do and discourage them from making changes as circumstances warrant. At a large defense contractor, for instance,
people got low marks for not delivering exactly what they had
promised, even if they delivered something better – which led
people to underpromise, eventually reducing employees’ aspirations and driving out innovation.
In the early 1990s, Bank of Boston (now part of Bank of
America) set up an innovative unit called First Community
Bank (FCB), the first comprehensive banking initiative to
focus on inner-city markets. FCB struggled to convince mainstream managers in Bank of Boston’s retail-banking group that
the usual performance metrics, such as transaction time and
profitability per customer, were not appropriate for this market – which required customer education, among other things
– or for a new venture that still needed investment.
Mainstream managers argued that “underperforming” branches should be closed. In order to save the innovation, FCB
leaders had to invent their own metrics, based on customer
satisfaction and loyalty, and find creative ways to show results
by clusters of branches. The venture later proved both profitable and important to the parent bank as it embarked on a
series of acquisitions.
CONNECTIONS TOO LOOSE,
SEPARATIONS TOO SHARP
While holding fledgling enterprises to the same processes as
established businesses is dangerous, companies must be careful how they structure the two entities, to avoid a clash of cultures or conflicting agendas.
The more dramatic approach is to create a unit apart from the
mainstream business, which must still serve its embedded
base. This was the logic behind the launch of Saturn as an
autonomous subsidiary of General Motors.
GM’s rules were suspended, and the Saturn team was encouraged to innovate in every aspect of vehicle design, production,
marketing, sales, and customer service. The hope was that the
best ideas would be incorporated back at the parent company,
but instead, after a successful launch, Saturn was reintegrated
into GM, and many of its innovations disappeared.
In the time it took for Saturn to hit its stride, Toyota – which
favored continuous improvement over blockbusters or greenfield initiatives like Saturn – was still ahead of GM in quality,
customer satisfaction, and market share growth.
Similarly, U.S. charter schools were freed from the rules of
public school systems so they could innovate and thus serve as
models for improved education. They’ve employed many innovative practices, including longer school days and focused cur-ricula, but there is little evidence that charter schools have
influenced changes in the rest of their school districts.
The problem in both cases can be attributed to poor connections between the greenfield and the mainstream. Indeed,
when people operate in silos, companies may miss innovation
opportunities altogether. Game-changing innovations often
cut across established channels or combine elements of existing capacity in new ways.
CBS was once the world’s largest broadcaster and owned the
world’s largest record company, yet it failed to invent music
video, losing this opportunity to MTV. In the late 1990s,
Gillette had a toothbrush unit (Oral B), an appliance unit
(Braun), and a battery unit (Duracell), but lagged in introducing a battery-powered toothbrush.
The likelihood that companies will miss or stifle innovations
increases when the potential innovations involve expertise
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