By Sreten Gajic, Contributing Writer
Formerly VP/Innovation, Assurant & Director, Coca-Cola New Ventures
Be honest: Has innovation been a central part of your company’s culture in the past?
And do you worry about the impact that politics can have on your innovation, R&D, and new ventures activity?
I’ve started several innovation and new ventures functions within companies like Coca-Cola and Assurant. Starting a new group with a relatively clean slate can be great fun: you get to develop a vision and strategy, the right governance, strong process, and you get to bring on a talented team. But in most cases when you’re starting fresh, it also means that innovation — and especially transformational innovation — hasn’t been part of the core strategy or the culture of the organization. This can set the stage for a tough battle to put innovation high up on the company’s agenda, and keep it there.
I’ve learned that culture and politics both will have big impacts on the trajectory your innovation program follows. But most people don’t think enough about either issue.
Let me share with you three approaches to establishing the optimal structure to be able to “win the political game” and deliver on innovation, given the sensibilities, culture, and objectives of your organization. The first is what I call the “Enabling Innovation approach.” It develops the innovation tools and infrastructure, and serves in a supporting role to allow the organization to innovate. It is usually the most diplomatic approach, one that does not burn bridges. The second is what I call the “Skunkworks approach.” It stands in contrast to the Enabling approach. It is a higher-risk and higher reward strategy, and requires running a separate group and P&L from the core business. Finally, the “Hybrid Open Innovation approach” combines the two previous strategies. However, it requires a knowledgeable innovation team, and a greater infrastructure than either of the previous two to pull off. I get deeper into the pros and cons of each strategy below.
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A story about innovation at Apple and Coke
Innovation that succeeds in large organizations is not about a solid process, great strategies, or even talented people — though all those are required. It’s mainly about culture. And in particular, it’s about changing the culture, which is hard and time-consuming. Sometimes it’s downright impossible. Let’s use Apple as an example. Apple doesn’t necessarily have smarter people than other companies, or even a better process or strategies. For Apple it’s about winning — winning without compromise — and a maniacal focus on excellence.
Here is an anecdote I was told by a former Apple employee a few years back. This employee worked with suppliers that provided many of the chips for the iPhone and Macs. One day, a supplier was proving to be difficult to deal with. The employee went to his boss, who immediately threatened the supplier with pulling all of its business worldwide — without asking for any approvals. It later became clear that this guy, three levels down from then-CEO Steve Jobs, had the complete backing of the entire management chain to make such a call, simply to ensure he was developing a product that thrilled customers. Jobs was able to instill a culture of minimum bullshit — and a maximum of “getting the job done.” This is the type of culture that is conducive to innovation; it does not require an innovation function to cajole employees to think innovatively. But then again, not many companies are still run by founders (or disciples of the founder, like current CEO Tim Cook), with such a clear mission. After 100+ years of operation, the mission for many companies becomes a bit murkier.
Take Coke for example. During my fourteen years there, I could not imagine going to a big supplier and having such a candid conversation, without having a big executive delegation with me (one time it was fifteen people visiting a small contract producer I was working with on new beverages), or without asking permission from layers above. When I did make my own move, it did not work out too well for me, and I burned bridges with supply chain. All I was demanding was the same as the guy at Apple – excellence. (In my situation, it was a bottle label that stayed intact when in contact with water condensation.) Coke had decades-old relationships with suppliers, and management was reluctant to risk these relationships over “small,” innovative new propositions. These types of politics are not conducive to innovation, yet as leaders in innovation we need to find ways to navigate them in the best way possible to create success.
Here are three potential approaches.
The Enabling Innovation approach
One option for new innovation executives is the Enabling Innovation approach. This is the wise, patient, and diplomatic approach to building innovation infrastructure over time. When leadership is not clear on the role of innovation, or if innovation is viewed as a support function — or even a recruiting or marketing tool — this approach is favorable.
How would you go about it? First, you engage innovation champions from the C-suite. You explain the benefits to the organization. You talk about innovation diffusion throughout the organization. You build the infrastructure for the organization to learn. You develop and disseminate tools: how to develop, test, and measure new product and service propositions, and get them to proof-of-concept. You set up forums and bring in speakers to share best practices or inspire the troops. And you engage operations as much as you can.
What you are hoping is that by providing the infrastructure and forums, by seeding ideas, you will be helping to drive innovation and new ventures, and in turn, incremental growth. In this way the innovation function acts more as a staff than a line function. This approach takes time — yet time is not always on your side.
When you are learning how to ski, they say the third day out is the most dangerous: you are getting the hang of it, starting to take some chances, and that’s when accidents tend to happen. Similarly, I believe the third year for an innovation or a new ventures function is critical. You can point to indicators of success, like the process you’ve built, employee engagement, new initiatives you’ve launched, a few early metrics, etc. You are building a solid infrastructure, and the company is perceived as more innovative. Many employees are excited to be part of the innovation forums. Your CEO might share some of the early wins and innovative projects with investors and Wall Street. But is it enough? Is it meaningful enough to the organization, especially by the classical metrics of revenue, gross profit growth, and ROI?
Oh, and not to mention that in the third year, it’s likely that leadership has changed in some way — whether the CEO or other key executives — and you are trying to explain what you are trying to do all over again. No, time is not on your side. So the Enabling Innovation Approach can work best in a company that is stable; has solid revenue and profit growth; and where management has the luxury of time and the vision to keep a new ventures team around that will eventually contribute in a material way. It’s important that you are clear with leadership that you need an extended period of time to deliver sustainable, material value.
This is the case of Coca-Cola Venturing & Emerging Brands, which I was involved in starting. We took a whole year to study the history of all the beverage categories in the U.S. and globally. We understood what it took to develop a winning proposition and get it to proof-of-concept (7+ years to scale, heading to $1 billion in revenue). Then we developed our strategies and tactics to develop an emerging brand, which we called “The Art of Emerging.” (For more on the topic of emerging brands, see this video we created.)
Only then did we jump into the fray, while still continuing to study the new emerging spaces in health and wellness and functional beverages. We developed a separate route-to-market from core Coke products, with new distribution partnerships; secured external production; and crafted partnerships with customers like Whole Foods. All this took time and patience from the organization, and from leadership, for the group to still be around after more than eight years.
Has the group had big, transformative wins in the beverage space? I don’t think so. Has it had success in the form of new beverages and incremental sales? That it has, with beverages like Fuze, NOS, Honest Tea, Core Power Protein, and the development of a completely new category, coconut water and the Zico brand. Most importantly, I believe, the group has the pulse on innovation in its industry, and transformative categories will not pass Coke by again in the U.S. – products like energy drinks, lifestyle beverages, protein drinks, etc. It’s highly unlikely Coke will ever again need to pay a cool $4.2 billion for a product like Vitamin Water (an “innovation” you could make in your kitchen sink.) And that’s worth the price of admission, as far as I’m concerned. That is an example of the Enabling Innovation Approach working well.
The second approach to building an innovation function is creating a Skunkworks – a completely independent unit with very little oversight and meddling from the mothership. This is very different from the Enabling Innovation Approach, and a lot more entrepreneurial. A lot of vision and trust is necessary to operate outside the confines of the HQ, and it goes against many managers’ hierarchical impulses. It usually means forming a separate unit, in a different location than corporate HQ, and creating a more entrepreneurial culture. It requires greater investment as some functions are duplicated to support the new entity.
This approach is high risk and high reward. It’s optimal when true growth from innovation is needed, and when it is clear that working internally, a new ventures group would get bogged down by bureaucracy. Its sometimes chosen as an approach when it’s completely inevitable that change is on its way, and the model that got you to where you are simply won’t be sustainable in the future. Hence, there’s a greater sense of urgency and a willingness to take more risk. (People sometimes call this the “burning platform.”) As an example, the cable television industry is still a cash cow, but many young viewers don’t envision becoming cable subscribers — they just want an Internet connection and Hulu. As a result, I have seen some cable companies be energetic about exploring and investing in new spaces. These are not even necessarily adjoining or strategically related to their core business, but they are incubating and testing new businesses that could have huge growth potential. Some have formed new groups to drive new ventures, with separate leadership and P&L to the core business. Innovating and taking chances while the cash flow is still there to support it seems like a good idea to me, but not all leaders do it.
A powerful example of driving the growth of new ventures and innovation, and developing a structure to support that growth separate from the mothership, is the recent creation of Alphabet Inc. by Google. (See the org chart below.) Alphabet contains companies and investments that are far afield from Google’s core search advertising business, like glucose-sensing contact lenses, self-driving cars, and robots. The new structure will promote greater focus on Google, while giving innovation businesses oxygen and space for maximum experimentation and growth. Don’t you wish more companies could unshackle themselves from internal politics — not to mention the short-term demands of shareholders — and innovate in this way?
Hybrid Open Innovation approach
The third structure is what I call a Hybrid Open Innovation approach. It centers on the principles of open innovation, and the understanding that to innovate, you cannot do it alone. You are hunting for the best ideas, solutions, and people, regardless of whether they work for you or not. You drive organic innovation and test concepts internally, while at the same time you invest in entrepreneurs and start-ups that might be ahead of you or well positioned in your particular area of interest. You develop a balanced portfolio of early-stage investments, partnerships, and joint ventures. You work closely with incubators and accelerator programs. (You make sure to keep the operational and business unit executives at your company involved in these relationships and interactions, too.) You make multiple bets in various areas, you measure results continuously, and you drive a dynamic portfolio, divesting of or killing off non-performing projects in a timely manner.
At the same time, you make big bets to scale businesses once a proof-of-concept has demonstrated big potential. You are governed by a small executive board, plus a larger council that can supply external wisdom and connections. The trick is to get the help needed, yet not get bogged down in approvals and politics.
The key here, I believe, is how the governance of the ventures is set up initially: you want to have a board that lets you run with ideas that have merit; is engaged (i.e., they pick up the phone when you need them); and is there because they are willing and able to help, not just because it is a political appointment and they are representing a business unit or function. This probably means you don’t need people from tax, audit, and legal on the executive board — yet you probably do want M&A, strategy, and business unit decision makers.
When does the Hybrid Open Innovation approach work best? I believe you need a base of expertise inside the organization, and a strong core team to pursue multiple innovation vectors. They need the capability to drive engagement across the innovation ecosystem, both internally and externally. If you can put such a complete structure together, your chances of success are higher.
Many people get an innovation program started without spending enough time understanding the culture and political dynamics of the organization — both of which influence what’s possible and how decisions get made. It’s essential to ask yourself and others key strategic questions.
• Are you disrupting or competing with the core business? Establishing direct routes to the consumer, and bypassing large customer retail partners? This will probably make the commercial leadership nervous, since they’ll see you as a threat to their business.
• Conversely, other businesses are in need of innovation and under pressure to deliver — are you there to support them? Are there vestiges of previously failed innovation efforts and structures in your company? What were the learnings? Can you co-opt people who were involved in these teams, or will they be the doubters that want you to fail?
• Are you clear on the big picture set by the CEO and board, and can you extrapolate what could happen in three years, anticipating the moves so you can align your strategy (as you probably won’t be told about the big shifts ahead of time)? Are you working on a personal passion project, or are you aligned to the big picture and working on big bets that could move the needle for the company in a material way?
Many of those are tough questions, but they need to be addressed. Once you’ve begun to get answers, a solid program structure like the ones I’ve described here will help you strike the best possible balance of action, entrepreneurship, and patience.
We corporate innovators are playing a chess game, and the more you can anticipate future moves and political and cultural nuance, the better.
Sreten Gajic is a Contributing Writer and formerly VP/Innovation, Assurant & Director, Coca-Cola New Ventures