Fall 2021 | QUESTIONS FOR: Tendayi Viki

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FALL 2021

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MANAGEMENT

Now What?

QUESTIONS FOR

Tendayi Viki, Corporate Innovation Expert and Author, Pirates in the Navy

Q &A

An innovation expert who has advised American Express, The World Bank and Unilever describes how to tackle the innovation paradox.

Interview by Karen Christensen

You have said that despite efforts to make innovation a common practice, corporate innovation remains a paradox. How so?

Very few leaders would deny the importance of innovation.

And yet, there is still nothing harder than trying to innovate within a large corporation. The issue is that many established companies are trapped by their previous success in a manner that limits their capacity to innovate.

A classic example is Steve Ballmer, the former CEO of Microsoft. When Apple introduced the first iPhone in 2007, his response was as follows: “There is no chance that the iPhone is going to get any significant market share!”

Leadership teams in successful companies essentially become ‘climate change deniers’: They can see the changes happening around them in the business world, yet they deny those changes’ relevance to their company. And this denial tends to be strongest when the ‘weather’ is good and the rotmanmagazine.ca / 101

The focus should be on taking ideas and transforming them into value propositions.

focus is squarely on highly profitable products. The hubris that comes with that success creates dangerous blind spots.

The paradox you mention is that the activities required to maintain and increase your current success are in direct conflict with the activities required to explore, test and embrace new forms of value creation. As a result, if you are a corporate innovator, you are working within a machine that is not designed to support your mindset or your work. You are likely to be facing headwinds from day one.

That new VP who is trying out all sorts of new things that might or might not work out. So, the department starts to build constraints around people’s ability to create minimally viable versions of new products, constraints around the ability to interact directly with prospective customers and constraints around what you can and cannot promise.

What has to happen for internal innovators to become ‘pirates in the navy’?

The ultimate goal of innovation is not ideation, it is the creation of new value for human beings, for organizations and for society overall. Of course, better products and new ideas are a big part of that equation, but the focus should be on taking ideas and transforming them into value propositions that resonate with your customers.

Steve Jobs coined that term. Faced with the choice of starting a company or joining a large corporation, he believed that it was “more fun to be a pirate than to join the navy.”

But for innovators inside established companies, making a distinction between being a pirate and joining the navy is a fallacy. If you are going to succeed as a corporate innovator, you can’t have an antagonistic view of the orderly, rulesbased organization you work for (‘the navy’). You have to figure out a way to become a pirate within the navy.

You often see corporate structures overpowering human capabilities for innovation. Which structures and processes are at the top of the list?

When I go in to an organization, I always start by asking this question: If ‘Sarah’ — one of your most creative, innovative employees — had an idea that she wanted to work on that the company had never tried before, what hoops would she have to jump through to move forward? I have everyone write down a list of what exactly would have to occur for Sarah to proceed.

Two barriers are always at the top of the list. The first is finance. We have structured our corporate processes so that if you want finance to provide you with resources to try anything new, you have to promise them a significant return upfront. Finance departments are very rarely comfortable making bets.

The second barrier is legal and compliance. Job one for this department is making sure the company doesn’t get sued. And what is most likely to get your company sued?

102 / Rotman Management Fall 2021

You have said the goal of corporate innovation should not be to come up with great new ideas for products and services. What should it be?

Once an organization chooses the path of transformative innovation, what are the three human barriers they need to look out for?

It is very difficult to create transformative innovation because human beings have a strong built-in tendency for inertia. That’s the first human barrier. Most people want things to stay the way they are. Unless there is some crisis, they won’t want to change. The second barrier is doubt. Innovation requires accepting failure, and as those failures mount, lots of people start to become doubtful. The third barrier is cynicism. When people say things like, ‘I always knew this wasn’t going to work,’ that attitude is like a rotten apple that poisons innovation.

You have found that profitable business models share four characteristics. Please summarize them.

In order to build something innovative, the innovation team must address four things: feasibility, desirability, viability and adaptability. That entails answering four sets of questions. The first is, ‘Can this be done?’ Is it feasible? Of course, even if you can technically do something, if nobody wants it, it doesn’t matter. So, the second important question is, ‘Is there anyone out there who wants this?’ Who are the prospective customers? What are their jobs-to-be-done,

‘Innovation accounting’ entails asking an entirely different set of questions.

and how does this innovation address those jobs?

Once you figure out that the innovation is feasible (it can be done), and desirable (somebody wants it), the next question is, ‘Can this be done profitably?’ It is possible to create new offerings that people want, but lose money doing it. Nobody wants to go down that road. Once you determine that something is feasible, desirable and viable, the only question that remains is, ‘Can we scale it?’ Is it adaptable to the environment, to competition, to regulation, etc.

As an innovator, your job is to be able to provide answers to these questions for everything you are working on.

The second metric I propose is ‘governance KPIs.’ These focus on helping your company make informed investment decisions based on evidence and innovation stage. For instance, how close are the teams to finding product-market fit? The third tool is ‘global KPIs.’ These focus on helping your company examine the overall performance of their investment in innovation in the context of the larger business (e.g. per cent of revenue in the last three years).

Innovation accounting is ultimately about answering one question: How close is this team to finding a business model that works?

What is ‘innovation accounting,’ and how does it work?

How has the pandemic affected innovation in organizations?

Executing on existing business models can mostly be managed using traditional methods such as cost optimization and operational effectiveness, and success can be measured using traditional metrics such as profit, ROI and net present value. In contrast, searching — as renegade pirates do — has to be managed using start-up methodologies such as design thinking, customer development and experimentation.

Success in this arena cannot be measured with traditional tools. It entails examining how well your innovation team is doing in their search for profitable new business models.

The first thing traditional finance departments have to embrace is that it is next to impossible — especially if you’re working on the transformative side of innovation — to promise returns on day one. Innovation accounting entails asking an entirely different set of questions. Things like, how many experiments did the team run? What evidence do they have that the price point in correct? Have they tested the cost structures?

When managing innovation, different tools are needed. One of these is ‘incremental investing,’ where funding is allotted based on the innovation stage of the product. This approach is based on Dave McClure’s Moneyball for Startups. I propose three sets of innovation KPIs. The first is ‘reporting KPIs.’ These focus on the ideas that product teams are generating, the experiments they are running and the progress they are making on the road from ideation to scale.

For example, how many assumptions have been tested and validated?

I have been really disappointed with some of the conversations I have been having around post-pandemic business.

I think people are asking the wrong questions. A lot of them are asking about whether the changes we’ve seen due to the pandemic are going to stay with us going forward — things like remote working and restaurant meal delivery. These are fair questions to ask, because we want some of these things to last.

Actually, the more fundamental question to ask is this: How is it possible that we were able to respond so quickly to the pandemic, that we quickly set up remote working, we quickly found a new business model, we quickly pivoted — whatever the case may be.

What specific things did you do to get to these innovations, and how can you keep doing that after the pandemic? So many organizations learned how quickly they could change their approach if there was enough pressure involved. Going forward, this mindset should be built into the way they work.

Your goal is to make entrepreneurship an official function within every large organization. Tell us more.

At its core, the entrepreneurship function would be responsible for ensuring that the company innovates on a continuous basis. More specifically, it would be responsible for helping the company develop its strategic guidance, management systems and toolbox for innovation. rotmanmagazine.ca / 103

A Repeatable Process for Corporate Innovation To be effective, the repeatable process you design should accomplish the following: Remove obstacles: By doing discovery work and starting small, you will have developed an understanding of what is getting in the way of innovation inside your company. The process you design should, at a minimum, remove obstacles such as lack of leadership support, a demand for long business cases and unrealistic ROI expectations. The impact of annual budget cycles should be minimized.

Provide incremental resources: Teams need protected funding for innovation. You need to design a process that describes how this funding will be released to innovation teams incrementally. Small amounts of money can be released for intrapreneurs to test their ideas through experiments with customers. These funds should be released without the need for a long business case. If intrapreneurs show progress towards a profitable business model from their experiments, more funding can be released to them.

Provide guidance: The process you design also needs to provide clear guidance on how to get the funding for innovation. What types of ideas is the company looking to invest in? What amounts of budget and resources are available? How are intrapreneurs expected to use those resources? What are the expectations for running experiments? What are the success criteria for receiving the next incremental batch of funding?

Set out the right expectations: Innovation is often stifled by leaders who ask the wrong questions at the wrong time. The innovation process you design should guide leaders on how to set the right expectations. For each stage of the innovation process, leaders should be asking the right questions. For example, during the early stages, they should not be asking about future revenue.

Rather, they should be asking about risky assumptions and what the team is doing to test these.

104 / Rotman Magazine Fall 2021

A company’s culture is determined by what it celebrates, rewards and/or punishes. Creating an innovation culture that recognizes failure as a key part of learning is the job of the entrepreneurship function. This function also needs to create tools that help leaders make decisions about what to do with successful start-ups within the company. Should you scale them internally? Do you need to create a new division?

Should you sell them or shut them down?

Once such management systems are in place, the entrepreneurship function is then responsible for maintaining and continuously improving the process and tools.

For leaders who want to embrace this mindset, what are the first steps?

For innovation to be part of your culture, you have to create a context in which winning ideas can emerge. I am reminded of a great quote I heard recently: When a flower fails to bloom, you don’t blame the flower. Instead, you look at the garden, examine the soil and try to figure out what is stopping the flower from blooming.

It’s the same with innovation. Leaders often complain about how their team can’t seem to come up with new ideas.

But instead of just saying, ‘Give me 10 new ideas by the end of the month,’ they need to start thinking about the ‘soil’ in which people are working, and whether it is conducive to innovation. I always ask them, What enablers of innovation do you have in place? Which innovation blockers and barriers exist, and how can you remove them? Answering these questions is the first step towards creating a healthy innovation ecosystem.

Tendayi Viki is an Associate Partner at Strategyzer, where he has

advised American Express, The World Bank and Unilever. He is the author of Pirates in the Navy: How Innovators Lead Transformation (Unbound, 2020) and co-author of The Corporate Startup: How Established Companies Can Develop Successful Innovation Ecosystems (Valkmedianet, 2017), which won the Chartered Management Institute’s Book of the Year Award for Innovation and Entrepreneurship. Thinkers50 has nominated him for its Innovation Award and calls him “an emerging thinker to watch.”

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