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Friday, February 27, 2009

Innovation in business today Part III

By Dr. Earl R. Smith II

In the prior articles in this series, I focused on the general problems and some of the specific issues which come to fore when a company sets about to develop a culture which supports and encourages innovation. In this article, I would like to focus on some of the characteristics of leadership that best support such an effort.

In the first two installments, I made it clear that a close partnership between the CEO and the Chairman of the Board is one of the best ways to develop a corporate culture that stimulates innovation. A careful mixing of the CEO’s essentially tactical focus with the Chairman’s strategic view can be the first and most important step in developing such a culture. While there are characteristics that these leaders may not share, many of the components of their leadership style are the same. I will address these differences in a subsequent article. However, for now, I would like to focus on the common leadership characteristics that I have found important.

Vision Beyond Self: There are lots of ways to describe this leadership characteristic - ‘seeing it from the other’s perspective’ - ‘walking a mile in their shoes’ - but it comes down to being able to understand, appreciate and honor where the person on the other side of the table is coming from. Good leaders have the ability to appreciate empathetically the position and condition of their subordinates. This is true whether the perspective of the leader is tactical (CEO) or strategic (Chairman).

Providing the Visions: One of the most common mistakes that leaders make is to assume that vision relates to strategic perspectives and not tactical ones. Nothing could be further from the truth. The combination of the two perspectives begins with the promulgation of clear and inspiring visions from both. One of the most common imbalances that I encounter in my work with companies trying to develop a culture of innovation is that imbalance between these visions. Most often, the strategic vision is well defined - or at least as well defined as it might be without the discipline imposed by a well-formulated tactical vision. The CEO and Chairman must both develop visions from their own perspectives and then blend them effectively.

Communicating the Visions: Innovation works - and by that I mean the process which begins with an innovative insight and progresses efficiently to the point that it is translated into revenue - when the two visions are deployed and blended appropriately within that process. At the beginning, the mix will be more towards the strategic vision. However, it is important the tactical discipline make itself felt even at the earliest stages. As the process proceeds, the balance needs to shift gradually towards the tactical. This means that the communication of the visions needs to be re-aligned as the process moves from the idea to realization. This evolution of vision-mix is one of the most difficult and subtle challenges that the CEO and Chairman face.

Facilitation Not Forcing: Vision is not innovation. The CEO and Chairman are not going to be doing the work of innovation - they are going to be facilitating it. In my experience, CEOs and Chairmen who insist on taking the lead in the process of innovation - rather than facilitating it - are either misaligned or do not understand the process. Good facilitators are seldom great innovators. People who make the mistake of assuming they are identical become intrusive and disruptive. Sustainable innovation requires effective facilitators. Innovation occurs because facilitators fill the appropriate role.

Seeing, Hearing and Sensing: The CEO and Chairman are partners in the effort to stimulate innovation and to establish a culture that supports and sustains it. Both will bring skills and sensitivities to that process. Together they must see, hear and sense the needs of the process as it evolves and work together to provide for those needs. The must be attuned to what is going on within the organization. They must also work together to sense how the organization and people working within it are responding to the efforts to stimulate innovation. Finally, they must listen to both the organization and their people. What important is the balance. If the CEO hears only what his tactical perspective leads him to hear while the Chairman does the same - hearing the strategic - then the tendency will be for the two camps to divide. If that happens effective innovation will likely not occur.

Developing the People that Make the Culture a Reality: In the beginning, the vision of a culture may be shared by only two people - the CEO and Chairman. If a sustainable culture is going to be built, the understanding of how the tactical and strategic visions combine to produce effective innovation needs to grow and be shared by large parts of the organization. The subtle part of this challenge is that the understanding is not constant throughout the organization but is a varying blend of the two components depending where in the organization a particular individual is. The CEO and Chairman must work together to influence the thinking of key players. They must actively mentor individuals so that they will understand better the overall vision of the culture and their appropriate role in it.

The Seamless Whole and the Sum of its Parts: A culture of innovation requires that the whole be greater than the sum of its parts. Supporting teamwork among people with significantly different skill-sets and visions provides a unique set of challenges. More on that in Part 4.

Thursday, February 26, 2009

Innovation in business today Part II

Continued from yesterday:

By Dr. Earl R. Smith II

In the first part of this series, I outlined the importance of cultivating a culture of innovation and some of the major challenges that must be met. In this installment, I would like to focus on some of the practical issues that arise. The conflict that causes the most difficulty is between essentially two different perspectives - the ‘creative types’ and the ‘analytical types’. The effectiveness of any program designed to stimulate innovation turns on the ability of the senior management team and the board of directors to develop a culture within which these two very important perspectives can work productively together.

One of the most evident differences in these two perspectives is their attitude towards risk and uncertainty. The analytical types are generally risk-adverse and uncomfortable with high levels of uncertainty. Their inherent conservatism is an essential part of any corporate foundation. Without it, it is virtually impossible to build a large and sustainable organization. The creative types live in an environment of risk and uncertainty - in fact; they tend to thrive on it.

Teams of creative types tend to do their initial work best among peers - that is, among people who have the same relationship to risk and uncertainty. In this early stage, the analytical types just get in the way. However, at some point their efforts need the infusion of the analytical approach if for no other reason than to ‘ground’ their efforts in the reality of the company’s need to turn innovative ideas into revenue. Thus an important part of any innovative culture is the common realization that neither type has it all figured out - has all the answers. Creative types without the discipline and focus of the analytical types are merely running a ‘science project’. Analytical types without the non-linear thinking of the creative types are embarked on a journey that will end in obsolescence.

The combined skills of the senior management team and an effective chairman and board of directors is required to manage an effective mixing of what is normally oil and water. It is only under the egis of such a combination that such diverse talent can productively coexist and still feel comfortable enough to let their particular talents blossom. The strategic focus of the board and the tactical focus of the senior team meet in this partnership. The principal characteristic of this partnership - when it works well - is creative and innovative - it becomes a model for the combining of disparate perspectives in the company as a whole.

I have worked with companies to develop just such a partnership and some of my greatest successes have come from helping them get the mix just right. When the strategic vision of the board combines effectively with the tactical focus of management, great things begin to happen. The central players in this combination are the right CEO and the right Chairman. They are the ones who define the dynamics - open the possibilities. Creativity comes easier in the team environment where disparate types can operate effectively. So much more can be accomplished when persons from different disciplines and backgrounds exchange various ideas in the brainstorming process. The example that an effective partnership between management and the board provides becomes a template for the relationships between the analytical and creative types within the entire company.

A critical part of this relationship is a negotiated understanding of the process that turns innovative ideas into revenue. In the early stages, the creative types need to hold sway. Strategic thinking dominates. Management and the board need to manage the gradual transfer of this domination to the analytical types. As this happens, the composition of the team will change. The fundamental objective, after all, is to turn innovative ideas into new sources of revenues. The close working partnership between the Chairman and CEO is generally the critical factor. They are the two that must manage the process.

Cultivating innovation is not an intellectual exercise but a practical process that is based on a clear understanding of its nature. Companies that effectively and regularly innovate have mastered the challenges that come from bringing diverse talents into close proximity and facilitating their collaborative efforts in a way which takes maximum advantage of the strengths of all.

Wednesday, February 25, 2009

Innovation in business today Part I

Innovation in business today Part I

This is a series of articles I will post over the next few days which will help to cultivate innovation in the organisation, during these times it is important to maintain forward momentum with a lower burn rate, I hope these will help you to do just that.

By Dr. Earl R. Smith II DrSmith@Dr-Smith.com www.Dr-Smith.com

There is much talk of innovation and the challenges of how to stimulate and sustain it. It is one of the questions that transcend the stage of development of a company. It is also a question that should engage the entire team. Nothing affects the fortunes of an organization more than a team’s ability to come to terms and overcome the challenge of maintaining a culture of innovation. The world is simply to fluid and change such a dominate characteristic of the times we live in - innovation is necessary for survival.

Eventually all of my coaching engagements come to focus on the challenge of developing and maintaining a corporate culture that allows it to respond effectively to a rapidly evolving marketplace with a solid emphasis on creating value through innovation. The difficult aspect of this question is that it is very easy to discuss intellectually but implementation of any solution can prove very difficult. As a friend was fond of saying, “an understanding of innovation is, in itself, not innovative”.

Innovation is difficult because it necessitates the collaboration of two very different types of intellects. In order to develop such a culture, creative and the analytical types need to find a way to work effectively together. It is hard to overstate the difficulties that such an effort can encounter.

In my experience, the CEO and COO are two of the most important players in the effort to stimulate a culture of innovation. The third important player in the effort is the Chairman of the Board of Directors. It is this third player that is often overlooked - probably because in many companies the CEO also occupies the role of Chairman. That arrangement precludes an important dynamic - the role of the Board of Directors in the strategic evolution of corporate culture.

One of the principal reasons that this division of responsibilities is important is that most often the CEO and COO fall into the category of ‘analytical types’. Their focus is on essentially and appropriately on the tactical issues which revolve around the implementation of the company’s tactical plan. A strong Board lead by a visionary Chairman will act to counter this imbalance and contribute to the evolution of a culture of innovation. They will break the bottlenecks obstructing the flow of creative ideas.

A company must create a culture where all participants can challenge why something that does not make sense to them. They must be able to ‘think out of the box’. However, my experience has been that not all team members are able to do this effectively - in fact, it is critical that a substantial part of the team focus on thinking inside the box. This group provides the stability and institutional memory of the company - an essential contribution. Others will be better at thinking in new and revolutionary ways. They must come to terms with the importance of this stability and the need to preserve the organizational foundations while exploring and introducing new ways of thinking and operating.

The core issue in a culture of innovation is the relationship between these two groups. For it to function properly, there must be a high level of trust, an easy and direct pattern of communication and a freedom which allows each member of the team to focus their energies on being the best at what they do best.

I have worked with companies that were almost totally populated with ‘creative types’. Never has the term ‘herding cats’ seemed more appropriate. These organizations suffered from a kind of organizational attention deficit disorder. Good ideas were generated in abundance but the company lacked the infrastructure and team members that could turn them into revenue.

I have also worked with companies that were just the opposite - legions of ‘analytical types’. These companies developed a different form of stagnation. They might have been based on a ‘cutting edge’ technology at one time but quickly fell behind the competition.

Some of my engagements have brought me into the role of Chairman while others have found me serving as an advisor to either the Chairman or the CEO. However, in each case, the challenges have been the same - how does the company develop and maintain that essential culture of innovation? How does a company keep either of these types from achieving ascendancy and driving the other off the field? How a company answers these questions, more than any others, determines its future.

Tuesday, February 24, 2009

What does an Executive summary do for you ?

Plenty has been written on how to write good exec summaries. The best article I’ve found is the one that www.garage.com did. There is not much I can add about what needs to be in a good exec summary but I can share some “secrets” of how most VCs engage with exec summaries. Keep in mind that this is real world advice, which is not necessarily what you need to win in the BPC but then you are trying to build real startups as opposed to startups that win competitions, right?

VCs have a love/hate relationship with executive summaries. Actually, most VCs either love or hate them. Personally, I hate them. Most, even the ones by good teams, are terribly written so, statistically speaking, it’s a waste of my time to read them. If I was making an initial decline or investigate further decision on exec summaries alone, I wouldn’t have engaged with some of the great startups I know. Therefore, I prefer to look at a presentation and skip the exec summary.

Exec summaries are rarely read. They are skimmed, typically with the purpose of making a quick decline decision. Choose your words carefully. Don’t have extraneous content. Highlight key points. Use a graph or diagram, provided it would be self-explanatory to someone who knows nothing about your business. Use simple analogies that relate your technology or business model to successful companies. Be humble when you do that–VCs don’t want to see another startup which thinks its approach is analogous to Microsoft’s or Google’s or Facebook’s.

Be conscious of your goal. It is to get to the next level, ideally a face-to-face meeting. You need to sell enough to get there but no more. Don’t over-educate or over-sell. It will lead to a wordy and heavy exec summary. Avoid the common hyperbole such as “this is a $56B market” or “we have no competition.” Statements like these only make you look immature.

Be explicit about your team building goals. This advice is especially important for teams with fewer “done it before” execs. I think it would be fair to put MIT $100K team in this broad category. As a judge in previous years, I’ve been disappointed to see founding teams with too many chiefs (CEO, CFO, CTO, CSO, CMO, CPO, etc.) none of whom would be hired in those positions if the funded company were to do an executive search. VCs want to know that the founding team knows its limitations.

Tune your exec summaries for the investors you are talking to. Who said you should have only one version of the exec summary? Typically, a very early stage startup has a lot of options and its future will in some way be influenced by its investors. How you pitch to an angel group for a $500K seed investment is not how you’d pitch a VC with a $1B fund. The angel group and the large VC have different business models. They want to invest in different companies. In some cases, your company could be a fit for both, as long as you are flexible and open to the options, but your story needs to be different.

Under-promise and over-deliver. Do not make big claims in your exec summary, especially about the near future, unless you are absolutely certain you can deliver on them. For example, don’t say you’ll have a distribution deal with Large Vendor X negotiated in the next 90 days if the probability is less than 90%. You’ll likely be talking to VCs for many weeks or months. Your credibility depends on making promises and keeping them.