Some problems are easy to solve if you know that the problem exists in the first place. Working out how to communicate a thorough understanding of the high-level goals of an organization is critical to success in any effort. I have personal experience from a trading software company I worked with. The marketers knew that the software had to be fast, or the customers wouldn’t buy. The IT team never understood the importance of speed. Instead, they built a beautiful, super scaleable, easy-to-maintain object orientated system with no stored procedures in the database. From a computer science perspective, it was truly a marvel. It was elegant, efficient and slow. Thus, the trading system failed as a product.

These high-level knowledge and communication examples are obvious, and broadly understood. We have developed an entire culture, replete with common best practices, etiquette, customs, jargon and even whole job categories to try to solve the problem. For example, Project Managers spend most of their time focused on facilitating internal communication.

Concerns over the issue cause people to inundate each other with useless or irrelevant information just in case that information might be useful in the future. It means far too many emails in your inbox and time wasted in needless meetings hearing updates on sub-projects that are irrelevant to your needs and objectives.

Thus, this method of over-communicating information is inefficient. In addition, it often fails to communicate the most pertinent pieces of information! The reasons why the key fact fails to get through are simple:

1. The information in these over-communicating emails and meetings lacks any kind of structure.
2. There is no method of persistence (i.e. storing the information) beyond hoping that people remember a small fact from a blast email sent out six months ago.
3. There is no access control. People can forward emails to the wrong audiences.
4. Most importantly, it is not searchable. People can’t find the information when they need it.

Because of the burden that over-communication places on their colleges, people also deliberately fail to pass along a great deal of valuable lower level pieces information. Thus, people are forced to relearn and repeat research. Examples range from the general to the very specific. How do we use our company’s PowerPoint Template? Does anyone know anything about potential client XYC Inc?

Helping people know the big picture, understand the small details and avoid repeat research are critical tactical steps. These steps must be taken to create an innovative environment.

In a large organization, it is very difficult for lower level people in separate silos to work directly with each other to build comprehensive solutions simply because they do not know who is who in their own organizations.

Say you are a banker in San Francisco with a credit worthy client who is willing to borrow $30 M at a highly profitable rate, but only if you can set her up with lock box services, pay-roll services and merchant card services. Your client also only wants to deal with one person who is going take responsibility for making sure that everything works as promised. Who do you talk to? Do you have to go all the way up the chain of command, and then back down again to find the right people? Even if an organizational chart might show you the right department, how do you find the person with the most experience in your client’s industry and the most applicable skills?

Beyond knowing what roles people play in an organization, innovation creators working in informal networks to develop new approaches often face the challenge of not knowing enough about how their colleagues can help them. Specifically, people often do not know much about the knowledge, experience and skills their colleagues bring to table.

Think of the twenty people you work most closely with. Do you know the basic outline of their resumes? Do you know what they studied in college? Beyond filling the role of their current job, do you know what other skills they have? Does your organization provide you with any way to find out the answers to these questions? Even more powerful, does your organization have a tool that enables you quickly to find colleagues with specific skills or experience that can help an innovative new project?

This problem plays itself out in most large organizations. Solving the tactical problem of “who is who” is critical to creating an environment that generates innovation.

If you want to turn your knowledge workers into innovation creators, you must first understand that, today, innovation creators face substantial hurdles in most large organizations. These hurdles include the following:

Once your XYZ Inc 411 system is in place, recognize that most of the innovations and the improvements in efficiency and client service will come at the margin. However, giving a concrete face to your company’s internal commitment to an innovative culture will produce significant benefits in aggregate and it will substantially increase the likelihood that your team will generate a few blockbuster innovations.

Give people the power to know what is going on, ie give them the 411 , and give them the power to provide the answers. Every person has to be able to say, “I power 411”, meaning, “I power our team enabling, knowledge-sharing machine. I use it to make new things happen, enact change and generate new profit opportunities. I contribute because I know that, somehow, I will eventually get something out of contributing.”

Not everyone is going to be the kind of person who will thrive in this kind of environment, just as not every soldier is cut out to be a member of special-forces. But for the companies that focus on hiring the kinds of people who do thrive in this environment, empowering them, and then giving them the tools to get the job done, the rewards will be substantial. In the face of massive competition from huge multinational juggernauts, out sourcing and constant pressure to improve efficiencies, these emergent companies will still generate greater profits because they will be more nimble, more focused and much more innovative in the products and services they are able to offer. In the services field, especially, that level of maximum customization will enable companies to maintain an edge in profitability.

This essay aims to explain how to make it happen. Specifically, it outlines some of the steps companies can take in order to become truly emergent organizations. The essay details exactly how companies can use today’s new more interactive web tools, such as blogs, to become more innovative. In order to be successful, companies will need to impose only a minimal amount of structure upon the potential chaos of enterprise blogs.

Innovation Creators is based upon a simple premise - in today’s environment, companies must constantly innovate. This means most companies have to change they way they do business.

For some, terrifying facts, like the fact that they have to change are impossible to deal with.

On Oct 25th, Dr Abigail Zuger published an essay in the NY Times entitled “Scare Yourself Silly, but the Real Terrors Are at Your Feet”.

Her point was that we worry about the medical equivalent of ghost stories instead of dealing with very real issues at hand.

Here’s one shocking example from her essay:

A few years ago, a young woman waited patiently to be seen in our office after hours. She was a patient of one of my colleagues, but she couldn’t wait for their scheduled appointment; she needed to see someone right away.

“I’m worried I have Lyme disease,” she said. “I have all the symptoms. I think I need to be treated.”

“But you have AIDS,” I said.

“I’m tired and weak and I have fevers and sweats. I’ve lost my appetite. I can’t think straight. I’m losing so much weight!”

She had seen a TV news report on Lyme disease, and then she had checked the Internet. All her symptoms were right there.

“But you have AIDS,” I said. “And you don’t want to take meds. That’s why you’re feeling so bad.”

“I’m really scared about Lyme disease,” she said. “I really need to get treated.”

“If you want to be scared, how about that untreated AIDS of yours?”

We looked at each other. It was an impasse. The fact that logic was on my side mattered not at all: evidently the real was just a little too real for her. How much better to find another illness to be scared of, obsess over, get treated for, get rid of.

Eventually she coerced my colleague into testing her for Lyme disease and treating her despite negative tests. Then she decided her symptoms might actually be due to a brain tumor, instead. And so it went, until she died of AIDS.

It takes a great deal of courage to confront some very difficult facts.

In today’s market of globalized competition, organizations that cannot confront similar tough facts, and productively react to those facts run the risk of facing the same sad fate that befell Dr. Zuger’s patient.

In the April 21, 2005 edition, The Economist newspaper led with a story that began:

“BOSSES seem to have lost their nerve. After the over-exuberance of the dotcom boom they wisely focused on cutting costs. And they have been very successful at it. … And yet many companies seem to have become so hooked on cost-cutting that a sort of anorexia has set in. That cannot be healthy in the longer term. … With so much stress on cutting costs, there is reason to fear that too few companies are investing in innovative new ideas that might generate organic growth.”

The Economist concludes by saying:

With so many firms stressing cost cutting, it might be clever to try, like Intel, to stand out from the crowd.

The Economist’s editorial policy is rumored to be “Simplify, Simplify, Exaggerate!” It’s a brilliant approach when it comes to analyzing and then setting strategy. It’s often useless when it comes to crafting tactics to achieve that strategy.

In this case, it is not an exaggeration to note that companies need to start focusing on innovation if they are going to generate extra ordinary new profit streams; ie growth of more than 3 to 5%. In its April 21, 2005 article, The Economist might have glossed over (or perhaps, even simplified) the difficulties that executives face when trying to work out how to structure organizations to generate a stream of profitable innovations.

The executives who will succeed in designing organizations that continually generate innovation are going to possess a rare and special insight into how to create an environment where motivated teams can truly produce change. My guess is that these are executives who have read Steven Johnson’s “Emergence”; they have turned to page 102 in Malcolm Gladwell’s “Blink”; and learnt how major Paul Van Ripper used independent agents to defeat the US army in a war game leading up to the invasion of Iraq. They have read “Lost and Found” by Sussman, Deep and Striber, and realized that you have to manage people differently today. Then, they will have read “It’s a Flat World” by Thomas Friedman, and they will have realized that no matter how much they move towards the sixth and seventh sigma, eking out minor new efficiency gains from existing processes only increases profits by small increments. These executives will have further realized that competition will always quickly erode these small gains. The challenge will come from the proverbial 900lb gorilla with a larger capital base, or, in our world of globalization, from a company with more opportunities to out source to cheaper places. These executives will realize the best source of significant profit is in constant innovation, always generating the profits associated with new products.

In some areas, this need for constant innovation is easy to see (such as new drugs that have big profits before they lose their patent and face challenges by generics), but the competition always arrives. Economists call these short-term profits economic rents. Roughly, they are the excess profits over and above the average return on capital that a company can expect to get from investing in the S&P 500. These excess profits come from innovative new products and services, but they only exist for a short period of time; the time it takes for the competition to realize that you are making excess profits, to copy you, compete in price and drive those profits down. So, what is an executive to do? She has to gear her company up for constant change and constant innovation. The way she can do this is to free her people from the confines of the silos they work in now, and empower them to work across internal bureaucratic and regional boundaries, to create project teams on the fly and eventually to become a truly emergent organization. This is what Van Ripper’s forces were doing. To do this, in the words of “Lost and Found”, her people have to know what is going on, they have to feel as if they own their projects, and they have to feel that they will grow.

The obvious question now is “how do you accomplish all of that?”

It’s easy for an executive to tell his or her people to take ownership and run with the ball. It’s much harder to actually get them do it, and, many organizations have found it is almost impossible to create an environment where they can actually succeed.

Success is possible, however. To create an environment where knowledge workers become innovation creators, the organization needs to take two main tactical steps:

First, give your people the power to share and find information across your whole organization.

Second, be realistic and set your team up for success; aim for lots of small innovations

Emergent Organizations are self-organizing systems of independent, self-motivated individuals that, collectively, produce preditcable, and usually optimum results. Examples include:

• Self Interested Individuals working in a free market economy to create efficient resource and labor allocations.
• Ants, which contrary to popular belief, make up their own minds about what work they do, but still, somehow, manage to feed the colony, raise the offspring and keep the group functioning well.
• Google, which traces every html link to each page and uses the number of links to determine rankings in search results.

If you are a CEO, your ultimate goal is simple: run your company in a way that generates a long-term stream of profits big enough to more than make up for the risks you are taking. In other words, your revenue has to be higher than your cost of capital and your goal is to deliver above average risk adjusted returns.

To generate extra ordinary profits in a conventional business, there really are only two options: create a consistently lower cost structure or generate a higher revenue stream. Here’s the catch; in this age of global competition, massive, über-consolidated corporations and accelerating technological improvements, it is incredibly hard to reduce costs and increase revenue at a pace that generates an above average stream of revenue.

Let’s examine the cost side of the equation first. Executives running companies today are facing an almost perfect storm of hyper-efficient competition. There are three driving forces:

First, the competition is getting bigger. Whether it’s Walmart or Citi Group, the size and scope of truly global companies has reached staggering proportions. Useless you are running one of these huge companies, you will face competition from a company that can reach economies of scale that will beat almost any cost efficiency program you can create, thus seriously challenging your profit margins. These companies produce more widgets than you do. They get better deals on raw materials and other inputs because they buy these inputs in greater bulk. Also, their size often leads to lower costs of capital.

Second, the competition is global. This means that in addition to better economies of scale, truly global companies can actually make out-sourcing work. This further reduces the cost of both their inputs and productive resources.

Third, constant technological improvement means that even if you can achieve the same economies of scale, the same raw input cost, the same costs of capital and the same productive resource costs, there is a significant chance that one of your competitors has access to better productive technology.

It turns out that exactly the same factors hit the revenue side of the equation. The competition has larger sales distribution systems, with global reach and the support of better sales technology in the form of better store designs, or better market research and data capture tools and the latest negotiation techniques for big-ticket items. As a result, it is hard for conventional companies to out pace their competition’s revenue growth when they compete head on, with commoditized products or services.

The Art of War Provides a Solution

In the face of bigger competition, globally efficient cost structures and accelerating technological improvements, the only way to generate extra-ordinary returns is pick-up Sun Tzu: The Art of War.

Sun Tzu advice: “Fight your enemy where he isn’t”.

In other words, create new products or services for which there is no competition.

The diagram on the below illustrates the profitability of a successful new product over time. After an initial investment and ramp-up period, these products generate extraordinary profits for a limited period. The profits attract competition, which eventually erodes the profit margins.

The important thing to realize is that only constant innovation will generate a long-term stream of above average profits.

The problem for any executive becomes how to generate constant innovation, and how to do it cheaply. The answer is obvious. Just as the Internet revolutionized communications by initially making better use of the existing telephone infrastructure, an executive wishing to generate constant innovation has to make better use of existing resources. That means redesigning the organization to generate constant innovation.