The Big Idea

Article

Business And Society

When Innovation and Trust

Are at Odds
Speeding a new product to market can have serious consequences.
Consider the Rock ’n Play. by Robert Hurley

This document is authorized for use only in Virginia Lasio, Ph. D.'s MGP19-HABILIDADESGERENCIALES at Escuela Superior Politecnica del Litoral (ESPOL) from Dec 2022 to Jun 2023.
 HBR / The Big Idea / When Innovation and Trust Are at Odds

When Innovation and Trust

Are at Odds
Speeding a new product to market can have serious consequences.
Consider the Rock ’n Play. by Robert Hurley
Published on HBR.org / July 22, 2019 / Reprint H051UI

Stuart Bradford

In 2009, when Fisher-Price debuted the Rock ’n Play Sleeper — a

portable, soothing bassinet-like device for infants — Fisher-Price and its
parent company, Mattel, were under pressure to reverse what had been
an ongoing decline of their stock price. The Rock ’n Play was a success:
By 2019, Fisher-Price had sold 4.7 million of them, more than one for
every 10 babies born in the United States since the launch.

Today we know that this success came with a high price: Since 2009,
the Fisher-Price Rock ’n Play Sleeper has been linked to 32 infant
deaths. Initially, Fisher-Price argued that the deaths occurred because
parents failed to properly strap infants into the sleeper. But on April
5, 2019, approximately four years after the first death that regulators
eventually linked to the product, Fisher-Price joined with the U.S.

Copyright © 2019 Harvard Business School Publishing. All rights reserved. 1

This document is authorized for use only in Virginia Lasio, Ph. D.'s MGP19-HABILIDADESGERENCIALES at Escuela Superior Politecnica del Litoral (ESPOL) from Dec 2022 to Jun 2023.
 HBR / The Big Idea / When Innovation and Trust Are at Odds

Consumer Product Safety Commission to issue a warning that the

sleeper should not be used with children who could already roll over.
In an attempt to pacify customers, the company issued a statement,
saying, “Generations of parents have trusted us for almost 90 years to
provide safe products for their children.…Fisher-Price and every one
of our employees take the responsibility of being part of your family
seriously, and we are committed to earning that trust every day.” On
April 12, after more pressure from the American Academy of Pediatrics
and Consumer Reports, Fisher-Price finally issued a total recall of the
product.

Analysts with UBS estimate that the recall will cost Mattel between $40
million and $60 million. But these kinds of estimates rarely calculate
the long-term cost associated with the loss of stakeholder trust. When
a company fails to live up to the basic expectation of trustworthiness
— when they lack competence, integrity, or benevolence, for example
— stakeholders feel betrayed. This feeling of betrayal often leads
customers to mistrust the company’s actions in the future. In the Fisher-
Price case, parents are likely to question the company’s competence
in developing safe products and may doubt the integrity of its
communication about safety risks.

My research shows that trust violations like Fisher-Price’s are not

usually the result of rogue employees or a one-time problem at
the company. Rather, they are frequently caused by company-wide
pressures to grow and innovate. In order to understand why growth
can lead to trust violations, and how you can identify whether
it’s happening in your own company, you need to first understand
when innovation becomes reckless — and how to identify signs of
organizational drift, which can lead to disaster.

Copyright © 2019 Harvard Business School Publishing. All rights reserved. 2

This document is authorized for use only in Virginia Lasio, Ph. D.'s MGP19-HABILIDADESGERENCIALES at Escuela Superior Politecnica del Litoral (ESPOL) from Dec 2022 to Jun 2023.
 HBR / The Big Idea / When Innovation and Trust Are at Odds

How Manic Innovation Works

Manic innovation occurs when companies fail to balance growth

with risk management. It relieves constraints and speeds along
the innovation process while transferring or increasing risks to
stakeholders. There are signs of this in the Rock ’n Play debacle. Fisher-
Price researched the infant-gear market and saw the need for an infant
sleep device that would help sleep-deprived parents. But in the search
for a hit product, the company innovated by rethinking infant sleep
while ignoring key safety controls in a number of ways: violating
guidelines for safe sleep set by the American Academy of Pediatrics;
asking the Consumer Product Safety Commission for an exemption
from its bassinet and cradle specifications; and marketing the Rock ’n
Play, through pictures and statements, as a device an infant could sleep
in all night long.

Because the multiple lawsuits are ongoing, there’s still much we don’t
know about how this faulty process operated. But as in many other cases
—GM’s ignition switch problem, Barclay’s LIBOR scandal, Citibank’s
subprime mortgage disaster, and Facebook’s fake news complicity
and privacy violations—manic innovation was allowed to continue
because the forces concerned about risk and long-term reputation were
systematically marginalized within the company.

Controlling Organizational Drift in the Innovation Process

In order to see how this marginalization happens, we need to

understand the process of organizational drift. This term refers to
the slow and gradual evolution of the way in which the organization
functions — strategy, culture, processes, governance, and so on — to
attempt to reach goals that cannot be achieved through normal and
legitimate means. As this occurs, risk management and compliance
officers are not able to temper the push to take new products to market.

Copyright © 2019 Harvard Business School Publishing. All rights reserved. 3

This document is authorized for use only in Virginia Lasio, Ph. D.'s MGP19-HABILIDADESGERENCIALES at Escuela Superior Politecnica del Litoral (ESPOL) from Dec 2022 to Jun 2023.
 HBR / The Big Idea / When Innovation and Trust Are at Odds

As a result, some stakeholders (e.g., executives in the bonus pool)

receive benefits at the expense of others.

In companies where this happens, rather than having to take into

consideration any control functions — such as legal, compliance,
and risk reviews — innovators are shielded from them. At the same
time, those innovators are rewarded for moving quickly. As the risk
management and compliance functions fade into the background, a
rogue subculture gradually comes to dominate the enterprise. This
subculture celebrates goal achievement, rewards team players that go
along, and punishes any “non-cooperators” whose concern for risk is
making achieving goals more challenging. Organization leaders only
realize how far the company has drifted when this unsustainable
process crashes.

When I work with compliance professionals who want to do more

to protect their companies from organizational drift, I ask some key
questions about the early-warning signs. The first set speak to the
conditions that can cause organizational drift; the second involve
common signs that drift is already happening. Organizations can use
them to help avoid potentially disastrous trust violations.

Even if you answer yes to some of these questions, the solution isn’t
to stop all innovation. Instead it’s to engage and collaborate with
the organization’s control functions to make sure that the innovation
process does not go off the rails. Innovators and risk managers need to
work together, early and often, and they need to keep constant watch for
organizational drift. Working together, they are better able to achieve
rapid — but not manic — innovation.

While this may sound good in theory, in practice it is hard to

achieve. Innovators and people in control functions (e.g., risk managers,

Copyright © 2019 Harvard Business School Publishing. All rights reserved. 4

This document is authorized for use only in Virginia Lasio, Ph. D.'s MGP19-HABILIDADESGERENCIALES at Escuela Superior Politecnica del Litoral (ESPOL) from Dec 2022 to Jun 2023.
 HBR / The Big Idea / When Innovation and Trust Are at Odds

compliance, legal, and internal audit) think differently and often have
conflicting incentives. Some managers in control functions think they
are only in the risk-prevention business; in truth, they need to be
rewarded when they help find ways to encourage innovation safely. In
fact, PwC’s 2018 Risk in Review study found that risk managers who
were more involved throughout the innovation cycle — proactively
adjusting risk appetite, sharing risks, working more closely with
innovators, and expanding continuous risk assessment — were better
able to manage risk exposure.

But change is also required on the part of the innovators, who must be
taught to see risk management hurdles as important and legitimate,
rather than as bureaucratic commands from the growth-prevention
departments. Managing the balance between innovation and control
requires more sophisticated innovators and control personnel who
can deal with these tensions without retreating to simplifications
that ignore either growth or risk. For example, according to a senior
compliance manager at Google, the company is endeavoring to improve
collaboration between innovators and compliance personnel, and is also
experimenting with addressing potential risks earlier in the innovation
process.

When innovation is done well, companies manage both growth and

compliance to sustain innovation and company reputation. Consider
an example where Chase Bank got it right. Chase was one of the
first financial institutions in the 1990s to experiment with derivatives
to create synthetic mortgage instruments. While Citibank and Merrill
Lynch grew explosively in the early 2000s using these instruments,
Chase took a go-slow approach, combining innovation with good
risk management. Through this process, the bank determined that it
couldn’t manage the downside risks of the instruments, and decided
to limit its exposure, effectively managing the need to balance the

Copyright © 2019 Harvard Business School Publishing. All rights reserved. 5

This document is authorized for use only in Virginia Lasio, Ph. D.'s MGP19-HABILIDADESGERENCIALES at Escuela Superior Politecnica del Litoral (ESPOL) from Dec 2022 to Jun 2023.
 HBR / The Big Idea / When Innovation and Trust Are at Odds

growth of new products and processes with controls to manage risk

and stability. Had Fisher-Price followed their example, they could have
avoided the unfortunate situation in which they find themselves now. |
THE BIG IDEA

Copyright © 2019 Harvard Business School Publishing. All rights reserved. 6

This document is authorized for use only in Virginia Lasio, Ph. D.'s MGP19-HABILIDADESGERENCIALES at Escuela Superior Politecnica del Litoral (ESPOL) from Dec 2022 to Jun 2023.
 HBR / The Big Idea / When Innovation and Trust Are at Odds

This article was originally published online on July 22, 2019.

Robert Hurley is a professor of Leading People and Organizations

RH at Fordham’s Gabelli School of Business, a collaborator with Ethical
Systems.org, and the author of the book The Decision to Trust:
How Leaders Create High-Trust Organizations. He has led executive
education programs and consulted on building high-performing and
high-trust organizations throughout the world.

Copyright © 2019 Harvard Business School Publishing. All rights reserved. 7

This document is authorized for use only in Virginia Lasio, Ph. D.'s MGP19-HABILIDADESGERENCIALES at Escuela Superior Politecnica del Litoral (ESPOL) from Dec 2022 to Jun 2023.