mini-cases: better to beg for forgiveness, part 1

This case is about a time I should have started a skunkworks.

While the historical origin of the term “skunkworks” is lightly disputed (it most certainly references a comic strip called “Li’l Abner” and stems from military projects in the late 1930s or early 1940s), the definition is not: it refers to a group, a project or a product being developed through special channels, perhaps without official approval, possibly in spite of being officially forbidden. Defense contractor Lockheed Martin was one of the first companies to have a formal “Skunk Works” division, tasked to work on highly secretive and advanced fighter planes.

Probably the most famous story about a real under-the-radar skunkworks project is the story of a graphing calculator developed for the Macintosh computer in the early 1990s. The developer responsible for the calculator program was laid off when his project was canceled, but decided to keep showing up—effectively and arbitrarily “uncanceling” the calculator. He operated in clandestine fashion for months, improving and perfecting his program without pay, harvesting support from official employees like some modern-day Robin Hood. Eventually the fruit of his labor was discovered, accepted and included as standard software on millions of Macs.

That story is a mini-case in itself. My favorite quote: “The first 90 percent of the work is easy, the second 90 percent wears you down, and the last 90 percent—the attention to detail—makes a good product.

But, back to this case.

This case is also about strategy.

The day-in, day-out operations of running a company tend to revolve around making appropriate “tactical” decisions (see the “Strategy” section of MBA-A-Day). If you’re serving hamburgers, you make sure you pay your ground beef bill on time. You train your cooks to grill the patties to order without creating waste. You make sure your employees are healthy and happy by maintaining a pleasant working environment, but you also insist that they follow guidelines to maintain quality and productivity.

Strategy, on the other hand, happens at the highest echelons of the company. Strategy is the decision to sell hot dogs as well as hamburgers because you think the added variety will generate more revenue without adding much cost. It’s deciding to franchise your restaurant concept rather than trying to build additional wholly-owned locations. It might strongly influence how you carry out tactics: strategy can decide who you buy your ground beef from, your standards about wasted food, and even the idea that employees ought to be kept happy.

Strategy, in other words, is what you do. Tactics is how you do it.

The reason strategy exists is that if every employee had carte blanche to make decisions about every aspect of a business, it wouldn’t be a business. Imagine going to McDonalds and being told that they didn’t have hamburgers there because the employees decided to make pizzas that day instead. Or, imagine that BMW suddenly started only delivering minivans to dealerships because a single line worker (with a large family) felt that every car needed to have seating for 8.

Businesses have strategies for the same reason you do: there are only so many resources available, and tough choices need to be made to figure out which projects will best accomplish the company’s goal. If your wife is coming home from a business trip and you only have time to go out to the bar or vacuum the floor, you’ve experienced the challenge of strategic decision-making!

A skunkworks sometimes evolves in a situation where the official environment of a company is not conducive to producing some output that would actually prove extremely valuable to the company—maybe that line worker was convinced that BMW minivan would actually sell really well, and other employees who felt that way would join him at the plant after hours to fabricate the first M-series vehicle with two sliding power doors. I’d guess that this is the most common type of skunkworks, although I can’t possibly back that up with actual numbers. It’s certainly the most popular image of what a skunkworks is: one man, in a world that doesn’t understand his vision, railing against the powers that be (cut to a man in a boardroom shouting “You don’t understand the future! This is the future!”), struggling against all odds, until, with the power of true love (can we get Sandra Bullock?), he transforms an industry…and a world (maybe Aerosmith or Bret Michaels can perform the theme song).

Sorry. Always wanted to be a movie announcer.

But on the other hand, it’s important to note that a skunkworks can arise as a result of corporate strategy. The company as a whole may decide that most of its operations require a certain type of environment with certain rules to thrive, and that it needs to form a sort of “A-Team”: a high-risk, high-reward business unit to pioneer special sorts of projects.

It’s not as sexy as a grassroots skunkworks, but I’d be surprised if it wasn’t more effective. After all, you have official budget and recognition, you’re not fighting for basic resources like QA staff or developers, and you know that the higher-ups want the product you’re developing.

I’ve had the privilege of being part of skunkworks projects with the corporate imprimatur. The best example I can think of is a job where we were developing a sort of dot-com approach to publishing information as opposed to our more conservative parent’s print-based business. We had the flexibility to do things our way without being immediately saddled with P&L (Profit and Loss) responsibility, which gave us more time to get our individual strategy sorted out. We were our own little business unit, exploring new possibilities and employing as much creativity as we could muster to do things differently from our parent.

And if we failed…well, we were a tax write-off.

It’s like investing. You might put a large percentage of your capital in something with a safe return, and a very small percentage in a high-risk, high-reward investment. A formally-approved skunkworks project, or even skunkworks division, makes good business sense for a company seeking to maintain its core business but still support innovation.

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