Letting builders buildPosted: June 3, 2007
DMAIC is a Six Sigma acronym which stands for: Define, measure, analyze, improve and control. Business Week’s cover story this week covers how Six Sigma may not be all it’s cracked up to be. Using 3M as a case study, they take a look at what happened to one of the most innovative companies in the world after their GE superstar CEO came on board and Six Sigma-ized the company. While profits went up initially (due to cost cutting on better efficiency in established businesses), most recently they started missing earnings targets.
One insight I had recently is that there’s two ways for companies to continue to grow: by building new things or by being more efficient with what they already have. Any fancy manager type would tell you that both are critical. But if you were a betting person, eg. betting where you had a better chance of getting a bonus, would you build something new or squeeze more efficiency out of an existing business? The far less risky approach is clearly the latter. Go with what you know already works, squeeze out more profits by cutting costs and increasing efficiency and you’re on your way to a nice bonus.
As a casual observer of corporate operations, Six Sigma type programs seem to be what new fancy CEO types bring to companies they join. Look for a bunch of inefficient operations, cut some cost and money losing programs and see the stock rise. What you don’t see as often from mega corp leaders is bringing big new innovations to their businesses. For Apple, the iPod is a great example of a huge new innovation that is financially propelling the company forward. The iPhone will probably be another big driver. But you don’t see CEOs driving big new innovations like these products often.
Why not? Why do most large companies with huge resource pools fail to innovate in the same way companies like Apple and 3M of the past? The Business Week article suggests that part of the problem may be the incompatibility of applying Six Sigma to make innovation happen:
Indeed, the very factors that make Six Sigma effective in one context can make it ineffective in another. Traditionally, it uses rigorous statistical analysis to produce unambiguous data that help produce better quality, lower costs, and more efficiency. That all sounds great when you know what outcomes you’d like to control. But what about when there are few facts to go on—or you don’t even know the nature of the problem you’re trying to define?
“The more you hardwire a company on total quality management, [the more] it is going to hurt breakthrough innovation,” adds Vijay Govindarajan, a management professor at Dartmouth’s Tuck School of Business. “The mindset that is needed, the capabilities that are needed, the metrics that are needed, the whole culture that is needed for discontinuous innovation, are fundamentally different.”
This reinforces my own thinking of late that there are two basic employee mind sets at a company: builders and operators. Builders like to build new products or services and are motivated by coming up with ideas no has thought of before. Operators are great at taking something that’s been built and adding incremental improvements to increase efficiency or reduce costs. They get a charge out of seeing year-over-year improvements in existing metrics.
Neither type of employee type is fundamentally better than the other. Companies clearly need both to flourish. But which ones get to the boardroom faster and more predictably? I believe the operators do and hence the over focus on operations over innovation in most companies. Why? It’s easier to take an existing business and squeeze more profits from process improvements than build new businesses.
Back to the Apple example, Steve Jobs clearly has a classic builder mind set. He loves building new things that transform people’s lives. But he was fired by Apple for essentially being a pain in the butt for the professional managers who were trying to squeeze as much profit out of Apple’s existing Macintosh business at the time. Apple’s managers couldn’t figure out how to allow the builder and operator mindset to cohabit the executive suit. After Jobs left, you can see what staying on a path focused on efficiency and costs did for Apple. It nearly bankrupted the company and in an ironic twist, it took Jobs’ return (a builder) to turn the company around.
So, what’s my meta point? All the talk from corporations about innovation is wasted air if they don’t set up an org for builders to flurish. That means a separate incentive structure and even work environment. Managing creative orgs is tough because their output is so unpredictable. Applying a control process of reducing variation to eliminate defects (or bad ideas) in creative focused endeavors kills the random events that are required (in my opinion) for new ideas to be developed. Six Sigma type programs can’t motivate builders to do the right thing. I think a better method would be using a investment approach where a company manages new initiatives like a funds manager manages a stock fund. This means having a diversified portfolio of initiatives and new businesses. Kill ideas that aren’t going anywhere and when new ideas take off, migrate them to operators who can build new businesses by cutting the fat and making incremental improvements to keep things growing. In both scenarios (success or failure), cut builders loose early and move them back to new idea development. That’ll keep both mindsets happy.
Seems one big problem in this model is how to incent builders. Is it by number of new ideas? Is it by number of new products/business deployed? Is it shared revenue/returns over the lifetime of a new business? Also, there’s the big problem of taking the brainchild of some innovators and losing the vision when the business is transfered to new operations minded people run. But I think those are solvable problems.
The key for companies is to acknowledge its two different employee mindsets and set up the right orgs for them. Creating startups or skunk works within large companies might be a good place to start experimenting. I’d suggest that they be off campus and have their own orgs but I’m sure other models could work too. Given builders usually go to startups when they get bogged down by operations over focus in large companies, creating a startup world within a large company could retain a lot of talent–especially for folks that aren’t interested in the working hours and risk many newly funded startups require. Jeff Hawkins, creator of the Palm Pilot has said “use entrepreneurialism only as a last resort” in starting up a company. If you can fund your idea within a company with resources, that’s the way to go according to him.
Startups within large corporations may not be for every entrepreneur, due to the upside limitations if a concept takes off. But there’s a lot of people out there that work for the fun of it and want to do other things with their time versus just work. The reduced risk and work hours for startups within large companies could be very attractive to some percentage of employees. Google uses very large grants for big innovations bubbling up from their 20% innovation time allocated to all engineers. I’m sure other similar financial awards could work really well for compensating big new (iPod type) ideas.
Let’s hope for some more builders added to corporate executive suites. With the right advocates at the top of companies, I think innovation is possible from large organizations. But it won’t happen if the primary conversations for growth are around Six Sigma principles.