Ideas falling between the cracks

Big companies find it hard to spot innovative ideas -- but with some work they can do it

Welcome readers old and new. This is one of Thomas Hollands’ notes in his search for ideas which are surprisingly general, or generally surprising. The first issue explains the project, and you can find all past issues here.

Something new this week.

This is an extra-special sneak peak of two essays I’ve been writing with the Yak Collective on innovation inside big organisations.

If you’ve ever wondered why your boss won’t support your team’s obviously great idea, it might be because he’s suffering from a lack of context. This essay is for you — and maybe for your teammates too.


The Problem: Great Ideas That Can’t Be Seen

Written in collaboration with Greg Docter.

A big corporation’s leaders can’t back innovative ideas—because they can’t even spot them. They lack the context needed to assess the value of ideas arising from the organisation’s diverse subunits.

An innovative idea is both new and useful. To evaluate whether an idea is new, you need to understand the related ideas that currently exist. To evaluate whether an idea is useful, you need to understand the problems that the idea is trying to solve. These evaluations require granular understanding of the context that generates the idea, and of the context in which it will be deployed. 

In a small company of only 20 employees, everyone has a similar frame of reference. Each employee shares the same assumptions about what works, what doesn’t, and why. These assumptions form their context—the knowledge they take for granted that makes their team click. 

In contrast, a big company inevitably has a diverse structure of many units, each specialised by function or region. Each unit faces different challenges and so develops unique ways of working. Employees work mostly with colleagues in their own unit, and have limited connection to people from other units. As a result, knowledge about what works and what doesn’t differs widely between units. Each unit has its own unique context. 

The larger an organisation grows, the harder it is for any one employee to experience contexts outside their own unit. Since an employee can only understand the context of a few units, the more units in the organisation, the more isolated an employee is from the context in which ideas are generated or deployed. 

Leaders have the same problem—their ability to contextualise an ideas’ novelty and its usefulness is limited by the scope of their experience. This is especially troublesome as these leaders decide which ideas to back, and the amount of resources to allocate to those ideas. Without first-hand experience of a given unit or function, leaders lack the context necessary to identify whether ideas emerging from the organisation’s diverse units are new and/or useful.

Innovative ideas lie buried within diverse organisational contexts, like diamonds in the rough. But lacking first-hand experience needed to appraise these ideas, leaders cannot tell a diamond from a dud.

Big corporations can’t back innovative ideas, because their leaders don’t have the knowledge and tools to evaluate them.

Overlooking contextual innovation at a multinational agribusiness 

To understand how the leaders of a large corporation fail to spot and support innovative ideas originating from its subunits, let’s consider the case of a multinational agribusiness—we’ll call it company X. 

X sells a variety of pesticides, herbicides and fertilisers to farmers across the globe. X’s business units are organised by geographic region, each with planning and reporting cycles decoupled from the group financial budget. 

The production planning process was causing X major problems. 

Sales forecasts were set by leaders at HQ and failed to take into account the day-to-day realities of regional units. As a result, these estimates consistently overestimated sales, leading to excess inventory and costly write-offs at the end of the season. 

My small team at global headquarters was tasked with coming up with a better process.

Because X operates on six continents, my team at global HQ made great effort to gain the context necessary to understand these regional processes. We started by understanding the context of the LATAM sales and procurement teams in particular, and learned that these teams understood this problem fully already. They had already developed innovative processes organised around local plant capacity and customer demands to improve their forecasting. This planning process was based on new, responsive lines of communication across functional teams, leading to better sales visibility and fewer write-offs. We heard similar ideas from other regional offices. Regions were solving these problems and deploying innovative solutions, but global HQ didn’t know that they existed.

After speaking with every regional team, a company-wide solution became clear. We could align these separate processes into one consolidated group budget based on local demand planning, instead of top-down sales forecasts.

To the LATAM teams, the benefits of this plan were obvious. The new demand-driven process would give both the regional subunits and X’s leadership better visibility on its production and costs, while simultaneously reducing inventory. 

The leaders at HQ didn’t see it this way. Without putting in the time to gain first-hand knowledge of the regional units’ perspectives, they lacked the context necessary to understand why and how the LATAM team’s innovation could solve the global problem. 

Despite my team’s best efforts, we struggled to communicate the experiential learning we gained through weeks of work with the regional units. HQ couldn’t understand why regions were obstinate about some suggestions yet enthusiastic about others.

While they wanted to solve the problem, they only considered solutions that fit their current assumptions about what worked, what didn’t, and why. These assumptions made LATAM’s innovation seem like a waste of time. 

In the end, X’s leadership dismissed proposals from the regions. They implemented small tweaks to the status quo rather than the systemic change that was needed. Lacking the context to understand regional perspectives, it made perfect sense that leadership couldn’t spot the value of their ideas. 

Unless real efforts are made to create shared context across organisational units, companies like X will spend far more time dismissing novel ideas than they will delivering value through innovation.

The Solution: The Innovator’s Anti-veto

How can decision makers in big corporations avoid or solve the problem of lacking the context needed to assess the innovativeness of ideas?

Leadership can adopt an anti-veto decision rule. Members who understand the relevant context of an idea can champion it, while the rest of the group must “disagree and commit”.

Decision makers are paid the big bucks to allocate capital — and ideally they place innovative bets that pay off. In order to tell whether an idea is new and useful (and hence innovative), they need to put in the hours to understand that idea within its context. Only then can they accurately gauge its potential, and allocate company resources effectively.

Companies allocate resources in different ways. Some companies have a democratic process, where the winning idea must be voted through by a majority. Others have an autocratic process, where the CEO or most senior member of the team decides by fiat. The process a company uses to choose which ideas to back and which ones to bin is called their decision rule.

The number of decision makers needed to evaluate the innovativeness of ideas — and hence understand their context — depends on the decision rule the company uses. Some decision rules are more innovative than others.

A democratic process rarely chooses innovative ideas, because a majority of the leadership team rarely shares the context required to spot an idea which is truly innovative. It can maintain steady, incremental change, but cannot accommodate disagreement, necessary for the discontinuous change that true innovation provides.

An autocratic process can sometimes choose innovative ideas, as long as the CEO has the relevant context. But since big companies are composed of many diverse subunits, each with their own distinct contexts, the CEO cannot understand more than a few of them. The majority of innovative ideas are also missed by an autocratic decision rule.

In a diverse leadership team, members have access to many different contexts across the company. But, since they've had different experiences, the individual members share relatively few of them. A decision rule which favours innovation will overweight the views of team members who understand an idea's particular context, and underweight the views of team members who lack the context, and thus cannot tell whether the idea is innovative.

If we change the decision rule, we change the "critical mass" of people with the relevant context needed to spot a truly innovative idea.

One innovative decision rule is the anti-veto. A veto allows any member of a group to reject a proposal. It is a conservative rule. An anti-veto allows any member of a group to automatically fast-track a proposal. It is a progressive decision rule.

You can reduce the problem of decision makers lacking context to assess the innovativeness of ideas by creating a leadership team of diverse perspectives, where each member is allowed one anti-veto per planning cycle.

There only needs to be one member of the team who understands the context of a given idea. If you sell her on the idea, she can champion it going forward, superseding the other team members. Instead of disagreeing and rejecting ideas, the team can disagree and commit to the idea.

The anti-veto has access to the same diversity of contexts as the democratic process, with the same certainty of choice as the autocratic process.

Legacy decision rules like democratic and autocratic processes are conservative. They either select for ideas which everyone agrees on, which are unlikely to be truly novel, and hence innovative. Or, they mould the company in entirely the CEOs image, letting a multitude of innovative ideas slip through the cracks.

The anti-veto is progressive. It harnesses the uncapped upside of true innovation and vastly limits the context a leadership team needs to assess the innovativeness of a given idea.

If you have any thoughts or ideas about innovation in big organisations in general, or these essays in particular, I would love to hear from you.

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