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Managing Conflicts between Needs of the Core Business Simultaneously with Innovating for the Future

By June 14, 2011Article

Many executives in the Sand Hill Leaders in the Cloud study said that they felt decidedly tied down by historical investments in infrastructure, data files, and organizational obstacles to cloud adoption. At the same time, they were keenly aware that cloud computing offers a compelling opportunity to renovate their philosophies, skill sets, and service models and boost their business value in the cloud era.
In many cases, the respondents sought to foster cloud innovation for new initiatives while retaining traditional systems for their core businesses.
However, competing demands between core and innovation business units often tend to get resolved in favor of the core business. The reasons for this are many and include:

  • Leaders of the core business are focused on current demands, short-term revenues, and profitability goals. Consequently, they ignore innovation projects that are focused on future demands and longer-term opportunities. More often than not, they view these innovations as a distraction at best or, at the worst, a threat to the company’s identity and values.
  • Innovation projects typically lack the scale and resources of the core business. Companies often perceive the investment in such future-oriented projects as disproportional to the returns in the present-oriented core business projects.
  • Innovation business leaders may not be represented at the executive table.

As a company’s present-oriented core business is critical, the tendency is to favor consistency, stability, and evolutionary innovation to support the current business. In contrast, focusing on innovations that will drive the company’s future requires innovating in a radically different, revolutionary manner.
How can companies create organizational structures that encourage innovation by leveraging the cloud for competitive advantage and at the same time manage their core business effectively? How can companies balance the old and the new?
Recommended strategies for capturing competitive advantages of the cloud
Sand Hill’s “Roadmap to Cloud Success: How to Get There?” white paper outlined eight steps to jumpstart any company’s journey to the cloud. Following these steps is a necessary beginning to achieve initial success; to leverage the full benefits of the cloud for competitive advantage, companies need to rethink their organizational structure. As explained above, cloud computing is a disruptive innovation that challenges the “old guard.”
To successfully compete in the cloud era, companies must get on an accelerated innovation path and develop the ability to take full advantage of disruptive technologies like cloud computing. This requires:

  • Obtaining buy-in from the top: CEO, executive management, and the board
  • Committing to deliver IT with radically improved efficiencies
  • Spinning-off an independently managed business unit with a distinctly different, innovation-focused culture

Bottom-up innovation is important, and companies should allocate time/funds for this. However, in order to generate sustainable innovations over the long term, company leaders should not leave the innovations entirely to the people on the front lines. Why? Because the conflicting demands of the core business focused on the immediate present will eventually kill such grass-roots innovations.
A tried-and-true strategy to encourage innovation is to set up a “sandbox” that actively embraces cloud computing approaches.
For maximum impact on the business, this sandbox should be a separate business unit that is close enough to the “mother ship” to borrow funds, but far enough away not to be colored by the traditional way of thinking. More importantly, this new business unit should focus on learning and applying the new technology to efficiently meet business objectives as quickly as possible.
This business unit should report directly to the CEO and should be freed from the legacy organizational system, process, structure, and mental models. In order to create a new cultural mindset with cloud-forward thinking, this unit should bring in staff from the outside and aggressively embrace the new business with a new set of metrics.

“Figure out a way to open a sandbox business unit across the street that is independently managed. Challenge them to apply innovative cloud technologies by starting from scratch. If they don’t start from scratch, they won’t make it. Don’t try to convert the existing systems and fool yourself into thinking this is an evolutionary process; you will not be able to match the pace of innovation, much less the cost efficiencies of your competition in the cloud.” – VP Technology, cloud software company

Kamesh Pemmaraju heads cloud computing research for Sand Hill Group. Follow him on Twitter @kpemmaraju.

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