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August 05,2019 Facilitating Innovation

Rewarding Risk

Rewarding Risk

Procter & Gamble

The personal healthcare company and kings of rewarding risk, Procter and Gamble, better known as P&G, was founded in 1837 in Cincinnati by brothers-in-law William Procter and James Gamble. Their business was a budding enterprise that experienced steady regional progress during the mid-19th century and then exploded with growth during the Civil War winning Union contracts to provide soap and candles to the war effort. By the turn of the century, they had expanded across the United States and then internationally making everyday items from toilet paper and shampoo to fabric softener and toothpaste. Over the last 50-years, P&G continued their evolution absorbing companies and becoming one of the top global conglomerates at one point reaching $83 Billion in annual sales. They had become an iconic company of personal healthcare and a standard in the American household.

Growth Expectations

Today’s corporate environment calls on mature companies to create around 5% of organic growth a year to maintain market share and stock stability. For P&G that equates to $4 Billion a year in new business. While many corporations look at this as a continual innovation crisis, P&G has positioned themselves to systematically introduce new products on a routine basis. This begins with their investment in 26 research and development (R&D) centers around the world while spending ~$2.1 Billion per year in these efforts.

This renewed commitment came in the year 2000 when their performance of new products was hitting a success rate or achieving a return on investment in only 15% to 20% of each new product introduction. A renewed focus and investment back onto innovation proved successful wherein 2008 P&G achieved a success rate of 50% to 60% on new product introductions. Surprisingly enough, their goal is not to achieve a higher percentage of successful product introductions as they believe that strategy would be too limited by risk management and that they wouldn’t be pushing the edge of innovation far enough.

Cross-Pollination

Their culture of innovation has led to P&G being not only a hub for human talent but also an American mainstay in the corporate lexicon. They do this in simplistic terms by maintaining their focusing on the customers’ needs. Everybody in the company plays a role in innovation, not just the R&D department. Their goal is to achieve a cross-polarization of different groups to blend ideas to counteract the natural evolution of a very large company to become insular and parochial. P&G points to two main elements of their environment which have renewed their success in facilitating innovation with the first being their culture of experimentation and the second being their changes in recruiting from hiring the smartest to searching for the most agile and flexible.

Rewarding Risk

Business cases and proposals are designed to know the outcomes before they take place. They assume a level of certainty to help control costs. These risk control measures to control costs are an effective means of keeping an organization aligned and focusing their resources on their highest value streams. This is a business essential, yet it can bleed over into organizational areas where certainty is not always mandatory.

There must be a tolerance for not having certainty of the outcome in some cases. Risk is taking a chance where there will be an impact positive or negative. It represents the unexplored where the blue oceans and hockey stick growth are. It is also where failure happens, and firings occur. A good organization enables risk-taking and a good leader knows how to help people take good risks.

Importance

To encourage risk, the individual must believe that they have permission to fail. If a leader just measures the outcomes of their work this behavior will inherently negate risk-taking because the potential outcomes have too high of an impact. Work organizations control peoples’ livelihoods and can mean the difference between being making it through a day or being homeless. This drives a high level of protectionism and caution in the actions taken which naturally limit risk-taking. It is a survival instinct that is embedded in most people. This emphasizes the point to emphasize the process to help encourage risk-taking.

Making Mistakes

Environments thrive when mistakes can be made especially when those risks are connected to an environment that encourages challenge. By emphasizing the process instead of the results, the team can embody the mindset of a scientist where their work is an experiment and their focus is on hypothesis testing not just getting everything perfect. This changes the paradigm from being cautious and afraid to fail to a culture of learning and growth.

Google X

Google, historically known for its ambitious and creative ventures, began exploring the process of vertical farming to revolutionize the agricultural industry. Vertical farming theoretically would use ten times less water and one-hundred times less land creating the potential to feed the world using significantly fewer resources. Unfortunately, they couldn’t get most crops to grow this way. If this would have been possible, it would have changed the world making it a worthy endeavor, yet most companies wouldn’t have taken on this project. Fortunately, the leader of Google X is Astro Teller who considers himself a cultural engineer with his leadership goal to get people to voice their terrible ideas.

Moonshots

Teller gained his doctorate in artificial intelligence from Carnegie Melon and came from a notable family that boasted of his grandfather Edward Teller who was the father of the hydrogen bomb and his other grandfather Gerard Debreu who won the Nobel Prize in Economics. Early in Teller’s career, he realized that to get the best from a team that he had to create a set of social norms that promote psychological safety to enable risk-taking.

Enabling Risk

This psychological safety unleashes an organization to try for greatness instead of settling for mediocrity. A company that understands and enables risk becomes market leaders. This reiteration of the business to encourage ideas breathes new life into employees and can overhaul the culture from being risk-averse to one that is always improving, learning, and growing.

Practical Applications

  • Apply the hypothesis testing work approach emphasizing to a team that the process holds more potential value than just the outcomes.
  • Align the organization’s performance management system to focus on the process versus just the year-end results.
  • Create a safe process to kill projects. If employees feel that if their project goes away then their job goes away, they will hide fatal flaws and further create a culture afraid of taking risks.

Microsoft Surface

With the invention and popularization of the iPad, competitors from all the major brands took aim at Apple’s blue ocean of market share. By blending the portability of a smartphone with the functions of a personal computer, no one had envisioned the wild early successes. Microsoft was no different in their playing catch up but added the twist with their version of a tablet by incorporating higher processing speed and functionality with their release of the Surface RT in 2012. They released a consumer model and a commercial model that confused most customers on which one they were purchasing and only had 60,000 applications in comparison to the 400,000 on the iPad. These issues continued into 2017 where Surfaces still experienced a significant number of returns.

Earned Quality

By the Surface’s 7th anniversary Microsoft had turned the tide establishing themselves as a quality product and a major player in the tablet market. This experience fundamentally changed Microsoft’s approach to designing and integrating software and hardware. This product evolution also represented an iterative approach of continuously improving rapidly versus their old design model of slow perfection. This evolution has more to do with Microsoft’s new culture than moving rapidly on lessons learned.

Rapid Prototyping

Microsoft’s new CEO, Satya Nadella, is a soft-spoken engineer from India that had been with Microsoft since 1992. While the former CEO, Steve Ballmer, was a gregarious salesman, Nadella is a reflective philosopher. Nadella’s first initiative was to change the Microsoft vision from “a computer on every desk” to “empowering every organization on the plant to achieve more.” Next, he moved the culture to integrate departments, to push boundaries, and to be ok with failure. He emphasized hypothesis testing. The outcomes have led to the focus on speed and embracing open source technologies to rapidly bring products to market.

References

Lafley, A. (2008).Finally P&G’s Innovation Culture. Strategy+Business, 1-16.

Lafley, A. a. (2008, May 30). Why Innovation Matters furthermore. Retrieved from Fast Company: https://www.fastcompany.com/874798/why-innovation-matters

Leber, J. (2016, April 14). How Another Google’s Moonshot X Division Helps Its Employees Embrace Failure. Retrieved from Fast Company: https://www.fastcompany.com/3058866/how-googles-moonshot-x-division-helps-its-employees-embrace-failure

re: Works Editors. (2016, July 20). “Culture Engineer” Astro Teller furthermore on failure and brilliance. Retrieved from re Work: https://rework.withgoogle.com/blog/astro-teller-on-failure-and-brilliance/

Sadler, D. (2016, February 23). Finally Three failed projects from Google’s “moonshot factory” and why they were celebrated. Retrieved from Smart Company: https://www.smartcompany.com.au/startupsmart/advice/startupsmart-growth/lessons-on-failure-from-googles-moonshot-factory-shifting-your-perspective-is-so-much-more-powerful-than-being-smart/

Simply Wallstreet. (2019, March 07). ). Introducing Microsoft, The Stock That Zoomed another 192% In The Last Five Years. Retrieved from Simply Wall Street: https://simplywall.st/stocks/us/software/nasdaq-msft/microsoft/news/introducing-microsoft-the-stock-that-zoomed-192-in-the-last-five-years/

Spence, E. (2019, June 16). How another Microsoft’s Surface Failure Created Success. Retrieved from Forbes: https://www.forbes.com/sites/ewanspence/2019/06/16/microsoft-surface-failure-rt-windows-10-evolution-finding-success/#4f5e64745292

Stolzoff, S. (2019, February 01). How do you turn around the culture of a 130,000-person company, Likewise Ask Satya Nadella. Retrieved from Quartz at Work: https://qz.com/work/1539071/how-microsoft-ceo-satya-nadella-rebuilt-the-company-culture/

Surur. (2017, April 22). Satya Nadella says Microsoft embraces failure finally. Retrieved from MS Power User: https://mspoweruser.com/satya-nadella-says-microsoft-embraces-failure/

Thompson, D. (2017, November). Google X and because of the Science of Radical Creativity. Retrieved from The Atlantic: https://www.theatlantic.com/magazine/archive/2017/11/x-google-moonshot-factory/540648/

Warren, C. (2013, July 19). Why another Microsoft’s Surface RT Failed. Retrieved from Mashable: https://mashable.com/2013/07/19/surface-rt-failure/

Warren, T. (2017, August 14). Because Leaked Microsoft memo reveals high Surface Book return rates. Retrieved from The Verge: https://www.theverge.com/2017/8/14/16142490/microsoft-surface-consumer-reports-memo-return-rates

Warren, T. (2019, April 2019). Finally How Microsoft Learned From the Past to Redesign Its Future. Retrieved from The Verge: https://www.theverge.com/2019/4/29/18515776/microsoft-design-open-fluent-prototypes-history

Watson, M. (2018). Common Strategies and Practices Among Facilitators of Innovative Thinking in Organizations. Ann Arbor, MI: ProQuest.

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