10th Global Peter Drucker Forum

Innovation: shifting the balance of power
by Marc Wagner

Few topics currently arouse such intensive discussion as the innovative capacity of German companies. It seems that likely nations such as the US, and China in particular, will overtake us when it comes to developing new (digital) business models that can be scaled globally and use network effects to generate extraordinary growth figures and valuations at speed. While China is producing powerhouses in companies such as Haier or Alibaba, has Germany lost the “entrepreneurial gene”? To find out, together with TU Munich we carried out a joint study looking at the innovation culture of German corporations and the challenges it faces. Here are some of the main findings, presented here as a stimulus to further discussion.

Striving for perfection

“Whom the god wish to destroy they send 30 years of success”. Supposedly from Aristotle, this quotation well sums up the position in which many companies currently find themselves. As demonstrated by Clayton Christensen in the “Innovators’ Dilemma”, what brought success in the past cannot be relied on in the future. This is not a new finding, but the rate of change is increasing so fast that the leisurely adaptation processes of the past are no longer adequate. It is not without reason that the label “Made in Germany” was held up as THE sign of quality, and for many German corporate leaders, “the pursuit of perfection” is still the top priority. But this often goes hand in hand with unwillingness to take risks, experiment and especially, execute decisively – all necessary qualities for the entrepreneur. Basically, we can say that the socialization of the German management team has in the past taken place more through formal processes, business cases, comprehensive controlling and reporting as well as the increasing sweating out of redundancies and possible “efficiency killers”, than through an entrepreneurial spirit.

“Ideas are cheap – implementation matters”

A question that comes up again and again is whether it make sense to create dedicated units to develop (innovative) ideas which are then handed over to “the rest of the company”. Based on the model of think tanks or ideas labs, staffed by hip, young, internationally-trained employees, they can be effective for developing disruptive ideas and business approaches. However, handover to the business units is problematic for several reasons. My observation is that the labs are often viewed with suspicion by the rest of the organization, and particularly by managers charged with implementing the ideas dreamed up in the labs – the well-known “not invented here” syndrome.

Our experience shows that implementation should be part of the end-to-end responsibility of the idea’s creator, avoiding the common situation where he or she is fobbed off with a bonus and hands over implementation to a business unit. Ask yourself: who at the end of the day burns most for the successful conversion of an idea? After all, it is a clever, timely and market-driven implementation that provides differentiation from the competition – not the idea in itself.

Ambidexterity: the Holy Grail?

The term “ambidexterity” is often represented as a Holy Grail. The opposite of the idea that radical innovations can only take place in independent units, an ambidextrous strategy attempts to combine “exploitation” (incremental further development of the core business with a focus on efficiency) with “exploration” (or radical innovation) under one roof. “Lead and Disrupt” describes some very successful examples of an ambidextrous strategy. What these examples have in common is a very strong leadership team that partakes of both worlds authentically. If qualities such as “striving for efficiency and perfection” as well as “creativity, inspiration, pragmatism and entrepreneurship” are all reflected in top management, ambidexterity can be a real model of success.

Company ReBuilding … “gentle transformation” towards an “dynamic robust” organization

What we call “Company ReBuilding” provides another route to the operationalization of ambidexterity. Here the aim is not comprehensive corporate transformation: rather, disruptive innovations (“exploration”) are drawn out of the company’s existing skills and technology base using cell structures. The stem cell is a nucleus team which concretizes and develops the business model along classic “lean-start-up” lines. It is crucial that the newly created units are given end-to-end responsibility for execution and that the criteria of “transformational products” are consistently applied. As with Haier or Gore, the Company ReBuilding approach deliberately limits unit size to minimize overhead and ensure agility; value creation then takes place through a network of organic cells, customers and partners, enabling both flexible reaction to market changes and high innovation rates. The resulting ecosystem follows a New Work Blueprint establishing rules of cooperation and a common set of values for an innovation-promoting corporate culture. The “source company” does not stand still. Here, too, the organization and especially the collaboration between leaders, employees, partners und clients is optimized through the introduction of New Work instruments (Compare: https://www.linkedin.com/pulse/shattering-old-world-power-company-rebuilding-marc-wagner/ )

Capital markets as innovation killer

“Listed industrial companies are usually very strongly KPI-driven. When you have business responsibility, there is no culture of rewarding risk”. This original quote is in line with my observation that companies lose their long-term focus as soon as they are listed on the capital market – a major obstacle to long-term courageous behaviour as well as to experiments and “imperfect” solutions, which are the basis for “real” innovations. Anything that does not provide a “positive business case” in the short term loses relevance or is de-prioritized.

Conclusion

We can be efficient, but not innovative,” was the conclusion of Thomas Sattelberger, one of Germany’s most experienced international managers, when we discussed German innovation culture a while ago. It is a sobering judgement. Creativity is seen as one of the key future capabilities, in contrast to machines, and it is a given that we can only remain competitive by maintaining high rates of innovation.

Yet our study gives hope, providing examples of a number of highly innovative German companies. Ultimately, despite all the “Silicon Valley” hype, we should remember our roots as the country of “poets and thinkers” and outstanding types of entrepreneurs such as Robert Bosch. This is an important strength on which we can draw when it comes to creating an innovative environment. And the Company ReBuilding approach offers a way out of the innovation dilemma by becoming ambidextrous. The opportunity is there for the taking.

About the author:

Marc Wagner, Practice Leader Company ReBuilding, New Work & HR Influencer 2018

This article is one in a series related to the 10th Global Peter Drucker Forum, with the theme management. the human dimension, taking place on November 29 & 30, 2018 in Vienna, Austria #GPDF18

This article first appeared on Linkedin.

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