Punishing Risks Guarantees Failure

Punishing Risks Guarantees Failure

By now, most people have heard of, or at least the concepts popularized by, The Innovators Dilemma, a book detailing how large companies often fail when new technology arises, for a multitude of reasons, including fear of canibalising their own markets by innovating. There is however another point I would like to bring up as to why large well established companies can be slow to innovate and find their lead slowly (or sometimes very rapidly) deteriorate. Large companies reward success and not innovation.

Individualism vs The Group, in Good Times.

"Nobody Gets Fired for Buying IBM".

When we think of an organization, we often think of it as being a large, singular monolithic unit working hard to ensure its self-preservation and growth, that however is very far from the truth. The truth is, organizations aren't single units, but a grouping of many single units all working mostly for one goal, their own self preservation, growth and success. Because while from the outside an organization might have a single identity, behind the curtain, everyone is still acting based on whats in their own best interest and so how well the organization does is based on how well the interests of the individual and the organization as a whole are aligned. Is it in the CEOs best interested to increase profit margins? Probably, especially if their compensation is directly linked to the companies performance. Is it in the VP of Engineer's best interest to move every system in the organization to the cloud to help save the company millions in infrastructure costs a year? Well probably not actually, as best case scenario they get a pat on the back, worst case, they get fired and have a permanent mark on their CV should the project fail. So what do most people do? They avoid risk. Especially when things are going well and the company is making more then enough profit to cover any exceptionally large costs they might have.

Which is why people bought IBMs. Because you wouldn't be fired for it. The safe decision might not be whats best for the company in the long run, it might not even be whats best for the company in the short term, but more often then not, it is a guarenteed risk-free decision for whichever middle manager is responsible for making the decision on which vendor to purchase from.

Safety is temporary

Now, this might all seem great so far right? If you take no risks nothing can go wrong? Well no, because you're competitors aren't other organizations who are taking the same calculated risks as you, they are competitors who are coming up with new and innovative ways to do what you do, but better, faster and cheaper. And sure most of them might fail, but there are thousands of them, all working hard to unseat you, all taking different risks and coming up with different ways to tackle whichever problem you are solving, and even if the majority of them fail, eventually that small minority will succeed, and when they succeed it might already be too late, but you will find yourself faced with two options, buy them, or copy them.

However, as we know, many organizations punish risk, and a large acquisition is definitely a risky. Plus they might not even want to sell. While copying them, is even riskier, you're committing massive financial resources with no guarentee of success.

Individualism vs The Group, in Bad Times.

And once again, it comes down to the individual vs the group. As an individual in a large company who has the ability to make the decision on how to tackle a fast growing competitor, you have three options, do nothing, do something, start calling recruiters.

If you do nothing, you're simply a passenger on a sinking ship.

If you do something, you're a screaming passenger on a sinking ship, and making you plug the whole, or maybe you find yourself being held responsible for creating news holes that have made the ship sink faster.

And if you start calling recruiter, you're potentially a star hire that a competitor can snatch away and write a press release about, giving more credibility to themselves.

What do most people chose? Well a look at all the ex-IBM executives and staff now working at competitors might help you understand that most of the time, people chose whats best for themselves. After all, in hindsight, they will remember being pretty vocal about needing to innovate, they were just never given the go-ahead.

Never Punish Risk

Which is why it is important to reward innovation and execution, and not just results. To innovate you will fail most of the time, just by taking a look at some of the most successful companies today, such as Amazon or Google we see that internally they have far more failures then successes. Failures such as Amazon's Fire Phone, or Google+. Despite these failures however, they have continued to grow at a pace far greater than any of their competitors, and though not ever new product or project succeeds, when they do they result in successes and new markets that more than make up for all the past failures before them.

Most importantly however, this creates a culture where the individuals best interests are more perfectly aligned with that of the organization. Because as long as you work hard and give it your best, you can innovate, take risks and be rewarded for your successes without being punished for your failures. Now every employee is potentially one of the thousands of competitors working to do what you do better, faster and cheaper, except when they succeed, you succeed with them.

Mahmoud Swehli

Mahmoud Swehli

Founder of Moodio

London, UK