breakthrough ideas as opposed to product improvements (The real answer is a balanced portfolio of investment. The right balance depends on the the type of business and competitive environment).

Be more flexible with early stage opportunities

Be flexible with metrics, such as return on investment, for early stage opportunities (Clearly, it is difficult to estimate the value of breakthrough ideas. However, it is also very difficult to identify which ideas are breakthrough…)
Be flexible with project reviews of early stage opportunities. Focus instead on customer value and related scenarios. Review early stage opportunities as a portfolio and mitigate risks at a portfolio level.
Be flexible with project management and related processes.

More proof that innovation is a buzz word

The article How to Develop a Social Innovation Network, in my opinion, teaches you how not to purse innovation.

“Customers already use social technologies to wrest power away from large corporations. Now employees are adapting social technologies in pursuit of innovations to support these empowered customers; Forrester calls these employees HEROes (highly empowered and resourceful operatives)”

Innovation is not about buzz words (HEROes!) and definitely not about social networking. We talked about innovative masses yesterday and realized that even if there are many end-users out there with some interesting ideas, filtering them for quality and adapting them to satisfy mass market quality is not normally cost effective.

Furthermore, sorting through ideas of varying maturity (from social media such as facebook) to identify innovation difficult at best and a complete waste of time at worst. I remember holding an innovation challenge for employees of a large technology company. Employees could win a prize by describe their innovative ideas in two or there sentences. One employee suggested the company should turn trash into oil. I asked how does one do that? The employee said she was only going to give ideas, how to make them work was the company’s problem! 🙂

Tapping the Innovative Masses

MIT’s Technology Review has some interesting survey results in the article Tapping the Innovative Masses:

“We found that 6.2 percent—representing 2.9 million people, or two orders of magnitude more than are employed as product developers in the U.K.—created or modified consumer products over the past three years and spent 2.3 billion pounds per year, more than double what the U.K. firms spent on consumer-product R&D.”

A lot of this tinkering was quite sophisticated, such as adding new spin cycles to washing machines etc. The question is how to tap into this huge volume of product ideas – some of them innovative. In many cases, even if the ideas are not innovative, they can significantly cut down on development time. However, the volume of ideas generated by such a process is so large, most companies will have trouble keeping up with them. Also, since most tinkerers do not have quality control processes, building products on their developments is quite difficult as well. Finally, as we have discussed in the past, collaborations with customers often tend to not be as value added as they could be.

Fortuitously, NY Times shares Microsoft’s approach to accessing innovations from the masses in the article Microsoft’s Effort to Build Apps and Reward Engineers:

“Because the platform is new, developers have to learn its ways before writing many of those apps. So to add them quickly, Microsoft has taken an unusual step. It has relaxed a strict rule and will let employees moonlight in their spare time and keep the resulting intellectual property and most of the revenue, as long as that second job is writing apps for Windows Phone 7-based devices.”

Clearly, Microsoft has not tapped the mass of people out there, but they are encouraging their employees to innovate and keep a larger fraction of the economic value they generate. Their approach is quite attractive because:

Innovations are coming from employees, hence, Microsoft can have some confidence in the quality
Apps are separate from Microsoft products (Windows Phone 7), Microsoft has an easier time separating intellectual property and brand image
Revenues from the apps can be tracked separately, it is possible for Microsoft to compute economic value (MS offers 70% to employees and keeps 30%)
App development will help employees identify useful updates and upgrades to the OS, and guide innovation

However, some key concerns remain. First is to maintain employee focus on jobs as opposed to moonlighting:

“Engineers work all hours; they don’t punch a 9-to-5 clock,” Professor Cusumano said. “Normally, you want your employees to pour their passions into their jobs. If they do something else on the side, you don’t cheer them on.”

The second being bandwidth. If employees are developing the OS full-time as part of the job and then developing apps during their free time, will they have enough energy left to be creative and innovative? How much work load is too much?