These days, every established company is at risk of having its industry -- and its own business -- disrupted by a startup. Cognizant of this, companies devote a lot of time to talking about how important it is to innovate. But here's the truth: most companies can't innovate because everyone is paid to maintain the status quo.
This is the single biggest reason companies fail to do anything new or exciting. You and everyone else are maxed out making sure your company is doing what it's supposed to do; innovation is what the weekends are for.
Despite the real risk involved, this actually makes sense. Companies are set up to do one thing very well. That's the business they're in. All of the roles in the company are defined and structured to create the best environment for doing that one thing as efficiently as possible. The number of people employed by the company fluctuates with the workload. More work, more people. Too many people and too little work means layoffs or mismanagement. Success is doing the same thing you've always done, just a little bit better, achieving just a few more sales or shaving a hair off of costs. Change is discouraged by time constraints and the stifling number of approvals needed. Failure is punishable by pink slip. Every day is the same.
Yet, today, your entire industry can change in the space of a headline. If your business can't innovate, it won't survive when the startup in the garage across town that doesn't have to answer to your shareholders does all the things legal has been telling you that you can't do, all the things that you don't have time for. It's never been more urgent to stop talking about innovation and actually start doing things differently. And, with digital, the opportunities have never been greater. Instead of innovating on your weekends, overcome the structural impediments and time constraints to real change by approaching innovation from two directions: outside-in and inside-out.
"Outside-in," when not based on acquisition, often comes in the form of a skunkworks project. It's colloquially defined as a startup funded by the parent company, but kept separate from the dysfunction and sluggishness of the whole, in order to incubate great technological advancements. I've referenced this tactic before, as the first step big businesses should take to evolve their organizational structures. Google, JetBlue, NBCUniversal, and News Corp. have all used the strategy.
Here's the recipe:
Set the right goals. A skunkworks project should be tasked with developing a new, specific tech product or service.
Give the team freedom to create. Bureaucracy, office politics, and the aforementioned requirement to keep the ship sailing straight ahead all slow down and inhibit big advancements. To succeed, the skunkworks team must be kept free from these deterrents.
Appoint separate senior management. Management by committee is not an option. The quickest route to failure is slow decision making. The skunkworks team should report directly to a senior-level executive who is authorized to green-light initiatives that are separate from the company's main purpose and to implement these new solutions.
Choose a separate location. The team should not be housed in the corporate headquarters. Ideally, it should live nearby, but in some cases, it needs to be in a completely different location to be able to access the right talent. When Johnson & Johnson decided to build a unit oriented to design, creativity, and technology, the division planted a flag in an old industrial building in a trendy neighborhood in New York. Its corporate headquarters are in suburban New Jersey.
Mix up the staff. The staff should be a healthy hybrid of high-performing internal employees and newbies, so that some participants are familiar with the company's core business while others have an open mind and fresh ideas.
Give it time. Really well-developed products often take a year from the time people start working on them until launch. You can get things done in six to nine months, but it's unusual, especially if the team refines it with iterative improvements.
Bring it back into the fold. Once the project is complete, skunkworks team members should move back in with the parent company. They either become a distinct department or are dispersed throughout the company, in order to effectively run and manage the particular product.
On the other hand, "inside-out" innovation is all about incentivizing existing staff members to be revolutionary within their own jobs. The most important ingredients are largely cultural:
Freedom to fail. Traditionally, companies are averse to risk, so if you fail at something, it hurts your career. But to innovate, you need to be able to try new things without risking your livelihood. As Thomas Edison said, "I have not failed. I've just found ten thousand ways that won't work."
Free time. Performance evaluations for managers should include assessment of the volume and quality of new ideas they brought to the table. If the company's priority is solely productivity, no one will have time to think about creating something new, let alone bring it to life.
Training. An office that encourages and facilitates education openly admits there's room to grow and inspires people take that leap.
The risk involved in these changes is less than the risk of not making them. Innovation is outside the comfort zones of most businesses -- but so is Chapter 11.
Originally published on Fast Company.