It was only 4 in the afternoon, but back to back meetings throughout the day had exhausted him. Leading a mid-sized public corporation isn’t easy, and as the quarterly updates trickled in he could see that Hanson Enterprises wasn’t going to make the numbers that his CFO had signaled to Wall Street. Two quarters and two near misses. His reign as CEO might not last much longer if the financial results didn’t pick up.
He stood and stretched, and eyed the wet bar in the corner of his office. Outside the snow pelted down, and dusk had already started to descend. Just outside his office he could hear the buzz of an active office. He wondered how to redirect all of that energy to driving better financial results. A Scotch bottle finally got his attention, and he poured just a small tot – enough, he told himself, to get through the rest of the quarterly financial reports and projections. He knew Bill Leonard, the CFO, would want to review everything at 5 in order to have a message ready for the Wall Street analysts on the quarterly call next week.
He plopped into his chair, swirled his drink and pondered his path. Twenty years ago he’d been a newly minted MBA, with a role in corporate finance. Ten years ago he’d been the financial officer for Hanson’s main product group, and just three years ago had been named the CFO. How time flies. Issues that seemed so important 20 years ago seemed so routine today. Nothing had prepared him for the task of CEO. He knew the numbers. He knew them backward and forward. No one had ever been better at squeezing costs out of a product, or creating more efficient processes.
His rise had been quick, and he’d felt that success as CEO was assured. But he found himself somewhat unequipped to lead Hanson where he and others knew it needed to go. Hanson needed to innovate. For too long it had rested on technology advances and products created five even ten years ago. Hanson needed new products and new growth platforms. The analysts told him that. His own strategy council reminded him monthly. He knew innovation was important, but wasn’t sure how to introduce it to Hanson, and didn’t want to create distractions to an organization barely making its numbers.
Sure, he’d glanced over some of the books on innovation. He’d been to a few executive presentations where speakers like Christensen and Chesbrough talked about the urgency and importance of innovation. But it all seemed so risky and uncertain. In his existing businesses, he could always apply trusted models to cut costs and improve efficiency, constantly meeting or exceeding financial projections. But that all changed a few years ago. Suddenly it seemed that the level of competition had increased, and new competitors were emerging from everywhere. These new competitors didn’t have the overhead or product breadth to support, and created new channels to reach customers and used social media much more effectively.
Ed rested his head on the back of his deep office chair and rested his eyes for just a moment. An unscheduled hour in his calendar was almost unheard of, and he’d meant to use it for strategic thinking. A moment’s rest couldn’t be wrong. Some creative thinking, a little brainstorming…
His office door banged open and Jacob Marley rushed in. Ed was a bit taken aback.
“Jacob. What a pleasant surprise. Were you on my calendar today?”
Ed felt surely the answer was no. Bob Cratchitch, his personal assistant, was a fastidious planner. Jacob wasn’t scheduled. What’s more, Jacob was dressed in what appeared to be golfing attire and was leaning slightly on a golf putter.
“No, you lazy sloth, we don’t have a scheduled meeting today. But I’m here to press a complaint. Your shareholders are angry, and few of them are angrier than me.”
That shareholders were a bit restless was no news. That Jacob might be upset was a no brainer. Ed took over from Jacob as CEO. Much of Jacob’s personal wealth was tied up in Hanson stock.
“What can I do for you, Jacob?” Ed was prepared to humor Jacob, answer a few questions, give him the same platitudes as they reserved for the analysts and glad-hand him out the door before the CFO came for the 5 o’clock.
“It’s not what you can do for me. It’s what I can do for you that matters today. I’m going to introduce you to three perspectives that illustrate how we got into the position we are in, and help you make choices about what to do next. I know you are confused about. Perhaps together we can discover what to do, before you are out of a job and I’m forced to cut back on my country houses and golf club memberships.”
“That sounds great Jacob but I’ve got an important 5 o’clock with CFO. Could I get Bob to find some time for us to get together?”
“There’s no time to lose” he said. “Touch this putter we’ll look at the recent corporate past.”
Touch the putter? Look at the past? Jacob’s gone a little soft in the head, wondering in without a scheduled meeting and talking the way he does. Perhaps I’ll just humor him.
“Ok, Jacob I’ll touch the putter. Do you mind if I call Bob in to help us while we talk?” hopefully Bob can call security.
Scrooge touched the putter and simultaneously reached for the intercom to talk with Bob. But in the next instant he found himself hovering over a cubicle in Cincinnati that looked vaguely familiar.
“Yes, Ed, that’s your first cubicle, where you did financial analysis in Cincinnati. Look, that’s you there, racing through spreadsheets, burning the midnight oil, looking for costs to cut. I think this was the year that EVA was big.”
“What is going on?”
“Like I told you, we’re going back to look at the past, so we can determine how Hanson got into the shape it’s in. We need to go back to the time when much of how Hanson works today was originally implemented.”
“Oh, don’t worry Ed. Even though I’m retired I have a few tricks up my sleeve. Do you remember implementing that ERP system? Or how about process re-engineering? And just after that, we started a Six Sigma program. Weren’t you one of the first “black belts”?
“Umm, yes. We implemented a lot of those programs to reduce costs and improve efficiency. Those were programs I supported and some of them you sponsored.”
“Oh, I’m not trying to let myself ‘off the hook’ so to speak. Sure, we did what seemed right at the time. But this preoccupation with cost and efficiency means that we lost our innovation edge.”
“We had excellent results and drove up our stock price.”
“Yes, at the time, but we also made innovation more difficult and trained people to focus on short term efficiencies. Those decisions created a culture focused on short term thinking that defends the status quo and has no bandwidth for innovation. Let’s go take a look at what that means today.”
Suddenly Jacob and Ed were present in a board meeting. Ed recognized the meeting, which had taken place a week before. Many of the board members were unhappy with the stock price. Competition was fierce and Hanson lagged behind in new product releases. Shareholders were angry. Ed had taken a pounding that day.
“You left that meeting, went home, kicked the dog and tossed back a few I bet.”
“The board were tough but they weren’t wrong. We are getting our butt kicked in the market. It’s not as though we haven’t asked for more innovation. Everything our teams create seems to be a response to a competitor – a ‘me too’ product. We haven’t created anything interesting in years.”
“That’s my point Ed. The programs and systems we put in place 20 years ago have defined corporate culture and severely limited creative thinking and risk taking. You may ask for innovation from your teams, but if they don’t have the tools, the time or the experience, you can’t complain when the innovation lags.”
“But we aren’t Apple. We compete in a fairly stodgy B2B industry. Our margins are razor thin. What are we supposed to do?”
“I’m no innovation expert, but I’d say doing more of the same isn’t an option for long term growth. Let’s go take a look at two possible futures, Ed, and then you tell me which is more interesting to you.”
Ed and Jacob emerge from fog. There in front of them sit Ed and his wife, on a beach in Southern Florida. The scene is peaceful.
Ed says “well, I must have done something right in this scenario”.
“Nope. In this scenario you didn’t respond to market needs, didn’t lead your team to innovate more frequently and failed to develop innovation skills. You’ve just been pushed out by the board. Hanson’s stock is in the toilet and the board is looking for a white knight to avoid a corporate takeover in a leveraged buyout.”
“What’s the other scenario?”
“You know the drill” so they touched his putter and off they went. They emerged in Ed’s office. Some of the senior executives were drinking champagne. The buzz in the room was palpable.
“You and your team made innovation a corporate priority. You allocated a significant amount of money and resources to develop innovation skills, and started evaluating your leaders on their innovation efforts. Several of the new products were real rock stars. The party is for the launch of a ground-breaking new product that will fundamentally change the industry.”
Back to the present
Ed jerked, almost dropping his glass. The desk clock stood at 4:59 and the CFO was tapping at his door. He chuckled to himself, thinking he had drifted off for just a moment, till he noticed a putter resting on the wall near the door.
He beckoned the CFO into the room and said “I want to make some changes to how we are allocating our funds. It’s time to make a real move toward innovation”.
Somewhere on a golf course, Jacob Marley and several million shareholders smiled.
image credit: candle light image from bigstock
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Jeffrey Phillips is a senior leader at OVO Innovation. OVO works with large distributed organizations to build innovation teams, processes and capabilities. Jeffrey is the author of Relentless Innovation and the blog Innovate on Purpose.