Wednesday, October 13, 2010

How companies can adapt for the future; skunkworks is cool

In my previous post on why I thought companies have difficulty adapting to unexpected competition and technological disruption, I mentioned the following:
Some companies like the telecoms are able to organically change themselves for future success, but many aren't so lucky.
How does a company organically change?  It's tough.  Sometimes it takes a complete housecleaning of executive leadership to set a new vision, culture, tone, and product focus in the company from the inside-out.  I had a chat once with the #2 HR guy (senior VP level) when I was working at TELUS; nice guy to give a lowly employee like me his time.  I asked him how a company sets its priorities and organizational structure to make sure that it's able to succeed in a turbulent changing market (eg. telecom).

He said that the organizational structure and culture is the responsibility of the CEO to create.  He builds out his top leadership team, and then they build out their leadership teams.  It trickles down until the vision hits every part of the organisation.  The key is creating the correct vision, and then choosing the correct leaders to implement that culture at a ground level, while also recognizing that the incumbent workforce intrinsically contains a lot of value, knowledge, and experience; the Venn diagram should be aligned whenever possible and beneficial.  OK, makes sense.  End of that guy's thoughts, back to my own.

Obviously, this whole change process is easier in a company with thirty employees than it is in a company with a few hundred.  And obviously, a company with a few thousand employees has an even tougher slog to go through this process.  A multinational corporation with tens of thousands of employees?  Chee, that could be a multi-decade process if you're not efficiently effective.  By the time you're done, your company could be dead because it's become irrelevant through technological disruption; the executives would of course get the blame (as they should, it's why they get paid the big bucks).

Sometimes the process is messy and some people just aren't able to adapt.  In these situations, a company has several options.  They can offer employees early retirement packages or move employees to functional areas where they won't hold back or poison the newly restructured operational environments that are deemed most critical for the future.  In sports, you have crazy cases like Wade Redden and Sheldon Souray who will be playing professional hockey in the AHL for a per game salary that is way over the league annual average salary because the New York Rangers and Edmonton Oilers couldn't find them spots on the team in the NHL (and in the case of the Oilers, didn't want him there at all).  Corporate restructuring stories can be just as wonky.  I recall one story where a large clerical team was divided into an A-Team and a B-Team.  The A-Team worked on all the critical products and orders, while the B-Team worked on all the products and orders that were being phased out by the company.  After all the old products and orders disappeared, the B-Team would be redeployed to get retrained or... who knows?  The company hoped that most of them would take early retirement.  It became a running joke among people that you had to be careful to not be put on the B-Team.

A quick aside, this can be emotional stuff.  You're dealing with people's livelihoods, and they probably have a right to feel betrayed if they've been loyal hard workers.  They probably have a right to complain.  Not that I condone it; heck, I've learned enough for myself through life's maturation process (especially recently) that complaining gets you nowhere.  But that doesn't mean there aren't valid reason for sour grapes, especially if the executive leadership demonstrates that they are truly incompetent (Dilbert is often based on real life stories).  People just shouldn't let it eat them up, that's all.  Easy to say, hard to do; the unfortunate difficult cases end up going postal and then committing suicide when the police arrive.  It's not a good thing, and it's a clear sign that something somehow failed.  But this post isn't about dealing with someone's emotional distress, which is a subject that deserves a series of posts all for itself.  Plus, I don't have much direct experience being the one to deliver and implement the hard messages and decisions.  The fact remains, real change is hard.

Back to surviving disruption.  Various strategies have been employed by various companies to create a continuous self-renewing cycle of change.  For example, 3M was one of the first to encourage their employees to devote a percentage of their time to whatever they thought was interesting, whether or not they thought the company would benefit.  Other companies focus entirely on pure R&D departments, which may even look and feel like academic institutions.  Still others will have skunkworks teams focused on inventing new things.  Skunkworks teams are often sheltered away from the rest of the company's environment and politics so that they can remain true to their vision.  However, they can be also be heavily involved in the rest company in the hope of enabling a rapid internal evolution (that was the focus of my skunkworks team when I was in telecom).  Most recently, there's more of a trend to use social media and crowdsourcing for R&D and product development, whether sourced from scientific experts or from consumers (or prosumers as some of them like to be called).  Finally, in some cases, leaders will somehow engage the entire company around a damn-the-torpedoes rally cry.  Such a singular focus only demonstrates that a company is taking a threat seriously, but could amount to an undesirable tunnel vision (see Nintendo's desire to defend their handheld gaming turf from Apple).  But I like the skunkworks stuff.  Those things are cool and they have the ability to subtly change a company's DNA significantly for the better if it's done right.  The term was originally created to describe the team that secretly made the Lockheed SR-71 Blackbird; the project was so secret and futuristic, it deserved its own category of R&D.  I want to offer two contemporary skunkworks examples that are really interesting.

First up, there's Google.  Google is also famous for telling its engineers to spend 20% of their time working on whatever they want, irregardless of whether or not it will make money.  Big skunkworks projects are different.  Big skunkworks projects can't simply fly under the radar within 20% of an employee's time, and thus are prey to corporate politics.  As such, you need really strong executive leadership support for a big skunkworks project to get corporate funding and resources.  Looks like Google has given a self-driving car project exactly that.  You can't get much higher up the Google leadership ladder than Larry Page.  Of course, any normal shareholder for any normal company would scream that this is a waste of resources, that Google shouldn't have these kinds of pet science projects.  Blodget correctly argues that a well-funded startup may be even better equipped to create a self-driving car.  However, Google may be better equipped to monetize it.  The best a new startup could probably do to monetize is license the technology to car manufacturers or charge users a monthly fee like OnStar.  These options aren't out of the question for Google, but Google can go one step further by integrating the technology with the rest of their products to make money (Google Maps, Latitude, Earth, reviews, search, advertising, etc).  That could change not only how people drive cars, but how people live life and plan their day.

In fact, given the difficulty that companies have integrating and profiting from acquisitions, maybe Google is better off trying to do some crazy R&D in-house.  Taking geo-location one step further in cars may possibly a way more interesting play than getting into geo-location in cell phones (not that Google isn't doing that either).  This is a crazy back door move that faked the socks off of almost everyone.  Let's be clear.  This isn't interesting because Google's making a self-driving car; that's science fiction stuff that various automotive companies have already been researching.  Rather, it's interesting because it's a non-automotive company doing something that can affect the automotive industry quite significantly from the outside-in, especially when combined with the other assets that the non-automotive company has already developed.  But my most important point is that this project may actually never have gotten to the place where it is now without Larry Page's personal heavy support.  It probably would have died due to corporate politics.  In a fight for corporate resources, logic dictates that the core business should always win over projects that have nothing to do with the core business because the core business is what drives the bottom line TODAY.

This whole thing demonstrates how a company can defend its core business by extending its core business with crazy skunkworks projects that entrench it into new markets (in fact, potentially disrupt those markets).  Other skunkworks teams focus more on internal tools and processes.  My second example is my own experience of being on such a team.  Here's what I wrote in answer to a LinkedIn question a few years ago on starting innovation initiatives in organisations.  The guy saw it fit to mark my answer the "Best Answer".  :D
I'm part of an experimental team at TELUS called Quick Win. The team has done some very good things for the company over the past couple of years, and has now been replicated by other business units throughout the company. Our team is responsible for bringing about positive system and process changes in the business from in a 2-day, 2-week, or 2-month timeframe, and help the business understand itself better so that it can innovate changes on its own. We're built on three core foundations: 
1. Grassroots engagement: we partner with the frontline to understand how their work is done at a granular level and deliver solutions that solve real problems, rather than simply address theoretical requirement documents. Projects are small and quick so that the business can taste immediate benefit and become enthusiastic. As well, small projects allow us the flexibility needed to change as everyone's understanding about the business changes. Iteration is a much more viable model than requirements documents for successfully innovating and changing the way a business operates.
2. Tangible benefits: everything we do has to have a tangible benefit, whether that is measured in cost savings, increased revenues, or reduced work cycle time. Through our frontline engagement, we're able to understand the business well enough to know that our projects are actually delivering real benefits. If there is no tangible benefit for a project, then the need isn't that pressing for the business. "Strategic" projects with no clearly defined benefit can often be rolled up into a project with benefit. Or sometimes you just have to take the jump; however, our team doesn't operate that way, as iteration works best for us as a transformational model.
3. Leadership development: our team uses the various projects to develop leaders who understand the business, how to change it for the better, and then graduate them from the team so that they can innovate in a different scope (i.e. leadership roles).
Because of the way we approach innovative change in our company, we've won the 2006 Stevie Award for Best Support Team, and were a finalist for the 2006 BCTIA Technology Impact Awards Team of the Year. On a personal note, I think that innovation needs to be sheltered and nurtured to do well, because people really do not take it seriously, and will actually even attack it. People are usually more afraid of change than comfortable with it, and I think that the below quote explains why quite well.
"Managing and innovation did not always fit comfortably together. That's not surprising. Managers are people who like order. They like forecasts to come out as planned. In fact, managers are often judged on how much order they produce. Innovation, on the other hand, is often a disorderly process. Many times, perhaps most times, innovation does not turn out as planned. As a result, there is tension between managers and innovation." -- Lewis Lehro, about the first years at 3M
On the other hand, I think this is why iteration is so good for innovation. With iteration, you can innovate in little baby steps, and change with the political winds when necessary, while still making little breakthroughs in your "innovation shelter". Don't try to go with a grand vision straight from the beginning, try to go with little small visions instead that clearly provide benefit, but can later collectively transform whatever you're trying to transform.
We did some crazy good things, including helping the company survive its 2005 5-month labour dispute, enabling it to get better visibility and metrics on its orders, cleaning up and aligning processes galore, etc, etc.  We made a lot of friends in both management and in the union to change culture for the better, for those of you who think we were only about lowering costs and automating people.  Where is Quick Win today?  I'm told it's been rolled into the rest of the company's operations.  It's been bureaucratized, institutionalized, and reorganized.  For skunkworks initiatives, that's either a mark of success or a mark of failure.

It's a mark of success if the initiative achieved its goals and whatever made the skunkworks initiatives special positively infected the rest of the company's culture, structure, operations, and sense of direction for the better.  It's a failure if the initiative died or became "just another initiative" due to political infighting, lack of executive support, and a distinct inability to prove that it was providing long-term positive impact.  Only those who are left at TELUS can say whether it was a success or a failure.  And believe me, we fought through a ton of political battles to survive and succeed to the point where the company was proud of displaying us to the public.  In both skunkworks scenarios, you need consistently strong executive leadership support and protection in order to stay pure to your mission.  Personally, I did sometimes fear that the team's success hurt that ability, precisely because we had a revolving door of directors and VPs who saw what we were doing and wanted to leverage us without understanding our core mission.  As we became larger and more successful, we couldn't get authority to do truly crazy innovative things independently anymore; all the low-hanging fruit for delivering real benefits had been picked, and various higher ups started to want to use us "strategically" for their own visions and gains, instead of let us fly on our own like we did previously.  That's fine if the visions are truly interesting and impactful.  But if it's not, things naturally become as this quote states:
Most 'new' business concepts are simply self-referring. They do not move beyond the rules of a certain way of doing capitalism, and therefore they cannot possibly alter the problems they target. Instead, just the opposite occurs — the status quo overpowers new ideas and turns them into variations on the same old themes. That is why every innovation from quality circles to reengineering to customer relationships turns out to be another road to cost reduction.
~ Shoshana Zuboff, retired Charles Edward Wilson Professor of Business Administration at Harvard Business School
So I left to try to do startups.  Gee, that was a fun ride.  :)

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