Bringing Silicon Valley Inside

Who ever thought that safeguarding the brands, assets, and customers that made your company a success would constitute risky behavior? But these days it is—if it’s all your company is doing. By conserving resources and honing operational efficiency, established companies try to guarantee that there’s never an unexpected downside. In so doing they often miss out on the real action in today’s economy—capitalizing on the upside potential of new ideas.

Companies like Cisco, Dell, MCI WorldCom, and Southwest Airlines didn’t achieve such staggering growth just by squeezing more efficiency out of their operating processes. The game they play is called wealth creation—the generation of entirely new markets, businesses, and business models. To win at this game, these companies have internalized the best practices that Silicon Valley start-ups use to foster innovation—and they’ve reconceived the way they think about resources.

The Idea in Practice

In most corporate structures, a good idea must run the gauntlet of skeptical and cautious executives. Resources are typically allocated based on estimates of where the profit margins are highest—and most immediate. This process of resource allocation is well suited to perpetuating existing businesses; it helps limit the potential downside of any project or idea. But it also tends to smother the most innovative ideas—the ones that have the potential for creating markets and businesses that didn’t exist before.

For the new corporate creators of wealth, however, the ultimate goal isn’t operational efficiency, risk management, or even incremental improvement. They’re after industry-revolutionizing concepts, and they’ve retooled their organizational structures to capitalize on these ideas. The primary mechanism here is resource attraction, which relies on the power of a good business idea to attract the necessary capital and the best talent. With the internal barriers to resources removed, an idea can run for all it’s worth.

Resource attraction requires an organizational climate with the following characteristics:

• No single person in the hierarchy can kill a great idea. Instead, power is diffuse, and there are many sources of capital.

• A good idea can come from anyone—including middle- or lower-level employees. There’s no prejudice about who is capable of producing a new business model.

• If an idea does well in the marketplace, the innovator gets rewarded—handsomely, and with equity.

Established companies can learn to internalize this free flow of ideas and corporate resources; they too can create a culture that encourages every employee to innovate. Example: 

92-year-old oil giant Royal Dutch/Shell developed its GameChanger process to enable unconventional ideas to circumvent the usual approval gauntlet. “Innovation labs” bring small groups of employees together, provide them with examples of radically new thinking from outside their business, and then encourage them to produce “nonlinear” ideas. “Action labs” then help employees develop 100-day venture plans for conducting low-cost, low-risk tests of the best ideas that get generated. Ideas that are approved really get the green light: they can receive as much as $600,000 within eight days.