Not all R&D efforts are really R&D. Do you know if your company’s effort is?
For most people, it probably happens in their 20s or 30s. For the really precocious, it may even happen in their teens (though I hope not). For others, it may even happen in their 40s. And, for stalwarts like Anthony Quinn and Charlie Chaplin, it may even happen in their 60s and 70s.
I’m talking about. . . the dreaded pregnancy test. It’s almost a right of passage. Many of us have been there. The woman gives that signal and says, “I might be pregnant.” For some, the signal brings on sheer panic. For others, it brings on the potential for sheer joy. Either way, after the results of the test are read, relief generally ensues. There’s happiness if you want to be pregnant and also happiness if you don’t.
Research and Development (R&D) efforts at retail companies are quite similar to pregnancy. The industry, outside of Amazon, is not super accustomed to R&D. Retail companies want R&D to be like a viable pregnancy. They have seen Amazon’s successes, but they are not sure how to emulate them, and, even if they try, often times they are not sure how to read the indicator on the test strip.
We have seen companies go all in, hire a bunch of outside experts, consultants, maybe even reassign internal people — essentially f*ck like R&D rabbits — and yet find nothing at the end of their R&D rainbow.
Or, conversely, we have seen companies dip their toe in R&D unintentionally — attempting the proverbial beer goggle “last call” hook up a couple of times — and then suddenly, voila! The R&D effort is real and the company is the proud owner of a brand new baby boy (i.e. a real new line of business)!
No matter how you slice it, you don’t want your company to find itself in either camp. The former smacks of mismanagement. The latter smacks of luck. Pound for pound, you are ok with luck. But, luck isn’t sustainable. Luck sucks.
Said another way, when you pee on that stick, you want to be sure it is either a blue “+” sign or a blue “-” sign.
This topic is no laughing matter either. As has been discussed in previous posts, retail is in trouble. R&D offers a way out. Not only are millions of jobs at stake, but R&D is also sound business. Jeff Bezos sums up the value of R&D best:
“. . . failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment. Most large organizations embrace the idea of invention, betting against conventional wisdom, and conventional wisdom is usually right. Given a ten percent chance of a 100 times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten. We all know the difference between baseball and business, however, baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.”
Right on Jeff! R&D is risk vs. reward. The potential positive outcome, if found, far exceeds the gain from incremental change on “conventional wisdom.”
As I have said before, if you don’t buy into this, and instead you believe in innovation through incremental improvement, on your already existing core business model, you might as well pack up now, start using typewriters, and go back to watching VHS tapes because chances are no one will want to mate and get pregnant with you.
Still, you can’t approach R&D willy-nilly either. To be successful, you have to be thoughtful in your approach. Here now is an 8-Step Pregnancy Test to ensure that your company’s R&D efforts are actually R&D and not the live personification of a Russ Meyer movie, written by Roger Ebert.
Omni Talk’s R&D Pregnancy Test
Check #1 — Alignment to the Flywheel
I love this visual (courtesy of The Motley Fool). Love. Love. Love.
It is Amazon’s depiction of how it makes money. EVERY retailer needs to sit down and make one of these. If yours has not, it is behind.
The graphic is important because it is a high level check to determine if a business effort is germane to what a company does. Any potentially new R&D effort should be discretely aligned to some element of a company’s strategic flywheel.
Check #2 — R&D Spend as a Percent of Annual Budgeting
Check #2 is a critical check. If forgotten, it leaves people in the lurch. Across the company, there has to be unilateral agreement on the R&D floor — meaning, does the leadership and the board hold hands, come hell or high water, that R&D, as a percent of its annual budget allotment, will not fall below a certain amount?
Whether it’s 5% or .00001%, it doesn’t matter. What matters is that the floor has to be agreed upon in advance. The people running your R&D efforts have to know minimally what resources they can expect to have year to year.
A friend of mine has a good saying to capture this ethos. He says, “how much are you willing to lose.” As Bezos alludes to above, R&D is no sure thing, so if you are going to do it, you have to be comfortable that you could lose . . . and lose it all.
It’s like going to Vegas with your buddies knowing minimally what you are willing to lose for the weekend. Chances are you are going to lose your shirt, but you could also win big. And, it is 100% your choice if you want to lose more. True Vegas gamblers know that you might as well stay home if you are not going to play what you are willing to lose (though I hear Zumanity is great).
Check #3 — Agreed upon R&D Time Horizon
For R&D to be successful, there also needs to be an agreed upon time horizon for the specific efforts involved. These timelines should be at least four to seven years in duration. Even four years, for retailers, is pushing it.
In the omnichannel world, retail has a “physical” component, so even something that begins as a pure digital play, could grow into something tactile down the road. Tactile opportunities, given construction and architectural timelines, take longer — one to two years just for the actual physical builds at best.
So my minimal quick rule of thumb:
Year 1 — Develop the idea
Year 2 — Put the idea in front of the public
Year 3 — Refine the idea
Year 4 and 5 — Make a business out of the idea or cut bait
The above doesn’t mean projects cannot be stopped short of four or five years either. It just means that if projects are hitting their agreed upon milestones, leadership needs to hold hands that they should continue as long as they work within the budget floors established in #1 above.
Which brings me to Step #4
Check #4 — Governance and Sign-Off
Successful R&D efforts require streamlined, efficient governance and decision-making. Innovation cannot be bogged down in bureaucracy. So, when an R&D project starts, a deliberate conversation has to be had about the governance process and decision-making authority for the project.
Governance is simple — establish a routine cadence by which R&D teams will share out results and align on project milestones in advance for all projects. There are 1,000 ways to do it. The specifics do not matter as much as it is just a key piece of the effort that has to get done.
Decision-making authority is a different story. Bureaucracy creep can be a big issue.
Decision-making authority should be limited to as few people as possible. My vote: No more than the CEO, the person responsible for the R&D portfolio, and possibly, if the project was “birthed” from a key leader with expertise within the organization, that person too.
Finance should NEVER have decision-making authority on R&D. Their job is to be strategic up front about the R&D budget allocation. As long as projects are hitting their milestones, under the CEO’s auspices, within the defined budget parameters, they should stay the hell out.
Same goes for other key support functions as well, specifically CIOs/CTOs and store/field leadership. Often times, retail R&D projects are meant to disrupt the current technology of the day and to reimagine how stores could work or function differently. Teams need the long time horizon to play out their ideas. Bogging progress down by having sign-off go through leaders that are concerned with current technical or operational processes (e.g. stores), when those efforts could show cracks in one’s present plans, is risky.
Check #5 — Secrecy
R&D projects should be highly secretive. R&D projects should be on a “need-to-know” basis only. The risk of IP leaking out to competition is a huge concern, of course, but just as important is the need to ward off bureaucracy creep when people who should not get involved somehow do.
Depending on the corporate culture, this can be a hard rule to follow. It can be hard for people on R&D teams when they see their friends within an organization, or worse, run into someone with three letters in their title, and have to say, “Sorry, I cannot talk to you about that.”
It is an awkward exchange among friends, and in the “under titled” situation, it is not out of the ordinary for the superior titled person to get pissed, hold a grudge, and wield his or her power to do everything he or she can to find out what is going on inside the project and even try to derail the project, especially if the project interacts with his or her current sphere of influence.
There is an easy solution though. The CEO, for whom R&D within our current retail dynamics should be a primary focus, simply needs to get up in front of the company every year and say, “All our R&D projects are secret. Know it. Expect it. And, if I hear you pressuring people or expecting something different, I will call you directly.”
That will shut the issue down fast.
Check #6 — Set R&D Efforts Up as Stand-Alone Businesses
No doubt this step will spark debate. I am a big believer in it. Because R&D is meant to be disruptive, R&D should never be a branch of the core business. Whether the effort is formally created as its own corporate entity, or whether it is 100% walled off from the main operation through other means, the effort ABSOLUTELY must not intersect with the mainline operation until the R&D leaders know what they have in what they have created.
Any belief to the contrary only opens the door to old guard, mainline thinking coming in and either molding, stalling, or (it happens) even manipulating for its own intentions the outcome of the R&D effort, rendering it impotent.
Check #7 — Hazard Pay
Internal R&D teams put their necks on the line for the company. They are the first penguins in the water. Generally, speaking the risk/reward ratio for them is not calibrated correctly. If a team builds something successful, the company often times will reap far greater monetary reward than the individuals. If the R&D project fails, the individuals likely will find themselves in a tough career place too.
As teams are assembled, conscious thought has to be given to both situations. There needs to be a deliberate discussion about incentives before people sign on for an R&D project. That way no matter what happens with the project, the potential ramifications on the individuals involved are well understood in advance.
To ensure sharing in the upside, equity stakes in the new investment or significant grants of company stock work well.
To protect the downside, I am in favor of longer-term severance packages, just in case internal replacement or project reassignment is not an option when projects end.
The last point is important because often times people on R&D projects “go dark.” They lose connections with the people they used to know within an organization due to project secrecy. Few people are really “in the know” about their work for the same reason, and, when interviewing for a job outside the company, it is hard to win over an interviewer when they cannot discuss their last few years because of non-disclosure agreements.
For R&D efforts to be successful, therefore, companies need to protect their penguins. If they don’t, fewer and fewer penguins will be willing to walk to the tip of the iceberg in the future.
Check #8 — The R&D Team Knows How to Pull Its Own Andon Cord
For those unfamiliar, an andon cord is a tool Toyota created within its manufacturing process. Simply put, when something goes wrong on Toyota’s manufacturing line, a worker can pull the cord, the entire operation will stop, and nothing will progress until the problem is fixed.
Employees on R&D teams need to have confidence that they can pull the andon cord whenever necessary too. Hazard pay helps in this, but it is also important that the established governance process celebrates a culture where people are willing to admit when something needs to be stopped or delayed.
When people are paid to do R&D, they have intense pressure to create, so if they aren’t able to speak up when issues arise or when timelines need to slip, it causes potential downstream implications that are not good for business.
The answer to this problem lies in clearly outlined decision rules (for a great read on decision rules and how disregarding them can lead to deadly consequences — see Into Thin Air). Decision rules must be clearly outlined according to key milestones within the governance process.
When these milestones are reached, team members, knowing the individual and personal financial repercussions of the potential bad news, have to feel comfortable presenting to a leadership team that rewards and welcomes truthful dialog rather than leadership that refuses to accept bad news. Hazard pay and agreed upon time horizons all help, but so too does an open and honest culture.
To close let’s apply the above pregnancy test to real life. The checklist above is meant to be a real diagnostic tool. Companies should grade themselves against the checklist.
If all elements above are in place, then the R&D efforts are likely on a solid foundation. If they are not, then it is time to refocus and to work harder.
Case in point — Wal-Mart. Wal-mart has been in the news incessantly (see below courtesy of my favorite industry news outlet, L2).
What you see above is a list of all the recent announcements Wal-mart has made.
Now here is the $64,000 question — are all the announcements real innovation or are they just PR masquerading as such? Only time will tell. So I encourage Wal-Mart and all companies to use the above R&D Pregnancy Test to help themselves be sure.
Only in the future will we know if Wal-Mart and others have given birth to something special like this (courtesy of greatinspire.com) . . .
Or horrifically something far worse like this. . .
The former is beautiful to behold.
The latter only hastens extinction.
Let’s do what we can now. Take the test.
Be careful out there,
P.S. Given the surprisingly high and unexpected reader demand for Omni Talk, I am also now syndicating old posts on Medium. For any loyal and avid Omni Talk and Medium fans out there, please help me to spread the word by liking and leaving comments on my posts on Medium. It means so much when you guys like and share my posts on any forum. Let’s keep rocking LinkedIn too! Thank you!
P.P.S. I have been hearing feedback that you guys like my book and article recommendations. So today I thought I would share with you three products that have changed my life for the better.
#1 of course — Alexa (I know I am beating the dead horse)
#2 — Roll on Sunscreen. What a great idea — perfect when you have toddlers!
#3 — Silk Wallet Case Phone Cover. I never carry a wallet now. Great on trips, and also my ass feels a lot better at the end of a long day blogging and my jeans don’t have wallet holes anymore either.
P.P.PS. In my line “Luck sucks” above that was in no way a reference to Andrew Luck. He is awesome. Go Stanford!
Chris Walton is an accomplished Senior Executive with nearly 20 years of success within the retail and retail technology industries. He is well-versed in merchandising, store operations, inventory management, product design, forecasting, e-commerce, pricing and promotions, and tech product development.
Chris was most recently a Vice President with Target, where he led the retailer’s Store of the Future project and also ran the Target’s home furnishing division for e-commerce. He previously worked for GAP, Inc., as a Distribution Analyst and Manager.
Chris holds a BA in Economics and History from Stanford University, and a MBA from Harvard Business School.
He likes to dress as Darth Vader for Halloween, and his wife also frequently asks him to ask Alexa, "to turn off the music."