I was just listening to an a16z podcast about innovation and realized that I had just read an article in HBR by the author, Safi Bahcall.

Safi’s concept is that there are 4 main control points that can be used to drive innovation in an organization. His thinking throws out a lot of the ideas of the innovative leader, the role of a product manager, and more. He takes a hard-core physics view – creating phase transitions. I’ll leave most of this to the article and podcast but the parameters are:

  • Equity Fraction (E) – how much equity does the team have in the success of an idea. Startups will typically be high E, while large organizations are low E.
  • Fitness Ratio (F) – how well your skills relate to a project in relation to your desire to play politics. If your skills don’t match you’re likely to lean towards the politics side.
  • Management Span (S) – The number of direct reports increases the innovation level.
  • Salary Growth (G) – how your salary grows as your rank increases inversely impact innovation.

His overall equation relates these parameters to create the magic innovation number (M):

M = (E + S^2 + F) / G

As a thought exercise, the podcast describes the same person at a startup or a large organization. Just the Equity Fraction and Salary Growth factors can change radically. Startups typically have high equity fractions and don’t pay well (high E, low G), while large organizations are low equity and reward with high salary jumps between management levels (low E, high G). The same person pushing ideas at a startup is thus incented to crush them at a large organization. Further the incentives at a large organization likely push that same person further away from innovation (more promotion, more incentive to avoid crazy ideas).

I recommend giving the article a read and then listening to the podcast but if you’re an “examples first” kind of person, do it the other way round.

Reading: The Innovation Equation (Harvard Business Review)

Podcast: Incenting Innovation Inside (a16z podcast)

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