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Companies that have led their markets for years or decades sometimes get complacent and think they know what the market needs better than customers do. With that kind of attitude, they will eventually lose touch with true customer needs and allow others to sweep in to displace them. Even well-run companies can suffer from this affliction. The question is whether they will recognize it in time to do something about it.


When I joined Hewlett-Packard Company as an engineer fresh out of college, I discovered HP was proud of the fact they did market research using a method known as the “next bench syndrome.” As Dave Packard explained in his book, The HP Way (Harper Business, 1995), when R&D engineers wanted to know what new products to develop, rather than talking to real customers they would walk across the room and talk to the engineer sitting at the next bench. Whatever that engineer needed would probably appeal to paying customers.


During its first decades of existence, that was an effective strategy. HP manufactured test equipment for electronic design engineers, so the needs of the HP engineer sitting at that next bench were remarkably similar to those of paying customers. Even when HP made its first foray into the computer market, that strategy worked. The wildly successful handheld calculator product line launched in 1972 was designed to replace an engineer’s slide rule.


HP45 calculator was designed to replace an engineer's slide rule. (Photo by the author)

As HP grew its computer and printer business, it began serving large markets where the needs of a typical customer didn’t closely match those of the HP engineer sitting at the next bench. That put the company at a disadvantage. HP R&D engineers were used to talking to each other, not to marketing, about ideas for new products. In the divisions where I worked, R&D treated marketing as a second-class citizen whose job was to sell the products R&D developed, not to conduct market research that would help R&D know what products to invent. This meant market research was not a skill those marketing departments had developed.


Even when HP entered the desktop computer market in the 1970s, they continued with the “next bench” strategy. Their first computers were targeted at electronic design engineers who wanted to automate their test setups. Although those computers sold to other customers, it wasn’t because they were ideal solutions but because at the time, the industry was in its infancy and there was nothing better available.


That changed in 1981 when IBM introduced the first DOS-based desktop computer. It was the product that moved the personal computer industry out from the domain of a few early adopters and into that of mainstream customers. Soon, a range of secondary manufacturers were producing IBM-PC compatible clones, although the degree of compatibility varied widely by manufacturer.


HP claimed its first DOS-based personal computer, the HP-150, was better than IBM’s because it was the first to have a rudimentary touchscreen. But it had one major problem: it could not run standard versions of many of the most popular software programs of the day—spreadsheets like Lotus 1-2-3 and word processors like WordStar. HP’s product development was still led by R&D engineers driven by technology rather than marketing engineers attuned to customer needs.


To its credit, HP recognized the need to rectify the problem. Product lines in the computer and printer businesses eventually developed robust processes for market research and product portfolio management, which is one reason today’s HP is the world’s largest manufacturer of inkjet and laser printers and the second largest manufacturer of personal computers.


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An innovative culture starts at the top. The company’s senior leaders—its C-suite of officers—have the most important responsibility in the entire process: they must articulate the company’s “purpose for being”—the company strategy. Without that, everyone else in the organization will lack the guidance they need to be effective at innovation.



The first step for the senior leadership team is to develop mission and vision statements. A mission statement describes what the company is today: its purpose, values, and primary focus. A vision statement describes what the company wants to be in the future.


A company mission statement serves multiple audiences. It helps customers understand the value the company provides. It gives investors insight into the potential value of the company in which they are investing. It helps employees understand the business priorities. And it offers mid-level managers guidance as they develop the plans for their own business segments.


Company mission statements range from the very explicit to the very general. Ideally, a mission statement should be:

 

  • No more than a few sentences long. One or two sentences is best.

  • Inspiring to employees, clients, and for public companies, shareholders.

  • Explicit without being too limiting.

  • Not overly detailed. It should allow for innovation in markets of interest to the company, even ones not currently served.

  • Able to stand on its own, although it can be supplemented with additional detail to resolve uncertainties.

 

A mission statement written at a very high level can be inspirational to customers and investors but will be less helpful to the internal organization. In that case, it should be supplemented with an added level of detail.


Let’s see how one company has done this. Here is Microsoft’s mission statement as published in its 2023 annual report:

 

Our mission is to empower every person and every organization on the planet to achieve more.

 

Most experts see this mission statement as a vast improvement over Microsoft’s previous one, “A computer on every desktop and in every home.” I agree, although I will be quick to say Microsoft’s original mission statement was appropriate for its time. But Microsoft has evolved over the decades, and its mission statement also needed to evolve. In 2014, newly appointed CEO Satya Nadella recognized that Microsoft was suffering from a mistaken belief that it knew more than customers did. He drove a culture change away from being a company that thought it knew everything to one that wanted to learn everything.


One of the first changes Nadella made was the new mission statement. It goes beyond computers on desktops. It grants Microsoft permission to pursue important new markets such as cloud computing and artificial intelligence. It also legitimizes the vision of releasing versions of Microsoft applications that run on Apple hardware (I am writing this very text in a version of Microsoft Word running on an iPad, a concept that would have been unimaginable a decade ago).


But if I were a mid-level manager in Microsoft, I would find this mission statement too vague to help me build a plan for my own business unit. There are numerous ways to “empower every person and organization on the planet to achieve more.” Many are outside Microsoft’s scope of business. (Does Microsoft envision entering the consumer financial planning market? Will they launch a career coaching enterprise?) And what about the “on the planet” limitation? Are the International Space Station and upcoming journeys to Mars outside of Microsoft’s scope?


CEOs and outside consultants are likely to roll their eyes and dismiss such questions as coming from someone not on board with the message. But I have presented mission statements to teams often enough to know these are exactly the kinds of questions a CEO must be prepared to answer. This is especially true for high-tech companies. Engineers, naturally skeptical of anything said by senior managers, are especially prone raise these kinds of questions.


Fortunately, Microsoft didn’t stop with its high-level mission statement. Its 2023 annual report also includes a level of detail that puts hard bounds on its mission:

 

We strive to create local opportunity, growth, and impact in every country around the world. We are creating the platforms and tools, powered by artificial intelligence (“AI”), that deliver better, faster, and more effective solutions to support small and large business competitiveness, improve educational and health outcomes, grow public-sector efficiency, and empower human ingenuity. From infrastructure and data, to business applications and collaboration, we provide unique, differentiated value to customers.

 

This added detail frames the company’s mission without being unduly restrictive. While it may not be as important to customers and investors, it is what the internal organization must know to drive innovation.

Mission and vision statements sometimes get a bad rap these days by people who consider them “fluff” that has little value. But if you understand why they are important you can craft statements that empower your employees to be innovative.

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I will get right to the point. The biggest threat to innovation in any company is its senior leadership team: its C-suite of officers. They may write inspiring articles in company newsletters. They may stress the importance of innovation in company meetings. But if they don't practice what they preach, innovation will founder.


This is especially true when it comes to supporting disruptive innovation--the high risk, high potential return investments in new technologies for new markets. Venture capitalists know that when they invest in a disruptive innovation startup, there is a good chance it will not succeed. They are okay with that because they know the return on investment from the startups that do succeed will more than offset the losses from those that don't. But too many leaders in the corporate world expect every investment to pan out. If it doesn't, the managers who led that investment will likely find their careers derailed. It's a surefire way to discourage those managers from working on truly innovative projects.


Disruptive innovation will only succeed if it has the time and resources necessary to deliver. The best way for the C-suite to encourage this is to commit a specific multi-year dollar amount for investment in disruptive innovation and leave it alone. Assume it to be a totally sunk cost and that any positive return is an unexpected benefit. This takes a level of commitment not seen in many senior leadership teams. It also means those leaders must have confidence in the mid-level managers who lead those innovation projects. And since so many disruptive innovation projects will not pan out, the investment should be spread out across several smaller projects than on one big bet. Once a project has proven it has a strong possibility of success, its investment level can be increased to drive it to completion.


I'd love to hear what you think and whether you see this problem in your own organization.

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STEPHEN W. HINCH

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