3 Principles To Build An Innovative Company – Any Business Can Be Transformative

In business, most “transformations” or “evolution” have been credited to Leaders and CEOs. Leaders do not transform businesses. They are, at best, agents of purpose. Transformations are only possible when there is an inspired purpose, a collective reward and a willingness to experiment every day. Change is not about a “big bang” moment. Effective transformation is ongoing small change. ​Every single person within an organization should be an agent of change for transformations to occur.

An interesting trait of “change” is that most of the time, it is forced. Forced by certain issues, challenges or pains we experience in business. Declining revenue, increased competition or new technology etc. are inflection points in business when we typically hit the panic button and say, “oh no let’s change something and transform our business!” Fundamentally, I’m opposed to “pains” forcing change. Forced change can be good, yes, since it creates a sense of urgency preventing a company from disappearing into oblivion. But why do we need to wait for an external force for thinking transformation? A better method is constant transformation.

It is a myth that transformative companies and products are discontinuous displays of genius. All transformations came on the backs of small, incremental changes that one day became revolutionary. Not all incremental steps, perhaps, occurred within the same organization but all companies took advantage of other’s gradual tinkering. Breakthroughs are rarely a product of a single, large, isolated innovation.

Companies that desire to be innovative should not rely upon a spectacular master stroke, instead, should embrace daily change. A small step each day, compounded over a few months or years, produces transformative breakthroughs without the associated pain of change that startles in one fell swoop. And guess, what? It also builds a learning organization that disperses innovative thinking across rank and file and all layers of the company boasts of “innovators”, “change agents” and “transformers”. That is what leads to sustainable advantage. Transformative leadership is less about transformation and more about embracing a culture of ongoing bite-sized experimentation. Your business is not managing change, it is changing how you manage!

Embracing ongoing change is a smarter strategy. Your teams do not perceive it to be something out of the ordinary. Your teams are not anxious or uncomfortable. They see it as enjoyable and rewarding work. When empowering your teams to embrace change (and hence, learn often) you elevate their inventiveness, their purpose and their potential.

How to embrace ongoing change – 3 key principles that I have found most useful:

Principle 1: Action Learning

“Taking Action” is the most fundamental of principles. Diktats that don’t lead to action are useless. Waste of time. From time immemorial, practice has come before theory. Someone saw a problem, faced a challenge and took action to solve it first before someone else (usually, not the same person who solved it!) put forward a theory around how to solve this problem! They standardized the problem-solving method by putting forth a theory based on a practitioner’s action. These “theories/frameworks” are useful but folks that indulge in direct application of such thesis usually are not doing anything new. They certainly can’t be focused on innovation. If there is a theory out there it usually implies that the fundamental problem has already been solved! Existence of a “framework” should tell you that you may not be solving a hard-enough challenge. Run as far away from theorists as you can if you want to innovate. Instead, focus on “doing”.

For building an innovative company the essential is to develop a culture of learning. Innovative companies action learning. Building a learning culture could be embarrassing but not hard. “Embarrassing” because you need to be comfortable with the idea of “not knowing” and freely admitting it. I call this “blind spot vulnerability”. “Not hard” because once you master your comfort level with blind spot vulnerability and put your ego aside, all you have to do is ask two basic and obvious questions!

Question 1: What did we learn from the last experiment?

When you orient your question to “learning”, and use words like “we” and “experiment”, you put your team at ease. You are telling them that you know it was an experiment and experiments do fail (a lot) giving them the freedom to focus on the lessons of the experiment and not the result. In fact, your emphasis that the “result” is the “learning” goes a long way in encouraging ideation, hypothesis forming and controlled experimentation that drive innovation.

Encourage your team by asking questions that help them design experiments that lead to a “finding”. Don’t ask questions like: “what was the result”; “why did it fail” or, “what mistakes did you make”. Instead, ask: “what should we do differently next”; “what other factors should we consider in designing the experiment”; “how can we simplify the test for next run”; or, “how can we understand causality”.

This one query – what did we learn – is a simple yet immensely powerful tool to galvanize innovative mindset and thinking.

Question 2: What do you think we should try next?

This question as a follow-up to the first one, provides context. When you are trying new things in search of innovative breakthroughs, failure is expected. You do not want your team to be disheartened by any single bust. The question, “what should we try next”, when the team has just been disappointed with a result (first, you will tell them that they learned something valuable, of course! Hint: Question 1), conveys that you are on a journey where you will experience some letdowns, but the important thing is that you continue your quest. It expresses your desire to keep going helping the team see that you are after something bigger, more valuable and no one fail will prevent you from continuing. This context of what you are striving for, strengthens the team’s resolve and the failure acts as an inspiring moment instead.

“What should we try next”, is an uncomplicated question, yet, operates as a mighty motivator. Context is everything and your expressing the desire to plug away toward a higher purpose, is an energy boost.

Principle 2: Manage in the known and experiment in the unknown

When there are no real-world examples to follow, one must chart their own course. Companies with a successful line of business, have the problem of “not messing it up”. Often this burden kills innovation before it can begin. For upstarts it is slightly easier as their mission is often to innovate. But they also run into the “don’t mess up” conundrum as their default state is “to survive”. For innovation to thrive, you need to de-risk and overcome the “don’t mess” conundrum.

The principle “manage in the known and experiment in the unknown” allows you to do exactly that. It begins with clearly defining your purpose that contains a specific description of the future. Vague or a broad vision is problematic. “We make the best gadget” is an example of a poorly defined purpose. “We make current gadgets in the market obsolete” is stronger. It defines “best” more clearly. It still lacks specificity around what “obsolete” implies, or, “how” we will make current gadgets obsolete. But it does aim for innovation.

When handed a purpose such as this, the team rallies around inventing something beyond what the market currently offers. It aims to disrupt status quo, the very definition of innovation. The “how” part is what innovation efforts should aim to learn and hence, need not (and clearly, cannot) be defined. If one could absolutely and exactly define the “how”, it may not be inventive enough! So, the goal ought to be to have “specific purpose” and not “specific solution definition”.  

Once a purpose is defined, you need to prepare a team that can learn through experimentation without fear. This is your attempt to overcome the “don’t mess” hurdle. You can do this with through use of two simple rules:

Rule 1: Focus 80% of the team on improving the state of current business. You understand your current business, you know the levers to pull and push it for it to grow. Optimize and grow your current business. Innovative companies focus majority of their team’s energy on continuing to manage the known.

Rule 2: Focus the remaining 20% of the team’s efforts on running simple experiments rapidly. With majority of the team running business as usual, you create freedom to fail for the rest. It is critical, however, that the 20% team is equipped with skills to design the simplest tests that can be run at rapid pace to learn new lessons in areas where the market lacks knowledge. This lack of know-how is the unknown. The “unknown” could be in a variety of areas – new technology, new behavioral preferences, new needs, new business models etc. Innovative companies run rapid experimentation in the unknown.

The first rule gives “revenue/survival protection” and the second rule provides the freedom to explore without fear. The % of team that you align with one or the other can change (and should) based on the nature of the company’s business, total workforce, public versus private enterprise etc. The key is to ensure that you are not getting tied down by your current focus and still unencumbered so you can be your creative best.

Principle 3: Bet the idea not the company

This third principle is the “control” guideline. When you have cultivated a “learning organization” and de-risked your current business with “experimentation in the unknown”, you need to ensure that rampant experimentation does not torpedo the company. Disruptive breakthroughs can build great businesses of the future and that is the underlying promise of innovation. However, proper validation of a breakthrough, build-up of talent to manage new business and preparing the market for its adoption are necessary for it to take hold.

The idea of “simple experiments” should be expanded to include “small experiments”. The key, in my personal experience, has been not to veer too far away from the known. When you begin experimentation, you start at the outer edge of what you know. When you start there, you develop better hypotheses to test. As you start learning, you veer further out from the new known edge. When you run this process rapidly, you move rapidly further from the original known edge and toward something entirely new. This approach allows a company to better manage the innovative process and understand its implications to its core business to build superior leverage.

Even when rapid learning is moving you quickly toward a transformative future, you give yourself time to digest each step. When you fail a small step, you fail an idea but protect the company. This is not an argument for “slowing down”, in fact, this approach greatly accelerates your transformation pace. Innovative companies bet the idea and not the company.

A final note: It is often repeated that young, entrepreneurial startups have an inherent advantage over established counterparts when it comes to driving innovation. That is a myth. Established companies, and especially ones that have a dominant presence in their markets, have several advantages. They have economies of scale; they have strength in distribution, and they have ingrained knowledge of their customers and competition. These, when harnessed properly, are growth factors for innovation, not limiters. These companies can take innovative ideas to market quicker, with greater distribution muscle and dominate the new big market that innovation proffers. The key is the applications of the 3 principles. If they adopt them, they can create a sustainable advantage.