by Michael Schrage | 3:59 PM March 24, 2010
Better to seek forgiveness than to ask permission.
That’s been the rallying cry of organizational intrapreneurs and innovators even before In Search of Excellence was a gleam in Peters and Waterman’s McKinseyan eyes. Because innovation is often messy, unplanned, and serendipitous, companies should be careful about how much order, discipline, and oversight to impose on individuals who bring urgency and initiative. The paradigmatic story is of Hewlett-Packard‘s Chuck House, who persisted in prototyping extra large screen computer monitors despite being directly told by company co-founder and CEO David Packard to knock it off. Needless to say, the product became an important success. House was forgiven — and has co-authored what is arguably the best book about HP.
But this isn’t a post about the importance of defiant innovation or innovative defiance. In a Sarbanes-Oxley era of ever-greater corporate transparency and accountability, the innovation issues are subtler and more challenging than that. Where do good people with innovation ideas worth exploring get the time and budget to run an experiment or take a chance? Of course, the Googles, the 3Msand — to a lesser extent — the HPs are quasi-famous for giving their talented researchers a 10% to 15% carve-out of time to pursue concepts that catch their fancy. Institutionalizing curiosity-driven or individual initiative has worked well for them. But this is not a norm. Besides, they typically reflect elitist attitudes that discriminate against “ordinary” employees and frontline workers who might be in a better position to add value faster.
The ability of individuals and small groups to steal time and “bootleg” a project has become notably more difficult. Not unlike Mad Men‘s three martini lunches, under-the-radar gray market innovation has become a virtual anachronism. Some corporate counsels might even argue that it’s effectively illegal: organizations should only invest corporate monies on explicitly authorized efforts. Anything else is cheating and theft. Today’s Chuck House wannabes may be every bit as motivated and dedicated as their inspiration, but auditors and controllers have little tolerance for slush funds and discretionary spends. Moreover, Packard-esque CEO/founders who handle internal defiance with good grace have gone the way of Alt-A liar loans. Intrapreneurs who surreptitiously yet successfully cross the boss now typically end up as external entrepreneurs instead of internal legends. Shrinking gray market and bootlegged projects appear to be unintended but understandable consequence of difficult times, and demand regulation and digital visibility. Since these give firms more opportunity to see what their employees are doing, it’s harder to conceal unauthorized projects. Further, it becomes more difficult for line managers with gifted subordinates to get away with squirreling a few extra dollars for let’s-give-it-a-shot new product development. The out-of-sight, off-in-a-corner alpha test is not just a dying breed — it’s being euthanized.
Is that bad? Yes. Innovative organizations need to be innovative about how they innovate. The innovation and entrepreneurship literature — popular and academic alike — overflows with stories detailing the importance of informal economies in enterprise development. But since too many C-level executives and not a few investors consider “informal” a euphemism for “inefficient,” squeezing out perceived slack has become a managerial priority. The not-unreasonable view from the top is that it’s smarter to make our formal processes better and more efficient than depend on informal initiatives we can’t quite see or control.
Simply because something isn’t unreasonable, however, doesn’t make it a wise choice or a good investment. Informal innovation, bootlegging, and gray market intrapreneurship are essential to a healthily diversified innovation portfolio. Persistent pincering of informal innovation and gray market initiatives has provoked quiet revolts deep down in several organizations I know. People are rebelling against the strictures and constraints of formal innovation budgets and reviews. They want to be nimbler and more agile than the organization allows. So what are they doing?
Brand managers at one Fortune 250 firm have disintermediated authorized focus groups and consumer panels in favor of targeted Surveymonkey blasts and meet-ups to test product concepts. What the managers learn is used to better march ideas through the formal innovation review processes. A food company used the model shop of its advertising agency to print out novel three-dimensional in-store marketing materials instead of the two-dimensional signage the original procurement specified. The marketing team was able to piggyback the original production run on another product’s print production run. A mobile phone service provider innovation group couldn’t get the firm’s IT department to prototype a customer service option quickly enough so the team leader bartered access on a supplier’s Amazon A3 web services contract in exchange for letting the supplier see the results of prototype testing.
In fact, many firms that have made outsourcing an integral part of their value chain have (re)discovered that there are all sorts of innovative ways to share costs, information, and people in order to circumvent their formal innovation status quo. Would the procurement departments approve? Probably not. Are higher level managers really being kept completely in the dark about process non-compliance? Probably not. But maybe there’s a good reason why they don’t actively intervene in these outside-of-the-box innovation efforts. Between the pervasive cheapness of digital media and the increasing reliance on suppliers hungry — if not desperate — to get closer to their clients, all the economic ingredients are there for next-generation gray markets to emerge and prêt-a-porter innovation bootlegging.
Attempting to formally kill the informal efforts that promote agility and ingenuity seems culturally foolish and economically counterproductive. Don’t do it. By the same token, it seems just as difficult to formally institutionalize the informal, as well. Giving everyone — or most employees — 15% of time to pursue their ideas seems likelier to lead to more disruption than disruptive innovation. Consider this compromise instead: senior management should quietly recognize and reward those informal and bootleg efforts that unambiguously contribute to positive outcomes. Do that by encouraging intrapreneurs and project teams to identify the one non-compliant or outside-of-the-box informal innovation effort that worked best for them.
Don’t make informal innovation a star or a focus — don’t even give it a formal budget or allocation. Instead, encourage that it be recognized and acknowledged. Let the quiet word substitute for the corporate edict if people are pushing the envelope too much. Don’t think of informal innovation as inappropriate or illegal; treat it as undocumented.
MICHAEL SCHRAGE
Michael Schrage, a research fellow at MIT Sloan School’s Center for Digital Business, is the author of Serious Play, Who Do You Want Your Customers to Become?, and The Innovator's Hypothesis (forthcoming).
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