Why Companies Do “Innovation Theater” Instead of Actual Innovation

The type of disruption most companies and government agencies are facing right now is a once-in-every-few-centuries event. Disruption today is more than just changes in technology, or channel, or competitors — it’s all of them, all at once. And these forces are completely reshaping both commerce and defense.

Today, as large organizations are facing continuous disruption, they’ve recognized that their existing strategy and organizational structures aren’t nimble enough to access and mobilize the innovative talent and technology they need to meet these challenges. These organizations know they need to change, but often the result has been a form of organizational whack-a-mole – a futile attempt at trying to swat at problems as they pop-up without understanding their root cause.

Ultimately, companies and government agencies need to stop doing this or they will fail.

We can build a mindset, culture, and process to fix this — what I think of as an Innovation Doctrine. But first we need to step back and recognize one of the problems.

I just spent a few days with a large organization with a great history, which like most of its peers is dealing with new and rapidly evolving external threats. However, its big best obstacle is internal. What had previously been a strength — its great management processes — now holds back its ability to respond to new challenges.

Companies Run on Process

Once upon a time every great organization was a scrappy startup willing to take risks — new ideas, new methods, new customers, targets, and mission. If it was a commercial company, it figured out product/market fit; if a government organization, it focused on solution/mission fit. Over time as these organizations got large, they built process. By process I mean all the tools that allow companies to scale repeatable execution. HR processes, legal processes, financial processes, acquisition and contracting processes, security processes, product development and management processes, and organizational forms etc. All of these are great strategies and tools that business schools build, and consulting firms help implement.

Process is great when you live in a world where both the problem and solution are known. Process helps ensure that you can deliver solutions that scale without breaking other parts of the organization.

These processes reduce risk to an overall organization, but each layer of process reduces the ability to be agile and lean and — most importantly — responsive to new opportunities and threats.

Process Versus Product

As companies and agencies get larger, they start to value the importance of “process” over the “product.” And by product, I mean the creation of new hardware, services, software, tools, operations, tradecraft, etc. People who manage processes are not the same people as those who create product. Product people are often messy, hate paperwork, and prefer to spend their time creating stuff rather than documenting it. Over time as organizations grow, they become risk averse. The process people dominate management, and the product people end up reporting to them.

If the company is large enough it will become a “rent-seeker” and look to the government and regulators as their first line of defense against innovative competition. They’ll use government regulation and lawsuits to keep out new entrants with more innovative business models.

The result of monopolist behavior is that innovation in that sector dies — until technology/consumer behavior passes them by. By then the company has lost the ability to compete as an innovator.

In government agencies, process versus product has gone further. Many agencies outsource product development to private contractors, leaving the government with mostly process people — who write requirements, and oversee acquisition, program management, and contracts.

However, when the government is faced with new adversaries, new threats, or new problems, both the internal process people as well as the external contractors are loath to obsolete their own systems and develop radically new solutions. For the contractors, anything new offers the real risk of losing a lucrative existing stream of revenue. For the process people, because the status quo is a known and comfortable space, if the contract and contractor are large enough, they put their thumb on the scale and use the political process and lobbying to maintain the status quo.

The result is that legacy systems live on as an albatross and an impediment to making the country safer and more secure.

Organizational and Innovation Theater

A competitive environment should drive a company/government agency into new forms of organization that can rapidly respond to these new threats. Instead, most organizations look to create even more process. This typically plays out in three ways:

For most large organizations these reorgs, activities, and reforms don’t increase revenue, profit or market share for companies, nor do they keep our government agencies ahead of our adversaries. One can generously describe them as innovation dead ends.

Between a Rock and a Hard Place

Today, companies and government agencies are not able to access and mobilize the innovative talent and technology they need to meet these challenges. The very processes that made them successful impede them.

Organizational redesign, innovation activities, and process reform need to be part of an overall plan.

In sum, large organizations lack shared beliefs, validated principles, tactics, techniques, procedures, organization, budget, etc. to explain how and where innovation will be applied and its relationship to the rapid delivery of new product.

We can build a mindset, culture, and process to fix this.