4 PERSPECTIVES TO STRENGTHEN YOUR LEADERSHIP
In my daily practice I have the privilege to work with inspiring companies on innovation transformation journeys. How do you do that successfully? How do you turn an incumbent into an innovation machine that is able to create new opportunities for growth rather than only being battered by challengers from different angles? Of course, one could offer those companies frameworks, innovation formats and process designs (all of which we also offer). However, the key lever for transformation is the role of leadership. They should create space; literally in terms of budget, time and resources but also mental space for employees. Leadership should provide employees with an inspiring purpose to innovate, and room for experimentation and entrepreneurship, without punishment for failure. Leading such a transformation to become (more) innovative is what I call innovation leadership.
But what does that mean, innovation leadership? In this article I will share 4 elements with you to build upon, and invite you to learn how these insights can help you.
1. MANAGING THE P&L VS A PORTFOLIO OF OPPORTUNITIES
Most of our leaders have been trained on management theories that originated in times when product-market combinations seemed to be fixed and safely ring-fenced. You would know your competitors and your customer needs, and transparency in the market was something rarely thought of. In this paradigm a company could be managed with a relatively steady pace, focusing on how to optimize revenue streams and managing costs.
In general managers are very well trained in managing a P&L, optimizing profitability by squeezing every euro out of the operation. But in fast changing business environments, where customers can switch easily, driven by higher transparency and readily available alternatives, a company should not only focus on maintaining its current competitiveness. It should also seek ways to develop new, cutting edge value propositions tailoring to changing customer demands in order to stay relevant in the market. That requires a totally different mindset, that of a portfolio investor. Building new opportunities for future value, betting on different ideas, seeking evidence that ideas have potential, that new profitable value propositions and business models are ahead. In this area you should embrace ambiguity, go for risky but possibly high-value ventures. The pace will be high, you will have to decide quickly to stop or further invest. This is the area where failure is the rule, not the exception. Where speed of learning is key.
Are you as a leader able to see the difference? To deal with these two worlds?
2. OPINIONS VS QUESTIONS
Alex Osterwalder describes these two worlds as Exploit vs Explore. Exploit being the game of optimizing current business for profitability and risk of disruption, and Explore being the game of finding new opportunities for future value. In most companies I see leaders who have followed the chain of command throughout their career and are now at the top of the chain. From experience they have learned how to let the company flourish. And that particular knowledge is the key barrier for the right behavior in Explore, the world of unknowns. Exploit leaders tend to judge teams who work on new ventures. They know how the market works, and they assume that the same goes for venture projects. But is that the case? Venture projects are targeting adjacent or new markets. Addressing new, unexplored customer needs and searching for new business and revenue models. So how valuable is that knowledge of the past? Should opinions determine where to go next with a venture project or should we focus on what the team has learned? In Explore, data from experiments should always prevail opinions. Data will tell you how valuable a venture is. The role of leadership in this ball game should be different. They should challenge the learning of the project team by asking the right questions. Do you think this is true or do you know? Venture teams are driven by hypotheses, running experiments to (in)validate these assumptions. Therefore leaders should focus on these assumptions and the data that has been collected to provide for evidence. Are we convinced by the data to proceed or is there not enough evidence and should we stop?
Training can help leaders feel confident to follow the data, to ask the right questions. Are you open to follow this path?
3. DOUBLE DOWN OR EXIT
In the Exploit world leaders are used to working with annual or even quarterly budgets, as a comfortable way of managing costs. In Explore we now know that we should act as portfolio investors. Would you provide a fixed, annual budget for a high risk venture team? I don’t think so. Instead of giving away all of your money you would provide a small portion of the budget to start validating whether an idea is worth investing in. Tendayi Viki – author of the Corporate Startup – has a nice mantra for this: exit or double-down. Start new ideas by providing a little capital. If the data show you opportunities you should double-down investment and provide the team with more time and resources to proceed exploration. And if not, stop the project and exit. You can do this for every stage in the innovation process. Once proven, double-down investments or withdraw. This metered funding approach provides you the opportunity to start multiple high-risk ventures and invest only in the ones that seem to be fruitful. In general, as the risk of a venture goes down, the investment goes up. In this way you could play with your limited annual innovation budget and divide it into portions of budget for projects in different development phases. And you could start with market data on success rates per phase to know how many projects you would need to come up with a successful new value proposition or business model. Don’t you want to know what this looks like?
4. INNOVATIVE LEADERSHIP VS LEADERSHIP FOR INNOVATION
Leaders who lead an innovation transformation are facing a two-sided leadership challenge. The first part is about applying innovative thinking to your role as a leader. Do you know how to apply design thinking or innovative thinking to your leadership tasks? It is not only about asking questions to project teams but knowing how to deal with uncertainty. To stay open for new ways of thinking, and not being driven by opinion-based decision making. To apply a growth mindset that enables you and your people to keep on learning, rather than demonstrating your knowledge & intelligence (fixed mindset).
Only when you have embraced innovative leadership you can start leading for innovation in the organization. This part is about motivating your people, guiding them with your appealing vision for the future and stimulate a venture approach for innovation projects. Your role as a leader is to provide space for innovation, enable cross-silo collaboration, stimulate creating connections with external partners and opening up for new ways of thinking, and remove impediments for teams to accelerate on learning. And again, this type of innovation leadership can be trained. In this era it is absolutely key for modern leaders to know how to lead for innovation.
For more information, feel free to contact Ferry!