For the last few weeks, we’ve been talking about how organizations can develop three critical capabilities for innovation, engagement, and agility. If you didn’t have a chance to read these articles, start with the introduction to three critical capabilities.

We already covered a new approach to innovation, and how employee engagement is a critical innovation catalyst. For this post and the next, we’ll discuss the importance of agility.

Agility has always been prized by organizations. However, it’s largely seen as the ability to react to a change, even a sudden shock or unforeseen event. That’s fine, but it’s not the type of agility you want to cultivate as a leader.

Before we get there, let’s start with a story.

Twenty-five years ago, Andy Grove, then CEO of Intel Corporation, published a management classic: Only the Paranoid Survive. In it, Grove argued that organizations thrive when they can see upcoming significant potential changes, what he called strategic inflection points, and exploit them to their advantage. His warning was that these inflection points were mainly shifts in in technology.

Grove described these technology changes as “deadly and turbulent rapids” on a river which awaited even the most experienced leaders, ready to tear apart their businesses. He warned that in the face of these “‘10x forces, you can lose control of your destiny.”

Conversely, if you can react quickly enough, “opportunity knocks when a technology break or other fundamental change comes your way.”

Grove writes about 10x forces from firsthand experience. In 1998, Intel Corporation launched the Celeron processor line in response to a huge market shift. At the time, Internet adoption was growing over 80% per year, and everyone was interested in getting on the Internet. That growing interest was driving huge demand for Personal Computers (PCs).

Intel grew rapidly—it’s revenue by nearly 25% in 1997. That might not sound like much, but for a semiconductor manufacturer, it was fast. But in 1998 growth slowed down due to increasing competition from low-cost processor manufacturers like AMD and Cyrix. These companies, with their lower-end products, were feeding the demand for budget-conscious buyers who just wanted a computer fast enough to get on the Internet.

At first, Intel scoffed at this emerging market segment for low-end PCs using inferior processors. They refused to compete with their flagship Pentium II processors in the space. They even had disparagingly named it the “Zero PC” market.

But as growth slowed further the company was forced to respond. The primary goal of the Celeron line was to provide a more affordable option for budget-conscious consumers and to compete with other low-cost processors in the market without cannibalizing their higher-end, high-margin Pentium II. That was a tough task, especially when using its PC manufacturers and distribution channels to sell these new, lower-cost computers.

The effort for Intel was monumental, akin to turning the battleship while still maintaining their current position as a premium processor company to the business and high-end consumer markets.

The company succeeded and eventually, the Celeron processor line became a key component of Intel's product strategy, demonstrating the company's ability to adapt to market demands and competitive pressures. Over the years, the Celeron brand continued to evolve, consistently providing a cost-effective option for consumers, and maintaining Intel's presence in the budget processor market.

It was a text-book example of agility in the face of changing markets that turned out positively for Intel. But the company’s actions leading up to the decision and execution of a new strategy were almost disastrous: not reading the underlying market trends, dismissing competitive actions, and allowing every bias in the book to guide their intransigence rather than understand and seize a new market opportunity.

It wasn’t until their backs were against the wall that the company acted.

That is not agility. And it won’t fly in today’s markets, which move faster than ever.

I previously noted academic, futurist, and entrepreneur Ray Kurzweil’s observationthat we are now in a period of accelerating change, perhaps even doubling the rate of progress every decade.

You can see it playing out currently: the combination of rapid technological innovation and accelerating customer adoption trends have created a world that is moving faster than ever. We are now building technology that helps us create new technology. Mega funded companies raising hundreds of millions or billions of dollars are moving much faster than ever before.

Things are moving too fast today for the hold out, hope for the best, and make a last-minute decision to alter course.

Flipping Andy Grove’s warning that only the paranoid survive on its head can give us a more optimistic approach. Sometimes an accelerating world is not just one that presents problems we need to foresee; it also frequently offers new opportunities that we need to see, test, and embrace.

When I wrote Transformative, I started with this premise: the greatest challenge organizations face is to develop the momentum to seek change, even when the need to change isn’t apparent.

With that in mind, it’s appropriate to talk about two different types of agility: proactive agility and reactive agility. These two approaches can be distinguished based on how an organization anticipates and responds to changes in its environment.

Proactive Agility is built on capabilities and skills that an organization can learn, and leaders incentivize. They include:

1. Trend Analysis and Bias Reduction: Identifying emerging trends and potential disruptions before they become apparent to others and ensuring they are appropriately evaluated.
2. Strategic Planning: Developing long-term plans that are flexible and adaptable to anticipated changes.
3. Innovation and Experimentation: Investing in research and development to create new products, services, or processes that can meet future demands.
4. Risk Management: Assessing potential risks and opportunities and preparing contingency plans.
5. Cultural Adaptability: Fostering a culture that embraces change and encourages continuous learning and improvement.

Reactive agility, on the other hand, involves responding swiftly and effectively to unexpected changes or challenges as they arise. These are less skills and more corporate systems for survival. They include:

1. Crisis Management: Quickly responding to address and resolve unforeseen issues or disruptions.
2. Operational Flexibility: Being able to adapt operations and processes rapidly in response to changes.
3. Resource Reallocation: Shifting resources, such as personnel, capital, and technology, to areas where they are most needed in response to immediate demands.
4. Decision-Making Speed: Empowering teams to make quick decisions without excessive bureaucratic delays.
5. Customer Responsiveness: Adapting to changes in customer needs and feedback in real-time.

Of course, every organization needs to rely on both proactive and reactive agility and balance the ability to invoke both. While proactive agility helps in preparing for the future and minimizing surprises, reactive agility ensures that the organization can handle immediate, unforeseen events effectively. Some effective ways to do this include integrating long-term strategic planning with short-term operational flexibility, creating more dynamic resource management, and encouraging continuous learning.
Developing a proactive agile capability builds on the previous capabilities of approaching innovation in an active way and drawing on the engagement of your team with the right motivations and incentives.
Proactive agility also requires enabling an introspective and questioning mindset, and reducing biases that are antithesis to innovation.
These are unique corporate innovation skills that require practice. So, as a leader, it’s vital to put them into regular circulation among your team, and next time we’ll review a model that leaders can follow.
I outlined this model in my book, Transformative, how organizations could become more proactively agile through a continual process of observing emerging trends and opportunities, understanding, and orienting to those observations, prioritizing the right set of action-based challenges to achieve. I described it as becoming a challenge-setting organization.
Creating a challenge-setting organization sets the tone and the pace for moving faster in the right direction and adapting when needed. Importantly, it sets the tone of self-evaluation that opens your team to identifying how to adjust to changes.
Regardless of what model you use, consider how you can create that proactive agility is a set of skills and processes that your organization can refine.  organization that:

1. Sets a regular cadence for Identifying emerging trends and opportunities. The importance of finding a regular period to discuss team-wide views on what’s happening in your world can’t be over-emphasized.
2. Opens opportunity for hypothesis Testing: Formulating hypotheses about market trends, customer preferences, or technological advancements and conducting experiments to validate or refute these hypotheses and creating an environment for existing assumptions to be questioned.
3. Encourages a Culture of Collaborative Risk Taking. Promoting a culture where action is outcome and calculated risk-taking and learning from failures are encouraged. In addition, encouraging collaboration across different departments to bring diverse perspectives into the experimentation process, leading to more holistic and innovative outcomes.
4. Sets opportunity and boundaries for experimentation. Experimentation is a crucial component of proactive agility, as it enables organizations to test assumptions, explore new ideas, and identify potential opportunities or risks before they fully manifest.
5. Improves clock speed. Improving clock speed—the pace and cadence of execution, and the ability to recognize the need for adaptation—is an essential component of proactivity.  

​Every company faces the imperative of reinvention. As market trends shift, threats emerge, and customer preferences evolve, the survival of organizations hinges on their ability to adapt and thrive amidst uncertainty.
Next time we’ll talk about how to adapt to the model for becoming challenge-setting organization and how you can use it to cultivate these essential skills for building a proactively agile organization.

Things to consider:

1. How effectively does your organization identify and analyze emerging trends and potential disruptions?
2. Are there systems or processes in place to reduce biases and encourage objective evaluation?
3. How well does your organization adapt to changes in customer needs and feedback in real-time, and how quickly can you respond to evolving customer preferences?
4. Does your organizational culture embrace change, continuous learning, and improvement, or is there resistance to new ideas and ways of doing things?
5. What skills does your organization currently have that support proactive agility, and how can you cultivate them?
6. What proactive agility skills or processes would most help your organization to acquire?

Until next time, lead with purpose.

Will

About Leading Matters:

Leading Matters is the trusted source for aspiring and seasoned leaders alike, providing them with the tools, insights, and inspiration to become intentional leaders that build more innovative, engaging, and agile organizations.

#innovation #transformation #founders #CEOs #culture #leadingmatters #reinvention #capabilities #agility

There is an employee metric that may be the single biggest indicator of a healthy, innovative organization—employee engagement.
Employee engagement a measurement of the level of emotional commitment, dedication, and involvement an employee has in their job and the organization. It is a measure of how motivated and passionate employees are about their work and how connected they feel to the company's mission, values, and goals.
As we spoke about in a previous post, engagement is key to maintaining an edge through future waves of change. In fact, it may be the single biggest contributor to your organization’s innovation success. Here’s why:
1.     Employee engagement is a Leading Indicator: While metrics like turnover and absenteeism are lagging indicators of problems, employee engagement is a leading indicator. Low engagement levels can signal future issues with retention, productivity, and customer service before they actually manifest themselves. One study found a 59% lower turnover rate in engaged employees compared to less engaged peers.
2.     It’s linked to performance: Numerous studies demonstrate a clear link between high employee engagement and better organizational performance metrics like productivity, profitability, customer loyalty, and safety records.
3.     It gives you a holistic view: Engagement captures the overall attitudes, emotions, and motivation levels of employees. Other metrics like turnover or training metrics provide a narrower view.
4.     It’s a measure of employee well-being: Engaged employees tend to experience higher well-being, better health, and a more positive work experience overall.
5.     Engagement = higher innovation. A mind-blowing data point: Research by IBM Smarter Workforce Institute revealed that engaged employees are over 300% more likely to provide a new product/service idea than disengaged employees.
6.     Engagement is profitable: Looking for an ROI? Gallup's meta-analysis found that highly engaged business units realized a 21% increase in profitability.
7.     Engagement = competitive advantage: An engaged workforce is viewed as a key competitive differentiator in today's talent marketplace. Companies with high engagement can attract and retain top talent more easily.
In fact, employee engagement is a clear differentiator between high-performance and low performance companies.
For most companies, employee engagement at a critical low and is possibly the biggest internal threat for organizations. According to Gallup, the average employee engagement is around 32%, down from 36% in previous years. For companies outside the United States, that rate drops to 23%.[1]
Think about that: as a “normal” company has less than 1/3rd of employees that are actively and meaningfully involved in their work.
Approaching the inverse, that means that at least two thirds of employees are emotionally checked out, putting in time but not energy or focus into their work. The result is lower productivity, higher absenteeism, poor customer service, and lack of innovation.
By contrast high performance, best practice companies score nearly twice the level of employee engagement, around 70%. Further, they have continued to maintain nearly that high level in recent years, despite dramatic changes to work environments.
So, the easiest way to become more productive, innovative, and profitable may be to improve engagement.
It should be noted, that aside from the high-level company benefits, there are clear benefits from and for employees of high engagement, including:
1.     Job Satisfaction: Employees who are engaged tend to feel a sense of fulfillment and satisfaction with their roles, responsibilities, and the work itself.
2.     Commitment: Engaged employees are committed to the organization's success and are willing to go the extra mile to contribute to its goals and objectives.
3.     Motivation: Engaged employees are intrinsically motivated to perform their best and take pride in their work, often going beyond what is expected of them.
4.     Advocacy: Engaged employees tend to speak positively about their employer and act as ambassadors for the organization, both internally and externally.
5.     Retention: High levels of employee engagement typically lead to lower turnover rates, as engaged employees are less likely to seek employment elsewhere.
6.     Productivity: Engaged employees are generally more productive, as they are focused, energized, and committed to delivering quality work.
These benefits should make it clear that engagement is an important factor in your company’s ability to innovate and execute.
So, what can you do to take advantage of all the benefits of employee engagement?
There are three places to start.
Measuring engagement
First, start measuring your employee engagement levels to provide a benchmark.
There are several methods and tools commonly used to measure employee engagement levels, including surveys, focus groups, qualitative interviews, and productivity and attrition metrics. For the sake of brevity, I am going to highlight just three:

1. Attrition and Turnover Rates. While these are lagging indicators, as we discussed, they can be a sign of a bigger problem of engagement. High turnover rates, especially among top performers, can be a sign of low engagement levels, and warrant further measurement and investigation.
   

1. Observation and Feedback. Solicit feedback, talk to people, create more open-door policies, create a suggestion box or anonymous electronic submission.
   

1. Employee Net Promoter Score (eNPS) One of my favorites, the eNPS is a simple tool adapted from the customer Net Promoter Score, measures how likely employees are to recommend their company as a great place to work. Just one simple question and a text box for feedback is an easy way to start.
   

Of course, the most effective involves using a combination of these methods to gain a comprehensive understanding of employee engagement across the organization. Once you find these measurements a regular part of our company health check, you can develop more sophisticated and granular method such as the Gallup Q12 question set.
One benefit of measuring is the Heisenberg effect: just by the act of observing and asking about engagement sends a message to your team that may positively impact their engagement.
The second key principle for improving employee engagement is to establish the right foundation.
I can’t emphasize enough the importance of laying the right foundation as the catalyst for engagement, improved culture, and strategy execution.
And that foundation generally includes a vision, a mission, a defined strategy, and clear individual responsibilities.
Your success as an organization is mainly dependent on your ability to pull together a team of individuals and align them to continually engage in the tactical and strategic actions that lead to differentiation. Your ability to do that in vastly improved by defining those foundational elements of the organization and individual’s work.
If you think your company doesn’t need a clear mission, vision, and defined strategy, consider this: according to a PWC survey, 93% of employees don’t understand their company’s director or strategy.[2]
Define them, make them clear, and clearly state them again and again.
The third, and last is actively encouraging engagement by inviting employees to participate and rewarding them properly.
Here are a few ways leaders can invite engagement:

• Provide motivation and inspiration: After sharing your mission, vision, and organizational goals and strategies, recognizing employee achievements towards achieving them.
  

• Train Management to Coach. According to Gallup testing, 70% of the variance in team engagement is determined solely by the manager. Two of the simplest things managers can do to increase job satisfaction and engagement is to be actively interested in the employee and ask them what help they need to accomplish their job. So, train managers in effective coaching of their employees.
  

·      Enable decision making. Leaders can foster a sense of ownership and enable employees to participate in making meaningful decisions.

• Create meaningful work: Positive leaders connect individual work to the broader organizational goals and enable and invite their co-workers to participate in meaningful work.
  

• Create a positive work environment: Leaders that promote a culture of respect, recognition, and appreciation achieve higher employee satisfaction and a decreased desire to leave.
  

·       Model risk tolerance. Supporting this, of course, is the development of a culture that is tolerant of risk and mistakes, providing the psychological safety and career safety to know that appropriate risks are encouraged.
Regarding risk tolerance, former Amazon CEO, Jeff Bezos was a master at delineating the concept of acceptable risks and decision making. He clearly encouraged his team to identify the type of decisions that were reversable and encouraged his team to take risks. Amazon had plenty of mistakes (Fire Phone, Ebay competitor) and learned from them. He enabled his teams to take risks which increased interest in participation and engagement.
Studies are clear on the impact of employee engagement on organizational innovation and demonstrate that it’s critical to getting the most from your team and motivating them to contribute.
Importantly, these steps are not just an attempt to boost engagement levels. They are an indication that employees have a voice, and the ability to express ideas and concerns freely, which motivates them to contribute. When employees feel heard, they're more likely to contribute their unique perspectives, leading to a broader range of ideas and breadth of innovation.
Things to consider:
1.     What are the best ways for us to measure employee engagement levels across our organization? How can we utilize methods such as surveys, focus groups, productivity metrics, and turnover rates to get a comprehensive view?
2.     Do we have a clear, well-articulated company vision, mission, and strategy that employees can connect their work to? How often do we reinforce this foundation?
3.     What steps are we taking to actively invite employee participation and input?
4.     What examples do we have of employees feeling empowered to make decisions and voice their ideas? How do we increase those?
5.     How effective are our managers at coaching employees, providing motivation, and recognizing achievements? Do we provide sufficient training on building an engaged team?
6.     Do we create an environment that promotes psychological safety for taking risks and learning from failures? Or does fear of mistakes stifle innovation?
Until next time, lead with purpose.
Will
About Leading Matters:
Leading Matters is the trusted source for aspiring and seasoned leaders alike, providing them with the tools, insights, and inspiration to become intentional leaders that build more innovative, engaging, and agile organizations.
#innovation #markets #transformation #founders #CEOs #culture #leadingmatters #reinvention #capabilities #engagement #employeeengagement

[1] https://www.gallup.com/394373/indicator-employee-engagement.aspx
[2] http://www.strategyand.pwc.com/ media/ le/Strategyand_Slide-Pack-Strategy-execution-survey.pdf

Previously we explored how companies can thrive in rapidly changing business environments and how even successful companies can become rigid and struggle with innovation.

We concluded that the key for any company aiming to survive is to build the right set of reinvention skills: innovation, engagement, and agility.

Today, we'll discuss how to approach innovation as a capability and how it can improve your capacity to innovate continuously.

Describing companies as "innovative" often refers to the outcome of their efforts at a specific point in time, rather than the process of how they got there.

Great companies, however, know how to continuously string together instances of great innovation and effectively take them to market. That is true innovation capability.

Innovation capabilities are a company's skills, processes, know-how, and unique ways of using assets and resources that provide a competitive advantage.

Shifting the focus from being innovative to building an innovation capability gives you the capacity for continually adapting to markets, creating new opportunities, and developing new solutions that lead to long-term success.

Without developing that capability, even the best ideas may never see the light of day. In fact, a survey by Innosight found that 81% of respondents believe that top management in their organization sometimes or often ignores new growth products and ideas.

Right from the start, eight out of ten ideas that your team comes up with are never even suggested because they believe that management won't listen. That's a failure to launch.

Leadership often tries to kickstart innovation by encouraging people to bring their ideas forward, running brainstorming sessions, and other initiatives to become more innovative.

However, if you truly want to be successful at innovating, you need to create a fertile environment for it. The most feasible and long-lasting approach is to treat innovation as a capability that can be built and maintained over the long run, creating an environment where innovation can thrive.

To understand how, let's examine how to build your innovative capability by looking at the skills, processes, know-how, and unique ways of using assets and resources.

Innovation skills are the abilities that allow individuals to contribute to the process of creating and implementing new ideas. Some you can foster include:

• Psychological safety: By creating a safe space for risk-taking and learning, leaders encourage employees to experiment and share ideas without fear of punishment. This is essential to creating a culture of innovation.
• Curiosity: A curious organization is characterized by a relentless pursuit of knowledge and a desire to understand the world around them. It's modeled by leaders who ask questions, seek new perspectives, and encourage a culture of continuous learning.
• Illumination: Illumination is a powerful skill. Illuminators possess the ability to shed light on complex issues and ideas. Illuminating leaders bring clarity to the team, making intricate concepts understandable and guiding others toward innovative solutions.
One of the best examples of a master illuminator was Steve Jobs. He was often unnecessarily cruel in the way he responded to others' ideas, but he loved to kick around problems and try out concepts with people.
Jobs once said, "When a good idea comes, part of my job is to move it around, just see what different people think, get people talking about it, argue with people about it, get ideas moving...get different people together to explore different aspects of it quietly, and, you know—just explore things."
• Self-critical and openly questioning: Self-criticism is an ability to openly examine what you're doing in a way that encourages new thinking and continuous improvement. This can extend to any part of the business.
• Objectivity and bias reduction: There is a skill to being objective. An objective innovation leader remains impartial and focused on the goals and vision of the organization, making decisions based on facts, data, and a clear understanding of the bigger picture, ensuring that the innovation efforts align with overall objectives. Importantly, they also help others reduce their natural biases.

Next, an innovation process is a structured framework that organizations use to generate, develop, and implement new ideas. Having the right process can weed out bad ideas and help others flourish.

The topic of creating the right innovation process is too long for this post. But key elements of the process include flexibility, collaboration, customer focus, experimentation, validation, and iteration.

Attributes of the process are as important as the process itself. Amazon's approach to developing a new product proposal is to have the product champion write an overview in the form of a press release as if they were announcing it to the public, extolling the new product's customer benefits in a one-and-a-half-page document. This is not a trivial exercise, as product leaders obsess over how to describe the benefits of their product or service in great detail.

Finally, when it comes to assets, resources, and know-how, your people, knowledge, and time are a company's most valuable innovation assets, even though they can't be listed on a balance sheet.

The right knowledge systems, ways of acquiring new knowledge, and the ability to build cross-functional teams are important for high-performance innovation.

Details are important. Former Amazon CEO Jeff Bezos had a rule for maximizing team effectiveness: no team should be so large that two pizzas can't feed the whole group. This is, of course, a shorthand method for ensuring that, as is often the case with big groups, no one can sit out or have their ideas get drowned out.

Just as important is taking a holistic view of innovation, which can lead to building innovation capabilities in any area of the company. Companies that understand the concept of building layers of innovation know how to look beyond technological innovation capabilities and define innovation in design, operations, go-to-market strategies, and business models that help build layers of advantage.

As you examine these skills, processes, and applications of assets and resources, think about ways you can create a safer, more innovation-seeking organization.

Every company faces the imperative of reinvention. As market trends shift, threats emerge, and customer preferences evolve, the survival of organizations hinges on their ability to adapt and thrive amidst uncertainty.
Innovation is not simply about having good ideas but about having the structure, culture, and processes in place to turn those ideas into reality. Approaching innovation as a capability can enable your organization to continuously develop and implement new ideas and processes.

Next week we’ll talk about the importance of engagement, which has reached a state of crisis in most organizations, and how organizations can build it.

Some things to consider:

1. How might shifting your perspective from innovation as an outcome to innovation as a capability impact your approach to innovation?
2. How does your company foster psychological safety for employees to take risks and share ideas without fear of punishment?
3. In what ways does your organization encourage curiosity and continuous learning among employees? How might leaders actively model and promote these behaviors?
4. Do company leaders possess the skill of illumination, guiding teams towards innovative solutions?
5. Reflecting on your organization's innovation process, how flexible and collaborative is it? Are there specific elements you believe could be enhanced to better support idea generation, development, and implementation?
6. Does your organization take a holistic view of innovation, considering various aspects beyond technological advancements? How might expanding the definition of innovation to include areas such as design, operations, and business models enhance overall innovation capabilities?

Until next time, lead with purpose.

Will

About Leading Matters:
​
Leading Matters is the trusted source for aspiring and seasoned leaders alike, providing them with the tools, insights, and inspiration to become intentional leaders that build more innovative, engaging, and agile organizations.
#innovation #markets #transformation #founders #CEOs #culture #leadingmatters #reinvention #capabilities

Building an organization that can survive changing market trends, emerging threats, and shifting customer demands takes a lot of effort.

But it’s an imperative for any company that wants to survive to build the right set of re-invention skills.
Leaders understand the imperative to reinvent. In its recent annual survey of CEOs, consulting giant PWC captured the angst of CEOs in one statistic:

45% of CEOs surveyed said they believe their company will not be viable in ten years if it stays on its current path.[1]

It’s safe to say that most companies have experienced more change in the last five years than they had in the previous five.  Nearly every organization has had to learn to adapt to new customer needs, adapt to digital transformation, and learn to operate in complex and hybrid work environments.

If that weren’t enough, they have also learned to build new levels of resiliency, simultaneously managing through massive societal change, shifting demographics, supply chain risks, and potentially catastrophic cybersecurity risks.

And yet, more change is required ahead just to remain viable.

We talk a lot about resilience but reinvention is really the corporate imperative.

The greatest impetus for reinvention comes from the acceleration of technology development. And it’s not just how much is changing, but how fast.

Academic, futurist, and entrepreneur Ray Kurzweil observed that we are in a period of accelerating change, stating:

“Today it’s an axiom that life is changing, and that technology is affecting the nature of society. But what’s not fully understood is that the pace of change is itself accelerating, and the last 20 years are not a good guide to the next 20 years. We’re doubling the paradigm shift rate, the rate of progress, every decade.”[2]

It’s an accurate description of our time, isn’t it?

Kurzweil said that 23 years ago…

And it’s true that we’ve seen an acceleration of change since then.

At the time, Kurzweil outlined what he called “the Singularity,” an era in which human intelligence and machine intelligence would merge to accelerate the development of new technology—essentially technology which helps us create technology. That would move us from a linear to an exponential growth rate, with a doubling in the rate of change every decade.

How can leadership stay up to the task of addressing that type of exponential change?

The most important way is to develop three core capabilities that are the heart of reinvention: Innovation, Engagement, and Agility.

Capabilities are the things that organizations do well and that deliver meaningful business results. They include skills, processes, know-how, and unique ways of using assets and resources which provide a competitive advantage.

Leaders know capabilities are important. A McKinsey corporate leadership survey found that 58% of respondents ranked building capabilities among their company’s top three priorities, and 90% placed it among their top ten.[3]

Yet not many companies put adequate effort into capability building them. Only 25% of company leaders rated themselves good at building capabilities at all.

Yet, here is the paradox: When your organization does become very good at building specific core capabilities, you actually become pretty bad at reinvention.

Researchers have noted this capability-rigidity paradox, a tension between an organization's need for both flexibility and incremental innovation and its tendency to become inflexible and resistant to change over time as it becomes good at what it does.

According to research, organizations develop routines, structures, and processes to efficiently operate and get better at what they do, they can inadvertently become less adaptable to changing environments.[4]

So, while capabilities enable success, they can also inhibit future success.

Take for example, Google’s exceptional search engine technology. It’s one of the company’s core capabilities, and they’ve spent over two decades perfecting it to provide users with fast and relevant search results.
So, when it came to launching AI solutions, despite already owning advancing AI technology, Google found themselves lagging to OpenAI and Microsoft.

Being a capabilities-driven organization is a key to success today, but the only way to survive in the long run is to complement them by enabling your organization with reinvention capabilities.

And those reinvention capabilities start with exceling at non-linear innovation, fostering employee engagement, and building organizational agility to anticipate and adapt to change.

Balancing these two aspects types of capabilities is crucial for sustained success in dynamic environments.
In my post next week, we will begin to break down each of these capabilities, starting with a breakdown of what it takes to be innovative.

Some things to consider:

1. Reflecting on your organization's current trajectory, do you believe it will remain viable in the next decade if it continues on its current path? Why or why not?
2. Considering the rapid pace of technological advancement, how is your organization adapting to stay ahead of emerging trends and market shifts?
3. What are the core capabilities that your organization excels at, and how do they contribute to its success? Are there any risks associated with over-reliance on these capabilities?
4. Reflect on instances where your organization may have struggled to innovate or reinvent itself in response to changing market conditions. What lessons were learned from these experiences?

Until next time, lead with purpose.

Will

About Leading Matters:

Leading Matters is the trusted source for aspiring and seasoned leaders alike, providing them with the tools, insights, and inspiration to become intentional leaders that build more innovative, engaging, and agile organizations.
​
#innovation #markets #transformation #founders #CEOs #culture #leadingmatters #reinvention #capabilities

[1] https://www.pwc.com/gx/en/issues/c-suite-insights/ceo-survey.html
[2] https://www.edge.org/conversation/ray_kurzweil-the-singularity
[3] “Building Organizational Capabilities: McKinsey Global Survey Results,” McKinsey and Company, March 2010.
[4] Resolving the Capability–Rigidity Paradox in New Product Innovation, American Marketing Journal, Oct 2005

Welcome to Leading Matters, a weekly newsletter that sits at the intersection of leadership, culture, and innovation.

I will cover topics including personal leadership, team development and engagement, culture, and technology innovation with one goal: to help readers create more innovative, engaging, and agile organizations.

As a venture capital investor, company builder, and author, I have seen a lot of startups. I’ve also seen many, if not most companies need to rethink their direction along the way.  
 
Now more than ever, organizations face trends that will force them to reinvent their organizations. 

According to a recent survey by PwC, CEOs feel the need to reinvent more than ever[i]. According to them, that is driven by:

• New technological advancements (56%)
• Significant changes to customer preferences (49%)
• New regulatory requirements (47%)
• Lower barriers to entry which increase competitive threats (36%)

 
A major influence on all of these are the numerous technological waves ahead: AI, quantum, biotechnology, the transition to clean energy, robotics, Web3, and autonomous technical development (the ability to harness technology to build technology).
 
The will all create new market opportunities as well as ways to innovate restructure industries.
 
To adapt, leaders need to rethink how to create more innovative organizations that can anticipate, create, and adapt to change. 
 
Leading Matters is dedicated to enabling a narrative around using intentional leadership and organizational culture to help leaders develop more innovative, engaging, and agile organizations.
 
In my experience, two things drive organizations to reinvent themselves: fear, and vision. My mission is to inspire and empower individuals at all levels to become transformative leaders, driving vision and positive change within their organizations and beyond.
 
Through insightful discussions, practical guidance, and a commitment to fostering more engaging and innovative environments, Leading Matters aims to catalyze the evolution of leadership for better organizations.
 
In the next few posts were going to cover topics to evaluate your leadership style, understand how to impact innovation, and help you evaluate and rebuild your organizational culture.
 
All of it in short posts that take 3-4 minutes to read, once per week.
 
I invite you to join me on a journey to explore the diverse facets of leadership that truly matter in the ever-evolving landscape of work and society by subscribing to Leading Matters.
 
Follow this link to subscribe to Leader Matters on Substack, or find Leading Matters at www.williamkilmer.com/leading-matters. 
 
Some things to consider:

1. Reflecting on the trends mentioned in the post, how do you perceive your organization's readiness to adapt to new technological advancements, changing customer preferences, regulatory shifts, and increased competitive threats?
2. Consider the technological waves mentioned (AI, quantum, biotechnology, etc.). How do you see these shaping your industry, and what opportunities and challenges do they present for your organization?
3. How does your current leadership style contribute to fostering innovation, engagement, and agility within your team or organization?
4. On the opposite side, what is one thing in your leadership style that might distract from fostering innovation, engagement, and agility within your team or organization?
   
   

Until next time, lead with purpose.

Will
 
PS If you have any suggestions on topics you’d like to see covered, drop me a note. I’d love to hear from you.

[i] https://www.pwc.com/gx/en/issues/c-suite-insights/ceo-survey.html

​Think for a moment about a successful company and what it is you admire about it. Like many, you might start by pointing to the company’s unique and awe-inspiring products or services. Or perhaps you identified an incredibly charismatic leader who has driven the company forward to success.

When you dig a little deeper, you will likely point out what the organization does well.

Take Apple, for example.

We might say that we like the way they design products, their attention to detail, how well they integrate hardware and software to simplify how to use it, their incredible brand image, or how everything just comes together for a fluid customer experience.

These things companies excel at are what enables them to be great companies.

They are called capabilities.

McKinsey defines capabilities as “anything an organization does well that drives meaningful business results.”1 This includes their skills, processes, know-how, and unique ways of using assets and resources they have developed.

Too often I find that most companies, especially startups focus on product, not capabilities, as their source advantage.

You can win with a better product in the short-run. But product-based advantage is fleeting.

Capabilities are where companies build lasting advantage.

To find your capabilities, think about the skills, processes, know-how, and unique ways of using assets and resources that will most likely help you be successful now, and in the future.

They can come from many areas: Marketing, leadership, operational, logistics, go-to-market, ecosystem development, customer intimacy, data-analytics, and many more.

Then, ask yourself, can you make that capability strategic?

To do that ask three questions:

1. Does it drive value? Capabilities are strategic when they directly contribute to the basis of competition, improve the buying criteria for the customer, or provide distinct value.

2. Can you be industry-leading? Because capabilities are tied to the basis of competition and are driving value, the company must be able to uniquely and sustainably lead the industry in that capability.

3. Is it difficult to copy? On its own, the capability should be difficult to copy, replicate, or substitute in the long run.

Leaders who think in terms of building capabilities and invest in them create multiple value creation opportunities and long-term advantage for their organization.

As an exercise, sit down with your team and discuss what can make you unique and continue to compete and identify the capabilities that you can make successful no matter what future solutions you provide.

You can learn more about building capabilities models in my book Transformative, available everywhere.

#startups #leadership #future #success #opportunities #data #capabilities #transformative

Over the last few weeks I’ve spent a lot of time talking to about a dozen startups and quite a few VC investors. And top of mind for everyone is the real state of the economy and how it will affect startups and venture investment.

Startup founders are particularly interested in how a potential economic downturn it will effect their next funding round and whether the market will slow down.

It absolutely will slow down funding. In fact, no matter how the economy does, venture funding at all stages will be impacted.

In fact, it’s important for founders and startups leaders to understand that even the best case scenario for venture capital is a bad scenario for startups for at least the next 6-18 months. And early stage companies need to understand it. 

The reasons go beyond the problems with high valuations and over commitment to startups in the last few years. That is a separate set of problems that venture firms, especially series B and later investors, will have to deal with. And while those companies may be able to grow into their previous valuations, they should have a plan to get to default alive to keep their options open.

That means we will see more down rounds in the future than the currently, which is at around 5% of all rounds.

The reasons for it go beyond a bad economy. In fact, we need to keep in mind that while growth is slowing, we may not enter a recession and in fact, the US Federal Reserve may take action to get us to a soft landing…maybe.

Independent of this we there will be a tightening of investments by VC firms that means more difficult times for startups to fundraise. The reasons are simple.

First, even the best VCs that have capital to deploy and are not attending to an overpriced portfolio are dramatically slowing down their investment pace. There are several reasons why that’s the case.

For one, there is less competition from VCs that have deployed too much capital at high prices in the last few years and that are in trouble. So, they can take their time to look at deals, and they will. They will get back to their previous pace of investigating deals, issuing term sheets, and doing more due diligence.

In addition, they are in a wait and see mode. You see, while multiples have dropped and every VC sees valuations that are more attractive compared to where they were in the last three years, no one is sure that we’ve reached the bottom yet. And there is little downside to waiting.

Beyond that, there will also be pressure from VC limited partners to slow capital down draw downs (LPs giving money they’ve already committed to provide) by VCs to invest. Some of this comes from the lure of higher interest rates that incentivize LPs to invest in higher returns elsewhere. Those rates also mean that LPs are less likely to commit to new funds. But it also makes LPs hesitant to deploy committed capital being called down from existing funds so they can use those funds elsewhere.

Add to this that while there has been a big drop in public market stocks this year, private market portfolios have been slower to devalue. With public stocks down 60% or more limited partner portfolios have shrunk overall. But their private market VC investments haven’t.  In the words one limited partner, “my denominator got a lot smaller, but my venture numerator hasn’t.”  For these limited partners, especially institutions, they suddenly have a much higher allocation of their fund in alternative assets such as venture without any actual increase in investments.

These two factors are leading limited partners to tell their venture general partnerships to slow things down a bit. 

Other factors will weigh in on the slowdown as well. For example, many VCs will reserve more funds for the investments they’ve already made by limiting new investments. 

As a result we are seeing many notable VCs, including Sequoia, and Y Combinator issuing warnings to their portfolio companies to change their expectations and extend their runway.

So how do we get out of this? It doesn’t take much imagination to figure out how things will reverse themselves and startup funding evens out:

1. M&A markets will need to remain relatively strong. A robust M&A market will help, allowing VCs to return capital to their investors. The data from Q1 shows that deal count, total deal value, and valuations were down, but there are currently a lot of buyers in the market, especially PE funds who are sensing a bargain. This will help VCs to lighten up their portfolios, distribute capital to investors, and free up capital to draw down and LPs to invest in funds again.
2. Public market companies will play a role here. If corporate earnings stay strong, or at lease higher than expectations, more money will flow back into the public markets, raising multiples and boosting M&A outcomes.
3. Finally, a soft landing will be achieved if the Fed and others can successfully slow down inflation without having to continually hike interest rates. Slowing interest rate hikes will not only make venture more attractive again, it will free up borrowing for large companies as well which can buoy up growth.

There are a lot of “If’s” to bring things back again. And when they do they won’t go back to the normal of the last ten years, so companies need to change their approach away from growth at all costs and focus on building enduring businesses as Sequoia encourages. Until then, it’s important for startups to recognize that even if the outlook for the economy improves, it will be a tough fundraising environment for some time. 

William Kilmer is a venture capital investor, founder, and innovation strategist. He was formerly the CEO of two companies and was the managing director of Intel Capital Europe. He is the author of the upcoming book, Transformative: Build a Game-Changing Strategy, Retool Your Organization, and Innovate to Win which is available for pre-order in Summer 2022. For more information, visit Williamkilmer.com  

#startups #funding #venturecapital #VC #economy

What are the two or three most important things your organization is currently working on that will make your organization successful?

How would the rest of your company fare at answering that question?

This is the third article in a series I am writing on setting an effective strategy for your organization. I began the series with research showing that 95% of employees are unaware of, or do not understand, their company’s strategy. It’s a staggering number. And if your team doesn’t understand the strategy, you can be assured they aren’t focused on the right priorities to ensure its success.

In the first post I discussed the importance of creating a company worldview to establish the “Why now?” behind your company and strategy that brings your team along. In the second post I explained how to define strategic goals and where you will play. Refer to them first because in this post we’ll discuss how to work on the core of your strategy: defining the strategic initiatives you need to do to accomplish the strategic objectives you set.

I previously defined strategy as the way an organization aligns potentially unlimited aspirations with necessarily limited capabilities to create the best possible aspirational outcome. With your strategic goals in mind, you are going to work towards those creating a limited number of strategic initiatives that will become your “How we win” strategy.

I started using the “how we win” approach to strategy early in my career at Intel Corporation. Our focus on strategic planning at every level focused on distilling our actionable strategy down to a handful of things we needed to do very well to win. We called it “How we win.”

Though he had already retired during my time, our approach adhered to the philosophy of former CEO Andy Grove who once said, “The art of management lies in the capacity to select from the many activities of seemingly comparable significance the one or two or three that provide leverage well beyond the others and concentrate on them.”

It’s a simple concept, but the easiest way to develop a clear strategy is to decide what few things you need to focus on to get to achieve your defined strategic objectives.

While it may be more than two or three, it shouldn’t be more than five key strategic initiatives that you are going to emphasize to be effective. Remember, these initiatives are not a task list, they are what you will excel at doing in a way that creates a clear and distinct advantage for you, creates value, and provides you with the leverage you need to win with the resources you have. Their leverage makes them force multipliers that will increase your odds of success.

The great mathematician Archimedes asserted, “Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.” The strategic initiatives you select need to create leverage beyond your aggregate capabilities, especially if you are a startup.

These strategic initiatives can come from a variety of areas. If you think about your organization as a collection of the following possible levers, those can include your:

• Assets and resources
• Capabilities
• Processes, workflows, and operations
• Collective expertise
• Team
• Customers
• Partnerships and networks
• Platforms and products
• Brand, positioning, marketing
• Sales and go-to-market motions

Can you improve on any of these to help you reach your strategic objectives? Your options may be to create a certain expertise, build a platform, hire a specific team, or start a unique sales motion.

In considering options for strategic initiatives you may benefit from referring to the seven strategy statics outlined in Hamilton Helmer’s book 7 Powers which explores ways organizations find enduring sources of value.

Getting to “How we win.” is a team resolution of what you need to focus on, from infinite options, to win. It also involves deciding what you are not going to do. Remember that strategy is about making choices, including those things you won’t do. From the small number of initiatives you create you will later develop the tactical actions you need to take that will drive your focus to reach your strategic goals.

But, staying with your initiatives, how to you get to consensus on what those strategic priorities are? And just as importantly, how do you stop putting so much effort into those things that aren’t helping you?

Assuming that you are not a large corporation with an office of strategy development, it’s incumbent on you to bring your team together to develop your strategic initiatives. And while it’s tempting to create a set of top-down initiatives, you will benefit most by creating process that is broad enough to examine all options and incorporates both bottoms-up input and executive decision making.

I have an exercise that will help you do just that.

Making Strategic Choices: MOPS

The single most effective tool that I have used to determine strategic choices is a MOPS analysis. It’s unlikely that you’ve heard of it because it’s my own creation which I’ve used with dozens of companies. MOPS is a mnemonic for a review exercise that will determine company actions and choices. It stands for:

More or Move faster: What are the things you are doing today that you should double down on (more) or move faster in doing?
Opportunities we are missing: What opportunities are you missing to improve your strategic position? This type of opportunity is different from the market opportunity derived from a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis—it focuses on creating new initiatives and actions that you are not pursuing.
Problems to solve: Identifies what is holding your organization back. Where are you failing or what you should improve?
Stop doing: What are you doing today that you should stop or minimize?
Importantly, MOPS a proven technique that will enable you to build a set of strategic initiatives you can agree on as a team. It will also encourage your leadership team bring the best input from their team members and involve them in the process in a way that increases their engagement. Importantly, the output of MOPS is more extensive than just finding your strategic initiatives, and will discuss using the full extent of that output later in this post.

Team Exercise to Create Strategic Initiatives

A MOPS analysis exercise uses a similar progressive review, present, refine process that I recommended for creating your worldview. I find this a popular exercise because it encourages team input as well as group discussion to get to a final result. It also adds an element of deeper team interaction that engages a larger part of your team and seeks their input in a way that will improve the quality of options and get their buy-in.

Start by explaining the exercise to your leadership team and giving them an objective to report back with their own individual MOPS analysis that represents on presentation day. That analysis should include their own input into the four MOPS areas, as well as the feedback they receive from their team.

Each individual member of your leadership team should meet with their own team beforehand to cultivate input for the presentation. With the objective in mind of creating three to five strategic initiatives that support the strategic goals (which they would share), they should seek input on the following questions:

What is the company already doing that we should do more of or move faster?
What are opportunities we should be pursuing that we are not currently to improve our advantages or strategic advantage?
What problems or obstacles do we currently have that need to be resolved?
What are we currently doing that we should stop in order to better focus our efforts or improve our ability to achieve our strategic objectives?
After your team have had sufficient time to roll up and create their own individual MOPS analysis, plan a half day review session with an objective to bring together your leadership team to present their input.

Start the session by breaking your team up into two- or three- person teams. The teams should meet together and have each person to present and vet MOPS analysis within that team. As each team member should present their list to the other team members they should then discuss and consolidate their inputs into a single presentation that represents their best collective ideas as a team.

The second part of the session should involve bringing the teams together then present their team input to the larger group for discussion, focusing on taking away the highest priorities. Continue that process until you have combined all team presentations into one set of MOPS recommendations for the entire team. Similar ideas can often be aggregated into a broader categories as part of the process.

It’s worth emphasizing that this should not be a comprehensive list of every idea for each category. The process should focus on creating a refined list of the highest priorities for each of the MOPS categories, arriving at no more than eight to ten potential actions in each.

From this list the leadership team should identify the top three to five strategic initiatives that you will focus on to reach your strategic objectives. This is your set of “How we win” strategic initiatives. Most of your initiatives will come from the More, Opportunities, and Problems categories.

As you’ve certainly noted already, the MOPS analysis is more comprehensive than just a set of potential actions to take. Through the process you have also uncovered problems to solve and things to stop doing that won’t be strategic initiatives. Importantly, you have found them through a bottoms-up process that gives voice to your team about problems and non-priorities. You can use this to solve impediments and identify where to reduce your efforts or stop doing things that don’t matter.

With three to five strategic initiatives defined from your MOPS analysis, you have developed the high-level strategy for your organization. The next move is identifying the actions needed to complete them. This is the topic of the next post, which will focus on defining and creating actions.

The good news is that most of the actions you will take have likely already been uncovered in the details of your MOPS analysis. In the next post we’ll discuss how to identify those specific actions and put clear objectives and time to completion around them in a way that will engage your team. We will also cover how to increase the tempo of achieving those actions and how to improve your organizations overall execution clockspeed.

When done as an annual process, the MOPS analysis is a great way to identify your most important strategic initiatives and actions you need to take and, importantly, will create a sense of ownership and engagement across your organization.

Feel free to drop me a message if you have any questions or comments.

The key to developing an effective strategy lies in your ability to set a goal and then make logical choices which give you the best possibility of reaching your goal. Sounds easy, right?

 I’ve long advocated that we make strategy far more complicated than it needs to be. There is a simpler and far more effective path that this article will outline.

Strategy is about making choices. This article discusses two choices that are more critical than all others and that form the foundation of a good strategy. If you haven’t made them, your chances of making the right choices down the line are significantly reduced.

 Before moving on, this is the second of four articles I am posting on how to create an effective strategy. The first article focused on how to set your worldview which explains the “Why now?” behind your strategy and builds the context for making the decisions in this post. If you haven’t read it, I’d recommend you start there.

 Let’s start with an inconvenient truth: most organizations don’t actually have a strategy. What they often have is a proxy statement they use as strategy. Some examples might sound familiar, such as “Our strategy is to be:

1.   the best provider of X products or services.”

2.   the leader in X market.”

3.   the dominant provider of X.”

These are all aspirations. They may or may not be good, but they’re not strategies.

Unfortunately, companies that develop a strategy may not be much better off than those that don’t. The authors of the book Profit From the Core found that while 90% of large enterprises they studied had comprehensive and detailed strategies, seven out of eight actually failed to achieve profitable growth.

You might be wondering, “If large enterprises can’t create an effective strategy, why should I even attempt it?” I can guarantee you that the right strategy will propel your organization forward.

Let’s start first with a definition of strategy. Borrowing from military historian John Lewis Gaddis, strategy is the way an organization aligns “potentially unlimited aspirations with necessarily limited capabilities” to create the best outcome possible. That is the key to strategy—to make choices that focus your aspirations on something achievable (a goal) and then build and align the resources, capabilities, and actions to reach that goal.

In this article we focus on the two choices that will help you define your aspiration and that will lead you to making the right choices of how to use your resources, a topic for the next post.

Defining Your Strategic Objective

Defining one or more strategic objectives is the very foundation of an effective strategy. As the rabbit said in Alice in Wonderland, “If you don’t know where you’re going, any road will take you there.”

The simplest way to answer define it is to ask, “What does winning look like to us?”

This is the stage where leaders tend to lean into a product category, aspiring to be the dominant provider of one product or another. There are a few issues with that approach. First, it’s not inspiring to most people. Second, it also locks you into a product, not an opportunity. Third, it’s subjective. What does dominant mean?

The right strategic objectives should be:

1.   Aspirational. At this stage it should be a stretch and somewhat lofty.

2.   Centered on the customer. This is what inspires your team.

3.   Objective. Know with certainty that you’ve reached your objective. Revenue is my preferred quantitative objective—it’s simple. You can add others that indicate winning to your organization.

4.   Time bound. This defines your sense of urgency and tempo. An annual delimitation has advantages, but you can pick something further out.

 These objectives should flow naturally from your worldview (see previous post) which will define the context for your customer and help identify opportunities for your organization.

A strategic objective that defines winning can look as simple as something like this, taken and modified from a company I have worked with.

 Our strategic objective:

Our goal is to become a $20M revenue company in 2022 by meaningfully helping customers to identify, manage, and mitigate their digital risk. 

You might question why I include revenue as a strategic objective. You are defining what winning looks like; the point is to create objectivity: you should be able to state with certainty if you achieved it or not. I advocate revenue is a powerful and objective, especially for startups.

This strategic objective, your definition of winning, which naturally lead you to the question, “How will we do it?” But first, it’s important to define your unique position in the market—where you will choose to play.

Defining Where You Will Play

Next comes a critical decision: where you will play? It’s one of the most critical decisions to make, and one that few companies are willing to consider.

The considerations for where to play can include focusing on a specific market, customer, geography, channel, product position, product category, and even use case. Your decision of where you will play should come from your understanding of the market the best possible playing fields. The trends, shifts, and opportunities you defined from setting your worldview should guide you to the best plays available.

Where you will play matters because it can create open opportunities that you can consistently win. Redbox created a nearly $2 billion business for video rentals with a unique “where to play” strategy built on convenience of time and location. 

Defining where to play doesn’t limit your opportunity, instead it solidifies your opportunity by defining the playing field that you know you can win. Too often startups especially try to be all things to all customers. Their customers are spread across geographies, industries, and use cases, creating steep learning curves and dragging their ability to consistently win.

 Recently I met with the senior leadership who resisted this notion of where to play. To illustrate the importance of this concept we spent time talking through each of their competitors, their products, go-to-market, and what customers they were targeting. By the end of the exercise they realized that all their competitors had carved out a “where to play” position for themselves and concluded that they needed to do the same.

Where to play strategies do not lock you into a niche. They give you a playing field where you will build unique capabilities and strengths to win consistently and grow your business, expanding your playing field or moving to others.

Together, your choice of strategic objectives and definition of where you will play will lead you to the core, actionable decisions of your strategy: “How will we win?”

In the next post we will talk about how to lead your team to create actionable strategic plays that will focus your organization on key priorities you need to win. I’ll also introduce one of the best and most insightful exercises that will help your team agree on what to do, and importantly, what to stop doing, to be successful.

William Kilmer is a managing partner at C5 Capital, former CEO and managing director at Intel Capital. He is the author of the upcoming book, Transformative: Build a Game-Changing Strategy, Retool Your Organization, and Innovate to Win. For more information, visit Williamkilmer.com