HBS Managing Innovation Winter 2012 Course


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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  1. I didn’t take BSSE but the simulation described here seems very intriguing. Lots of lessons to be learned indeed!

    It truly is a battlefield out there in the real world and that so much we’ve learned in the class room could easily seem worthless. Real world businesses are so full of uncertainties that just can’t possibly be scrutinized. Even those who I have witnessed a great deal of success admitted that big part of their success was luck! In later discussions, a few of them revised their comment by stating that many people call it simply “luck” because the complexity in actions, reactions, and inactions involving so many parties in real time makes it near impossible for any one to anticipate – not to mention be ready for all possible scenarios. Hence, we analyze to make the best possible decision in the most likely scenario and hope for the best.

    Again, one of million reasons telling us to be humble.

  2. I didn’t take BSSE either, but it seems like an interesting simulation to put theory into practice.

    In the executing strategy course we have talked a great deal about how to lead an organization through a difficult change. We have discussed the 8 principles of ‘The Change Process’ described by John Kotter in his book Leading Change:

    • Establishing a Sense of Urgency
    • Creating a Guiding Coalition
    • Developing a Vision and Strategy
    • Communicating the Change Vision
    • Empowering Employees for Broad-based Action
    • Generating Short-term Wins
    • Consolidating Gains and Producing More Change
    • Anchoring New Approaches in the Culture

    While innovation is difficult, looking at the change process through this framework may improve the overall probability of success (and you keeping you job).

  3. I also participated in this simulation, and while I still got fired the first time through I was able to produce some solid results in subsequent rounds and survived the chopping block. The top scorer in our class had a similar strategy to mine, based on two core principals:

    – Invest heavily in the new and innovative technology while your core business is doing well rather than waiting for it to decline, as funding won’t be easy to come by at this point.
    – Put some of those investments into R&D that will be focused on decreasing costs so that you can become profitable quickly. Product proof-of-concept is obviously important, but you’ll be fired every time if you never make a profit.

  4. Sounds like quite the humbling simulation. I’ll keep my fingers crossed that your fourth time being CEO is the charm. :)

    Maybe another lesson from this is the challenge of innovating when you have an established company to manage versus coming in as the young, upstart competitor. It seems like often when we look at disruption, it is from the position of a pure-play start-up, who has the leeway to throw everything behind innovation.

    However, balancing the resources of an established company with a full product portfolio and trying to pull new products online seems incredibly hard. Also, when I think about the real, un-simulated world, there aren’t many big companies who really do it well, mostly Apple, Google, etc. come to mind.

    Besides, “Fortune 500 chief executives enjoy an average tenure of 3.5 years” according to Fortune magazine. So perhaps you were above average on your tenure anyway…

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  18. An interestinging summary of your experience and thoughts on innovation. But, I think you missed something … innovation is not simply coming up with a new idea. Rather, it is using something new to change or improve a current problem.

    In other words, what you did was market something novel rather than identify with what the market needed.

  19. The products are a commodities and to compete in a commodity environment you need to reduce cost and reduce prices. In others, try investing in process improvements rather than innovations type R&D’s. As your cost per unit decreases you will be able to reduce prices.

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