Leading the Innovation-Led Organization

Interview – Mark W. Johnson – Part 2

I had the opportunity to interview Mark W. Johnson, a co-founder and senior partner of Innosight, and author of Seizing the White Space recently.

Here is part two of this two part interview (read part one):

4. Are companies better served by moving into white space or by licensing their IP to someone for whom the activity is core (or pursuing some other type of external collaboration)?

I don’t think it’s an either/or choice. Though I have seen many companies think that it is. Some major defense contractors, for instance, have a deliberate strategy of licensing selected technologies for commercial application.

But think about what licensing does: What you’re basically doing is getting value for the nugget. That’s helpful, and you’ll get some money for it – a quick hit to your bottom line, since it’s pretty much 100% profit. But what you’re giving up with that is real growth. Think of what DOS became for licensee Microsoft, for example, versus the rents the original developer got for it.

So the question is, when should you pursue that kind of growth, when is it an innovation too far?

I can think of two broad ways to structure that choice. One is in terms of your stage of growth:

• If your business is booming in the core, and you have more growth than you know what to do with, I probably would support licensing. You don’t have time to develop this thing but could get some money for it, so you might as well get that.
• But if your business is starting to show a growth gap, you may want to seriously consider whether there’s some real opportunity to close that gap with some of these technologies. You could actually incubate a business around the technology and generate growth that adds to the top line and the bottom line in a very real way.

The other way to look at it is the question of how far are you from the core:

• If you’ve come up with some technology whose application isn’t remotely connected to any kind of assets you could bring to bear, then you might say, “This is just too far out of our wheelhouse and forget about it.”
• But if the technology connects to your basic customer mission in some way, then that’s a different story. I like the way Jeff Bezos puts it: “Boy, if there’s a real customer here who has a real problem that we actually should consider addressing, and it actually helps enhance our strategy, then regardless of what you have to learn to do differently, you better go get good at it.”

5. What are some of the biggest barriers to innovation that you’ve seen in organizations?

Some of them I’ve already mentioned:

• Failing to distinguish between the two types of innovation and as a result failing to embark on enough — or any — disruptive, new-growth projects
• Splitting up innovators’ time among new-growth and incremental innovation projects
• Being impatient for revenue growth
• Using the wrong metrics to measure success for new-growth innovation projects and otherwise trying to shoehorn new-growth initiatives into your existing business model.

The most important barrier is created by the most fundamental mistake – when companies don’t have an explicit strategy for innovation in which they develop a balanced portfolio of incremental and new-growth initiatives. Too many companies really just run with an ad-hoc set of projects, and they don’t even think about which ones are incremental and which ones are fundamentally new. Among those incremental projects too often are simply efforts to make existing offerings better when those offerings are already as good as they can be in terms of what people will pay for. You can improve them, but that won’t allow you to raise prices.

Essentially, what this boils down to is that too many companies are in denial about commodization. When faced with commodization pressures, big consumer companies that depend on their brands to command premiums say, “We’re going to innovate our way out of this death-march competition to the bottom.” It’s just so sad, because, let’s face it, for many companies no matter what they do, people aren’t going to pay any more for it.

This is even so for Windows—is Windows 7 really any better than the last version? Microsoft is still operating as if it had a captive market and it can keep making its own products obsolete and force upgrades to maintain compatibility. But they are in denial about how high the barriers to entry really will remain in their operating-system market with new entrants coming in from the iPad and Google.

6. What skills do you believe managers need to acquire to succeed in an innovation-led organization?

The primary skill leaders need is to understand that sustained growth arises from what Dick Foster in Creative Destruction refers to as a “create, operate, trade,” dynamic. Companies that grow sustainably create businesses, operate them, plant the seeds of the new growth that will eventually supplant the current growth, and — when the time comes — trade off the businesses that have reached the limits of growth. That means leaders have to operate the core and think about what will replace it at the same time. To do that, of course, requires that they recognize the difference between the two kinds of innovation efforts.

But beyond that, leaders have to take an active role – they have to embrace, support, and sponsor both kinds of innovation efforts, and adjudicate, protect, and nurture the needs of each in different ways. Very often they have to prevent the creative efforts of the new-growth projects from getting squashed by the engine of the core, especially when the company gets in trouble and the core is demanding resources. That requires two sets of skills: Leaders have to be able to coach and nurture the seedlings as well as to oversee current operations and expect the numbers.

7. If you were to change one thing about our educational system to better prepare students to contribute in the innovation workforce of tomorrow, what would it be?

Innovation is really about having a passion for continually learning. How do we get students be curious, to be willing to ask questions — “Why is that?” “How does that work?” — and get those questions answered in context of the educational system?

The more I think about it the more I come to believe that there’s so much power in holistic, integrative thinking. Look at Edison, who some would argue is the greatest innovator of all time (certainly he’s in the top 10).

He’s the poster child for integrative thinking. Lots of people were working on inventing the light bulb. The reason Edison was the one who did it successfully is that he didn’t just think about the bulb. He thought about the whole system that would be required to create a new market—and not only the physical electric distribution system but the broader systems of economics and regulatory schemes and human motivation .

So the question for educators is, How do you get students to think not just about one subject at a time – about history, then English, then math, then science — but about how those ways of thinking relate to one another? I guess that’s a pitch for interdisciplinary, theme-based approaches to education that help children integrate different kinds of knowledge.

You’ll find our book review of Mark Johnson’s book “Seizing the White Space” here.

• Click to read part one of the interview

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Braden Kelley is a popular innovation speaker, embeds innovation across the organization with innovation training, and builds B2B pull marketing strategies that drive increased revenue, visibility and inbound sales leads. He is currently advising an early-stage fashion startup Voilá! and is the author of Stoking Your Innovation Bonfire from John Wiley & Sons. He tweets from @innovate.