In a competitive environment, there is a lot of pressure to cheat. Athletes do drugs, countries tweak their accounting (just like large companies), and now, the largest car manufacturer in the world recognizes a massive scam about its diesel engines. This post is not about judging these cases morally, but about understanding what such tricks do to corporate culture and innovation. With one clear conclusion: real innovators don’t lie.

A lie makes you dumb

In the corporate world, a lie may be a quick way to seemingly boost results or reach a milestone. But truth be told, it has no such effect: it just creates the illusion of it. The problem with a lie is that it forces you to keep the truth secret. Because of this, in large organizations, you quickly have to treat your employees at the same playing field as the general public, i.e. you have to lie to your employees. When you lie as a manager, you are hiding potentially key info to your employees, making it impossible for them to be smartly processing this info.

I witnessed such behavior right before the launch of the 4th mobile operator in France. One consultant was advising an incumbent telco about their strategy to resist the launch of this new competitor, which turned out to be brutal. The momentum (hope?) in that company, at the time, was that customers would pay them more because they enjoyed quality customer service. The new entrant was supposedly appealing only to geeks, and this incumbent was obviously better. Or not. Thing is, the employees had ended up believing their own marketing lies. Any customer of this incumbent could see that customer service was on par with others’, sometimes even worse. Nevertheless, the corporate momentum was that they had some quality customer service. As a result, they expected to charge a premium for a non-existent quality customer service. Obviously, customers could see what employees had been taught not to question, and this incumbent suffered massively from the launch of the new entrant. Indeed, it was left with no strategy to counter the new entrant, because employees were living with a false perception of reality — one that the marketing department had been proud to build with expensive ads !

Similarly, imagine the investment committee at Volkswagen evaluating the investment of a few million euros in a more efficient diesel engine: why bother, since they are already so good at making diesel engines ? Clearly, this kind of lies tricks the company into not working on real issues.

A lie promotes the wrong people

In your company, which one is more likely to get promoted: the one that plays with cookie jars to consistently match result expectations, or the one that accepts the volatility of her results with a clear understanding of the weaknesses ? If it’s the former, I would suggest to look for a better place. For two reasons:

1. the promoted liar may have tricked the management based on fake data, but operational teams cannot be fooled so easily. As a result, this puts a non-leader in a management position. Good people will leave (bad ones always stay) and results will fall down one way or the other.
2. the promoted liar knows how she got promoted, and will apply her broken ethics in other situations. After all, it is easier to lie than to get the job done. Fail to spot these toxic managers, and soon your organization will be full of them.

Innovation needs honesty

One key part of the innovation process is that ability to detect and priorize the right issues. Broken ethics and corporate lies distort this process. That is why innovators don’t lie. They humbly recognize weaknesses and work on them. An innovative organization knows how to reward such behavior, while being merciless with bad ethics.

A major part of the infrastructure supporting the digital revolution is designated as “the Cloud”. Far from being solely virtual, it is composed of brick-and-mortar servers and hard drives, hosted in massive datacenters and consuming huge amounts of power (no, these clouds don’t fly). The largest player in this infrastructure space is Amazon Web Services, weighting an estimated $6 Billions of revenues in 2015 — more than its 4 largest competitors combined. It has two European presences, one in Ireland and another in Germany. France, in its Colbertist tradition — or was it arrogance ? — decided that this could not happen freely, and had to be shaped by a government-mandated effort. This has made sovereign cloud a top-down failure.

In 2009, the French government unlocked €150M to build a France-based cloud, a sizable sum for a budget running a constant deficit. Orange, Thalès and Dassault Systems were listed as co-investors. But as a sign of things to come, Dassault Systems pulled back, and we ended up with 2 projects instead of one:

• Cloudwatt (Orange + Thalès)
• Numergy (SFR + Bull — now Atos)

Each project received €75M each of taxpayers’ money.

To make a long story short, we are now in 2015 and these companies (despite TV campaigns as costly as irrelevant for a B2B service) are virtually non existent in the market: Cloudwatt is reportedly making €2M of revenues per year, and Numergy €6M of revenues per year. This falls short of the €400M promised by the business plan.

While so many companies struggle to raise money, this innovation process raises eyebrows:

• First question: if €75M was enough to start anything, why grant €150M in the first place ?
• Second: why start such a projet, when the 3rd web hoster on the planet is French ? Yes, there was already an extensive Cloud infrastructure in France, and we could have helped the best become global faster.
• Third: what is Europe doing ? Such subsidies distort competition and are not supposed to happen.

Truth be told, I can’t help thinking that insane friendship between politicians and VPs at these companies was involved. But I don’t want to even find out — for fear of shame of being French.

So let’s take the best out of this experience: I am not talking about cheap second-hand server hardware, but rather learning. What went wrong ?

Simply, innovation does not happen by just deciding it. Money does not buy an innovative environment. I will remember that:

• Numergy and Cloudwatt took years to just catch-up with Amazon or OVH technically. Forget about being better as a late contender.
• “Fish rots head first”: the project was ill-conceived, but the executives that were hired where not any better. There is no product differentiation, just expensive and inefficient TV campaigns, no presence on the field…
• Telcos: I hear a lot of telcos willing to deploy their own Cloud infrastructure. Fair enough, but look at Numergy and Cloudwatt as possible outcomes of these initiatives. There has to be another way.