Fighting Genetics: How Can Bricks Beget Clicks?

Just as ducks usually hatch new ducks, so do organizations tend to carry their old “genetic” cultural characteristics into new ventures. So, how does one apply resources of an existing organization to give birth to new, different business forms?

It is one thing to simply extract cash and invest in other business forms, or to set up separate “skunk works.” It is quite another to innovate from within. Yet, this is what many businesses must do today if they are to take advantage of — or survive — the new information economy.

Experience shows that stand-alone dot-com businesses, such as Amazon.com, can be disadvantaged if they are independent of a bricks-and-mortar business. Traditional businesses also feel compelled to integrate the Internet into their operations. “Clicks and bricks” seems to be the winning formula, but how can bricks beget clicks?

I have experienced several innovative failures and successes. Here are my selected observations on major impediments to innovation from within, leadership techniques that failed, and one that worked. Briefly, there is no easy formula. The larger your organization, the larger the challenge of integration from within.

Curiously, pride in product can be a problem. Usually, we think of this as a good thing. But if you define your business — and your pride — around today’s products or services, your business will experience a product lifecycle of growth, maturation, and decline. You will spend your innovative energies on marginal improvements.

The solution is true marketing. Marketing is when you love the customer, not the product. Selling starts with products and seeks customers. True marketing starts with customers or needs, and seeks products to serve those needs. If you define your business around your customers’ needs, you will find your organization following — or even leading — your customers as they shift their behaviors and seek new solutions.

Another impediment is fear of radical change. I have never really tested the claim that if you put a frog in cool water and slowly bring up the temperature, the frog will stay in the water and die. But, the story goes, if you drop the frog in boiling water, it will immediately jump out. Frogs, like business people, seem to respond poorly to gradual change. I have been in many meetings listening to business leaders say, “Things are getting tougher, but we can make this and that adjustment and hang on.” Sometimes, the only solution is to commit to radical change.

Worship of short-term earnings is also problematic. Marginal changes may be relatively inexpensive, but radical change usually costs money up front. Owners must be committed to spending now to improve the future.

The doitdammit edict. The old adage is that change has to come from the top. True, but there is a big difference between being initiated and supported from the top, versus directed. It is a rare boss who is sufficiently smart and informed to effectively dictate information-age strategy. Too much is going on for one mind to follow. Who knows the customers the best? Usually the sales force. Who knows technology the best? Usually the twenty-somethings.

So, if the boss dictates from the top to a compliant organization, the vision and implementation is likely to be limited. The input of sales people and twenty-somethings is slow to filter up. A rapid cycle of feedback, mistakes, learning, and adjustment is retarded.

Even worse than a clear vision directed from the top is innovation by committee. An “innovative committee” is an oxymoron. The instinct to bring the best thinking of an organization to bear on new challenges often means forming committees of department heads or representatives of existing operations. These people are busy with their own agendas, however. Even with clear mandates, committees tend to be risk averse and lack vision.

What has worked best for me is to drive innovation not from the typical management processes, but from a culture that loves the customer more than the product, values innovation, and in which people at all levels feel empowered — even a responsibility — to innovate. However, to create such a culture from an existing “old economy” organization requires a huge commitment of time and money, mostly for training.

When I was CEO of Guy Gannett Communications, we began such an undertaking in 1994. At that time, the primary assets of the company were television stations and newspapers. We had eleven divisions in seven states, all defining their businesses by their products. In Maine, we had as many as five sales forces calling on one customer, all taking pride in their product, none seeking new products.

Our objectives were to transform ourselves into a customer-centric learning organization that continually developed new products from existing resources. We openly referred to our effort as a program of transformation. We wanted not only to follow, but to lead our customers into the information age. The following were the key elements of the program:

• Culture change (the cornerstone)
• A changed role for management
• Information technology integration
• Re-organized management structure

Culture change. A company’s culture is basically that set of largely unwritten rules and assumptions about how the company operates. Guy Gannett had a traditional hierarchical organizational culture in which managers dictated and loyal employees followed. We sought to evolve from this culture, which was based upon compliance, into one based instead upon commitment to shared values and priorities. The characteristics of this new culture included 1) regular communication of strategic, financial, and cultural information. (Someone once said, “Knowledge is power. If you want to give power, start by giving knowledge.”); 2) cross-departmental and cross-divisional collaboration; 3) employee teams trained and empowered to think strategically, solve business problems, and capitalize on emerging opportunities; and 4) engagement of unions as positive forces.

A changed role for management. Instead of executives making decisions and dictating from the top down, the new focus was on executives molding processes by which employees at all levels made decisions. This involved a lot of information sharing, teaching, and training. Gandhi said, “Let go, so that you may lead.” This was difficult for many.

Technology integration. The object was to use information technology as a strategic asset, as opposed to a tool for lowering costs. Once we started focusing on developing new products for customers rather than selling what we had, it became easier to enlist the whole organization in technological innovation.

Organizational structure. We started reorganizing around markets, rather than products, and we moved toward an organization chart that was flatter, with centers of expertise rather than authority. We called it the “pepperoni pizza” organization chart.

By March of 1998, this program was starting to pay off. Leadership and new thinking started to emerge from all levels of the company, including the unions. We started by involving employees with easily definable, operational issues such as employee parking, vending machine management, and safety. After a three-year lag, the operational cost reductions alone paid for the training and other costs of transformation. We also started to see employees at all levels involved in planning strategic and technological innovation. Distinctions between management and non-management were breaking down. Employees at all levels were proud of how well it was working.

Unfortunately the experiment ended in 1998, when for family reasons, the owning family asked me to sell their business. We sold it by product line, and much of the work-in-progress of refocusing energy from products to markets was undone. However, we knew it was working. We had been to the top of the mountain and saw the view. Radical innovation from within was possible.

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