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Nice comment in the Harvard Business Review blog section about the Innovator's Paradox by Scott Anthony. He defines the Innovator's Paradox as this:

"When you don't need the growth, you act in ways that lead to you not getting the growth you will need. And when you do need the growth, you can't act in ways that deliver it."

I encourage you to read the article but the gist is this:

• When companies are in a period of high growth and resources are ample they should be looking for the next growth opportunities but they don't do it effectively. Their activities lack discipline; wasteful spending and overpriced acquisitions occur.
• When a companies business matures and growth slows done, there are little resources available for growth initiatives. The acute need for growth pulls them to large established markets that rarely pay off how they thought they would. They often ignore disruptive technologies because their current markets are small; if they view the disruption as a threat they will respond, but the response will be rigid. If they view the disruption as an opportunity, they will be more flexible in the response, but starve it of funding (because they don't see it threatening their business).

I love one of Anthony's recommendations - That for every growth business, companies must recognize that the business size has a limit. Thus, they should plan accordingly in the early stages.

Article: The Innovator's Paradox by Scott Anthony

Processes are not enough to drive growth. There needs to a number of support mechanisms that ensure the processes flow properly. These are what I refer to as the platforms for growth. There are three main platforms: Strategic, Organization, and Networks. The Network platform ensures the necessary flow of subject matter information into and across the company to accelerate expertise in key strategic growth areas.

Networks should be thought of in two ways: Internal and External. Internal networks consist of internal, cross-functional subject matter experts. Internal networks are best organized by growth opportunities. For example if your company has identified the mobile space as a strategic opportunity for growth, experts should be identified to discuss the opportunities and challenges for your company in this space. Experts may already have the knowledge or be asked to become experts in the area. There should be cross-functional representation, so while you may not have a finance expert knowledgeable about the mobile industry, they should be asked to become the mobile finance expert for the company. A company could have many growth networks - as many as identified strategic opportunities.

The innovation team should be charged with ensuring the internal networks are engage. There should be virtual environments set up to drive knowledge sharing and discussion and in-person events to learn more about the area (possibly with speakers identified by the external networks).

External networks are inflows of subject matter expertise into the company. The identified growth opportunities dictate the external experts needed. The innovation team and member of the internal network should reach out to respective external experts. Efforts should be made to ensure to most current information on the growth opportunity is shared with the internal network including asking for regular presentations on current events and disseminating research. 

Networks are simple in concept, but they take a lot of work to ensure that they are actively engage. All too often networks are set up only to remain stagnant as members become distracted by the primary jobs. All participants should be granted time by their managers to participate, their participation should be part of their annual goals, and the virtual environment should make it easy for the members to stay up to date with the activity on the environment.

Processes are not enough to drive growth. There needs to a number of support mechanisms that ensure the processes flow properly. These are what I refer to as the platforms for growth. There are three main platforms: Strategic, Organization, and Networks. The Organization platform ensures that the required structure is in place to ensure the growth model operates efficiently.

First, all roles need to be defined and in place. An executive team must be ultimately accountable for the strategic direction of the program. A Innovation leadership team, comprised of senior executives, are responsible for executing the strategy. An Innovation team are the administrators of the program. They ensure communications and reporting go out as planned, projects have all the needed support, and oversee all model processes. If desired, the Innovation team can help with early opportunity research.

Second, governance of the program needs to be clearly defined. The executive team must create a program charter that set targets, defines boundaries of focus, and clarifies how program investments will be overseen. For example, Whirlpool has two governing bodies for their innovation program. One manages the program strategy and the other plans the innovation road map based on the strategy.

Third, available funding for the program needs to be defined. While it is great to define growth targets, it is meaningless if funds are not committed to achieving the them. Clear targets and investments help set expectations for return on investment. Some companies distinguish between sustaining and growth investments. Whirlpool sets a fixed % of revenue (or assets) for sustaining investments and funds growth based on the zero-based investment methodology.

Roles, governance, and funding provide the structure for the growth strategy model. Without them, I don't think any program will get very far. If you get into a situation where some executive asks you to lead a growth program, make sure you get that person to agree to the organizational platform. They should be the one defining the charter and serving on the executive team.

Processes are not enough to drive growth. There needs to a number of support mechanisms that ensure the processes flow properly. These are what I refer to as the platforms for growth. There are three main platforms: Strategic, Organization, and Networks. The Strategic platform ensures the necessary flow of information into, out, and across the company to ensure the best possible growth decisions are made.

First, there needs to be mechanisms to ensure organizational alignment of the growth strategy. A communication plan should define how critical information will be disseminated to the right people. This includes communicating the high level strategy to all employees, a clear strategy roadmap that will help the growth leaders understand the company's growth strategy over the next 3-5 years, and regular reports to growth leaders to help them understand recent decisions and their results. The top mission of alignment is to ensure the right information gets into the hands of the right people at the right time.

One good way to communicate alignment is a strategic planning session. For example, every 5 years Royal DSM conducts a strategic planning session that defines how much revenue will new product launches generate in 5 years, what new areas they plan to go into, and how their capabilities will change. Li & Fung do a similar exercise every 3 years. In between exercises, the companies review how they are performing against plan and make course corrections as necessary.

Second, a metric plan should be devised to translate the growth strategy into metric-trackable objectives and build a reporting plan around it. Starting with the defined growth strategy, identify the top level metrics that relate to each objective. For example, any strategy should have a clear new product revenue target - that is how much annual revenue in 3-5 years time will come from new products launched since today. From the top level metric, break it down into sub-metrics. For example to hit $200 million in revenue in 3 years time, a company would need 5 successful launches which implies 10 total launches which implies 20 projects started which implies 100 opportunities evaluated. All these represent targets to track. Now, you need to map how you will report on these metrics. Everyone does not need to see all metrics in a report. The CEO may only need to see the current annual revenue number and the forecast number expected by the target date, while pipeline statistic may only be of interest to innovation leaders.

Third, any strategic platform needs an inflow of competitor intelligence data. Competitive Intelligence programs should strive to know what competitors are doing and how they might respond to your strategies and tactics. Competitive Intelligence programs should know competitor's RPV - resources (assets and capabilities), processes (business models and competitive advantages), and values (vision and strategies). Understanding your competitors will help your people make the best decisions.

A growth strategy model needs a complete solution. If all pieces aren't swimming in the same direction, growth will have to fight through roadblocks and black holes. A process to launch new products without a defined strategy will struggle to focus their limited resources; without funding it can't get started; without human resources it will never launch. The model that I am presenting is focused on new product growth, but many of the processes and platforms will fit the other growth dimensions.

The growth model requires three platforms: Strategic, Organization, and Networks. The Strategic platform provides communication of the innovation strategy to the organization to ensure alignment, a system to collect and report key performance indicators (KPI) of the model, and a competitive intelligence program to provide actionable intelligence on the company's competitors. the Organization platform provides a governance system to manage the processes, funding to execute the projects, and a central team to administer the processes. The Networks platform connects internal experts in identified opportunity areas to discuss how to exploit the opportunity and external connectors to bring select external expertise to supplement the internal platforms.

Processes are divided into Strategy, Planning, Prioritization, and Execution processes. Strategy sets the direction of the growth model - selects the opportunity areas of focus and defines how to play in those areas. The Planning processes assess the company's core capabilities (and gaps) and identify the upcoming trends impacting the opportunity areas. Prioritization looks at each opportunity area, considers the company capabilities and industry trends to identify, evaluate, and prioritize the best opportunities in the area. The Execution refers to the creation and execution of projects designed to exploit the best opportunities.

At a high level, there are four roles required to execute the growth model. The RACI chart below will help you understand the responsibilities. An executive team (or a high level executive) who handles the strategy phases. Innovation Leaders are usually one or two committees of senior company managers who are tasked with executing the strategy defined by the executive team. An Innovation Team and Subject Matter Experts (SME's) help during the prioritization process. Lastly the Innovation Team and Project teams are charged with the executing the projects designed to exploit the best opportunities.

You may have noticed that each process and platform reinforce the others. That is why a holistic model is required. Take out any piece and the output quality is significantly reduced.

How does your company structure to grow?

For the last 2 years I've had the opportunity to study best practices to drive innovation in the context of a large, multi-national organization. While I have been working on an Innovation team, when I look at at "innovation" in the context of a large organization, what we are really concerned with is revenue and EBIT growth. In a series of posts, I would like to layout a comprehensive model to drive growth in such an organization. First, I need to define what I mean by "Growth Strategy" and when is it needed.

Let's use an example of Global Co. - a fictional company. 2010 was a monumental year as they achieved $1 billion in revenues. However, Global Co. is facing a challenge typical of all successful companies. Global Co.'s revenue growth is plotted on the image below. You can see that they have grown from $400 million to $1 billion in six years, but there are clear signs that Global Co.'s business is maturing. Slowing revenue growth and compressing gross margins are clear signals of the maturing market. While this is happening Global Co. has been focused on becoming more operationally efficient, so, in spite of shrinking gross margins, EBIT margins are increasing. This is a common situation - a company executing an operational efficient strategy facing the slowing growth of a maturing market. 

Global Co. needs a growth model. I say a model because a piece-meal approach won't work. A model brings strategy, structure, processes, and resources to address the problem in a comprehensive manner. This series will layout what I, based on my research and work experience, believe is needed in such a model to help re-energize Global Co.'s growth.

This is an interview with Jorgen Vig Knudstorp, the person responsible for reviving the Lego franchise. It is a great discussion on how he approached the flailing Lego brand, what he did to turn the ship around, and what it takes to be a business leader.

My favorite quote and something I have been thinking about alot as I work for a company with a lot of mature business lines, "...Do you take responsibility or do you blame it on some external factor like currency, or financial crisis, or poor weather because if that's your major reason for how your business develops, what the hell are you doing in the job?". So true.

You will need to create an account to see the full video, but I highly recommend it. I watched a few videos on the site and they are very well done. The interviewer asks some very insightful and well researched questions.

5 Independent Movies

10 Days

2684 Views

$10,709.16 in Revenue

source: NY Times

Some blogs are trumpeting these results as evidence that people do not want to pay for online video. It is not huge revenue, but I would argue this was a successful experiment. Obviously some people are willing to pay for online video or else Google would not have generated any revenue. This experiment is just one point on the demand curve. A $3.99 price point for an independent movie resulted in an average of 264 streams per day over a 10 day period. 

Next experiments:

• Change the price point (I would try $1.99 and a .99 cent experiment
• Try a major release movie
• Experiment with days after a movie release to offer this streaming rental option
• Extend the duration to see the rate of decay of demand

This experiment was a first step in understanding the shape of the market for movie entertainment. I expect there will be an optimal mix of cinema release, online rental streams, part of a online subscription (like Netflix streaming). New knowledge is far from a failure. 

Despite the fact that people are saying that video games is a recession proof industry, the big companies are struggling. Take 2, THQ, and EA announced disappointing results. There are alot of takes on what is wrong with the industry such as Om Malik's belief that they are too focused on blockbuster hollywood-style games. I think Om is right, but the industry's problems go deeper.

The video game industry challenges:

1. Growth demands of a public company It is one thing to lead a company past $10MM; it is another to lead it past $100MM; it is a whole different ballgame leading it past $1B. What we have are the management of the big video game companies learning it is completely different growing beyond $1B. Stockholders of public companies demand steady double digit growth. That means a $1B company must grow revenues by at least $100MM (more likely by $200MM). What you will see is that this is a tough requirement for this industry.

2. The structure of the video game industry  First, that steady revenue growth is based on the previous year's revenue. Now keep in mind that most of the video games that form these companies' revenue bases have development times of 18 - 24 months. That means the sequels to games that delivered the bulk of revenues in year 1 won't be released in the following year. So think of it this way - the games that will support this year's revenues targets will be a whole new group of games than those that supported last years $1B in revenues. That's alot of hit games!

3. Insufficient infrastructure to support growth needs So those two cycles of games that are needed to fuel the video game company's growth demand - they require game concepts, producers, project managers, developers and artists. Analysts and reporters like to harp on the cost of developing blockbuster games ($15-25MM); big video game companies have plenty of cash - what they lack are the people to develop the games to fuel the growth. Remember, video games is a young industry and they have not done a great job developing quality studios to fuel that growth. For those of you pointing out that video game companies have recently closed studios, I suggest that the quality of the studios is the real reason. Studios that are able to consistently put out top quality games are fine, the studios that are closing are those that struggle to meet deadlines or produce sub-standard products. If you don't have the people to build the products, you will never meet your growth targets.

4. Failure to recognized need to address, smaller, faster growing segments Finally, this ties in with Om's point that the large video game companies are over-focused on hollywood blockbusters at their peril. It is hard for video game makers to not stay focused on blockbuster titles because the hardcore gamer market is still growing strong (although slowing) and it is what they know how to do. However, the companies are ignoring other faster growing customer segments such as casual gamers, online gamer, and social gamers. The problem is that from the perspective of the large video game developer these markets are still relatively small to the core gamer market, today - therefore not a dependable, significant source of revenue growth in the short term. However, in a few years these markets have the potential to be a substantial source of growth. The other problem is that these new segments present new customers and new business models for big video game companies. To tackle these segments they will need to set up independent groups who are focused solely on these markets in order to learn about the market and build capabilities to develop those types of games (different from core gamer games). Of the big video game companies, only EA is attempting to address this market.

So to sum it up, big companies require big money growth, the video game industry demands two cycles of games, and they are not developing the infrastructure to support these demands. Lastly, they are ignoring the new emerging gaming markets because it is not a reliable immediate source of big revenue which will haunt them in a few years when one or more of those markets become huge.

I asked one of my mentors who built his company from a single store to a $100MM+ company, "what was the best thing you did to ensure the success of your company?" He responded that there was a crossroads where he needed to decide if he wanted to maintain a comfortable annual $10MM business, or take it to the next level. After deciding he wanted a $100MM business, he built an organization chart of what his organization needed to look like to sustain that scale. In his quest to reach this goal, the first person he hired was an HR specialist. That was his best move. He shared with her where he wanted to take his business. She was then tasked with building the HR plan to achieve that goal.

First step...before anything else! It is an incredibly perceptive view of HR as a strategic partner that is too often overlooked. It seems that HR in most companies is modeled after the industrial revolution-manufacturing model. We need X employees to build Y widgets. Make sure we have the required headcount. Sure, it has evolved into some training, retention and policy roles, but headcount is still the foundation. And not very applicable to today's knowledge economy where human capital is the most valuable resource.

I propose that HR should be involved in long term strategic planning at the earliest stages. They should be relied upon to give frank assessments of the capabilities of the workforce and identify where capability gaps lie with the long term vision of the company. They should give a frank assessment of the company culture and how it meshes with the long term vision. They should be relied upon to develop a strategy on how the company will bridge those gaps. They should be given adequate resources to achieve those goals. And they should be held accountable for executing their part of the strategic plan.

There are stages that a new company goes through; each with their critical contributors (the right and left hands of the CEO). Here is how I see it. Start-Up: Product guru (Left Hand)  and a Hunter-type salesman (Right Hand) Established (enough sales and a core product to legitimize the company): Marketer (Left Hand) and HR Strategist (Right Hand) - the product guru is still at the table, along with a CFO and a sales manager. Main Stream (Achieved mass market success - maybe 1st or 2nd in a key market) : CFO (Left Hand) and HR Strategist (Right Hand) - with product guru, sales manager, and product managers at the table. I think the HR Strategist as the right hand in two of the stages may be questioned, but lets think about it: Consider that the reason most businesses stall or falter is due to human resource gaps; often product, implementation, or cash flow issues are rooted in human capital shortfalls. Consider the power of corporate culture in driving the success of a business or orchestrating a business's demise. When your business begins to take off, think about the HR Strategist. And empower them to make a difference in your organization.