He wanted to fund those with the potential to generate large gains if they were successful. Then, Cote focused on fewer, higher-impact projects than the firm traditionally pursued. Over time this freed up cash that the company could use to invest in projects with a 4- to 6-year future payoff. After that was cleaned up, he moved on to adopt more progressive management techniques very like the Toyota Production system, called the Honeywell Operating System (or HOS). Aggressive accounting, capitalizing R&D, distribution loading, and “make the numbers” meetings with finance were all contributing to an unhealthy system that would be doomed in the long run. When he arrived at the company, he found an endless number of creative ways managers were meeting quarterly projections that did not reflect reality of the business. At Honeywell, Cote’s first big challenge was getting the “today’s business” numbers in order.
If your gap is large and your portfolio doesn’t look likely to fill it, that’s a very strong signal that you have to start doing things differently. One metric that can track this is the Imagination Premium, which is a measure of how willing investors are to pay a premium for a stock based on its potential for growth. If you don’t, you are going to have to change direction or you’ll miss your growth targets and will likely be penalized for it. Ultimately, you’re examining whether you have projects that are potentially capable of closing the growth gap, recognizing that your existing core business is likely to experience a decline over time.
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Next, you need to have a look at your portfolio of opportunities - the projects and programs that you are working on right now. Essentially, this involves three things: assigning spending to what is necessary to keep today’s business going, deciding on what to invest in the next generation of your core, and figuring out how to explore options for the future that offer long odds on a huge return. As explained in his book, Winning Now, Winning Later , and in an interview with Fortune, he clearly articulated this growth gap and insisted that the four big overhead functions - finance, human resources, legal and IT - hold their annual dollar outlays at 2003 levels “forever.” He joined the firm in 2002 with the goal of doubling sales while keeping costs in check. Typically, they are paying a lot more attention to day to day performance, as Oyster International’s Don Laurie and Harvard Business School’s Bruce Harreld describe.Ī useful way to shake up the status quo a bit is to ask your organization to articulate their growth gap - in other words, at some point in the future, how much new growth do you expect to get and where will it be coming from? The first thing is to figure out what that aspirational growth number is this fun video explainer from Innosight explains how.Ī terrific example of an organization that used this way of thinking to pursue both performance today and innovation for tomorrow is Honeywell, under the leadership of former CEO David Cote. While it’s quite common for executives to promise their investors both performance and growth, the reality is that they are seldom set up to deliver both. By then, you will know what projects are essential to succeed, how you will get projects into your portfolio (and which you might need to get out of it), where your innovation and growth unit will be located, and how you’ll start to work in earnest with a few small projects. In my experience, you can work your way through them, ideally with a little experienced guidance, in about 30 days.
In my work advising senior teams on strategy and innovation topics, I’m getting a lot of inquiries along the lines of, “We need to create an innovation capability, but we don’t know where to start.”Īsking yourself these five questions is a good place to begin. With so much uncertainty about, well, everything, people are realizing that innovation - the process by which new things create value - is essential to thriving going forward.
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