Arrow Electronics was onto something “really big”. In the early 2000’s they saw the opportunity to create a new distribution channel through which to sell their products. They started an internet sales venture. OK, so they weren’t the first company to develop an internet sales channel but they did really screw it up. Here’s how.
The new internet development team was given some office space in the same building as the traditional sales team. The internet team was composed of young computer savvy new hires who dressed like… well… like computer savvy new hires. They likely rode mountain bikes and drank energy drinks instead of coffee. Because they worked 24/7 the company built them a fancy kitchen and brought in some comfy furniture. For this group, work and social life blended easily.
Living next door and now very upset in their comparatively dingy offices was the traditional sales force. These warriors, dressed in suits and ties started to perceive their high tech colleagues as competitors. After all, “Arrow.com” was just another distribution channel which the sales force saw as a new competitor eating into their commissions. Needless to say relations between the two groups took a cold southerly turn. Things got so bad a brick wall had to be erected between the building’s two sides to physically separate the teams.
In a recent HBR article, Rosabeth Moss Kanter, writing about lessons on innovation, warns us against creating two classes of corporate citizens; “those that make all the money and those that have all the fun”. Clearly, the traditional sales force saw the “kids next door” as having lots of fun while burning buckets of cash getting the internet sales channel up and running. It seems that managing the human element of innovation is just as tough as managing the product side and perceptions play big into the equation.
Having to build a brick wall should have been an obvious sign things weren’t working at Arrow. Many companies don’t have physical brick walls but they exist just the same. On one side of the wall is a group free of revenue and profit pressures that is allowed to “play” with ideas that no one knows if they will even work. Jealously watching over the fence is the group with rules, profit demands and deadlines who are told they are the dinosaurs whose business models are obsolete. The reality is that both groups need each other to survive and thrive into the future. Without current revenue streams new products can’t be developed yet without new products there are no future revenue streams. This problem has been around for ages and those that manage it well prosper. How can it be managed?
- Strategy: Any new product development strategy must be transparent and objective.
- Communication: don’t let R&D mystify – development teams must ” enlighten” and answer why are we following this R&D path.
- Good Relationships: hold regular “open house” meetings like a grown up show and tell where everyone is expected to come and see what the R&D groups are working on and offer their comments and suggestions.
- One Citizen Class: Second class citizens (even if it is perceived) will do everything in their power to squash the innovation.
Brick walls are for prisons and fortresses not for businesses. Break them down – let the business prosper.
For the full story see:
Innovation, the Classic Traps, HBR Nov 2006 PP72