The secret killer of corporate innovation: Lack of operational fit

AHI GVIRTSMAN IS THE FORMER VICE PRESIDENT AND GLOBAL HEAD OF INNOVATION OF HP’S SOFTWARE DIVISION, THE AUTHOR OF THE BOOK “THE PEAK INNOVATION PRINCIPLES” AND CHIEF KNOWLEDGE OFFICER AT SPYRE. HE IS CONSIDERED A GURU OF ORGANIZATIONAL INNOVATION AND HIS METHODS ARE BEING APPLIED IN VARIOUS ORGANIZATIONS INCLUDING VODAFONE GERMANY, ORBIA, AND THE MUNICIPALITIES OF TEL-AVIV AND JERUSALEM

THROUGHOUT MY CAREER I HAVE SEEN SEVERAL VENTURES THAT WERE MUCH NEEDED; CUSTOMERS EXPECTED THEM, MANAGEMENTS LONGED FOR THEM, AND YET THEY PERISHED AND DISAPPEARED. THE REASON? A LACK OF OPERATIONAL FIT OF THE VENTURE TO THE ORGANIZATION AND FAILURE TO TAKE STEPS TO MAKE IT WORK.

Remember that once upon a time, actually about a year ago (even less) we used to fly to other countries? Many of us used to pack a universal power adapter so that no matter what country we arrived in, our appliances would work. The adapter was required in order to make the appliance work in an environment which wasn’t natural for it.

Innovative ventures, by definition, have a high risk of failure. Even if successful, their impact on the organization’s KPIs (e.g. revenues, profitability, and customer satisfaction) is not clear in advance. Additionally, such ventures usually demand that certain key functions in the organization start doing things differently in order for the venture to be implemented. Similar to our universal adapter analogy, such ventures are foreign entities in established organizations. This means that regardless of how enthusiastic management is about them and the positive impact they could have on business outcomes, they will eventually perish. The reason is a silent killer that lurks within every organization and, without too much noise and fanfare, suffocates such maladapted ventures.

AN EXAMPLE OF THIS IS A SOFTWARE PRODUCT BUILT FOR SALE IN THE CLOUD, IN AN ORGANIZATION THAT UNTIL THAT TIME WAS USED FOR SELLING SOFTWARE PRODUCTS INSTALLED ON THE CUSTOMER’S PHYSICAL SERVERS AS PART OF THE DATA CENTER. THE SALESPEOPLE IN THE ORGANIZATION KNEW HOW TO CLOSE LARGE DEALS IN A PROCESS THAT WOULD TAKE MONTHS, AND THEIR COMPENSATION MODEL WAS BASED ON A CERTAIN FLOW AND SIZE OF DEALS. WHEN THE SAME COMPANY RELEASED A SOFTWARE PRODUCT DEPLOYED IN THE CLOUD, NOT ONLY DID THE TECHNOLOGY CHANGE - BUT ALSO THE BUSINESS MODEL. INSTEAD OF DEAL SIZES FROM HUNDREDS OF THOUSANDS OF DOLLARS TO MILLIONS AND SALES CYCLES THAT COULD TAKE UP TO A YEAR, THE SALESPEOPLE NOW HAD TO CLOSE A LARGE NUMBER OF SMALL DEALS, WHICH REQUIRED THEM TO HAVE SKILLS THEY DID NOT NECESSARILY HAVE. ADDITIONALLY,, THE BILLING MODEL WAS NOW SUBSCRIPTION-BASED INSTEAD OF A ONE-TIME PAYMENT. TO MAKE MATTERS WORSE, INTERNAL SALESPEOPLE WERE MEASURED BASED ON THE OLD MODEL AND NOT MAKING NUMBERS AS A SALESPERSON MEANT YOU’D HAVE TO FIND A NEW PLACE OF EMPLOYMENT. THIS MEANT THAT SOLVING THE COMPENSATION ISSUE ALONE WAS NOT SUFFICIENT. BOTH THE COMPENSATION MODEL AND THE PERFORMANCE MODEL OF SALESPEOPLE WERE NOT SUITABLE FOR THE INNOVATIVE NEW PRODUCT.

In fact, the organization found itself trying to bring a new product into the world that was supposed to be strategic for it, while at the same time using a compensation model that suppressed any motivation for salespeople to sell it. The result was that they continued to encourage sales of legacy products instead of the new ones.

How should you deal with this? The answer is by using a tool called “operational fit”. The purpose of this tool is to identify in advance the points at which there is a mismatch between the organization and the new innovative venture that it is working on. When I accompany organizations in promoting innovative ventures, I ask them what organizational function’s behavior will need to change in order for the venture to be implemented and reach customers.

Think of a new technology that an insurance company would like to incorporate into its customer service. The technology is expected to increase the success rate of the customer service retention team. However, the average call time is expected to lengthen due to this technology being applied, and in addition, it is a tool that requires training. Let’s take two organizational functions, for example: Customer Service Team: Naturally, this team will be the one to make use of the new technology. IT department: The department staff will need to know how to install and maintain the technology. They may also be responsible for explaining to customer service personnel how to use it. Let’s see whether each of these functions has the skill and motivation to work in line with the venture needs. In the case I presented, the customer service team does not have the necessary skill and the organization will need to provide appropriate training. What about motivation? If we examine what the team’s goals are and how they are measured today, then we will know if there is a contradiction between the current way of measuring and what the team will be required to do when the new technology is assimilated into the organization. If we identify a contradiction, it means that we have within the organization a factor that without malicious intent will still harm the success of the venture. This is because people behave based on how they’re measured.

How do you deal with such a contradiction? Suppose we find that customer service is currently measured, among other things, on the average length of calls that should remain within a certain range. The technology, as mentioned, will extend the average call duration, but will also increase the success rate in customer retention. If so, we will need to coordinate this with the team managers and lengthen the range of the call duration that the team members will have to maintain in order not to be harmed in their evaluation as a result of the standards of the new technology.

WE USE THE “OPERATIONAL FIT” TOOL AS A KIND OF A UNIVERSAL ADAPTER THAT ALLOWS A CONNECTION BETWEEN AN INNOVATIVE VENTURE AND THE ORGANIZATION IN WHICH WE WANT TO IMPLEMENT IT. USING THIS TOOL AT A RELATIVELY EARLY STAGE OF THE VENTURE CAN SAVE A LOT OF HEARTACHE DOWN THE ROAD. THE STRENGTH LIES IN THE FACT THAT IT DOES NOT DEAL WITH VISIBLE ORGANIZATIONAL BARRIERS, WHICH ARE RELATIVELY EASY TO IDENTIFY, BUT WITH QUIET BARRIERS THAT, IF LEFT UNADDRESSED, WILL CAUSE THE VENTURE TO SLOWLY PERISH WHILE THE REASON STAYS DIFFICULT TO DETECT.