What happened? The Hawthorne team was working with very talented and motivated people in legal, sales, and IT, so that was not the issue. The new transformational business had been extensively validated using the best practices for new business innovation before pushing to scale, so they knew the idea was good. Puzzled—and a little shell-shocked—the new business team took a step back to examine the situation, analyzing dozens of the company’s innovation projects—especially failed ones— as well as the literature to try to find a pattern that would help reveal the root cause(s) and potential remedies.
The scaling of new entrepreneurial ventures has been extensively studied and has focused on the organizational growth challenge. An article published in the Academy of Management Annals by Desantola and Guliati in 2017 referenced over 80 peer-reviewed articles. To be successful, new entrepreneurial start-ups need to scale from just a few people to 100s or 1000s of employees to manage the new business. Unfortunately, the founders, who are typically technically skilled, lack the organizational competencies to manage the complex tasks and interdependence that accompany the new scale. Reid Hoffman, one of the founders of LinkedIn, indicates in his HBR article on Blitzscaling (2016) that while he had the competencies to start a business, he lacked the bureaucratic skills to scale the business. Scaling of transformational innovations in large companies is fundamentally different than in startups, as large companies already have an organizational bureaucracy in place optimized for sustaining the core business.
Ambidextrous Organization
Clayton Christensen was the first to address the organizational issues in his seminal 1997 book The Innovator’s Dilemma, which examined large and successful firms' difficulty in executing transformational innovation. Christensen’s solution to this problem was an entirely separate organization for these radically new ideas, a Skunkworks-type unit that accesses separate resources, has different priorities and uses different processes from the core business. In Christensen’s vision, these autonomous units would employ an iterative learning approach that allows for multiple pivots rather than the sequential waterfall processes typically used for incremental or sustaining innovations. However, in 2004, Charles A. O’Reilly and Michael L. Tushman suggested another solution in an HBR article, “The Ambidextrous Organization.” Examining companies that succeeded at transformational innovation, O’Reilly and Tushman concluded that the real solution is ambidexterity—developing the ability to “exploit the present and explore the future.” O’Reilly and Tushman said an ambidextrous organization is “…90% more effective at developing transformational innovation than a skunkworks.”
Company Fit Risks - Resource, People, and Process (RPP) Mismatch
Clayton Christensen introduced the idea of resources, process, and priorities, or RPP, in a 2006 HBR article, “Assessing Your Company’s Capabilities: Resources, Processes, and Priorities.” Simply put, RPPs define how a company gets work done. (See Appendix 1). The sales team may have personnel and relationships with distributors and not with final consumers; the purchasing department might have a process for approving new vendors; the legal department may be focused on protecting core intellectual assets. RPPs evolve organically from a business’s strategy and core business, and for a good reason: They increase operational efficiency, keep things running smoothly, and optimize the core business. Their resistance to change or redirection is part and parcel of that optimization function—RPPs keep the company on track. The problem arises when the company tries to rely on its existing RPPs, which have been optimized for the company’s core business model, to support a transformational innovation business model with different requirements. The result is a potentially fatal Company Fit RPP mismatch.
The Company Fit problem can be further exacerbated if the transformational innovation is beyond the company’s core market, business model, technical, and/or operational capabilities. Data obtained by Bain and company in their study of 154 companies found that only two steps away from the core reduced the success rate of the new innovation from 35% (one step) to 20% (two steps). One step in the business model innovation could be new customers, or it could have been a change in the technology, supply chain, or even some other important part of the business model.
The resistance to the Hawthorne project came from conflicting RPPs or poor Company Fit. The legal team’s priority was to protect the core business, while the Hawthorne team’s priority was to explore new business models. Similarly, the sales team prioritized the company’s highest-margin products, while the Hawthorne team prioritized exploring new revenue streams. And the IT team lacked the resources to change processes that had been optimized for the high-value, low-frequency transactions typical of the company’s core business. The resistance that felled the Hawthorne project was not born of a lack of desire or any sort of malice; it was simply a matter of Company Fit RPP mismatch.
The Sneaky Nature of Company Fit Risks
Failure due to RPP mismatch is frustrating, as it often manifests as it did for the Hawthorne team—as an accumulating catalog of seemingly minor delays or compromises. Any single delay is probably not enough to jeopardize the business, but the small obstacles added up to delay the new business to the point of failure. In the Hawthorne project’s case, Intel as an organization had significant assets and scale advantages relative to the startup competitors, but the mismatch in processes and priorities between Intel’s core business and those needed for the Hawthorne project created numerous small delays and compromises that ultimately rendered it uncompetitive with the small startup.
To compound the issue, senior executives don’t often experience Company Fit RPP issues directly since they can use their positional authority to resolve many of them. Indeed, teams can turn to executive champions to help resolve individual issues, but continual escalations to senior executives to remove what seemed like trivial roadblocks for early-stage businesses that are insignificant in comparison to the daily issues of the core business is not a great use of executives’ time—and it’s probably a smooth path to a short career for the person who takes that route too many times. To make matters worse, every failure creates organizational memory that makes every future attempt at truly transformational innovation even more challenging. Every time a transformational business project fails, RPPs become more deeply entrenched with the core business.
The Difficulty in Identifying Company Fit Risks (explicit vs. implicit)
Furthermore, identifying Company Fit RPP alignment challenges is problematic for several reasons. First, RPP alignment challenges exist at multiple levels within an organization. Some processes and priorities are global to a company, but different groups within the company may have their own microcultures with different, locally optimized RPPs. Second, a company's processes and priorities are not typically well documented and not accessible in one place; where they are documented at all, those documents are not specific down to the group microculture level. Third, they’re not always explicit; implicit Company-Fit RPPs can be deadly to a new business model innovation. Explicit resources, priorities, and processes are consciously allocated and defined by management. For instance, corporate mission statements and strategic priority documents express explicit priorities. A manager allocating resources to a business important to a documented strategic priority is aligning resources with priorities.
However, addressing only explicit RPPs won’t address all the issues a new business project will face. Often, a company will have a set of implicit RPPs—unspoken priorities and processes that drive resource allocation and mindshare—that are far more challenging to identify and resolve. For instance, the decision that was made, long before the Hawthorne project failed, to optimize the sales system for distributors implicitly signaled that small, high-frequency transactions were not a priority—and, consequently, direct sales to consumers were not within the company’s ambit of concern. Changing that priority, as the Hawthorne project required, would have demanded deploying additional resources and new processes.
Many implicit RPPs are embedded in the company’s culture at the corporate and functional or business group levels. They can be found in the stories the employees tell and retell about what the company can and can’t or will or won’t do. Implicit priorities can become particularly dangerous when the relationship between a key performance indicator and the underlying core business strategic objective it is intended to support is forgotten, and the metric becomes an unintentional proxy for the strategy itself. The metric can become dogma without a conscious understanding of when and why it matters, making it nearly impossible to debate or justify an exception. Changing implicit priorities that are embedded in the culture requires a cultural change, which is a challenging and slow process.
