If Your Eyes Glaze Over Reading About Innovation, Read This Instead

    A couple of months ago, I wrote a post about a book co-authored by a business school professor who argued that the entrenched ways that organizations think are stifling innovation. The problem is that a discussion of “innovation” doesn’t resonate with a lot of IT leaders, because they think of it as nothing more than a buzzword. But there’s another keyword in the discussion that doesn’t cause any IT leaders’ eyes to glaze over, and that no one relegates to buzzword status: “growth.”

    The book, “The Physics of Business Growth: Mindsets, System, and Processes” by Ed Hess of the University of Virginia’s Darden Graduate School of Business, explains research he conducted along with co-author Jeanne Liedtka that shows that what many leaders think they know about growth is wrong. Using a gambling metaphor, Hess contends that when it comes to growth, most managers, sadly, are like the little old lady with a cup of quarters playing the slots: “They just pull the handle and hope for the best.” Instead, he says, leaders need to take an approach more like that of a seasoned gambler. He highlights some characteristics of growth to understand in order to make that transition:

    Growth is a probability game. When large organizations pursue growth, their mindsets are often completely out of sync with the reality that guides professional gamblers and VCs. Chances are that these organizations expect 10 out of 10 projects not only to win, but to win big. They demand that their managers and employees produce growth, inadvertently thwart their attempts, and uphold a system in which pulling the plug on a failed growth opportunity is a career-threatening act. Would-be growth leaders in this environment are like professional gamblers who are unable to act independently but instead receive instructions from on high — from a source that has little information about what is happening this minute in this particular game. Not a formula likely to win in Vegas — or in business. The reality is it takes on order of magnitude about 1,000 growth ideas to produce 100 good growth experiments. And doing 100 growth experiments may produce 10 viable growth initiatives worth investing in. Growth is an iterative learning process characterized by detours, zigzags, and remakes.

    Growth is a learning process. Good growth organizations understand the realities of growth. Growth requires the right mindset — a learning mindset — and the right processes designed to make small bets, learn critical information quickly, and then assess next steps. We call that process Learning Launches. Not only is the right learning mindset needed, but also the right attitude is needed individually and organizationally about failure. When you are exploring growth — when you are entering areas where you have not played before — by definition you will make mistakes and have failures. Remember, so long as you make small bets and use the right rigorous process, there is no real failure so long as you are learning.

    Growth can be messy and inefficient. Most organizations can’t stomach the uncertainty that comes with growth. It violates their dominant no-variance operational mindset. Well, guess what — growth is a high-variance processes by its nature. If you do not accept that fact, then your growth initiatives will be limited to small, incremental improvements, which at some point will not produce enough growth to keep your stakeholders happy. Operational excellence strives for 99 percent defect-free performance. Contrast this to growth experimentation that can result in failure rates of 90 percent. In operational excellence environments, managers are rewarded for stamping out variance. Yet, in growth environments, variance is the norm.

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