Building value

Peter Thiel has an excellent lineage for creating value through innovative company's. He co-founded Pay Pal, was the first outside investor in Facebook, and started Palantir Technologies - a big data analytics company valued at $20 billion.

In his book "Zero to One", Thiel classifies value as the sum of the money a business will make in the future. The ability a business has to reach that intended value lies in its ability to dominate the market it operates in.

Thiel suggests four different types of areas to measure your company against when seeking that potential:

1. Proprietory Technology

Proprietory technology is the heart, but not all, of the innovation that sets a company apart. Thiel suggests that the company's technology must enable the company to perform an essential aspect of the offering at least ten times better than the alternative.

2. Network Effects

Network effects are an offering's ability to appeal to a defined market strongly. The principle is that the offering gains strength as more people use/buy the offering. An example of this is a typical market like Apple's app store.

3. Economies of Scale

Profitable businesses should build a limited fixed cost that does not increase at the same rate as growth.

4. Brand

A brand is a promise from a company on its ability to deliver a product or service. For a brand to be valuable, the promise must stand out when compared against the market competition.

Businesses can build value through various paths, but a company on route to building good future value will display all four of these characteristics.

Culture VS the Innovator

Culture has often described as the mystical component to a company's competitive advantage. Culture guides people through choices on the path to generating value for a company. Yet, many companies face profound cultural challenges to innovation.

Changing organization culture can be challenging. Edgar H. Schein, in his book "Organizational Culture and Leadership" suggests a path to changing company culture for corporate innovators. The root cause lies in the way a group engrains a belief as a culture.

Groups habitually select their beliefs from a group's leader. Typically when a group is faced with a decision, a leader will offer a recommended solution. Once that solution yields a positive outcome, the group accepts the idea initially as a value but then, later on, and continually reinforced, as an assumption.

It is these set of assumptions that guides groups to recognize situations and select suitable responses. Furthermore, they function as a mechanism to reduce uncertainty and slowly convert into non-discussed rules for the group. Innovation inherently challenges assumptions and in doing so, drive the group into uncertainty. With uncertainty comes group anxiety which the group interprets as a source of pain. The group then naturally and cognitively moves to defend itself against the sources of discomfort and pain. These defence mechanisms (denial or rationalization) are more accessible to invoke than the process of validating new assumptions.

Since culture is a deeply accepted group of assumptions, an innovator must first determine the set of assumptions the organization supports. Once found, an innovator must ascertain the benefit they bring to the group. Lastly, an innovator must know how calm and diminish the rising levels of group anxiety a change might bring. In doing so, pave the way for cultural acceptance of the innovation-driven change.

Leading Teams that Innovate

Ayse Birsel writes a provocative article with the title "To come up with a good idea, start by imagining the worst possible idea". To find good ideas to enable innovation drivers, Birsel suggests that leaders should change their role. Leaders should set the boundaries then transform into a collaborator function to allow the team to solve problems in their own way. By facilitating the innovation process leaders empower far more people with a greater focus. When lead with skill, the outcome is a sustainable generation of solutions with more meaningful potential.

Birsel recommends three steps for leading innovation in this way:

1. Divergent initiating

In this freeflow process, initiators must encourage divergent thinking to generate a large number of new ideas.

2. Look ahead

Innovation leaders must have the ability to identify future problems that will need solving accurately. Once identified, these problems must be presented to the team to take problem-solving ownership. Finally, teams must possess the organizational empower to generate and implement the solutions they generate.

3. Flat rather than deep

Leaders must remove hierarchies which present friction to the problem-solving process. Cross-functional teams with high-quality connections are optimal patterns for collaborative solutioning.

While the leader's role is pivotal to any innovation team, Birsel builds a strong case for a collaborative building leader. The result is empowered teams that can maximize their combined efforts.