Friday, March 22, 2013

Chapter 7: Weeding Out the Weaklings

There's no such thing as a free lunch...

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"A good solution can be successfully applied to almost any problem."
Ed Murphy
Chapter 7
Weeding Out the Weaklings

The SUSPECT: The Chief Financial Officer

Previous chapters:
Chapter 1: The End
Chapter 2: Ideas Lost
Chapter 3: Who Killed the Sparq?
Chapter 4: Mother of Invention
Chapter 5: If You Don't Mind, I'll Have Your Watch Please
Chapter 6: I Wouldn't Have Started from Here

Burt Knox knew it would be a waste of time, and it is. In his experience, about every ten years, like an unpleasant prize in a pass-the-parcel game, it came round again. Once again ‘innovation’ was in vogue. He’s seen it before. Millions would be wasted in ‘exciting breakthrough projects’ which were supposed to lift the company’s fortunes, and yet. And yet, they always managed to fail to meet a fraction of the volume of expectations and promises they had made and had to be canned. Often with the loss of several hundred staff to pay for the waste. And then we went back to normal. Back to the normal hard grind of making money without any fancy ideas.

He would do his best to stop the waste. He would insist on business cases, market data and good numbers. You didn’t know where you were unless you had the numbers. They would ‘namby-pamby’ around saying things like, ‘It’s new so we can’t estimate the market.’ or ‘Everyone will want this,’ or tell him stories from academic MBA case studies of how such and such a company had put a business case together for something like social networking and underestimated by a factor of a million. But from his point of view he was firm. No sound business case, no investment!

Slowly, as he ruminated, his plan formed. He would attend all the key meetings, listening and nodding, leaning back in his well worn chair in the executive boardroom, and let the presentation from the new, wet-behind-the-ears Director of Innovation wash over him.

Burt had learnt long ago, even before he qualified as an accountant, how to listen with a questioning and sceptical but unchanging expression on his face.

Burt had been CFO six times in two companies – that was the joy of merging and restructuring. He knew the pattern.

He knew how the investment community worked – three groups of baying hounds.

On the one hand the sellers who really didn’t care if people bought or sold as long as they bought or sold at volume – they didn’t really care if the shares which passed through their hands were destined to be real investment funds for driving real growth or if it was just the normal speculation and gambling which represented 80% of the trades they managed.

In the other corner were the media – the juicier and more lurid the gossip and crises the better. They needed eyeballs. Eyeballs meant sales and sales meant more advertising revenue and subscription.

The final pack of hounds, the institutional investors – for them ‘more was better’ – all they cared about was the funds under their control – the bigger the funds under management the bigger the slice of the pie they could greedily cut for themselves.

And finally there was his company battling to ensure the lowest cost of capital and enough free cash to ensure that they actually could operate profitably.

To play the game you had to have a good story – he smiled wryly to himself – or fairy tale – and this was where the problem arose – a real confusion between the story which promised growth through innovation and the reality of innovation. He’d never seen growth through innovation for real. Yes, he’d seen businesses buy start-ups, alliances and gain control over breakthrough technology but never, never ever ‘real innovation’ in a corporate. ‘Real innovation’, as in ‘a barmy idea turning into billions’. Most innovation he had concluded was an attempt to ‘squeeze sunlight out of flowers’. To try to innovate systematically he believed was like asking advice from a lottery winner on how to win the lottery.

Burt knew that the most responsible thing he could do was to do what he always did which was to make sure he had control over the funding of projects, kill off the crazy ones and limit spending as much as possible.

He’d remembered reading that even mighty corporate software giants, who were supposed to be really innovative, once they’d made it with a core product had then gone on to buy almost everything they had branded – from email packages to instant messaging to image manipulation software. Why should his company do things differently? Let some other poor sod lose his shirt and break his back inventing something new. Once it was proven, as long as we could cheaply reach into deep pockets, we could buy them up. It made far more sense than this ‘let’s be innovative’ fad. But Burt was smart enough to never say so. So at the end of the one-hour-long presentation by the Director of Innovation he would suggest, apparently helpfully, ‘You know, you’ve got some really good opportunities coming up – what we need to ensure is that the best, lowest-risk ideas aren’t starved of capital. I need you to make sure we have a good assessment panel so that we can ensure that we really move the agenda forward. As chairman of the pipeline assessment panel I’d like us to spend some further time together to “weed out the weaklings” and build on the strongest opportunities.’ He knew that this was his takeover bid. With this move he would control this innovation ‘fad.’ The stupid, crazy, impractical ideas would be eliminated. Capital spend would be linked to stage-gates and business cases, and no money would be wasted. He knew as CFO that people always forgot that it was much, much easier to spend money which you had than to earn revenues which you didn’t have.

He knew that he would soon be in control and could put an end to all this nonsense. He would make the Director of Innovation an offer which ‘wouldn’t be refused’. In his experience it never had been.

This is taken from the manuscript of Prof Eddie Obeng's new book Who Killed the Sparq? We'd love to hear your feedback in the comments below.

Want to read more?

Chapter 8: Still Hunting and Gathering


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