In “Lean Startup in Large Organizations1,” innovation expert James A. Euchner explores the reasons why corporations are hard-wired to resist change. More important, he shows how companies can get past “antibodies” they form to ward off any deviation from the norm and lays out a step-by-step plan for growth.
Resistance to innovation is so prevalent in large companies that it is almost a proverb. It cuts across functions and across hierarchical levels and is a major reason why so many innovation programs do not achieve the business success that they could.
Dealing with resistance to innovation starts with the observation that resistance –though frustrating – is not irrational. People in organizations behave as you yourself would behave if you were in their shoes. Consciously or not, they calculate the best response to an innovation initiative – for their function and for their own careers – and they act on that calculation.
For those in the core functions, deviating from standard procedures is risky, at both a personal and a functional level. It is safer to stick to established ways of doing things. That the response is counterproductive to innovation is a side effect, not the objective.
Innovation teams often fail to appreciate this perspective. Instead, they tend to view those in the corporate functions as recalcitrant, reactionary, and unduly risk averse. As a result, they become angry, frustrated, and disempowered. They dig in their heels or escalate the lack of cooperation to higher management.
These are unproductive responses. They do not take into account that the people in the company’s core functions have legitimate concerns. If the innovation team does not understand these concerns and does not actively seek to manage the interaction between the venture and the core company, the innovation program can be slowed, or even smothered to the point of suffocation.
The Dilemma in Practice
An example illustrates the point.
The director of Procurement at an established company is considering a request from the innovation team for a new tracking system. She asks herself, “What is this device, and what does it have to do with our business?”
It doesn’t fit in any of the standard procurement categories, so she is not sure why it has landed on her desk. The. deal itself is for less than $10,000, hardly worth a big effort. But, if the new venture ever goes forward, the company may buy millions of them.
Better to negotiate now, rather than wait for the pilot to end when her company might be locked into a supplier with no leverage. On top of that, the director is concerned that the vendor doesn’t have the company’s standard liability insurance coverage.
Not a problem, really; she can identify alternative suppliers, qualify them, and get the selected vendors put on the approved vendor list. Then she can put out an RFP and bid the thing out.
She sets up a meeting with her team to discuss alternate suppliers, even though the innovation team wants to make the purchase now.
This is just one example. Each department has analogous concerns and similar pressures. The cumulative effect for those in the innovation function is increasing frustration. Moving the new venture even a step closer to reality seems to take Herculean effort. No one really says no, but everything drags out forever. Rapid iteration is not even possible. The tension builds. There has to be a better way.
Game Theory
Business experiments and game theory, which are the lifeblood of the Lean Startup method, require people to set aside standard operating approaches and do things differently, at least for this project. Standard practices for managing intellectual property or procurement, for example, may need to be relaxed to speed experimentation with clients or customers.
Unfortunately, for the core functions, exceptions feel like a slippery slope. The processes and standards that they worked so hard to establish will be undermined if exceptions are made for innovation.
Two kinds of risks – to the careers of individuals within the functions and to the standards that are essential to routine operations – need to be recognized and managed if a venture is to succeed in a corporate context. The good news is that this is possible. It starts with an innovation team understanding (and even honoring) the roles of those in the core performance engine. Once the interests of the functions are well understood, they can be harmonized with the work of innovation.
Making the collaboration work requires understanding the underlying dynamics of the organizational games being played. There is a branch of mathematics that can be used to do just that: Game theory.
Game theory can help to identify and explain people’s personal “payoff matrices”—the calculations that drive them to behave as they do.
Once you understand these forces, you can make changes that shift the rules of the game in subtle but productive ways.
Many different types of games have been articulated and modeled by systems modelers. Each has its own payoff matrix and dynamics. One of these games important for internal innovators is The Samaritan game.
Think of people in the core functions as Samaritans, analogous to the Samaritan in the parable who helped the man who was robbed and left for dead. Like the Good Samaritan, those in the functions can choose to help the innovation function, likely for little reward, or they can choose to not help the
innovation function.
Choosing to help might come with a range of risks. It could put the person behind on other obligations or add to his workload. On the other hand, the consequences of not helping are often minimal.
What can the innovation team do about this situation? An obvious choice – one often pursued with short-term benefit – is to raise the costs of noncompliance, for instance, by escalating the issue. Raising the costs of refusing to help can tip the payoff matrix, creating an incentive to help (or at least appear to be helping). But escalations quickly wear thin, for everyone involved, and they leave a trail of ill will.
Another tactic is to reduce the costs to the core function of helping. Senior executives, for example, might provide air cover (clear permission), reducing the risk of a negative payout. Alternatively, the innovation team might fund dedicated resources in the functions to support the innovation team, reducing the risk of the function not meeting its other obligations.
This approach has the advantage of being sustainable. In many ways, it creates a win-win scenario. The people in the functions get permission, needed resources, and the potential to use their capabilities in a new area. The innovation team gets the help that it would otherwise need to source from outside the company.
The way you view a particular issue depends on the role you play in the company. This insight is at the heart of game theory, which assumes that each party will act according to his or her personal assessment of the payoff matrix.
To change behavior, you need to shift the payoff matrix for key players in the organizational games that are always going on. How you shift a given individual’s payoff matrix depends on the issue and the game being played. Two particular practices that reduce the personal risks associated with helping the innovation team are air cover and dedicated functional resources to support the innovation effort.
Summary
The core functions of a business exist to maintain effective, efficient, and continuously improving operations–not to drive innovation. Innovation disrupts them and makes it harder for the people in the functions to keep the core business running. There is therefore an inherent conflict between the innovation team and the core. This is what results in the appearance of resistance to innovation initiatives.
Lean Startup exacerbates this conflict in two general ways–through disruption of work and through the undermining of standards.
Once these issues are identified and understood, they can be addressed.
The following is an adapted excerpt from “Lean Startup in Large Organizations1,” a new book by James A. Euchner that examines the potential advantages and pitfalls of embarking on new business ventures from within an existing corporation.
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