Things you need to know about the book " Serial Innovator" by Claudio Feser
Firms are like living organisms. They’re born, they grow and then they struggle to survive. In today’s high-stakes, survival-of-the-fittest economy, keeping up with changing markets marks the difference between businesses that flourish and those that flounder and fold. Serial Innovators examines the aging process of the firm, identifying and explaining the factors that slow down its ability to adapt to an ever-evolving marketplace. Reviewing recent findings from across diverse academic fields — including economics, psychology, neuroscience, sociology and many others — Serial Innovators presents an exciting new understanding of how growing firms develop rigidities that prevent change –– and how to resist them.
Using these findings, author and business administration expert Claudio Feser develops a model of organization that is adaptive, innovative and creates value for all stakeholders over long periods of time, forming a practical guide for building the ultimate firm that is able to withstand market changes. Feser also offers short, insightful, academically thorough reviews of recent developments in research related to company adaptation, innovation and growth, to make complex material easily accessible. To be successful, a firm must be able to adapt and thrive in dynamic markets, and continuously reinvent itself. Serial Innovators shows how to do this.
Here are some highlights form the book:
The average life expectancy of a firm is roughly 15 years, and only one out of 20 firms lasts longer than 50 years. Serial Innovators is designed for anyone with an interest in beating those odds. The performance pressure on company leaders today is enormous. It is tough to stay at the top. Leaders work hard focusing on profitability and value creation.
Yet, despite all their efforts, value creation by most firms is short-lived. In fact, the whole life cycle of most firms is not very long. The average life expectancy of a firm is roughly 15 years, and only five out of 100 live longer than 50 years. Set up on the back of an innovative idea, firms grow and develop, and sometimes they blossom into admired, world-class organizations. But eventually — as if they were biological organisms — they age and die. There is a large graveyard of defunct firms, including household names such as Texaco, Union Carbide, RCA, General Foods, British Leyland, Pan Am, Uniroyal, Bethlehem Steel, Westinghouse, Commodore, Lehman Brothers, Trans World Airlines, Digital Equipment Corp., Polaroid Corp., WorldCom
The signs of aging vary from firm to firm. Some firms become blinded by success and begin to resist external views and challenges. Some are locked into mental modes and become driven by habits. Some lose the sense of purpose that pervaded them in the early days. Some become bureaucratic. Some have processes and incentive systems that have put them on autopilot head- ing in a dangerous direction. Some develop dysfunctional organizational cultures. The process of aging is subtle, silent, stealthy and pervasive. As firms age, they struggle to keep up with changing markets and, in today’s dynamic markets, slow adapters often become big losers. As a consequence, firms get taken over or go bankrupt. They die. Life is ephemeral even for firms.
Sometimes, however, but only sometimes, firms resist the process of aging and rise above this. They adapt and thrive in dynamic markets, they continuously reinvent themselves and they change their industries. They become serial innovators. Sometimes — by continuously inventing new products and services that make life healthier, better, safer — they change the world. These firms create value for decades, for their customers, their shareholders and their employees.
Organizational design matters a lot. If an organization is designed as a complex, multilayered matrix with several units depending on one another, it will develop a deep, dense hierarchy and will be very slow to react to changes in the environment. If the same organization can be designed to implement the same strategies equally effectively with a simpler business unit or functional organization, it will be faster and more adaptive.Three key principles govern the creation of an effective and adaptive organization.
First, objectives and scope of organization need to be prioritized thoughtfully:
• Prioritizing organizational objectives. A thoughtful prioritization of the organization’s objectives should answer questions such as “What do we want to change in terms of business focus in the next five years?” A thoughtful prioritization includes, first and foremost, the decision on the dominant axes of management — functional, product, customer or geography.
• Clarifying scope. Making choices and setting priorities in terms of scope (for example, business portfolio strategy, product portfolio strategy, stock strategy) should be an early consideration in any organizational redesign.
• Using skunk works. Organizations can keep parts of the business separate using so-called skunk works to create completely autonomous units and to separate them from the rest of the organization. This gives them the autonomy to react quickly and seize opportunities as they arise.
Second, the number of interdependencies needs to be reduced by creating self-managed performance cells complemented by knowledge networks. Whatever the level at which performance cells are being set up, they share three characteristics:
- They are guided by performance metrics,
- they have the autonomy to organize themselves, and
- they have periodical learning cycles.
Third, the organization needs to build on standards. Standardization decreases the level of ambiguity, increas- es predictability and allows networks to function
Whatever importance leaders assign to the topic, there are a few insights that may be helpful. Corporate ideologies are probably more effective when they meet three criteria:
- They are altruistic,
- they are told through stories and metaphors, and
- the organization is visibly committed to them.
Altruistic. Firms can have very different missions or purposes. Insights from psychology and anthropology suggest that people have an altruistic bias, an innate need to help and support others, especially if these others are less healthy, as is the case for patients, or less fortunate in life. We may hypothesize that mission statements focused on helping others are powerful in providing meaning to members of organizations. For example, most statements of the core purpose of firms cited by Jim Collins and Jerry Porras in Built to Last are focused on helping customers.
Stories and Metaphors. Company mission statements are likely to be more powerful when brought alive with inspiring stories and metaphors. Mission statements are often composed of a list of generic phrases. However, our brain has difficulty memorizing lists and blank statements. It can handle stories and metaphors better. “Narrative imaging — stories — is the fundamental instrument of our thought,” writes neuroscientist Mark Turner in The Library Mind. Most of our thinking, our experience, our knowledge, is organized as stories.
Visible Commitments. Company ideologies and mission statements will be more powerful when the organization is visibly committed to them. Commitment means that the organization is willing to devote precious time, spend money and incur financial losses or forgo gains in adhering to its mission or purpose.
In recent years, numerous studies and books have discussed building so-called learning or adaptive corporate cultures. The authors often argue that organizations need to create the environment for people to exchange perspectives, to debate matters, to learn and progress. While this sounds noble, organizations are essentially set up to implement and execute strategies and business plans.
Eric Beinhocker, an economist and the author of The Origin of Wealth, takes a more nuanced view and believes that a good culture is able to combine these two elements.
First, the tacit assumptions, values and norms need to facilitate execution of the current strategy. High perfor- mance cultures include, among other elements, strategy execution and organizational unity. Beinhocker calls these norms performing and collaborating norms.
Second, a good culture contains elements that foster learning and adaptation, and that facilitate change. Beinhocker calls these innovating norms.
In his study, Beinhocker portrayed a good culture with 10 norms, which he called “The Ten Commandments.” They are set out here:
- Performance orientation: Always do your best, go the extra mile, take initiative and continuously improve yourself.
- Honesty: Be honest with others, be honest with yourself, be transparent and face reality.
- Meritocracy: Reward people on the basis of merit.
- Mutual trust: Trust your colleagues’ motivation,and trust their skills to get the job done.
- Reciprocity: Live the Golden Rule: Do unto others as you would have them do unto you.
- Shared purpose: Put the organization’s interest ahead of your own, and behave as if everyone is in it together.
- Nonhierarchical: Junior people are expected to challenge senior people, and what matters is the quality of an idea, not the title of the person saying it.
- Openness: Be curious, open to outside thinking and willing to experiment. Seek the best wherever it is.
- Fact-based: Find out the facts. It is facts, not opinions, that ultimately count.
- Challenge: Feel a sense of competitive urgency. It is a race without a finishing line.
Cultural change efforts are typically most effective in situations of crisis or when the leader changes. The members of the organization are then insecure, and their attention to changes is heightened. They are sensitive to ongoing changes, including subtle ones. Importantly, leaders should frame the change story positively to reduce individual stress and anxiety, and to create the preconditions for creativity, learning and change.
However, money is not a great motivator. When basic factors, such as fair and sufficient pay, are in place, the additional performance boost from financial incentives is minimal and non-monetary incentives then become better motivators. These may include achievement, meaning, recognition and advancement. As an example, 3M and Google provide free time to their employees so that they can spend work hours on special pet projects they are passionate about pursuing.
Ideally, therefore, a system will combine monetary and non-monetary incentives. While highly effective, the use of non-monetary incentives is more demanding — in two ways — for those, the leaders, who have to administer them.
First, the application of social recognition and performance feedback requires leadership skills. Social recognition and performance feedback are most effective when:
- Conveyed in a positive manner
- Delivered immediately after observing performance levels
- Represented visually, such as in a graph or chart form
- Specific to the behaviour that is being targeted for feedback
- Leaders are trained to administer non-monetary incentives effectively.
Second, the use of non-monetary incentives requires a high level of integrity and ethical behaviour from leaders. The administration of non-monetary incentives is effective only when the administering leader visibly performs the expected social behaviour. In other words, role mod- eling is essential.
The Secrets of Serial Innovators
While the connotation may imply something negative, rigidities per se are neither good nor bad. They are simply necessary for human beings and organizations to function effectively and efficiently. However — some- times, and in particular in times of change — they can become the reason for organizational failure, decay and firm death.So the question isn’t how can we prevent rigidities from developing, but rather how can we contain them and how can we complement them to maintain organizational adaptability and to cultivate innovation?Reviews of the various academic fields have shown that informed and thoughtful interventions can interrupt or at least slow down the process of the aging of firms.Seven interventions seem particularly relevant:
1. Cultivating the firm’s members’ desire to make a difference. The first intervention is to leverage the desire of human beings to contribute to something that matters and to make a difference in life. It is to define the purpose of the firm as being to make a difference to people, by developing new products and services that make the life of their customers safer, healthier, richer, better, more valuable.
2. Building a team of learners at the top. It is essential to have teams made up of people with diverse mental models, people with a strong belief in their own self-efficacy and people whose purpose is aligned with that of the firm, staffed in positions that are important for the company in adapting to changes in its environment.
3. Framing the vision and strategy positively.Members of an organization are more likely to engage in problem-solving and behavioral change that happens in a positively loaded emotional context. A positively framed direction — engaging visions of the future and convincing strategies to get there — appealing to positive emotions, helps nudge people into continuous problem-solving and learning, and makes firms adaptive.
4. Building on self-managed performance cells.The fourth intervention is building on self-man- aged performance cells, autonomous organizational units that leverage the goal orientation, drive to succeed and creativity of human beings. Self-managed performance cells have three characteristics: They are guided by performance metrics, they have the ability to organize themselves, and they have peri- odic sessions for learning and joint problem solving.
5. Promoting the firm’s members’ drive to perform and grow. The fifth intervention is to go beyond pay for performance and monetary incentives to motivate employees. The fifth inter- vention wants to recognize the performance of the firm members, to build their self-confidence, to foster their passion to achieve ambitious goals and to help them to grow their abilities.
6. Investing in capabilities to quickly develop new assets and skills. Firms may use four approaches to fast-forwarding the development of assets and skills: It can fast-build assets and skills; it can borrow capabilities; it can buy capabilities; or it can experiment.
7. Cultivating a culture that fosters execution and promotes challenge. Organizational culture can be leveraged to complement the organization’s formal structure by reducing the need for dense hierarchies and processes. Culture can help guide the daily activities of employees in the absence of written rules or policies. It enables greater decen- tralization, providing general guidance, but leaving the specific how up to the individual, allowing more space for adaptation at the front line.