Why Innovation Fails: The Hidden Identity Cost of Change

Where does your interest in the human side of business come from?

I work with senior leaders and organizations at the moments where strategy, identity and change collide. I am based in Texas, and have been for about four years, after six years in Montana. Before that I had a corporate career in the UK and in Russia, working for an oil company for about fifteen years.

As I transitioned out of the corporate role, I decided I wanted to work more with people than with businesses. I had enjoyed what I was doing, but in the last few months of that career I had a very personal experience of how much the way my team responded to what I was saying mattered, and it made me think about a change of plan. I also fell in love with horses, and decided I wanted to spend rather more time with horses than with people. Coaching fitted that choice better.

What happens to a company's story when a new venture arrives?

Let me start with three facts about the brain, because without them it is hard to talk about identity with any precision.

The first is that the brain is a body-budgeting machine. Its rule is survival efficiency. It is not there to discover truth, or to be precise, or to reach happiness. Its task is to reduce expenditure as far as possible so the body can survive and eventually reproduce. Novelty, complexity and change are all energy-demanding, so the brain resists change. It resists a new identity, and you have to work hard to get one accepted.

The second is that we do not see the world as it is. We build a model of it. We tell ourselves stories about how the world works, and they are subjective stories. I have mine, you have yours, everyone has theirs. On top of that, companies have their own, made of the stories of individuals plus the collective ones. They are not objective analyses of reality.

The third is that memories are not files on a hard drive. They are reconstructed every time we retrieve them, always slightly differently, and always shaped by the environment we retrieve them in.

What does that mean here? Corporate venturing often does not fail on ideas and does not fail on execution. It fails because the human mind defaults to conserving energy, protecting familiar stories, and reconstructing the past in whatever way is most efficient.

So: we have implicit stories about who we are, and companies have implicit stories about who they are, what they do, how they win, how they survive. Take Nike. We think of Nike and certain behaviours and stories come to mind. Those are not natural facts. They were constructed over time by the company and its leadership. They are not false stories, but they were made.

When a new venture arrives inside that context, it usually carries a different story: innovation, change, disruption. Without careful management that story lands as a counter-narrative, as something that disrupts what was already there. Which is why, regardless of the quality of the business idea, the risk of failure is very high. The two identities do not match.

How does that threat show up day to day?

The first thing you get is discomfort, because the narrative the company has held for a long time is being disrupted. And interestingly, it usually shows up at middle-management level, where the functional expertise sits. Those are the roles built on a strong sense of identity, held by people who have done the same work for a long time. They are experts in their field, and suddenly there is a new narrative.

You have companies that depend on quarterly results and particular KPIs, and now there is a business inside the business running on entirely different ones. So the language of the company turns defensive. All the corporate jargon, all the phrases normally used to support the business, get turned against the new one. You start hearing: this is not scalable. This is interesting but irrelevant. This is not enterprise-grade.

I call them narrative antibodies. The new venture is like an organism entering a body and being attacked by an immune system that is trying to protect the old one.

What is actually at risk for the leader who sponsors it?

Three things, for everybody in the company but especially for the leadership team.

The first is identity capital: the sense of competence people have built. I earned this identity over decades. I know how to run this business. I know how to minimize cost. This is who I am and this is how my peers recognize me. Then the new venture spends a great deal of money, because it is a startup and minimizing cost is not the point any more, and you start asking whether you are still good enough, whether you have passed your peak. That applies across every part of the organization.

The second is professional capital. We all have a track record in a company, and reputation, how we are seen, matters more than personality. If something happens that disrupts that reputation it is very hard to recover. You can spend fifteen years being successful as a particular kind of person, and then someone says, he is not who he used to be, look what is happening here.

The third is political, and it is relational. Large organizations run on strong networks of interpersonal relationships. A new entity arrives, the network is disrupted, and suddenly there are new allies and new enemies. That is destabilizing.

So the sponsor has three layers to manage. First, the leader's identity risk: telling them their identity is not at stake, that they are not reducible to this project. Second, building a coalition around them so they are not left alone: this is a new story and we are in it together. And third, and most importantly, creating a new narrative for the whole company.

The best example I can think of is Amazon Web Services. Amazon was already a very successful business, and Jeff Bezos did not say, now we will have another business and add it to what we do. He said there is a new narrative: this is Amazon 2.0, we are not a company that sells things online, we are a company that builds great infrastructure for businesses, and now we are going to build even better infrastructure with AWS. He created a story that contained both the old one and the new one. That is what makes the difference.

What kind of intelligence does reading this require?

There are two layers. The first is the business side: looking at the market and saying, this is where it is going, this is how technology is changing, this is how we have to adapt. Before you have a narrative that explains it, you see things moving and you understand that the company has to move, and that the old story will not be sufficient against an environment that is changing. That is a business skill. Some people have it and some do not.

The second is much more personal. You look at the company and see how alliances inside it are shifting, how the mood is evolving, where the story is no longer resonating. That takes a different skill set, and having both is not easy. It takes a particular kind of leader to read the external environment and the internal one at the same time.

What changes when you stop treating startups as suppliers?

It changes substantially. In a procurement mindset you focus on delivery. How much will this cost me, when will you give it to me, can you do better than that. In a partnership construct you are thinking about how you grow together: what am I doing that is a bottleneck for you, how can I do better so that you can do better.

The frame is completely turned around, and that change is necessary in a corporate venturing environment, because you have new blood arriving in the company. If you treat the startup with a procurement mindset, the project is destined to fail.

You say idea meritocracy is a myth. So what should leaders build instead?

First, you need alignment at the very top. Without full alignment at the top of the company, the new venture has no chance. It is necessary even if it is not sufficient, so you need strong political sponsorship.

Second, once you have alignment you need an encompassing narrative, as with AWS: a new story that contains the old and the new. And here I can speak from experience. There was a long article in the Financial Times this week about the failure of Shell and BP to grow their alternative energy businesses. I remember when those started, and I remember when they started failing. You had political alignment at the beginning, under particular chief executives, and an initial narrative. As management changed, the narrative changed, and both the support and the story were lost. It was only a matter of time before those businesses failed.

Those two are essential but not the only ones. You also need to understand who the beneficiary is, and to have a narrative that creates value for everyone involved, explaining how this affects you as a part of the company. And finally you need a protective boundary around the new venture. You cannot treat it as just another element. It will have different KPIs, a different time horizon, a different culture, especially at the beginning, and if management does not protect those things it will be swallowed by the old corporation and the old stories.

A great deal of it comes down to narrative. If there is a clear story about why you are doing something, people will listen to it. I was talking recently with clients who are functional experts, very good at what they do, who have not spent much time telling the story of what they do, and who therefore have difficulty explaining very good business results. That is what I mean when I say meritocracy alone is not enough. A bad business will never be a good business, however you spin it; you can fool some of the people some of the time, not all of them all of the time. But a very good business can fail on poor narrative.

How does uncertainty show up emotionally in leaders?

One thing is worth clarifying first: emotions are not behaviours. When something happens we have an emotional response that is mostly unconscious. We do not know why we react as we do, or where the emotion came from. We know from recent work in neuroscience, particularly Lisa Feldman Barrett's, that emotions are largely constructed rather than innate. They are something we build over time, so we settle into emotional patterns, and when something happens we react without much control. There is often a somatic aspect too: we see certain people and the chest tightens, or the neck locks.

The behaviour comes afterwards. Over time we link particular behaviours to particular emotional responses, which is what gets called fight, flight or freeze. Depending on how we were brought up, our environment and something of our genetics, we fall back on certain patterns. Some people become over-controlling. Others withdraw, on the reasoning that if nobody sees me nobody can blame me. Others pick a fight, because this is their chance to shine.

What I stress with leaders is that you can coach behaviour, but if you do not work on the emotional responses you will never fix the behaviour. You have to understand why you have constructed your emotions the way you have, and that the construction can change. Only then can you find the right behaviour for the occasion. Otherwise you fall back into the pattern, because the emotional response is too strong and it is unconscious, so you do not see it coming.

You have said leaders do not fear failure, they fear becoming someone else.

Because emotions are mostly unconscious and constructed, we tend to supply a cognitive explanation afterwards. It is very hard for a leader to stop, reflect, and pinpoint where the fear is coming from, so they fall back on established patterns. I am not a man who cuts costs. I am a man who spends money. I am an innovator. They hold fixed ideas about who they are in business and in personal life, and they default to them.

Only when you start interrogating it, asking why do I not cut costs, why is that so bad, do you find that you made certain assumptions twenty years ago and are still relying on them although things have changed. Because most of these patterns are unconscious, changing them takes a long time. It is not instant. If you look at the self-help universe online, it is all reframe your subconscious in three steps. First, the subconscious as they describe it does not exist. Second, changing patterns takes a long time. And as always, understanding the problem is the first step.

Can incentives help?

Punishment only ever has a short-term effect, so only incentives change things over the long term. In terms of company culture and company stories, it is only by creating a better story, and defining what the advantages of that story are, that you bring people on board, and it has to be a conscious effort from day one.

It is about explaining why the old story is limited. It is not a bad story, it is a story that no longer works, and we need a new one, which we will build together. You can only bring people with you if you give them the chance to build their own story inside that framework.

What protections does a new venture unit need from day one?

Management alignment, which we have been clear about. Time. Clarity on its own KPIs. And support in different parts of the organization, so it can move those other parts toward the partnership footing we discussed, and get help co-creating the story. The rest of the organization cannot see the venture as a foreign body entering the company.

The leaders of that unit also need a different set of skills. They have to be much more relational, and better at dealing with uncertainty, because by definition a new business is uncertain. There is more risk, and if that risk is not made clear from the beginning, the old story will try to shut it down.

How do you coach a leader through the political side?

Clarity from the beginning. The more difficult conversations have to be explicit. You cannot rely on implicit assumptions, because people will interpret them in whatever way best suits their own identity and their own story. So you make the new architecture visible.

Second, you underline what it will cost in identity terms. There will be a cost. You cannot hide it, because it will surface anyway, so make it clear and then help people find solutions to it.

And you need an actionable plan. The risk I sometimes see is people who are very good at telling new stories and building relationships, and it all stays up in the air. You have to link the new storytelling to the annual planning. In the end a company, even a new venture, runs on budgeting, strategy and quarterly results. The narrative can explain them, but it still has to be integrated with the rest of the company or it becomes a vacuous conversation.

That matters most for middle management, a layer that is often misunderstood and not considered enough. People in a function need data and they need explanation. If you are going to miss two hundred million next quarter because of the new venture, where am I getting that money from? If they have no answer, they will say: I knew this would happen, this venture is going to be a disaster, look at these KPIs. So yes, tell a great story, and also fit it into the corporate context.

If I am an innovation leader, how do I start tomorrow?

When a new project gets a green light there are usually good reasons behind it. It might be risky, it might be a little pie in the sky, but there are business reasons, and you have to be able to sell those reasons and give a better story of where you end up if it succeeds. It does not have to be a strident contrast with what you have now. It has to be a 2.0: a better way of doing things, or something that fits the market better.

I am seeing this now with AI. Ninety-nine percent of companies have a splendid AI passage in the quarterly earnings call. Go to the management and ask how they are going to implement it and they have no idea. We have to do twenty percent more with AI. I do not know what that means. How does it affect me, in this part of the company, delivering these results, needing to cut ten million? So you need a story that explains how you get there, how the day-to-day job changes, and how it eventually gets better.

Bezos was excellent at that. Let me give you the opposite example: Xerox. You think of printing. Now, Xerox invented, among other things, the laser printer and Ethernet, and much else we use constantly, and they gave it away. Xerox had a research centre at Palo Alto that produced a great deal of what we now use in the digital world. But the company had such a strong old story, we are a printing company, we make printers, that they effectively gave the technology away for nothing, because they could not find a new story. They could not tell their employees: yes, and we can be much more than that. Great business ideas, a great research lab, and an absolute failure of strategy.