Making the Elephant Dance
Portfolio Strategy and Governance for Innovation
The Digital Leader Newsletter — Strategies and Techniques for Change Agents, Strategists, and Innovators
It isn’t a question of whether elephants can prevail over ants. It’s a question of whether a particular elephant can dance. If it can, the ants must leave the dance floor.—Louis V. Gerstner, Jr.
How does a company the size of Amazon consistently innovate? How do you get an elephant to dance? If you study Amazon, you’ll realize that there are a few tricks and approaches that can help a big company, an elephant, create the movement to innovate.
The most important decisions executive management makes is where to put its resources. The essence of strategy is deciding what to say “yes” to and what to say “no” to. As in any investment portfolio, there are likely low-risk, low-reward investments, and higher-risk, higher-reward investments. Here are a few tips.
INVEST LIKE A VENTURE CAPITAL FIRM AND CREATE AN INNOVATION PORTFOLIO
Many companies squash innovation and invention because they want predictable results—a predictable time frame, predictable investment, predictable financial returns with moderate risk. This is similar to how a private equity company invests. There are times when this is the right mentality.
For example, you should understand the returns and risks when improving and automating an internal process, building a new distribution center, or implementing a marketing system. These should have a clear business case and understanding as to what is needed for success to happen and business value to be created. But when you’re creating new, innovative customer features or developing new business lines, your investments, risks, and returns will be harder to predict. In this case, the job of a successful innovator is to think and act like a venture capital firm by having many smaller bets organized around a thesis, but realizing that these have a much different risk profile and low predictability.
The key is maintaining a balanced investment portfolio and understanding the differences among its segments. High-risk investments need to be small experiments to prove key aspects before scaling. “Think big, but act small” should be the motto for this high-risk, high-reward part of your portfolio.
A Desired Digital Project Portfolio
CONSIDER AUTONOMY AND SEPARATION
To create significant departure and disruption from current business practices, the teams within your company that are dedicated to creating innovation need to be separated from the teams representing the status quo. Having a full-time focus on creating new ventures is critical to success.
While physical separation can be important, it’s more about independence from the legacy business and having unfiltered communication and collaboration with a company’s CEO or senior leaders. The separation can be physical or just organizational. Remember how difficult it is to ask a team or senior leader to both run a business and create something new. Nearly impossible. The existing business typically always wins in the moments of truth regarding where time, attention, and obsession are invested.
DEDICATE A SENIOR, CAPABLE LEADER TO INITIATIVE
At many companies, you can identify a leader’s cachet by the headcount and expense budget he or she manages. Not so at Amazon, where senior people are often dedicated to leading new big bets. This has a unique and clever name – a single-threaded leader. This leader “obsesses” about driving the initiative to succeed. They need to be senior enough to have reach and influence in the organization and know-how to get things done. But what typically happens at companies -- senior leaders are not “single-threaded” and the “big bet” is just one objective on their list, and typically is not the most important priority.
CRAFT THE RIGHT METRICS AND GOALS
Hint: They’re not typically about profit. Long before a new project launched at Amazon, the team behind it would outline its goals—whether growth, operational performance, customer experience, or costs—and create a set of metrics to measure those goals over time.
The idea was that if the goals and metrics were right, the team could succeed with more independence and less governance. That independence would also lead to more creativity, as team members found new ways to meet those goals.
BUILD SMALL, INTEGRATED, MULTIDISCIPLINARY TEAMS
Amazon has two rules of thumb for building teams that think and act innovatively. The first is to create a team composed of people with a variety of disciplines and backgrounds. Unique ideas and the ability to execute on them usually stem from teams that can think broadly.
The second rule of thumb is to focus on small teams. Amazon often quantifies this as a “Two-Pizza Team.” In other words, you should be able to feed your whole team with two pizzas. That means no more than 8 to 10 people. Two-Pizza Teams not only own a capability, but they’re also responsible for everything from the market definition and product road map to product development and operations.
CREATE AN INSANELY BETTER PRODUCT OR SERVICE
In the end, the above ingredients cannot yield a merely good product or service. To win new business, to create passionate and loyal customers, to be interesting, your new product or service must be insanely good. It must be much better than existing options. Like jaws-to-the-floor better. This is not about marginal improvement. This is not a “completely new, but still average” product. Successful innovation results in an incredible experience—at the right price point. It surprises users, and it very quickly becomes indispensable to your customers.
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Those are a few ideas to help get the big animal moving. The success of the strategies depends on strong leadership— the right approaches enabled by weak leadership will fail. Leaders must be deeply involved, have great instincts, and be willing to stick with it when the going is difficult.
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About The Digital Leader Newsletter
This is a newsletter for change agents, strategists, and innovators. The Digital Leader Newsletter is a weekly coaching session focusing on customer-centricity, innovation, and strategy. We deliver practical theory, examples, tools, and techniques to help you build better strategies, better plans, better solutions — but most of all, to think and communicate better.