As the pace of change increases, the great companies will be the ones who can explore new opportunities, while running their current business. This ability to live in the two worlds of explore and exploit will be the true test of corporate leadership. Even within business education, how to run an ambidextrous organization will become Management 101.
What is key for leaders is to understand that they cannot manage their innovation portfolio in the same way that they manage their current business. We expect innovation teams to have a different mindset that is focused on searching, dealing with ambiguity, testing ideas, failing and iterating. We have to set similar expectations for leaders. They also need to lead with a different mindset.
In the existing business, leaders are used to managing teams that plan and execute. As such, they lead their teams by having them outline their plans in detail, create a roadmap for execution and make business cases with clear projections about expected outcomes.
If the team’s plan, roadmap and business case make sense, leaders will invest in the proposed idea. They will then manage the team by tracking whether it is hitting the milestones as proposed in the plan. Failure to deliver on time and on budget can have severe career limiting consequences for employees.
Such an approach to management can only work in a relatively predictable world where companies know their customers and business model. With disruption everywhere, there are even questions about whether any company’s existing business model is predictable. However, the existing knowledge and experience we have in running our business allows us to make plans with some level of confidence.
Innovation is a totally different game. This is especially the case when we are working on transformative innovations, where we are creating new products and services for new markets. In this case, you have to take the mindset of someone who is leading a team of explorers who are about to step into the great unknown.
This is a useful metaphor to use. If you have a team that is about to travel to an unknown place, it is not really wise for you to ask them for a detailed plan, roadmap and expected returns. This makes no sense. As a leader in that situation, you have to realize that you are asking people to go out into the world and find out if there is something worth investing in there.
This shift in mindset will change your leadership style. You are not asking people to go back to a place they have been before several times (i.e. the existing business). You are asking people to go to a place that they have never been before (i.e. new business ideas). Sure there may be some reports from your market research consultants that there is something worthwhile in the new place, but until you try to build a business there you do not really know what will or will not work.
So if you are a smart investor, you will not invest the whole budget for implementing a business idea on the basis of an explorer’s roadmap and projections. If you do that you are likely to lose all your money or you may never see the explorer again! To lead an exploration team you need to be world class at doing the following five things:
- Choosing Where To Play: As a leader, you have to provide your teams with clear strategic goals for innovation. You should not just say to your innovation teams, go to work and bring me something cool. You have to be more clear and explicit. Which parts of the business world do you want them to go and explore? Which arenas and emerging trends do you want them to address? This guidance will then form the basis of how you decide which expedition teams to fund.
- Setting The Right Expectations: As the teams go out to explore, you have to be clear what you want them to find out and how you are going to evaluate them when they come back. These expectations have to be reasonable given where they are on the innovation journey. In one case, you may just want a team to find out if there is a real customer need that is worth building a solution for. In another case, you may want them to go and test several solutions to find out what people will pay for. There are several learning goals you could set your teams. As leaders, we have to be clear about our expectations.
- Giving Teams The Right Tools: Given our expectations, we have to make sure that our teams have the right tools and skills to gather the evidence we require to make decisions. There is no point in sending teams out there with the wrong tools or deploying teams that do not know how to design and test business ideas. What you will get in return is poor quality data that will not help you in making informed decisions.
- Providing Just Enough Resources: Even as we give our teams the right tools, we need to ensure that we are giving them just enough resources to explore. In the early stages of exploration, we do not want to over invest. Rather, we want to make incremental bets using metered funding (i.e. small bets that increase over time on those teams that are showing evidence of success). If we give our teams too many resources, we can lose the ability to hold them to account. They may even start implementing the wrong ideas. But if they have to come back and make a case to earn their next investment, they will make sure that they gather the right evidence based on the expectations and criteria you have set.
- Accepting That Anything Can Happen: This is an important mindset for leaders to have. You must be willing to accept that anything can happen. When teams are out exploring, you must expect that a lot of them will come back and tell you that they found nothing (i.e. the expedition stops). Some teams will come back and tell you that they did not find what they were expecting. Instead, they found something else that could be more valuable (i.e. the expedition pivots). A few teams will come back and confirm that there is value to be created where they went to explore (i.e. the expedition perseveres). As a leader, you have to be prepared for all three outcomes and make the right decisions. There should be no negative consequences for any teams, regardless of outcome.
Understanding that exploring for new opportunities differs from exploiting a currently successful business is an important mindset shift for leaders to make. In that same vein, leaders also need to change how they make decisions. In the explorers world, we make decisions based on evidence. It makes no sense for leaders to pour endless resources into an expedition to a place they have never seen just because they like the team or because the team are working on their pet project. All investment decisions must be based on the evidence that teams bring back. This is the only way to succeed as an innovation leader.