Money and Politics – why innovation could be doomed to fail 

A lesson from The West Wing.

While Josh is trying to explain his role as Deputy Chief of Staff, he says: ‘There are only two things that ever stop the government from doing anything: money and politics.’ (Series 2, Episode 10: ‘Noël.’)

The same may well be true when trying to innovate successfully in business. But the mechanism of how it works is subtly different.

Let’s look at money first

At this stage we have the idea, with certain strings attached. We must decide how to develop it, how to move it forward. In the absence of any other options, many businesses will default to whatever process feels familiar for the allocation of resources.

Imagine that we are the manager of a company that produces chocolate biscuits in a factory. I become aware that I can improve output by streamlining the production process. A new biscuit-packing machine will allow me to cut the jobs of five staff and – in the process – improve both the number of biscuit packs that can be produced and the reliability of the entire operation.

In this sort of circumstance, I may allocate a small amount of budget to an initial feasibility study, ahead of a larger investment to actually install the machine and update processes so the machine will work. During this feasibility stage, I will also work out how long it will take for this combined investment to pay off. If the return on the investment is reasonable – two years, say – then I should proceed.

This approach, with little or no modification, is also commonly used for the development of new propositions. Perhaps not surprisingly, this is where the wheels start to fall off the wagon of large companies doing genuinely new things.

A typical scenario

Think about a typical scenario. In the first stage, a team will be assigned a small budget to generate ideas. A further budget is then granted to develop the ideas to a more complete proposal (with a business case) and then the team may be asked to report back monthly during the product’s development.

At any stage, the management team may decide the project is not going to plan and ask for changes or call the whole thing to a halt. Usually however, the criteria for success or failure, at any given stage, are pretty unclear – leaving the project team to set their own criteria for continuation of the project.

In order of magnitude the first phase may be around a week, the second a month and the third from six months to a year. Anyone who has been involved in a genuinely new product development or ‘revolutionary’ development will see the challenge here instantly. Market knowledge and domain knowledge are both at their scarcest when the majority of the prediction is being carried out. Indeed depending on the nature of the development, the market for which predictions are being made at this stage may not even be properly defined.

Costs and returns

Particularly for more disruptive innovation, it’s not just returns that are hard to predict. Costs are too. Faced with a total lack of clarity about what will be included in the project and even who will execute it, the project leader is incentivised at this early stage to maximise the budget they request to complete it. In order to secure the maximum amount of funding, the project leader will also, therefore, be forced to increase their predictions of likely return.

The mere act of identifying costs can also have a subtle reinforcing effect on the project leader’s assumptions about the project. In order to get those costs, he or she will typically need to be able to brief internal and external parties on what the product itself will be. This has two effects. The first is to cement the detail of solution, at least in the mind of the project leader as he or she travels from meeting to meeting with an increasingly well-worn PowerPoint presentation. The internal or external development partner will be asked to both review the initial project assumptions and add their own input. Note also that in response to the prospect of lots of new potential work, they will always broadly say “we think it’s a great idea”. Both these factors add false validation to the plan – validation that is particularly unreliable given the intrinsic motivation of the development partner to want the project to go ahead, and to go ahead with the largest and least cautious scope possible.

Real world examples

We’ve had experience of this. When we’ve fed back honestly to potential clients that there are certain things that will have to be fleshed out or validated in order for their idea to succeed, we’ve consistently not been awarded the work, and are told that an alternative supplier or partner had ‘more enthusiasm’ for the idea or that they ‘really got it’ when we didn’t.

So the corporate process of validating investment strongly encourages teams to provide excessively positive forecasts for the product’s success, and to fix important details of the product and proposition early, at the stage of the project where their understanding of the product is minimal. It puts them in a position where commitments to both delivery and return have been made for a project that barely exists. Perhaps most dangerously, it creates a negative and adversarial relationship between the executive and the team doing the product development before the project even starts.

Early stage ideas are exciting to work on – at least in part because they are liberated from the weight of expectation. In judging ideas in this way, businesses virtually force their innovation teams into lying to them, inflating estimates of return, deflating estimates of costs and creating the illusion of certainty where little exists.

The product owner can tell themselves that they are doing the right thing for the business, essentially bypassing a dysfunctional system by making positive forecasts and projections. In their defence, it is so unreasonable to ask for forecasts at this stage that the project leader can scarcely be blamed for their excessive confidence in any numbers they do produce. Management, for their part, may tacitly understand that the projections are fiction; but know that they can chose to ignore this should it suit their purpose further down the line.

Pressure of a large budget

Faced with the sheer backwardness of the approval process, the manager of the innovation process is incentivised to trade bigger budgets for larger promises. Since they typically will have no idea what they’re going to do (but don’t want to admit this), bigger budgets give them the impression that they’ll have the time and autonomy required to firm up the unknowns in private and make some tangible progress before having to report back. However, at the same time, the project leader is robbing themselves of the freedom to revise their plans, and to learn about the market or potential market from which they hope returns will come whilst committing to deliver something before they really understand the game. This will come back to haunt them.

By securing larger budgets early on, the manager now feels under intense pressure to produce results, whether that’s a shippable product, positive feedback, customer orders, or actual financial returns. Their next move will therefore be an attempt to create a plan which can deliver results as early as possible.

Their priority shifts subtly from definition to doing. Essentially, the innovation leader is ‘hoist by their own petard’, a victim of their own design to escape scrutiny. In order to secure funding, the manager has been incentivised to conceal both the risk of the project and to gloss over its essential lack of definition or clarity. They have risen to the management taunt of ‘don’t you know what you are doing?’, and agreed to play the game of intuitive prediction.

Politics

Politics is everywhere. But of course its impact can be incredibly subtle. The best professional politicians are those who can exert their influence invisibly when they need to, and who can manipulate situations to their own advantage. Even in the glare of media scrutiny the behaviour of Westminster and Washington politicians is complex and hard to understand.

Yet corporate politicians rarely face any scrutiny at all. Politics in this context is focused on the building of personal reputations and empires, gaining promotions, increasing pay and getting higher status inside and outside of the organisation, often at the expense of colleagues.

In these battles, the victor will be the one who can convince that their vision, focus and abilities are more likely to result in the successful delivery of a company strategy. Thus the successful corporate politician is adept at translating corporate strategy and the motivations of their audience to support their actions and intentions. All companies bear witness to many such competing or partially competing agendas, all dressed up in the language of corporate strategy.

Don’t like it? Well, you’re going to have to live with it.

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