Innovation Is About Learning New Business Models – With JD Meier

In all organizations there is a tension between present and future, between the business model that exists and the one that will eventually replace it. The story of how companies learn to resolve this tension is, in many ways, the story of innovation.

A question business leaders commonly ask is how to allocate resources effectively between present safeguards and future bets. The stakes are well-known. Focus too heavily on protecting and growing the existing business and you will risk becoming complacent and vulnerable to external threats. Spend too much time and money scouting future ventures and your core business will suffer from neglect. Become too conformist and hierarchical and you’ll create a stifling organization that can’t compete with nimbler foes. Become too freewheeling and exploratory and you’ll lose the ability to actually deliver products the market wants.

According to JD Meier, a high-performance coach who has inspired and led Microsoft’s innovation efforts for the past 25 years, the solution is to rethink the foundations of your organizational structure. Instead of allowing an endless tension to play out between the edge (where innovation naturally happens, as per Clayton Christensen) and the core (where the money is made), you should bring elements of the edge into the core and vice versa. He calls this a federated approach to innovation.

Building a federated innovation culture

Innovation typically happens at the edge, but in too many cases that’s where it stays. In a recent U+ Insight, published in partnership with ILO, we explored the dangers of institutional “innovation silos” that fail to integrate new knowledge with the rest of the business. A key danger: silo-dominated organizations become too narrow-minded and short-termist, focusing on today’s urgent problems while losing sight of the future.

Meier proposes taking a federated approach. Innovation leaders, he says, should build “innovation hubs” within their organizations. These hubs will be responsible for discovering and developing new ideas, from the initial ideation stage all the way to prototyping, launching, and iterating. These hubs will have “spokes”, meaning they will be linked and strategically aligned with the CEO, the rest of leadership, and the rest of the firm. This way, organizations can avoid both the stagnation effect and the silo trap by maintaining a direct route for novel edge activities to regulate the health of the core.

“What these hubs should be responsible for,” Meier says, “is learning new business models. That should be the function of innovation: always learn new business models. Then you can bring those learnings back to the central organizational muscle so they can help the current business model evolve.”

How to lead innovation

This being a federated, rather than fully decentralized, model, Meier has a few thoughts about how an organization’s leaders should approach innovation initiatives. For any federation to work well – and to avoid becoming too decentralized – it needs a strong, receptive central authority capable of creating a shared vision for the organization as a whole.

“Excellent managers make sure everyone has a shared view of their organization’s portfolios, programs, projects, decision criteria, and prioritization criteria. They are clear about what the current business model is, and super clear in how they think about and explain to others what any future business models will look like.”

Meier divides leadership into two categories: those who excel at running the business and those who excel at changing the business.

Run-the-business managers value alignment, consistency, and continuity, as well as predictable, incremental growth. Their leadership style focuses on reinforcing the existing business model, protecting the core business, advancing agreed-upon objectives, and maintaining and improving what is already in place. To the extent that leaders of this kind innovate at all, they do so in modest, limited, peripheral ways, usually in order to reach preset growth targets. Meier says this is really about "sustaining innovation", and it's typically targeting 10% growth.

By contrast, change-the-business managers see disruption and change everywhere. They situate their organization in a dynamic marketplace full of risk and opportunity, and act accordingly. These leaders are more likely to encourage experimentation, reward moonshot projects, and seek out potential new business models to replace the current core.

Both of these mindsets can be useful, Meier says, though only one will consistently drive disruptive innovation. At times, businesses should pursue stability at the expense of scouting new ideas. But they should also have the people and structures in place to develop new business lines if the need arises.

Either way, leaders should think carefully about the values they endorse. Successful innovation is next-to-impossible in an organization that discourages its employees from trying new things, whether expressly or by implication. To create a real culture of innovation, leaders should rethink whether the values they communicate are consistent with the kind of organization they aspire to build.

As Meier puts it, “values may be influenced by the bottom- and middle-tiers of an organization, but they can only really be set by the top. At the end of the day, if leaders keep rewarding or punishing a certain set of values, those will be the ones that win out in the long run.”

Innovation is a collaborative process

Ultimately, Meier wants to widen how we understand and define innovation. Instead of an individual activity undertaken by a lone genius, we should see innovation as a collaborative process that can bring out everyone’s creativity and imaginative powers. An easy way to switch to an innovation mindset, he says, is to play “imagine if” games. For example: imagine if there was a grocery store where you could just grab your stuff and go – no checkouts, no lines? That’s the question Amazon’s leadership team asked, without any particular answer in mind, back in 2016. Today, the company operates high-tech cashier-less stores in more than forty locations across two continents. Small questions can lead to big businesses.

“You don’t just have to look at how the world is,” Meier says, “you can also ask how it could be. And if you’re thinking about how you could make the world better, and you’re playing the game of ‘imagine if’, you’re an innovator.”

JD Meier is a professional innovation leader, high-performance coach, and bestselling author of Getting Results the Agile Way. He has managed numerous innovation projects at Microsoft, where he served as Head Innovation Coach for CEO Satya Nadella’s innovation team. You can discover his thoughts about innovation, leadership, entrepreneurship, and much more through his blog.

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