“Innovation” seems to be on everyone’s lips these days. Among other things, the problems are:
- Many people, lawyers in particular, are stumped when it comes to describing what “innovation” actually is;
- Business history proves to a fare-thee-well that it’s extremely challenging for successful incumbents to actually follow through with anything innovative;
- And of course there’s a widespread, albeit largely unspoken, suspicion that innovation is not anything that can actually be encouraged effectively, much less planned out at an organizational level and deployed.
But if we’re serious about innovation, what’s to be done?
One place to start might be establishing a dedicated R&D budget at your firm. Heck, we’ve even recommended this to some clients.
Pop quiz: Guess what percentage of revenue the following industries devote to R&D (I’m actually not eager to make my readers’ lives difficult, so I’m about to tell you):
- Telecom: 13%
- Software/internet: 12.5%
- Healthcare: 11.5%
- Law: 0.0%
(Source: First three, Booz Allen, summer 2014; Law Land, Adam Smith, Esq.)
All North American-headquartered businesses, cross-industry average? 5%.
And if the AmLaw 100 devoted just 1/4 of 1% of its revenue to R&D, the cumulative war chest would be north of $200-million/year. That would endow a few nice professorships at MIT and Caltech.
But enough about what we’re not doing. Let’s talk about what other big companies have learned about how to innovate.
Our text for today is McKinsey’s “How Big Companies Can Innovate,” and it harbors lessons from Intuit, Idealab, and Autodesk.
Scott Cook of Intuit on making innovation easier
The one critical insight here is that while you may not be able to change the nature of a large firm itself, you can change the way decisions are made: From decisions by bureaucracy, consensus, and PowerPoint—along with the status markers of power, position, and persuasive skills—to decision by experiment. (This is what R&D is all about, in case you were wondering.) At the heart of it is removing the encrustations, built over the years, of barriers and hurdles to getting “go” decisions, and substituting systems and a cultural mindset to support the assumption—the expectation—that the firm stands behind passionate individuals who want to run an experiment to test their assumptions.
Strip the idea down to its essentials and try to run an experiment ASAP (this week? this month?) to test the idea. Devote minimal or, ideally, no resources to it (other than the opportunity cost of the advocate’s time).
Cook’s final, equally critical, observation has to do with how the ecosystem has to change to support these passionate advocates: “It can only work when it’s put in place by leaders. The innovators can’t do it.”
Bill Gross of Idealab on investing in innovation
Gross starts from the premise that the key functional barrier to large firms’ remaining innovative is the difficulty, nay near-impossibility, of balancing short term performance goals (client satisfaction, employee morale, revenue, profitability) with the long term perspective requiring sacrifice today for the sake of tomorrow. Evidence of how difficult this is is simply how rare it is: Gross cites Steve Jobs and Larry Page, who are iconic exceptions to every rule of conventional organizational management if ever there were.