Complexity is the defining business and leadership challenge of our time. But it has never felt more urgent than this moment, with the coronavirus upending life and business as we know it. For the next few weeks, we’ll be talking to leaders about what it takes to lead through the most complex and confounding problems related to the coronavirus.
Today we talk with Safi Bahcall, a physicist, biotech entrepreneur, former public-company CEO, and bestselling author of LOONSHOTS: How To Nurture The Crazy Ideas That Win Wars, Cure Diseases, And Transform Industries. He co-founded a biotechnology company developing new drugs for cancer, then led its IPO and served as its CEO for 13 years. In 2008, he was named E&Y New England Biotechnology Entrepreneur of the Year. In 2011, he worked with President Obama’s council of science advisors (PCAST) on the future of national research. Today, Safi advises CEOs and leadership teams on strategy and innovation, and delivers keynote presentations at major events and conferences around the world.
David and David: Your work focuses on innovation and how to nurture radical breakthroughs. What’s your advice for leaders dealing with the current crisis?
Safi: Innovation loves crises. In ordinary times, we experience a legacy momentum and a drive to repeat what the people before us did, with quality and reliability. With Covid-19, everyone has realized that more of the same won’t work. It has raised the temperature of the whole system - people are unsettled, less resistant to change, and more willing to try new things and to fail.
In good times, the competitive landscape is a finely-tuned dense pack and you can get away with mediocrity. A crisis like this one increases the dispersion in the marketplace and affords smart leaders the opportunity to separate from the rest of the pack, like Netflix and Adobe did during the last crisis. If you just focus on efficiency you can muddle through, but one or more of your competitors who are aggressively innovating will blow by you.
Any successful organization must balance the importance of nurturing the existing core business - delivering on time, on budget, and on spec - while at the same time not being surprised by a competitor’s new product or service line that will put you out of business. Holding the two in balance, a focus on the core business and a focus on innovation, is a matter of life and death. The trick is to focus on efficiency while also pressing the accelerator on innovation; to do the cost-cutting and at the same time to innovate like crazy. A crisis forces you to get that balance right; to signal to your organization that operational efficiency and innovation are equally important.
David and David: In Loonshots, you use the analogy of phase transitions to answer the question “Why do good teams kill great ideas?” How can an understanding of phase transitions help leaders press the accelerator on innovation?
Safi: A phase transition happens when a system suddenly snaps from one form of behavior to another. Think about a glass of water, going from liquid to solid when you change the temperature. Or a contained forest fire suddenly transitioning into an out-of-control wildfire as a result of wind speed. That snap is a phase transition from one state to another.
In nature, phase transitions always result from a tug-of-war between two competing forces. With water, those forces are entropy and binding energy. With human teams, the forces are what I call stake in outcome (which you can think of as equity or upside) and perks of rank (base salary).
In a very small company that is just starting out, stake in outcome is huge because the financial upside for the few employees can be enormous, and the downside is being out of a job. In that same small company, perks of rank matter very little - if the company works everyone wins, and if not everyone loses. In really big companies like Pfizer, a great new cancer drug is worth a few $100 million per year, which for Pfizer is a rounding error. The stake in outcome for individual people is pretty low - maybe a percent or two of their salary. Perks of rank, however, can mean a 30% pay bump and a promotion if you visibly point out the flaws in a toxicology experiment with the boss in the room.
When you understand the interplay of these two forces, you can explain what otherwise seems to be irrational behavior - killing innovation - and you can set out to strike the right balance between them. You can look at the structures you put in place, what you celebrate and reward, and how they drive the patterns of behavior that add up to culture. If you reward and celebrate rank, you’ll get a political culture. If you reward and celebrate ideas and intelligent risk-taking, you’ll get an innovative culture.
Yelling at the molecules in a block of ice won’t turn it into water; telling people to sing kumbaya and hold hands isn’t going to create a culture of innovation.
David and David: How do you send that signal, that you’re prioritizing operational efficiency and innovation equally?
Safi: What you want inside the organization is an awareness, mindset and clarity that the organization is doing both, but that doesn’t mean that everybody is doing both. You can’t have people who are both solid and liquid. There are people working on the core business - I like to call them the soldiers - and they can’t fail. There are also people in the risk-taking group - the artists - and they should be encouraged to fail. If they’re not failing enough, your competitors who are failing more - and innovating more - will eventually win. In large companies in particular, people have to be dedicated to being either soldiers or artists.
There are CEOs who never thought about that model or mindset before, who’ve now figured it out because of this crisis. They’ve learned to focus on operations in the operational group and to speak their language, and to work with the ideas group completely differently. They are totally different systems; they need different structures; and they speak different languages.
David and David: Any other advice you can offer? Parting words?
Safi: Maximize the tension between the artists and soldiers in your organizations and don’t expect them to like each other. Risk is a good thing to an artist and a terrible thing to a soldier. An artist is motivated by stake in outcome; a soldier by perks of rank. Artists will always see their work as a “beautiful baby”, and soldiers will see that same work as a shriveled up raisin covered in vomit and poop. And they’re both right - innovative ideas have lots of potential and they’re covered in poop. Artists should be excited about their baby, and soldiers should be focused on identifying and mitigating the flaws.
Original article posted on Forbes on July 13th, 2020
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