Karl Ronn: Part 1 of an interview by Bob Morris

RonnKarl Ronn is the managing director of Innovation Portfolio Partners. Based in Palo Alto, he helps Fortune 500 companies create new businesses or helps entrepreneurs start category creating new companies. He is a co-founder of VC-backed Butterfly Health that sells Butterfly body liners nationally. He is also developing a software company building diagnostic competency for physicians using virtual human simulations of top medical school cases.

Previously, he was vice president of Research and Development and general manager of New Business for Procter & Gamble, where he was one of the key innovators behind Febreze, Swiffer, and Mr. Clean Magic Eraser. In addition to these brands he was responsible for the Global R&D for Pharmaceuticals and Over-the-Counter Health Care including Actonel, Vicks, Prilosec, and In-home Diagnostic Tests. He has also managed Beauty Care businesses and started Diaper and Maxipad businesses across Latin America.

He is on the advisory boards of Johns Hopkins Bloomberg School of Public Health and the University of Toledo. He is a member of TED conference and has been a speaker at the Mayo Clinic, Consumer Medical Conference, AMA and other innovation forums. He is the co-author with Bob Johansen of The Reciprocity Advantage: A New Way to Partner for Innovation and Growth, published by Berrett-Koehler Publishers (2014).

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Morris: Before discussing The Reciprocity Advantage, a few general questions. First, who has had the greatest influence on your personal growth? How so?

Ronn: I have about 10 people who are my personal sounding board to help me. They are family, friends, business leaders, and academics. I use them to make sure I’m growing, to respond to ideas, and to challenge me. This helps me decide where to spend my time.

Morris: Years ago, was there a turning point (if not an epiphany) that set you on the career course you continue to follow? Please explain.

Ronn: I’ve had multiple turning points. While in college I was an intern on the executive floor and learned that senior management needed proposals to strengthen their ideas; they didn’t have all the answers. Then when studying finance part-time I realized that R&D risk could be managed by applying the tools used in finance leading me to develop the risk classifications discussed in Chapter 9. Lastly, by asking people who had known me for many years I was able to determine that my most valuable role was as an Angel, the person who plays a nurturing role between inventors and senior management, to nurture different in kind ideas through the “valley of death.” This role was part of what I did at P&G and is what I now do full time.

Morris: To what extent has your formal education been invaluable to what you have accomplished in life thus far?

Ronn: My engineering degree taught me to be a problem solver and how to learn new fields of science rapidly. Later I studied finance to learn how companies really made decisions so I could build better rationales for funding new developments. While I was studying capital asset pricing models and modern portfolio theory I realized that nobody had created the equivalent of stocks and bonds for the different types of R&D investments. One would never compare a stock to a bond. Instead we balance a portfolio. Yet companies pick favorite projects and compare incremental projects to new business developments. To achieve consistent growth I needed to determine what an R&D portfolio’s structure needed to be. Chapter 9 of this book reflects the solution to that problem. The 3×3 matrix shows the distinct types of R&D investments and discusses how to balance them to achieve consistent topline growth.

Morris: What do you know now about the business world that you wish you knew when you went to work full-time for the first time? Why?

Ronn: I was fortunate that my engineering internship happened to be on the executive floor of a power company, Toledo Edison. First hand experience taught me that Senior Management wanted me to help them create better answers. The worst case would be they would just say no, the best case was they would change their plans. I was also there when Three Mile Island happened (to another company). We had a sister plant of the same design. So, I was inside of a major breaking story and I could see “the fog of war” requiring agile decision making with incomplete information. So, when I started work at Procter & Gamble after college this gave me the courage to propose new approaches and shape projects even as a new hire.

Morris: From which books have you learned the most valuable lessons about business? Please explain.

Ronn: I’ve been lucky to meet and work with many of the key thinkers on innovation. Their books are good, but the discussions have been more critical. Clayton Christensen, Dick Foster, Scott Anthony, Tim Brown, David and Tom Kelley, Roger Martin, Mark Fuller, Douglas Englebart, John Kotter, Ted Levitt, Nicholas Negroponte, Neil Gershenfeld, Rosalind Picard, Rita McGrath. If you choose to read their books, read their first book which will show their initial insights and their latest to see how that has changed.

Morris: Here are several of my favorite quotations to which I ask you to respond. First, from Lao-tse’s Tao Te Ching:

“Learn from the people
Plan with the people
Begin with what they have
Build on what they know
Of the best leaders
When the task is accomplished
The people will remark
We have done it ourselves.”

Ronn: Be a servant leader. Empathy is the key skill. Listen for a problem and then help the person with the problem create a solution. We have a mythology of single people who made a difference. Each of us has a role to play. Be a key member of the team and lead when it is your time to lead and follow the rest of the time.

Morris: From Howard Aiken: “Don’t worry about people stealing your ideas. If your ideas are any good, you’ll have to ram them down people’s throats.”

Ronn: I’m not this cynical. You don’t need to worry about people stealing ideas that are big because they are too hard to solve alone. In Silicon Valley new ideas are discussed in coffee shops without any privacy. If the people at the next table can solve the problem, you should partner with them. The problem is that most ideas are small. Those require protection because being first is their only advantage, and a short-term one.

Morris: From Richard Dawkins: “Yesterday’s dangerous idea is today’s orthodoxy and tomorrow’s cliché.”

Ronn: Sustaining growth requires three types of innovation – leading today, obsoleting yourself, and creating new to the world growth. I use the analogy of being in three industries: Railroads, Transportation and Communication. We get so busy running the railroads that we can’t see trucks and airplanes as competitors. Then when the telegraph company comes and wants to use our right-of-way for a new communications business we say that communicating is not as good as being there. All ideas are filtered against the screen of defending the current business.

Morris: From Isaac Asimov: “The most exciting phrase to hear in science, the one that heralds the most discoveries, is not “Eureka!” (I found it!) but ‘That’s odd….’”

Ronn: If you run an experiment and the point falls on the line, you didn’t need to run the experiment. If the point falls off the line, there are two possibilities: you made an error, or you found something new. Don’t over fit the data.

Morris: From Thomas Edison: “Vision without execution is hallucination.”

Ronn: Edison was the founder of modern R&D labs. He practiced what we would call rapid prototyping. He knew what he was looking for and set a wide net to find leads and then had teams working to test and refine leads. So, Edison could have said this having been frustrated by those who didn’t experiment. Experimenting to learn is the third part of our model for reciprocity. Good ideas need to be turned into hundreds or thousands of good, cheap experiments. This is the only way to tackle a tough problem.

Morris: Finally, from Peter Drucker: “There is surely nothing quite so useless as doing with great efficiency what should not be done at all.”

Ronn: I prefer Einstein’s observation: “Insanity is doing the same thing and expecting different results.” To tackle disruption you can’t do it alone. This is why we suggest reciprocity as a strategy for embracing disruption by partnering with others to lead in a way that you alone could never do. Most companies are too internally focused and small changes look like big changes with this weak lens, so growth stagnates. Get partners who eagerly embrace big changes.

Morris: In one of Tom Davenport’s recent books, Judgment Calls, he and co-author Brooke Manville offer “an antidote for the Great Man theory of decision making and organizational performance”: [begin italics] organizational judgment [end italics]. That is, “the collective capacity to make good calls and wise moves when the need for them exceeds the scope of any single leader’s direct control.” What do you think?

Ronn: True, but this doesn’t provide much guidance. True leaders know they can’t do it alone. The popular culture likes to find a single individual to reward. This is why we should pay less attention to the latest billionaire who got lucky with one idea. Pay much more attention to serial entrepreneur. Pay somewhat less attention to startups and more attention to 20-year old companies who have grown beyond scaling their one lucky idea.

Morris: Here’s a brief excerpt from Paul Schoemaker’s latest book, Brilliant Mistakes: “The key question companies need to address is not ‘Should we make mistakes?’ but rather ‘Which [mistakes should we make in order to test our deeply held assumptions?'” Your response?

Ronn: The difference between established business and new businesses is their knowledge to assumption ratio (Anthony and McGrath). Existing businesses have few assumptions. So they can confidently move forward using tried and true formulas. When these companies make mistakes it is a failure – they should know better. New businesses have little knowledge and many assumptions. They must quickly test the assumptions that are most likely to hurt them if they are wrong. We discuss this in Chapter 11. A business will be successful if the product or service they are offering is desirable – someone wants it; viable – we know how to make money providing it; and ownable – we know why we will be able to win when the market is developed (Chapter 12). Work on the assumptions that are most likely to kill you and where you know the least instead of improving the stuff that you know the most about.

Morris: In your opinion, why do so many C-level executives seem to have such a difficult time delegating work to others?

Ronn: I don’t see a problem of failure to delegate from good C-level executives. Rather I see they delegate the tough problems that should be their work. The CEO should have Presidents or other managers who can run the current business. While they must maintain responsibility for the company’s day-to-day performance, they need to have their own work creating the future of the company. Asking low level teams to come up with things that will change the shape of the business will fail. These teams need to report directly to the CEO and require direct involvement monthly to listen and shape the projects.

Morris: The greatest leaders throughout history (with rare exception) were great storytellers. What do you make of that?

Ronn: I used to joke with my sales counterparts at P&G that I was in the same business that they were. Sales people sell things that work and R&D people sell things that don’t. Billion-dollar businesses do something new and have a story about how that will change the world. The story makes the future tangible, inspires the team, and eventually can be communicated to users and changes the world. The invention made it possible but the story made it so.

Morris: Most change initiatives either fail or fall far short of original (perhaps unrealistic) expectations. More often than not, resistance is cultural in nature, the result of what James O’Toole so aptly characterizes as “the ideology of comfort and the tyranny of custom.”

Here’s my question: How best to avoid or overcome such resistance?

Ronn: Growth is not an innovation problem, it’s a leadership problem. We would never forgive a CEO for not penetrating cost structures and sales figures and missing their financial forecasts. At the same time we allow senior leaders to behave as if innovation is random, a black box, left to others. The decades of work by Christensen and others shows us that innovation is not a black box. If a company has a growth problem, it is the CEO’s job to squeeze that core business and reinvest in the new leads can generate large new sources of growth – the gamechangers – and then personally nurture those. We need to demand more accountability for lack of topline growth.

Morris: In recent years, there has been criticism, sometimes severe criticism of M.B.A. programs, even those offered by the most prestigious business schools. In your opinion, in which area is there the greatest need for immediate improvement? Any suggestions?

Ronn: Clayton Christensen just wrote an excellent article, “The Capitalist’s Dilemma,” on this in the June 2014 HBR. The problem is that the measures we are using (NPV for example) were developed at a time when capital was scarce. It is not scarce today. It is sitting on the sidelines. We are using the wrong measures to evaluate projects. I reference options analysis as one tool. Net, the business schools need to change, but we can’t wait that long. Each of the three different kinds of innovation (Chapter 9) needs its own measure. NPV works for the current business, but not the others. Companies need to adopt appropriate measures now; business schools can follow.

Morris: Looking ahead (let’s say) 3-5 years, what do you think will be the greatest challenge that CEOs will face? Any advice?

Ronn: Protect 10-15% of your innovation dollars and invest them in the experiments needed to protect your company from becoming obsolete and to create the new reciprocity advantage businesses that are the new sources of growth. Companies spend about 2% of Sales on innovation. This 0.2-0.3% of sales is the insurance for the future. It must be protected from the core business.

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Karl cordially invites you to check out the resources at these websites:

Book link

Twitter links

@kpronn

@ReciprocityAdv

For more information about future forecasts, please click here.

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