The Innovation Planning Paradox

planningConventional wisdom is that a robust planning process is crucial for long term financial success. Countless books, articles and consultants emphasize the importance of long-term planning in managing innovation. Surveys suggest that companies with effective planning processes are more satisfied with their ability to innovate. For some companies, the new product development (NPD) planning horizon may be measured in months, but in other industries such as pharmaceuticals and chemicals, it may be measured in years. A recent biography of Bill Cook (1), an entrepreneur who started Cook Inc., a private Indiana-based +$1B medical device manufacturing company, made me wonder: Is a formal, robust long-term planning process a necessary condition for innovation success? 

Bill Cook is the quintessential American entrepreneur. He started Cook Inc. in 1963 with a $1,500 investment and grew it into a more than $1B private medical device manufacturer. Many innovations related to catheters and stents were introduced by Cook and today the company competes with large public companies such as Johnson & Johnson. While Bill Cook passed away in 2011, his family retains ownership and carries on the tradition.

A biography was published in 2011 and traces the history of this very successful company. There were, however, several sections and passages that caught my attention. For instance, here is a quote from Chapter 13 on Bill Cook’s business philosophy:

Cook“A business or a personal plan is a perfect excuse for not seeking a better, alternative direction.” No “five-year plans” for him. “I get no pleasure from making out a business plan. I’ve made one or two in my life, and I thought to myself, ‘How ridiculous! If I get halfway down this thing and what I’m saying doesn’t work…?’ So why make long-range business plans-one, two, three, four years? I try not to go too far ahead in my thoughts, even when I invest up to $100 million, $200 million. My only thinking is how to get the plant built, what kind of money will be needed for that plant, and how to get from one day to the next, financially, until you’re getting product. I don’t think of tomorrow. I think eventually there will be a return.” (2)

And here’s another one:

“The first day I met Bill, he said, ‘We don’t do budgets. If you need something, you buy it. If you don’t need it, you don’t buy it. Budgets don’t help you.’ And he said, ‘We don’t do presentations. If you’ve got an idea, go do the idea. Don’t waste my time telling me about it and waste your time putting a story together.’ And he said, ‘We don’t do business plans. You write things down, they become obsolete, you try to follow them-that’s a bad idea.’ (3)

This biography, and these passages in particular, struck me in several ways. First, it clearly delineates the difference in thinking between private and public company CEOs. When have you ever heard the president or CEO of a large billion dollar public company make these types of statements, particularly in terms of planning and budgeting, and the confidence in making informal decisions just because they know “there will eventually be a return”? At least in the case of Cook, they resist long-term planning but that does not mean they act as if short term financial goals are most important. On the contrary, they are willing to wait for the financial return. Public companies may spend an inordinate amount of time planning for the long term, possibly because “that is just what we have always done” (e.g. process and organization inertia), but then turn around and make decisions strictly based on short term financial gain. That also translates to the fact that public companies, in my opinion, tend to emphasize low-risk product extensions vs. the creation of truly new knowledge that can represent additional sources of revenue (4). Quarterly results are everything in most public companies and what is safer in producing revenue (at least in the short run) than a product extension where the market and technology is presumably well understood?

The engineer in me influences my belief that planning is more important compared to how Cook views the planning process, though I cannot argue with their success! I do think though that this potential “planning paradox” as I titled this article, may not really be a paradox at all, but illustrates how the innovation planning process (for instance all the sub-processes involved with the “fuzzy front end”) has to be viewed in the context of the specific company, culture, industry and competitive landscape. What works well for one company, may not be appropriate for another company.

An important aspect in planning is the need for project prioritization and resource allocation. No matter the size of the organization, there will always be many more potential projects than can be supported by the resources. I have seen many companies, small and large, where the entire new product development process grinds to a halt because of “portfolio entropy” (5). I believe there is a great danger with Cook’s philosophy that “If you’ve got an idea, go do the idea. Don’t waste my time telling me about it and waste your time putting a story together.” That could mean that every project becomes a priority. I have seen this time and time again. If every project is a priority, than the entire NPD process will become sluggish over time and produce sub-optimal results.

In general, I believe the planning process itself is far more important than the end result of the process. In other words, the output of the planning process may be a report, it may be a presentation. What is most important, however, is the process to get there. If done right, the process leads to a shared understanding of the issues that the organization faces in using finite resources. That shared understanding of priorities, threats and opportunities is extremely valuable and you cannot move an organization’s collective thinking without a robust planning process. This is especially true in times of crisis when a change of direction or culture is important.

ChangeI do completely agree that one of the dangers in planning is that the organization becomes too invested and will not deviate from the plan once it’s in place. That is the role, however, of senior management. If there is a lack of engagement and leadership in this regard by the senior manager responsible for the business, than that is not the fault of the planning process. It is a failure of leadership. In many instances, it is a case of not making decisions and changing course fast enough. I often tell senior managers in my Innovation Coach Workshops (6) that when it pertains to decision making, “no decision is a decision”.

I also concur that you can spend too much time planning and disregard the need to execute effectively. In many fast-moving dynamic industries, for instance in many consumer goods, executing effectively and quickly may be more important than the absolute quality of the plan. This may also have been true at a company like Cook.

Another thought is that for companies in specific industries with unique competitive landscapes where the company is growing very fast, such as was the case for many years at Cook, than planning may not appear to be very important. Why? Because high growth rates can compensate for a lack of planning. The dilemma in this argument is that you can never prove if a company in this situation could have performed even better if there was a more robust planning process. My point is that you need to be careful in concluding that for your company, in your industry, that just because there are examples like Cook, there is no need for you as the senior manager to do the hard work of planning. And make no mistake, it is a very time-consuming, difficult process. It is full of ambiguity and in general, we much prefer the excitement of executing on short term activities that seem more real to us. Not something that could potentially happen in 2, 3, 4 or more years in the future.

VisionaryCompanies like Cook are unique in another way. It is, in my opinion, a less well-known example of a company similar to Apple under Steve Jobs. Similar to Apple, it is a company that was started and led by a visionary for its entire existence. And not just any owner, but a very hands-on leader who was intimately involved in all new product decisions. He understood the market. He had relationships with the doctors and research institutions where so many of the ideas for new products came from. In these cases, planning processes in general may not be as important. This is the exception, however, and most companies must have effective processes in place to be successful over the long term. Again, context is important. What is right for one company will not necessarily work for another.

So in summary, I believe planning processes are in general important but matching the right type and amount of process to the specifics of the company is just as important. Just because a specific set of practices work for a company like Cook does not automatically mean it will work for your company. “Best practices”, so to speak, are only best for the company using them! It also illustrates that there is much we can learn by reading and considering what happens outside our “four walls”, so to speak, and incorporate good ideas from wherever they come from. This is one of the ideas that I emphasize in my Innovation Coach Workshops (6) previously mentioned.

How does your company’s culture compare to Cook’s? Do you emphasize planning more or less than compared to a company like Cook? How are resources allocated for new projects? Do you find that your project portfolio tends toward a higher level of chaos (e.g. entropy) because there are too many projects for the available resources?

Notes:

  1. Bob Hemmel, The Bill Cook Story. (Bloomington, IN: Indiana University Press, 2008)
  2. Hammel, pg. 208
  3. Hammel, pg. 310
  4. See for example, this article: Are Companies Becoming More Risk Averse in New Product Development (NPD) Decisions?
  5. See this article: Assessing Disorder in a New Product Development (NPD) Process.
  6. Click here information on the Innovation Coach.

New Product Visions is a consulting company that helps organizations improve the effectiveness of their new product development processes. We specialize in small to mid-sized companies that manufacture highly engineered products. Contact us today about how we might help you!

Specialties: NPD consultants, new product development consulting, developing new products, new product development seminars, small business consulting, new product development expert, product development process, new product development strategies, integrating NPD for mergers & acquisitions, organizing for innovation, management role in NPD, project risk analysis, innovation management

 

 

4 thoughts on “The Innovation Planning Paradox

  1. Cook as has been mentioned was a hands-on visionary leader and probably retained a small retinue of key staff and he did away with innovation planning. What was probably important to him is a road map or trajectory of the things he wants to in a year’s time and he did not have to document it. He was also probably in a self-financing mode and did not involve himself into large long-term project that might involve long-term large-scale financing so he did not need a comprehensive plan. For highly innovative companies owned by a single proprietor, this is probably the way to go as they did with their product development.

    • Gerardo, yes, I think that with a company like Cook, where the founder was so intimately involved with new product development, and in a very lucrative niche medical industry, it obviously worked very well. The problem is when the company transitions to new management and into new more competitive markets, I don’t think it will work well. It is an interesting question to ponder. Thanks.

    • Dennis, that is a very appropriate quote. I will always tell my clients that the documents that come out of the planning process are not as important as the process you go through to generate them. That is exactly what this quote means. Thanks for sharing.

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