HBS Managing Innovation Winter 2012 Course

23Apr/110

Getting fired as a CEO while pursuing innovation

I have been fired three times in my BSSE simulation last Friday. The game made you the CEO of Back Bay Battery, a company that sold two types of products. One of them was NiMH battery, which represented the core business, sold a lot in a relatively mature market and made most of money. The other product was ultracapacitor – major innovation in the world of batteries, with great sales potential, but underperforming on a number of features, and thus requiring farther R&D investments. The R&D budget represented a percentage of your sales projections and you could assign it to any feature of any product. However, if you inflated your sales projections to get larger investments but couldn’t meet your targets, the shareholders would fire you. So, I have been fired three times. What happened?

In my first round, I have read the case, looked at the available information and applied the BSSE and MI theories to understand what was happening in the market and how I should act. I assumed that the high growth potential market was for the innovative product and I expected the core business to decline over time. I started heavily investing in bringing the new product up to the demanded quality. Then I started losing the core business and missing my sales targets. I got fired. I couldn’t believe it. (oh, hbs arrogance!)

In my second round, I decided that my strategy was fine, that the devil was in the implementation, so I started to change how I distributed my investments. Then the market sentiment changed, my innovative product suddenly was over-delivering and I couldn’t lower the price because the cost of all these features I have just been investing in was too high. So I lost a lot of money and got fired. Again. It wasn’t looking good.

Desperate, I tried to just keep the job in my third round. Strategy or not, innovation or not, didn’t matter. I did very little improvements and avoided investing money to preserve my profitability. I lasted more years as a CEO and made more profits, but then I got fired again and, of course, the business was in worse shape than ever.

What were the lessons from this small exercise for me, then? Three things:

First – innovation is great, but it is not good enough to try to innovate no matter what. If you put all the resources into new innovative product that will be loss-making for a long time, and you put your best people to work on this project, and by doing that you leave the core undefended, your main business will likely fail before you can make the new business profitable enough.

Second – innovation is sticky. I got excited about delivering the best product to the market – I was on the way to become the most innovative out there… only to find out that my product is overshooting the charts. As an engineer, I might have been happy with breakthrough product. As a manager, I failed at understanding, which features were needed and which could have been taken away (back to Apple’s simplicity).

Third – incentives can skew your intended results. As I started to try to preserve my job as opposed to position the company for long-term growth, it quickly became a game of numbers – a game everybody lost. At the same time, since I have been a believer in innovation, it seemed easy (and potentially rewarding) to me to bet on innovation, ending up overshooting my customers’ demand.

I guess no one ever will give me the chance to get fired thrice in one day :) so I better learn from this experience. It is great that we all are believers in innovation, but there is more to it. We have to know when to innovate, how much to innovate, what to be working on and how to build a culture where it is easy for people to do the “right” thing for the company, both in terms of incentives and values. I hope that will bring me better results next time :)

Posted by Lubasha Heredia

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