Companies do not magically transform. They do not go from lagging behind in technology and products to disrupting an industry with innovation overnight. It takes time. Business leaders also face a variety of choices as they pursue a new identity for their company. Should the business build a new capability internally? Will an acquisition at
Companies do not magically transform. They do not go from lagging behind in technology and products to disrupting an industry with innovation overnight. It takes time.
Business leaders also face a variety of choices as they pursue a new identity for their company. Should the business build a new capability internally? Will an acquisition at the right time alter the company’s path? Can an outside partner provide a boost where internal efforts fall short?
The answers to questions like these often depend on the specific situation.
“It’s kind of cliché, but it all really starts with a plan and what a company is looking to address,” said Lee House, a partner in the technology practice at Illinois-based Sikich LLP.
[caption id="attachment_506154" align="alignright" width="300"] Lee House[/caption]
House said what a company is looking to accomplish could include revenue growth, diversification, cutting expenses, an improved customer experience or a positive impact on employee lives.
“Obviously, with technology, you can do a lot of different things,” he added. “You can do something that’s really, really small that can have a major impact on a business.”
Chuck Swoboda, innovator-in-residence at Marquette University, says a company and its leaders need to be willing to change internally to have success through innovation.
“In my experience, to be successful with innovation, a company has to have a reason it needs to innovate,” said Swoboda, who was chief executive officer of Durham, North Carolina-based Cree Inc. from 2001 to 2017. “There has to be some compelling problem that’s motivating them to feel like they’re prepared to disrupt their current business to get somewhere new. That’s the challenge.”
Swoboda also draws a distinction between invention, creating something new, and innovation, creating something new that not only solves a problem, but also creates value.
“Frankly, in my experience over the years at Cree, the hard part was convincing people to embrace the new idea, not coming up with the idea itself,” he said. “It starts with perspective. Most of us think about our idea and look outwards. I think the great innovators see problems and work backwards.”
Creating a culture that embraces innovation isn’t as simple as putting inspiring words on the wall or in a mission statement. It requires reinforcing behavior that allows people to take some risks and make mistakes along the way.
“That’s very tough in most organizations because most businesses reward people that are good at doing what you do today and yet innovation is being good at doing something you don’t do today,” Swoboda said. “You can see how the two are inherently in conflict.”
House said projects often go sideways because companies “try to build their dream house day one.”
“What happens there is, projects will go longer than they really need to a lot of times, their business will evolve during the project, all the employees that are going to be using the system will go, ‘Well, golly, this project has lasted forever, how hard is this system going to be to use?’” House said.
Even with the right mindset, a company is left with the decision of how to execute on innovative ideas. Build capabilities internally? Make an acquisition? Find a partner?
Swoboda said he favors building internally over looking to an external partner.
“At some point you’ve got to get some internal champions to make this happen,” he said. “You can’t just say, ‘We’re going to innovate’ and put it in the machine. It doesn’t work that way.”
House pointed out that it can be useful to have a guide the first time a company tackles a new challenge.
“I think so much of it just depends on, again, a company’s awareness of who they are, what their skillset is, (and) the timeliness associated with addressing the goals and aspirations,” he said.
Finding internal champions requires looking in the right places.
“You have to put people on the team that have a mindset that’s biased to this innovative behavior. In some companies, they might exist,” Swoboda said, suggesting it is best to look “on the edges of the distribution.”
“I would look at the employees that are not as good at what you currently do,” he said. “If you think about how you do performance management, you reward a set of behaviors for all the things you try to do today.”
Swoboda said high performers who are frustrated with the current system or even those at the other end who seem to be always fighting the current approach are often good candidates. Companies might also need to change how they hire to promote innovation.
“I wanted people that were unafraid of failure. I wanted people that were very comfortable with uncertainty and I wanted people that were willing to take ownership for things that they couldn’t actually control,” Swoboda said.
Of course, an acquisition has the potential to transform the makeup of an organization with the stroke of a pen.
[caption id="attachment_506148" align="alignright" width="300"] Ann Hanna[/caption]
“What gets hard is it is impossible to really quantify the value of a going concern,” said Ann Hanna, managing director and owner of Taureau Group, a Milwaukee-based investment bank.
She said the cost of buying real estate, building a plant or hiring people can be easily quantified.
“To have immediate cash flow, to have immediate customers, to have a brand, to have a reputation, those are all things that are super hard to quantify,” she said.
Hanna also said the COVID-19 coronavirus may have created opportunities for companies to acquire innovative businesses in need of capital.
“Depending on what you believe is going to happen in the future, if you are willing to start your growth strategy now … if you’re willing to act boldly and be the first one at the table on some of these companies, you may come out of this with an accelerated growth opportunity,” she said.
Of course, acquiring a company and not losing what made it attractive are two separate matters.
Swoboda said that without any action, an acquiring company’s culture will eventually take over and even if a leader hopes to blend the two company cultures, the innovative aspects will likely be lost.
“If you want it to remain innovative, it will have to operate with a different culture than the one you have today,” Swoboda said. “This idea you’re going to marry the two and end up with some happy medium, usually the person with the biggest budget wins and in a traditional company, the people that have been there the longest end up being in charge and if they weren’t innovative before the acquisition, they’re not going to be innovative after the acquisition.”
Tapping into the potential of an acquired innovative company requires a balancing act. An acquiring company with great brands and sales channels might be able to use its existing relationships to sell an innovative product. At the same time, an innovative company may go to market in a different way.
“If you’re not careful, you think you’re helping them by giving them all this expertise and really what you’re doing is you’re killing what makes them unique,” Swoboda said. “It’s their ability to serve the customer in a different way that is typically half the innovation value.”
At Cree, Swoboda said his goal was to use the company’s manufacturing and back office expertise to help acquired business while leaving the newly acquiredcompany to determine what products to pursue or how to interact with customers.
“What we were trying to do is take what the new company brought and inject those ideas in the old way of doing things, not the other way around,” he said.
The potential to erode the acquired company’s culture can come from innocuous sources, Swoboda said. A chief financial officer might want the new company to change a process to line up with the rest of the business, but that change could indirectly alter something that makes the acquired company innovative.
In one case, Swoboda said he dealt with a situation in which the company was training everyone how to create their own purchase orders. It required research and development engineers to go to training classes for something they would use so infrequently they would need to relearn it when it came time to submit a purchase order.
Swoboda said it was done with the goal of making a department more efficient, but the company’s ultimate goal was to be the best.
“When something is the best, you actually are OK with other things being deoptimized, yet most organizations really struggle with this idea,” he said, adding at Cree he focused on having sales and marketing teams spend as much time as possible learning about and solving problems for customers, research and development work focused on creating innovative offerings and manufacturing done efficiently to help the company make money.
“Every other function in the organization was essentially deoptimized for those, including the CEO,” Swoboda said.
He added that it is then up to a company’s leaders to communicate how each function fits into the larger mission.
“People are really good at adapting,” he said. “Most people want to win, right? And you’ve just got to help them understand how they (are) part of winning and too often we just don’t go far enough to explain that.”
