Last week, I made the argument that I’m not a particularly status-quo kind of guy. Particularly, I asserted that my bias and focus has been projects, and not operations. I institute change. I am not the best person to keep things consistent and constant.
You might take from that that I would be all over the idea of “creative destruction” (the term coined by Schumpeter, that radical entrepreneurial thinker of the 1940s). Or, to adopt the more radical current coinage, “disruption.” And, to a certain extent, I am. The general emphasis of these concepts is finding new, unleveraged opportunities—or else new ways of leveraging current opportunities—in order to gain strategic advantage. Leveraging these theories has given us personal computers, digital cameras, smartphones, streaming music, pod-based coffee makers. The kind of projects that any advocate for change would pretty much drool over, and voluntarily give a kidney to work on.
That’s not to say that I don’t value the idea of stability, repeatability and reduction of variation that operations management represents. I do. I understand it, value it and appreciate it. It’s just not my happy place in terms of how I view my work day. Fortunately, there are many other people in the world for whom such an environment is their very, very happy place. And I am infinitely appreciative that they go about their business with enthusiasm, control charts and a passionate dislike of defects.
More to the point, the organizations that thrive tap into both of these mindsets. Change and disruption are what opens up new markets and strategic opportunities. Relentless operational efficiency is what makes those opportunities hugely profitable. Organizations that gain prominence make big bets on where the future will be (or, slightly more uncharitably, defining where they will take the future). And then they relentlessly exploit what they have built. The challenge is how to effectively do both.
And as much as I hate using Apple as a strategic example (if only because it’s the go to strategic example that everyone else uses constantly) in this particular instance they are an awesome one.
As I write this, Apple has just completed its fourth year as the largest company in the world, as measured by market value. They are ridiculously profitable, with margins of 40% and annual revenue of $234 billion in 2015. A lot of this performance is attributable to the iPhone. Yet the invention of the first iPhone is estimated to have cost more than $150 million and the project “…was so complex that it threatened to derail the entire corporation.”
Today, the iPhone is an unmitigated success story. But there were many instances where the project could have derailed, and taken with it the corporation. That it didn’t is at this point screamingly obvious. And while the iPhone was a success at its launch, what has made Apple the runaway corporate behemoth that it is today is not because of that first product, but because of its relentless exploitation of the platform it created. Their massive profitability is a product of extensively leveraging the various permutations of iPhone and iPad that have emerged since. These are all still recognizable as iPhones, but they have incrementally and progressively evolved since their launch in 2007 from one tiny, comparatively primitive touch screen interface to what is now an only vaguely-concealed computer in your pocket.
Yes, Apple has the chops to innovate well, and they are exceptionally good at product development. At the same time, they are relentlessly and exceptionally talented at operational execution. It should not be overlooked that Tim Cook, Apple’s current CEO, was for many years the Chief Operating Officer of Apple. And while many worried at his appointment about whether he would have the vision and charisma of Steve Jobs, that ignored the fact that what Apple really needed was the ability to operationally execute on the many products already in place. They have done that with brutal efficiency.
Despite this, there are those that would argue that the model that has enabled Apple to grow as it has is in fact wrong. The basis for this assertion is an article that I came across a couple of weeks ago, that argued corporate skunk works need to die. It’s written to be controversial, making the argument that projects organizations need to be masters of continuous innovation. The author argues that organizations need to embrace execution and innovation within the same structure. It’s a good way of stirring the pot, and certainly reinforces the author’s ideological viewpoint as a start-up evangelist. Nonetheless, it’s horribly misguided advice.
Organizations that will thrive depend upon innovation for their future. They also need to execute well on the innovations they launch. More importantly, they need to continue to do so, exploiting those innovations to the greatest degree possible. To put not too fine a point on it, the process of exploitation is one of wringing every last ounce of profit from existing capabilities until there are no further returns to realize and the original innovation is fully exhausted. At that point, there had better be a new innovation (or three) waiting in the wings to leverage next.
The excitement is often in the innovation. The profit, however, is in the exploitation. Once the (often extensive) costs of initial development have been recovered, margins skyrocket. That’s when organizations become market darlings, generating broad and rising returns as they leverage, extend and enhance existing products.
The question is how we allow both capabilities to co-exist within the same structure. The answer lies in the unquestionably unsexy (but to me, endlessly fascinating) field of organizational design and development. It is about how we structure, how we organize and how we staff our operations. It is about how we align the talents and capabilities of real people to do real work that matters. And it’s about best matching the work with those talents.
That takes us right back to where we came in. I have learned over my career that my talents lie principally in the field of change. Managing complex, uncertain and messy projects gives me endless satisfaction and joy. In the right context, I could probably find some satisfaction in supporting exploitation, in that there is a sustaining dimension of innovation and platform extension as new capabilities must be created and leveraged. The closer I get to operational sustainment, however, the less engaged I become.
And that’s OK. As I’ve pointed out, there are others who love nothing more than ensuring on-going reliability and repeatability. And we need them too. But what they detest, in the inner core of their beings, is change.
If we are to execute, to exploit and to innovate in the same organization, we need to maintain a healthy tension between these disciplines. That is what makes the corporate skunk works a useful tool. Functional structures are efficient at supporting the scaled up execution and exploitation of proven technologies. They aren’t terribly awesome structures to support radical innovation.
The ‘skunk works’ is a useful model. The essential principles are simple: take a team from the organization, bring it outside, and focus it entirely on the creation of new and interesting and different. Teams do not maintain operational responsibilities, and are actively encouraged to not be bound by current thinking and practice.
Whether labelled as such or not, skunk works are incredibly useful and effective. They are, in fact, the model for how virtually every major product launch has been managed at Apple, from the Macintosh forwards. Apple has built a thriving environment of secretive teams building new capabilities that the rest of the organization is largely unaware of. That gives the skunk works team freedom to explore, and also allows it to fail, and lets the organization get on with the business of executing, without stressing (much) about the changes that are coming in the future. This isn’t dysfunctional behaviour; it’s good organizational design that consciously recognizes different mindsets and work modes require different environments in which to thrive.
It’s an important lesson to keep in mind as we take on new assignments, as well. Whether that assignment is supervising an operational team or leading a new project, we need to think about not just how that team gets organized. We also need to consider how the team needs to structure, interface and connect with the larger organization. This will depend upon questions of how much change the team will be responsible for, how radical a departure that change will be for the current organization and how much ongoing interaction with the current organization is required.
Of equal importance, though, is how much interaction with the current organization would interfere with the team. Or how much interaction with the team would interfere with the operations of the organizations. There are reasons why careful organizational design is important. We would do well to keep those in mind.