Sreten Gajic on Innovation in Large Organizations - Innovation Leader Magazine

1. WHAT NO ONE SAYS
ABOUT POLITICS AND
CULTURE — AND HOW
THEY IMPACT
INNOVATION
By Sreten Gajic, Contributing Writer
INNOVATION LEADER MAGAZINE
THREE POTENTIAL
APPROACHES TO
MITIGATE POLITICS
AND DEVELOP A
CULTURE IN WICH
INNOVATION CAN
THRIVE

2. 1 | P a g e
What no one says about politics and culture — and how they impact innovation
By Sreten Gajic, Contributing Writer – INNOVATION LEADER MAGAZINE
CMO VersusInnovation; FormerlyVP/Innovation,Assurant & Director, Coca-ColaNewVentures
Be honest:Has innovation been a centralpart of yourcompany’sculturein the past? And do you worry abouttheimpact
thatpolitics can haveon yourinnovation,R&D,and new venturesactivity?
I’ve startedseveral innovationandnewventuresfunctionswithincompanies like Coca-ColaandAssurant.Startinganew
groupwitha relativelycleanslate canbe greatfun:youget to developavisionandstrategy,the rightgovernance,
strongprocess,and youget to bringona talentedteam.Butinmostcaseswhenyou’re startingfresh,italsomeansthat
innovation — andespeciallytransformational innovation — hasn’tbeenpartof the core strategyor the culture of the
organization.Thiscansetthe stage fora toughbattle to putinnovationhighuponthe company’sagenda,and keepit
there.
I’ve learnedthatculture andpoliticsbothwill have bigimpactsonthe trajectoryyourinnovationprogramfollows.But
mostpeople don’tthinkenoughabouteitherissue.
Let me share withyouthree approachesto establishingthe optimalstructure tobe able to“winthe political game”and
deliveroninnovation,giventhe sensibilities,culture,andobjectivesof yourorganization.The firstiswhatI call the
“EnablingInnovationapproach.”Itdevelopsthe innovationtoolsandinfrastructure,andservesinasupportingrole to
allowthe organizationtoinnovate.Itisusuallythe mostdiplomaticapproach,one thatdoesnotburnbridges.The
secondiswhat I call the “Skunkworksapproach.”Itstandsin contrastto the Enablingapproach.Itis a higher-riskand
higherrewardstrategy,andrequiresrunningaseparate groupandP&L from the core business.Finally,the “Hybrid
OpenInnovationapproach”combinesthe twopreviousstrategies.However,itrequiresaknowledgeable innovation
team,and a greaterinfrastructure thaneitherof the previoustwotopull off.Igetdeeperintothe prosandcons of each
strategybelow.
• • •
A story about innovationat Apple and Coke
Innovationthatsucceedsinlarge organizationsisnotaboutasolidprocess,greatstrategies,oreventalentedpeople —
thoughall those are required.It’smainlyaboutculture.Andinparticular,it’saboutchangingthe culture,whichishard
and time-consuming.Sometimesit’sdownrightimpossible.Let’suse Apple asanexample.Apple doesn’tnecessarily
have smarterpeople thanothercompanies,orevenabetterprocessorstrategies.ForApple it’saboutwinning —
winningwithoutcompromise— anda maniacal focuson excellence.
Here is an anecdote Iwastold bya formerApple employee afew yearsback.Thisemployee workedwithsuppliersthat
providedmanyof the chipsforthe iPhone andMacs. One day,a supplierwasprovingtobe difficulttodeal with.The
employeewenttohisboss,whoimmediatelythreatenedthe supplierwithpullingall of itsbusinessworldwide —
withoutaskingforanyapprovals.Itlaterbecame clearthat thisguy,three levelsdownfromthen-CEOSteve Jobs,had
the complete backingof the entire managementchaintomake sucha call,simplytoensure he wasdevelopinga
productthat thrilledcustomers.Jobswasable toinstillaculture of minimumbullshit — anda maximumof “gettingthe
jobdone.”Thisis the type of culture that isconducive toinnovation;itdoesnotrequire aninnovationfunctiontocajole
employeestothinkinnovatively.Butthenagain,notmanycompaniesare still runbyfounders(ordisciplesof the
founder,like currentCEOTimCook),withsucha clearmission.After100+ yearsof operation,the missionformany
companiesbecomesabitmurkier.
Take Coke for example.Duringmyfourteenyearsthere,Icouldnotimagine goingtoabig supplierandhavingsucha
candidconversation,withouthavingabigexecutive delegationwithme (onetime itwasfifteenpeople visitingasmall
contract producerI was workingwithonnewbeverages),orwithoutaskingpermissionfromlayersabove.WhenIdid

3. 2 | P a g e
make my ownmove,itdidnot workout toowell forme,and I burnedbridgeswithsupplychain.All Iwasdemanding
was the same as the guy at Apple – excellence.(Inmysituation,itwasa bottle label thatstayedintactwhenincontact
withwatercondensation.)Coke haddecades-oldrelationshipswithsuppliers,andmanagement wasreluctanttorisk
these relationshipsover“small,”innovative new propositions.These typesof politicsare notconducive toinnovation,
yetas leadersininnovationwe needtofindwaystonavigate theminthe bestwaypossible tocreate success.
Here are three potential approaches.
The EnablingInnovation approach
One optionfornewinnovationexecutivesisthe EnablingInnovationapproach.Thisisthe wise,patient,anddiplomatic
approach to buildinginnovationinfrastructure overtime.Whenleadershipisnotclearonthe role of innovation,orif
innovationisviewedasasupportfunction — or evena recruitingormarketingtool — thisapproachis favorable.
How wouldyougoabout it?First,youengage innovationchampionsfromthe C-suite.Youexplainthe benefitstothe
organization.Youtalkaboutinnovationdiffusionthroughoutthe organization.Youbuildthe infrastructure forthe
organizationtolearn.Youdevelopanddisseminatetools:how todevelop,test,andmeasure new productandservice
propositions,andgetthemtoproof-of-concept.Yousetupforumsand bringin speakerstoshare bestpracticesor
inspire the troops.Andyouengage operationsasmuchasyou can.
What youare hopingisthat by providingthe infrastructure andforums,byseedingideas,youwill be helpingtodrive
innovationandnewventures,andinturn,incremental growth.Inthiswaythe innovationfunctionactsmore asa staff
than a line function.Thisapproachtakestime — yettime isnotalwaysonyour side.
Whenyouare learninghowtoski,theysay the thirdday outis the most dangerous:youare gettingthe hangof it,
startingto take some chances,and that’swhenaccidentstendtohappen.Similarly,Ibelieve the thirdyearforan
innovationora new ventures functioniscritical.Youcan pointtoindicatorsof success,like the processyou’ve built,
employeeengagement,newinitiativesyou’ve launched,afew earlymetrics,etc.Youare buildingasolidinfrastructure,
and the companyis perceivedasmore innovative.Manyemployeesare excitedtobe partof the innovationforums.
Your CEO mightshare some of the earlywinsandinnovative projectswithinvestorsandWall Street.Butisit enough?Is
it meaningfulenoughtothe organization,especiallybythe classical metricsof revenue,grossprofitgrowth,andROI?
Oh,and not to mentionthatinthe thirdyear,it’slikelythatleadershiphaschangedinsome way — whetherthe CEOor
otherkeyexecutives — andyouare tryingto explainwhatyouare tryingtodo all overagain.No, time isnoton your
side.Sothe EnablingInnovationApproachcanworkbestina companythat is stable;hassolidrevenueandprofit
growth;and where managementhasthe luxuryof time andthe visiontokeepanew venturesteamaroundthatwill
eventuallycontributeinamaterial way.It’simportantthatyou are clear withleadershipthatyouneedanextended
periodof time todeliversustainable,materialvalue.
Thisis the case of Coca-ColaVenturing&EmergingBrands,whichIwas involvedinstarting.We tooka whole yearto
studythe historyof all the beverage categoriesinthe U.S.and globally.We understoodwhatittooktodevelopa
winningpropositionandgetitto proof-of-concept(7+yearsto scale,headingto$1 billioninrevenue).Thenwe
developedourstrategiesandtacticstodevelopanemergingbrand,whichwe called“The Artof Emerging.”(Formore
on the topicof emergingbrands,see thisvideowe created.)
Onlythendidwe jumpintothe fray,while still continuingtostudythe new emergingspacesinhealthandwellnessand
functional beverages.We developedaseparate route-to-marketfromcore Coke products,withnew distribution
partnerships;securedexternalproduction;andcrafted partnershipswithcustomerslikeWhole Foods.All thistooktime
and patience fromthe organization,andfromleadership,forthe grouptostill be aroundaftermore thaneightyears.
Has the group had big,transformative winsinthe beverage space?Idon’tthinkso.Hasit had successinthe form of new
beveragesandincremental sales?Thatithas, withbeverageslike Fuze,NOS,HonestTea,Core PowerProtein,andthe
developmentof a completelynewcategory,coconutwaterandthe Zicobrand.Most importantly,Ibelieve,the group

4. 3 | P a g e
has the pulse oninnovationinitsindustry,andtransformative categorieswill notpassCoke byagaininthe U.S. –
productslike energydrinks,lifestyle beverages,proteindrinks,etc.It’shighlyunlikelyCoke will everagainneedtopay a
cool $4.2 billionforaproductlike VitaminWater(an“innovation”youcouldmake inyourkitchensink.) Andthat’s
worththe price of admission,asfaras I’m concerned.Thatisan example of the EnablingInnovationApproachworking
well.
Skunkworks Approach
The secondapproach to buildinganinnovationfunctioniscreatingaSkunkworks –a completelyindependentunitwith
verylittle oversightandmeddlingfromthe mothership.Thisisverydifferentfromthe EnablingInnovationApproach,
and a lotmore entrepreneurial.A lot of visionandtrustisnecessarytooperate outside the confinesof the HQ,andit
goesagainstmanymanagers’hierarchical impulses.Itusuallymeansformingaseparate unit,ina differentlocationthan
corporate HQ, and creatinga more entrepreneurial culture.Itrequiresgreaterinvestmentassome functionsare
duplicatedtosupportthe newentity.
Thisapproach ishighriskand highreward.It’soptimal whentrue growthfrominnovationisneeded,and whenitis
clearthat workinginternally,anewventuresgroupwouldgetboggeddownbybureaucracy.Itssometimeschosenasan
approach whenit’scompletelyinevitable thatchange isonitsway,and the model thatgot you to where youare simply
won’tbe sustainable inthe future.Hence,there’sagreatersense of urgencyanda willingnesstotake more risk.(People
sometimescall thisthe “burningplatform.”) Asanexample,the cable televisionindustryisstill acashcow, butmany
youngviewersdon’tenvisionbecomingcable subscribers — theyjustwantanInternetconnectionandHulu.Asa result,
I have seensome cable companiesbe energeticaboutexploringandinvestinginnew spaces.Theseare noteven
necessarilyadjoiningorstrategicallyrelatedtotheircore business,buttheyare incubatingand testingnewbusinesses
that couldhave huge growthpotential.Some have formednew groupstodrive new ventures,withseparateleadership
and P&L to the core business.Innovatingandtakingchanceswhile the cashflow isstill there tosupportitseemslike a
goodideato me,but notall leadersdoit.
A powerful exampleof drivingthe growthof new venturesandinnovation,anddevelopingastructure tosupportthat
growthseparate fromthe mothership,isthe recentcreationof AlphabetInc.byGoogle.(See the orgchart below.)
Alphabetcontainscompaniesandinvestmentsthatare far afieldfromGoogle’score searchadvertisingbusiness,like
glucose-sensingcontactlenses,self-drivingcars,androbots.The new structure will promote greaterfocusonGoogle,
while givinginnovationbusinessesoxygenandspace formaximumexperimentationandgrowth.Don’tyouwishmore
companiescouldunshackle themselvesfrominternal politics — notto mentionthe short-termdemandsof shareholders
— andinnovate inthisway?
Hybrid OpenInnovation approach
The third structure iswhat I call a HybridOpenInnovationapproach.Itcentersonthe principlesof openinnovation,and
the understandingthattoinnovate,youcannotdoit alone.Youare huntingforthe bestideas, solutions,andpeople,

5. 4 | P a g e
regardlessof whethertheyworkforyouornot. You drive organicinnovationandtestconceptsinternally,while atthe
same time youinvestinentrepreneursandstart-upsthatmightbe aheadof you or well positionedinyourparticular
area of interest.Youdevelopabalancedportfolioof early-stage investments,partnerships,andjointventures.Youwork
closelywithincubatorsandacceleratorprograms.(Youmake sure tokeepthe operational andbusinessunitexecutives
at your companyinvolvedintheserelationshipsandinteractions,too.) Youmake multiple betsinvariousareas,you
measure resultscontinuously,andyoudrive adynamicportfolio,divestingof orkillingoff non-performingprojectsina
timelymanner.
At the same time,youmake bigbetsto scale businessesonce aproof-of-concepthasdemonstratedbigpotential.You
are governedbya small executiveboard,plusalargercouncil that can supplyexternalwisdomandconnections.The
trick isto getthe helpneeded,yetnotgetboggeddowninapprovalsandpolitics.
The keyhere,I believe,ishowthe governance of the venturesissetupinitially:youwanttohave a board that letsyou
run withideasthathave merit;isengaged(i.e.,theypickupthe phone whenyouneed them);andisthere because they
are willingandable tohelp,notjustbecause itisa political appointmentandtheyare representingabusinessunitor
function.Thisprobablymeansyoudon’tneedpeople fromtax,audit,andlegal onthe executiveboard — yetyou
probablydowant M&A, strategy,andbusinessunitdecisionmakers.
Whendoesthe HybridOpenInnovationapproachworkbest?Ibelieveyouneedabase of expertise inside the
organization,anda strongcore teamto pursue multipleinnovationvectors.Theyneedthe capabilitytodrive
engagementacrossthe innovationecosystem, bothinternallyandexternally.If youcanput sucha complete structure
together,yourchancesof successare higher.
Conclusion
Many people getaninnovationprogramstartedwithoutspendingenoughtime understandingthe culture andpolitical
dynamicsof the organization — bothof whichinfluence what’spossible andhow decisionsgetmade.It’sessential to
ask yourself andotherskeystrategicquestions.
• Are you disruptingorcompetingwiththe core business?Establishingdirectroutestothe consumer,andbypassing
large customerretail partners?Thiswill probablymake the commercial leadershipnervous,since they’llsee youasa
threatto theirbusiness.

6. 5 | P a g e
• Conversely,otherbusinessesare inneedof innovationandunderpressuretodeliver — are youthere to support
them?Are there vestigesof previouslyfailedinnovationeffortsandstructuresinyourcompany?Whatwere the
learnings?Canyouco-optpeople who were involvedintheseteams,orwill theybe the doubtersthatwantyoutofail?
• Are youclear onthe bigpicture setbythe CEO and board,and can youextrapolate whatcouldhappeninthree years,
anticipatingthe movessoyoucan alignyourstrategy(asyou probablywon’tbe toldaboutthe bigshiftsaheadof time)?
Are you workingona personal passionproject,orare youalignedtothe bigpicture and workingonbigbetsthat could
move the needle forthe companyina material way?
Many of those are tough questions,buttheyneedtobe addressed.Once you’vebeguntogetanswers,asolidprogram
structure like the onesI’ve describedhere will helpyoustrike the bestpossiblebalance of action,entrepreneurship,and
patience.
We corporate innovators are playingachessgame,and the more you can anticipate future movesandpolitical and
cultural nuance,the better.