How to Innovate in a Regulated Industry

By Anuraag Verma and Nathan Snyder, observer.com
We’ve given and attended enough workshops to know that virtually every corporate innovation team is familiar with the concept of lean. Build, measure, learn, iterate. You get it. You may even buy into it. But you incur insurmountable hurdles when you actually attempt to do it.  
What is blocking you and your
organization from innovating? Probably not a lack of inspiration or ability. It all feels so attainable after walking out of the workshop. You ideated, you prototyped, you brainstormed. Monday morning rolls around and you’re fired up. You schedule a meeting with you boss and share your scheme to transform your organization. By Friday you’ve been turned off, shut down, and are back to business as usual.
After one particular workshop, a Fortune 500 executive remarked, “[Lean] may work well for a startup, but we have 75 years of established processes in place.” The “But-That-Won’t-Work-In-My-World-Syndrome” is not entirely uncalled for. Indeed, most lean workshops seem to gloss over the challenges that an average enterprise product team faces on a daily basis. What may be a simple decision for a startup, requires consent from dozens of stakeholders at a corporation. Not to mention someone willing to put their job on the line to stand in the way of risk-averse inertia.
These problems are even more pronounced in industries such as financial services and healthcare, where complicated regulations need to be taken into consideration before execution can begin.
But that doesn’t mean large companies can’t innovate continuously and consistently, not to mention better than startups. Quite the opposite in fact.
Large companies have several advantages over startups, including: brand recognition; longer runways; the ability to be more patient to realize returns; established teams and personalities; established customer relationships and lead pipelines; and the ability to invest in or acquire key capabilities.
Amazon is a classic example of an organization able to be patient while reinvesting revenues into new technologies and opportunities otherwise out of reach for most startups.
The key is to adapt, and not to blindly adopt
So why is it that, given all these supposed advantages, so many product teams stumble adopting ‘tried and true’ lean methodologies? It comes back to what the executive said: “We have 75 years of established processes.”
When lean practitioners walk into corporations, they are too often coming from an environment wholly different than the one which enterprise constituents live in. Lean needs to be contextualized before it can be applied to a particular scenario. Ignoring the strengths, weaknesses, and processes of any given environment isn’t a recipe for success.
After all, lean was developed initially for the manufacturing line, which derived value from siloing business functions and micromanagement efficiencies that don’t necessarily translate to the modern day.
Just like you couldn’t transpose the same deliberation and decision making process of management onto the manufacturing line, you can’t inject lean thinking straight into the boardroom no matter how progressive the organization is designed. This applies across all management layers. When you have a variety of stakeholders whose accountabilities are codependent, a simple lift and shift approach will not do.
Large companies are not less nimble than startups fundamentally, but they need to be organized properly. Enterprises are not fixed entities – they are people organizing around constructs that can be interrogated, negotiated, designed, and redesigned.
If companies aren’t first organized optimally for lean methodologies, then that needs to be apart of the equation. It often isn’t up to the individual product manager to ensure that the organization is structured properly, further complicating the situation.
It comes down to culture
Innovation begins with culture, and culture begins with leadership. Leadership determines how authority is distributed within the layers of management, and it’s up to the C-suite to align stakeholder incentives to unlock creativity and rapid innovation. We suggest three strategies for organizational leaders to pursue:
Set clear risk thresholds
Employees need clarity when it comes to the types of risks their company is willing to take. This is especially true when it comes to the scope of authority.
Take a consumer product company for example. Can the product team releasing a new soft drinks take the product all the way to market or do they need to involve someone higher up when determining the flavor profile? Or what about a financial services company? Can a product team determine how creative is going to be executed through below-the-line advertising or does an executive need to see every Tweet that goes out the door?
We frequently see organizations managing with unclear risk thresholds, which causes confusion, mis-prioritization, and negatively affects quality of work for employees.
Distribute authority to the edges
Mutual trust and respect, especially with leaders and subordinates, are required for optimal employee performance. Employees need to feel that they have ownership and control over their work, no matter how large or small.
The more you are able to hand off to your employees, the happier they will be, and the stronger your feedback loops with customers will be. The logic is simple: distribute as much decision-making as possible to those who most commonly interact with customers.
When you undermine their autonomy through micromanagement you are subtly telling employees “I don’t trust you”. You’ll never realize your organizational potential if your people don’t believe they can trust themselves and in their inherent capability to rise to the challenge.
Lower the risk of speaking up and increase the risk of staying quiet
It should then become clear that if you want to create an innovative culture, you need to create a safe space for experimenting, taking risks, and closing feedback loops. Different biases already exist within various product teams: some are guilty of groupthink while others suffer from dissent and controversy. Boardrooms need to be safe and respectful for virtually any suggestion, and employees need to have the courage to have tough conversations with their bosses when there’s bad news.
One of the ways to do so is to define success in terms of learning rather than in terms of ‘winning.’ In that regard, failure doesn’t mean an experiment that reveals an idea is unpopular with users. It means not running an experiment and therefore failing to learn anything at all. This makes ‘speaking up’ less intimidating than the opposite: holding back your organization from learning.
Lean needs to take a look in the mirror
Culture isn’t the only thing preventing companies from realizing the potential of lean. Let’s not forget all the aforementioned advantages that enterprises have over startups. No matter how transparent and trusting an environment, a large organization should never pretend to be a  startup. Some of the central tenets of ‘lean’ must be approached with different methodologies.
Increased brand and legal risk, among other factors, mean that for enterprise product managers, validated learning (which is the actual objective of lean after all) comes far more rapidly utilizing other strategies. Instead of a “Build-Measure-Learn” approach, enterprise product managers need to take an “Experiment-Measure-Learn” purview.
And the key to running experiments then is mastering the capability to efficiently develop prototypes. Prototypes can communicate proposed value propositions to generate reliable feedback much more cost-effectively and with less risk than launching engineered products. Redefining the learning process as ‘experiments’ done via rapid prototyping sidesteps the burden of stakeholder approval, and fully realizes the benefits of autonomy.
Start tomorrow, and start small
Far too often for corporate product teams, trying to innovate is like pushing a boulder up a mountain. It doesn’t have to be, and it doesn’t require your whole organization to change everything it’s been doing for 75 years overnight either.
Instead, start with the methodology you truly need to master anyway: an experiment. Lean can be invaluable far outside the scope of product development. You can use it to shorten and strengthen feedback loops not just with customers but also with stakeholders.
Make a little bet on one new thing in one part of your organization. Experiment on the organization the same way you would on a product. Test different variations of your organization adapted to lean and vice versa. There is no silver bullet and expecting otherwise is what’s been holding your organization big. Experiment, measure, and learn until you discover improvement. Then build on top of  that success.

Anuraag Verma is the Head of Business Development at Alpha UX, a real-time user insights platform, where he works alongside Fortune 500 product teams to enable them to bring data-driven experimentation to their everyday work. Previously, he was an Account Director and facilitator at General Assembly, working closely with senior executives at large enterprises to embed digital capabilities.
Nathan Snyder is a Strategist at Undercurrent, a 21st century organization design consultancy where he helps companies become more Responsive in an uncertain world. He is insatiably curious about how we think and make decisions in complex environments. He has spent his career pursuing the design of work environments to reconcile purpose and profit. He is also an international facilitator of Lean Startup workshops, a student at Lectica.org and the Interdevelopmental Institute where he researches cognitive development in adults.