The car that took me from Jose Marti Airport in Havana to my grandmother’s house in Aguada de Pasajero was old, blue, and beautiful. It wasn’t until we were away from the city, driving on an empty road with the windows rolled down—late afternoon sky to the left, wind-swept smoke to the right from fields set ablaze in the distance—that I took notice of the loud, yet fatigued, roar of the engine, the missing upholstery around me, the exposed and rusted metal frame above my head, and the steering wheel that looked suspiciously like a spoke-less, tire-less bicycle wheel. When we arrived at the house, I asked the driver to open the hood, and what I saw was a junkyard of parts. How they all worked together to make the car go I will never know, but it was my first of many encounters that week with Cuban ingenuity.

Old Cuban Car
Under the Hood

If necessity is indeed the mother of invention, then should companies create their own self-imposed necessities (or constraints, to use a broader term) to spark innovation in their business models and processes?

That was the question implied by a very interesting and thought-provoking presentation by Professor Dennis Campbell, Harvard Business School, at the MIT/HBS conference I attended a couple of weeks ago (click here to read about my other key takeaways from the event).

In his presentation, titled “Values Based Constraints and Business Model Innovation,” Prof. Campbell provided a case study example of a financial services firm that made customer service its top priority. This involved, among other things, allowing any employee at the credit union—including the tellers—to process and approve all types of loan requests and amounts without having to get higher-level approval. “No employee will ever get in trouble for doing what is right for the [customer],” became a guiding principle at the firm.

Prof. Campbell prefaced the case study with a discussion about the “Entrepreneurial Gap,” where an employee’s “span of control” is narrow, but their “span of accountability” is wide. For a more detailed discussion about this topic, see this working paper by Robert Simmons from HBS. But this quote from the paper sums the thesis up nicely:

With span of accountability wider than span of control, an individual is accountable for figuring out how to turn opportunities into results even though he or she does not control the resources to get the job done. Could it be that this gap, which represents a shortfall of resources relative to the task at hand, is a reflection of conditions conducive to entrepreneurship—and exploration—in complex organizations?

Without going into all the details, the financial services firm effectively created an entrepreneurial gap that forced the company to innovate its processes, including its employee selection model. And the results have been positive in terms of improved financial performance, customer loyalty, and employee satisfaction.

So, what types of “values based constraints” can companies create to spark innovation in supply chain and logistics processes? Here are just a few ideas:

Offer free shipping to customers, all of the time, regardless of the amount spent. This is exactly what LL Bean introduced back in March. According to the Yahoo news article, “Company spokeswoman Carolyn Beem said there will be no price increases due to the initiative, although external factors, such as the price of cotton, might affect costs as they normally would.” But shipping costs will go up for LL Bean, and since the company doesn’t plan to increase prices as a result, the company will have to innovate elsewhere to negate these costs if it wants to maintain, or even improve, its profit margin.

For trucking companies, compensate your drivers XX% more than the industry average in terms of salary, benefits, and training. Or eliminate certain accessorial fees for shippers. The first is an employee-centric values constraint, similar to what Trader Joe’s, Mercadona, and QuikTrip are doing in retail (see my previous posting “Finding the AND in the EITHER/OR: Trader Joe’s and False Tradeoffs” for additional commentary). The second is a customer-centric values constraint, similar to some banks not charging their customers extra fees for ATM withdrawals, paper statements, or minimum balances.

For software companies, let customers pay for the software after they have achieved a pre-defined and agreed-to level of value. The norm in the software industry is for vendors to plug in numbers into an ROI calculator to show customers how much money they could save by buying and implementing their product. But in order to validate if the promised ROI is real, the customer has to spend the money first. What if the value is realized first, then the customer pays? Descartes Systems Group adopted this sales strategy a few years ago, which I assume it still uses, and the results have been positive. The company, of course, had to innovate all sorts of processes, from how sales people are compensated to how their solutions are architected and deployed, in order to make the business model work.

I’m sure we can all come up with other examples, but you get the idea.

Let me sum it up more simply: in order to spark innovation, you have to get out of your comfort zone. Deliberately choose to buck the norm in ways that will create value for your customers, employees, or both. Ask the “What if we…” questions, which often leads to some sort of constraint (such as “What if we don’t charge for shipping or accessorial fees anymore?”) and then empower your people to innovate around this constraint to still meet your high-level corporate objectives.

This process occurs every day in Cuba, where various political, economic, and environmental factors are continuously disrupting comfort zones, to the point where there aren’t any. It’s not quite innovate or die, but it’s close. There’s a lesson companies can learn from the way Cubans respond to constraints, and it’s found underneath the hood of all those classic cars: if there’s a will, there’s a way.

(Note: Descartes is an ARC client)

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