Many companies are faced with the dilemma of how to balance the core and the new. How to balance continuing to do well with what you have and also be the initiator of innovative surprise? From the tiniest companies to the biggest companies, all are asking the same questions. If you have been doing one thing for a long time, how do you balance continuing to do well on that with developing the new? How do you become the initiator and not the victim of innovative surprise? To give an analogy, if you are on a nuclear submarine, hundreds of miles from shore and deep underwater, you don’t want to start hearing clanking noises from your nuclear engine. That’s the core. At the same time, you don’t want to be surprised by some new kind of torpedo. That’s the new. How do you balance the core and the new?
There are promising ideas within organizations that never come on the surface because of some strange things that happen when people come together into a group. All of this boils down to one thing: Why do good teams kill great ideas?
Nokia, once the top mobile phone company in the world is an example of good teams killing great ideas. 40 years before Nokia was the top mobile company in the world, it was a conglomerate famous mostly for making toilet papers and rubber boots. Over the ‘90s, it transformed into a mobile phone company. It was the most valuable company in Europe with 300 million in market cap. It had a much bigger market share than what any company has today in the mobile business. In 2004, a small team of engineers came up with a crazy idea for a new kind of phone with a giant touch screen and applications that could be put in a cloud and downloaded. The same group of people that built up Nokia into a market leader shut down that idea. Then they had another crazy idea to put an Appstore in the cloud, but that too was shut down. Three years later, this team of engineers watched from a distance as their ideas came to life in Steve Jobs’ iPhone. Few years later, Nokia was irrelevant and market share went down to 5%, and a little bit after that, the mobile business was sold for 13 billion USD. That is a loss of a quarter trillion dollars.
Every time we organize people into a group with a mission and the reward system tied to that mission, we have just created two competing forces- stake in outcome and perks of rank.
The question of why good teams kill great ideas can be answered with the help of just a glass of water. When you stick a finger in a glass of water and twirl it around, the molecules inside slosh around the finger except when you lower the temperature. At 32 Fahrenheit, the behaviour of those molecules suddenly changes, and you can’t stick a finger inside when the water freezes. It is because when the temperature changes, the water goes through a phase transition. Every phase transition in nature is a tug of war between two competing forces. In the case of the glass of water, one of the forces is called entropy and the other is called binding energy. At high temperatures, entropy wins out and the molecules slosh around, and as you lower the temperature, the binding energy starts increasing until behaviour of the molecules suddenly change at 32 Fahrenheit and the water freezes. A similar phenomenon is seen in teams and companies.
Every time we organize people into a group with a mission and the reward system tied to that mission, we have just created two competing forces- stake in outcome and perks of rank. Every team and company are different, so the strength of competing forces also vary accordingly. In a 10-person company, if a project works, everybody is a millionaire but if it fails everybody in unemployed, so the stake in outcome is huge while perks of rank, whether you are a team member or a team captain, is comparatively very tiny. Now, in case of a 100,000-person company, the sales are already in billions so the stake in outcome is very tiny, but the perks of rank are comparatively enormous, as the returns for shooting down an idea to supposedly prevent a proposed project from tanking is a promotion or bonus, which is much more rewarding than a 1% stake in outcome. In other words, as the company grows in size, the perks of rank start to outweigh the stake in outcome.
When a company is small, the people lean more towards growing the value of projects and when it is big, people lean more towards networking and promoting themselves, or in other terms, politics. Crazy ideas or the loonshots therefore make people in small companies excited, while in large established companies people get behind things that work well in committees.
With any type of phase transition, a change in company culture can be made through small changes. The first thing is to think about cultures inside companies as patterns of behaviour, whether it is a more innovative culture or a political culture. Once we understand this, we can begin to manage it and control it. The small changes in structure are what drive these patterns of behaviours, the big changes in culture. No amount of yelling by the CEOs asking their employees to innovate will work, just as yelling at the molecules in a block of ice to loosen up does not melt the ice when a slight temperature change can do the work. Hence, making small changes turn out to be more effective in driving an innovation culture.
With any type of phase transition, a change in company culture can be made through small changes. The first thing is to think about cultures inside companies as patterns of behaviour, whether it is a more innovative culture or a political culture.
By understanding what happens inside teams and companies, we get a new way of thinking about the world around us that gives us a new set of tools we can use to design innovative teams and companies. It is exactly what we need today when we are facing a whole new world of crisis.
Jill Hellman in Conversation with Safi Bahcall
Jill Hellman: Amidst this, what do you see as the one untapped opportunity that can be leveraged right now in this time frame?
Safi Bahcall: I understand how bad this is and how bad it will get, but I am more optimistic than a lot of people. When you’re inside this industry, it is astonishing to see the level of innovation that is happening. To give some perspective, the virus was sequenced, was made public probably the third week of January. By March, we had about 58 drugs in development and about 40 vaccines. By April, about 80 drugs and 60 vaccines, either started clinical trials or were about to start clinical trials. That’s less than 90 days.
The reason I’m optimistic is not because of any vaccine but the treatment, or in other words, the drugs that can kill the virus or reduce fatality rates by slowing down what’s killing people, which is the over-active immune response. Vaccine is a prophylactic, and will take about a year because it is a new drug, and the fastest that you can go is 12 to 18 months, as people often say.
If any of those drugs work and make a difference, we can reduce the fatality rate. In other words, what’s hurting our hospital systems now is the extended stays. People get sick and end up in hospitals for weeks, which is overwhelming our systems, but if any of these drugs work, we can get people in and out of hospitals faster, we can give them early end of course of disease, which means while we will still have the same number infected, it will be much less severe. That’s why I’m optimistic.
Hellman: How can you impact innovation if you are few levels down in a big company that is potentially risk averse?
Bahcall: These are the three rules of thumb- the ice cube, the garden hoe and the heart, and those are for the larger companies. Once you understand that you have these two phases, that raises a very big problem, the nuclear submarine problem that we started with, that is, how to balance core and the new at the same time? If you are on a nuclear submarine, you want your core on time, on budget, on spec, consistently to customer. You need that to be operating at a very high level. You don’t want cranking, clicking noises from your nuclear submarine, but at the same time you don’t want to be surprised by a new kind of torpedo. That’s the same thing inside a company. You want your sales guys to deliver on time, on budget, on spec. if you cannot manage your core, you’re not going to have a business much even if you are innovating astonishingly fast. The problem is that a system can never be in two phases at the same time. A glass of water cannot be solid and liquid at the same time.
The three tools (ice cube, garden hoe, and heart) get you to the one exception to the rule that a system cannot be in two phases at the same time. That exception is right at 32 Fahrenheit. If you imagine bringing a bathtub full of water to 32 Fahrenheit, right on the brink of a phase transition, you get both phases co-existing at the same time. You get blocks of ice and pools of liquid and neither side overwhelms the other, and the key to that is not only separating those phases but the dynamic equilibrium, molecules going back and forth.
That’s the key analogy with water. For the companies, by the block of ice, I mean separate your artists and your soldiers. Artists work to create new things, and soldiers focus on doing the work on time, on budget, and leaders need to understand these are two different jobs with two different goals. CEOs and managers make the mistake of asking everybody to innovate and everybody to be on time. Those are two exactly opposite things.
Artists are supposed to take tons of risks to find one thing that works. On the other hand, for soldiers, taking a lot of risks is not a good idea. It’s the exact opposite jobs, and leaders need to think of their role as a gardener, not a Moses. You have to bridge your artists and your soldiers inside your organization. The final thing is to love your artists and soldiers equally. This happens too much inside companies, where the leadership only praises the innovators, which could demotivate the soldiers of the organization. The result is that artists and soldiers cannot stand each other. The group that makes the money rarely likes the group that spends the money and vice versa.
To sum up, leaders have to understand firstly, that they have to bridge their artists and soldiers, they need both and therefore, should not favour one over the other. Separate structures and separate times should be created to do these two opposite jobs. Secondly, the job of a leader is to be a gardener, not Moses. The leader has to manage the touch and the balance between these two groups. Finally, love your artists and your soldiers equally.