Power Generates Performance but Performance Consumes Power

In 1997, when Amazon went public, its CEO, Jeff Bezos issued a manifesto – “It’s all about the long term.” Over the ensuing 14 years, Mr. Bezos has not only honored that manifesto he has become a leading practitioner of making investments in long term growth over decisions that favor short term earnings performance. The results speak for themselves with the company’s stock soaring 12,200 percent since its IPO.

By contrast, look at Kodak who has acted like a financial contortionist trying to find and deploy multiple short term gimmicks to keep a failed business model alive quarter after quarter and has finally had to throw in the towel. During that period of time, they missed numerous opportunities to capitalize on business growth innovations including the social networking potential of online photos. By staying exclusively focused on the short term, Kodak is in the process of systematically liquidating its entire business franchise.

What Amazon understood and Kodak didn’t is that power generates performance but performance consumes power. As such, when any company makes decisions that favor short term earnings performance they eventually liquidate their long term power to grow. There are two extremely strong forces within well-established successful companies that tilt the decision making scales toward the short term. The first is the company’s annual planning process which favors resource allocations to legacy businesses over new businesses. The second is the company’s incentive compensation plan which holds senior leadership teams accountable for delivering short term performance but not for making long term investments that increase the company’s power to grow.

Another good example of contrasting approaches to investing in the long term versus the short term is to look at Apple and Microsoft. From 2000 to 2004 both companies were primarily engaged in supporting their core businesses – for Apple it was the hardware and software to support the Macintosh Computer and for Microsoft it was the software to support Windows and Office. In mid-decade, Apple broke ranks and launched a whole new next generation business in music with the release of the iPod. That was followed later in the decade by the launch of a second next generation business in mobile phones with the release of the iPhone. As the decade was coming to an end, Apple launched yet a third next generation business in tablets with the release of the iPad. While all this was going on, Microsoft continued to pour the majority of its resources into its existing Windows and Office businesses. As the chart below dramatically illustrates, the market rewarded investments in long term growth from next generation businesses over short term performance from established businesses.

Can You Curate Innovation in Large Well-Established Companies?

This guest blog is by Karen Lippe who is a consulting partner with Wild Oak Enterprises.  As a veteran marketing technologist, Karen shares her view of the challenges of innovation within the corporate structure. ~ Peter

Innovation.  For companies, especially those in tech, innovation defines a company.  Throughout my years working in Silicon Valley, large companies seeking to become more innovative typically approach innovation creation using two distinct paths:  innovation from inside (aka creating a skunk works-like division) and innovation outside (aka creating an autonomous subsidiary).  Even with the brightest visionary creators, the smartest engineers, the savviest marketers and deep purse strings to support the corporate endeavor, the commercial results are marginal at best or the product is killed off before it goes to market.  This begs the question:  why haven’t more companies (I mean a lot more) been more successful with their investment of innovative products?

The answer is two-fold:  first, they did not define what success was to begin with (if at all), and second, they used the wrong measurements to define the progress of the product or solution.

Defining success.  Even with the best intentions, companies view innovation as a means to create a viable product or solution that would [you pick one:  redirect … reinvent … boost … even save] the mother ship and create a more profitable path.  Innovation is not a savior.  Innovation is the opportunity to leverage the companies own DNA; assess its strengths and weaknesses; view innovative ideas with a new lens (preferably not rose colored); and if good timing is on your side, disrupt the entire market.

A former colleague, Geoffrey Moore, touches upon the idea of success and innovation in his new book, Escape Velocity.  He lays out a smart systematic approach called the “The Hierarchy of Powers” that challenges organizations to look at the whole company from a success vector.  As he drills down, he shares tools and models that set the stage for large companies to be innovation friendly and carve a path that will ultimately garner greater profits.

How do you measure the progress of an innovative product?  Unfortunately new innovation typically dies before it comes to market.  Whether using the inside or outside path mentioned earlier, companies with good intentions embrace an idea and run forward.  To curate innovation from within a corporate environment a tipping point approach is recommended.  Moore discusses tipping point execution as a means toward success.  Simply described, step one  establishes  a model with set project indicators and metrics to measure progress, and step two, creates a milestone-based plan that is formulated working backwards from the desired end result.   If a tipping point approach is not considered, innovators typically enter a vicious cycle of reselling the idea to senior management whereas the effort becomes defocused then dies.  In addition, the tipping point methodology is quite versatile and can be applied to products entering markets where social media increasingly plays an influential role — tapping into peer communities.  Peer group influence can push products in or out of favor and move the “why to buy” to the “I have to buy” tipping point.

To harvest ideas into successful and commercially viable products is always the challenge and undeniable hard work.  If innovation remains the brass ring (what you grab) in technology companies then attaining innovation success is the Holy Grail (the ultimate quest).