Four Forces Trapping Value and Blocking Internal Innovation in CPG

I used to think it was just the company I worked for that had the problems but when I left and started my own agency, I found clients regardless of industry suffer the same problems. Things should be running more smoothly, but they’re not. Department leaders should be collaborating more, but they don’t. Results should be better, but they aren’t. And why can’t we be more innovative internally? Often it boils down to four common obstacles that trap value and block innovation.

The Issue of Verticality

This one you probably already know. The organizational line of sight to the value chain is vertical; that is, your organization lives in silos. Goals are deployed vertically, performance is measured and rewarded on vertically produced results and span of control is vertically defined. As a result, self-interest for everyone in the organization is vertical. The problem is that value is developed, produced and delivered through a horizontal value chain. Optimizing each part individually (vertically) leads to sub-optimizing the whole. Anyone that’s seen the fights between Procurement and Manufacturing knows what I’m talking about. Or Marketing and Sales. Or, [fill in the blank] with [fill in the blank]. The issue of verticality results organizational dysfunction (see MIT’s Beer Distribution Game) and trapped value.

The Tyranny of Expertise

Everyone starts out in business as a learner. As you learn and become proficient in certain areas, people progress to become “knowers” and then experts. People get rewarded for their expertise financially, socially or a variety of other ways; especially as their expertise deepens. All good until the experts begin protecting their expertise, and the rewards that come with it, by protecting the status quo. It’s a problem Cynthia Barton Rabe, former Chief Innovation Officer at Intel, called in her book The Innovation Killer, “the paradox of expertise”. If you’ve ever tried to recommend a change to someone in your company known as an expert, you probably have run into this problem. This problem also leads to “functional fixedness” (see The Candle Problem). The Tyranny of Expertise makes businesses blind to better ways of doing things.

The Growth of Process

Process grows for a variety of reasons; it never goes away on its own. It grows when mergers take place and when businesses restructure. Process increases due to workforce reductions (yes, process is added when people leave), organizational changes and process failures (e.g., something goes wrong and to keep it from happening again, a process is put in place). And people actually find their identity, stability, security and reward in process. Think about it. People talk more about what they do (their process), not what they produce (their outputs). As a result, people are inclined to grow their significance by growing their process. Process stifles innovation.

The Reinforcement of Culture

A business’s culture preserves the status quo. Every culture is defined in part by “what we do” and “how we do it”. Culture provides identity (who we are) and differentiation (why we’re special). The culture is then preserved through both explicit and implicit reinforcement of norms, discouragement of violations and the transfer of norms to others (see …A Scary Reality). Thus, culture vigorously defends and preserves the status quo. We’re Maintenance. Here’s how we do things in Maintenance. We’ve been doing them this way for a long time and it’s been working just fine. We’re special because when we do things the way we do them, we keep the plant running. This plant depends on us in Maintenance. We’re important. Don’t try to change what we do because I don’t want you messing with my identity, differentiation and importance.

As a result, CPG businesses (and those in other industries as well) are often sitting on top of mounds of trapped value (i.e., productivity and cash flow) and a full pipeline of innovations that would give them better results if they could just somehow overcome these obstacles. I’ve been able to help them using an End-to-End™ approach. What ways have you used to overcome these obstacles? I’d like to hear from you.