Table of Content Introduction Part 1: Strategy 1.1 Corporation and the ‘New Economy’ 1.2 The Startup Revolution 1.3 Entrepreneur vs. Intrapreneur 1.4. The Innovation Paradox 1.5 The ‘One-Size-Fits-All’ Paradigm 1.6 Why Corporate Incubators Fail 1.7 The Corporate Scientist 1.8 ‘Business Model Stage’ Centric Departments Part 2: Stage 1 - Business Ideation 2.1 Processes 2.2 People 2.3 Structure 2.4 KPI Part 3: Stage 2 - Business Building 3.1 Processes 3.2 People 3.3 Structure 3.4 KPI Part 4: Stage 3 - Business Scaling 4.1 Processes 4.2 People 4.3 Structure 4.4 KPI
Part 5: Stage 4 - Business Innovating 5.1 Processes 5.2 People 5.3 Structure 5.4 KPI Part 6: Conclusions 6.1 On Innovation and Corporate Culture 6.2 Implementation Challenges 5.3 Sustaining Disruptive Innovation
INTRODUCTION "… the fear of making a mistake is a mistake in itself." - G. W. F. Hegel In 2011, Blockbuster went into bankruptcy in the USA and was bought by Dish Network at auction for $320 million. Since then, Dish Network have failed to turn Blockbuster around and all the physical stores are currently being closed down. In the United Kingdom, Blockbuster appointed administrators on 11 November 2013 and the company’s assets are being liquidated. Kodak faced a similar fate when it filed for bankruptcy in January 2012; however its future as a revintented company looks more promising than Blockbuster’s. Both Kodak and Blockbuster are classic examples of what Clayton Christensen describes as disruptive innovation. The competition from a young and innovative company called Netflix appears to have driven Blockbuster out of business.
Other industry examples in which disruption is currently taking place include mobile technology, book publishers, newspaper publishers and the music business. The majority of large enterprises within these industries are currently at risk of being innovated out of business by more entrepreneurial competitors.
The growing importance of innovation within the contemporary organization cannot be over-emphasized. The speed of technological change and the fast emergence of well-run startups creates a situation in which large companies can easily slip up and lose market share. While established companies can often increase their market value by cutting costs and improving efficiencies, sustainable growth can only really be achieved via strategic entrepreneurship. This means that in addition to the daily grind of sustaining their current core markets, large corporates also have to innovate like startups. This in effect requires an ambidextrous organization, that is excellent at both sustaining and disruptive innovation. This is the major cultural challenge for contemporary organizations which are mostly setup to execute known business models, rather than explore new entrepreneurial opportunities. If we take a cursory look at the history of business practice, two main innovative breakthroughs can be observed. The first breakthrough emerged in part due to the foundation of the Dutch East India Company at the beginning of the 17th century. The second major breakthrough was the Industrial Revolution which resulted in mass production, economies of scale and the principles of scientif ic management.
The majority of business practices in large companies today are artefacts of the systems of management that were developed to run major industrial corporations (e.g. five-year planning, annual budgeting, ROIs and accounting rates of return). The emergence of the knowledge economy and rapid technological change is the third major breakthrough that we are just beginning to come to terms with as a society. The economic meltdown of 20072008 provided a strong signal that one-size-fits-all business practices adapted from the Industrial Revolution were no longer adaptive in economic environments that are characterized by rapid change and conditions of extreme uncertainty. The fact that large corporations continue to be disrupted by young upstart companies is also a strong signal that changes in traditional business practices around innovation are needed. It is no longer sufficient for companies to just focus on growing and defending their current market share and profit margins.
Within startup communities, new approaches to innovation have been developed in order to ameliorate some of the high failure rates of new businesses. There has been an important realization that “...startups are not smaller versions of big companies” (Blank & Dorf, 2012). While big companies execute known business models that address the known need of a known market segment, startups are temporary organizations whose goal is to search for a sustainable business model. Eric Ries, author of ‘The Lean Startup', defines a startup as “a human institution designed to create new products and services under conditions of extreme uncertainty”. This notion,
originally made popular by Steve Blank, is a huge idea. It speaks very clearly to the differences in culture and business practices that should exist between startups and large established companies.
An important question which is the focus of this book is: if established companies are setup to execute known business models, then is it possible for them to simultaneously develop entrepreneurial practices within the same organization? In other words, what are the hallmarks of the ambidextrous organization, that is simultaneously involved on the one hand in executing efficiencies and on the other disruptive innovation? How can large enterprises apply modern entrepreneurship methodologies and techniques such as the Lean Startup, Customer Development and Design Thinking to their innovation processes? What are the characteristics of sustainable disruptive innovation within the corporate startup? Large enterprises face enormous challenges with these questions. The majority of these challenges emanate from traditional business practices. Despite all of the recent leaps in knowledge about successful product innovation and new venture creation, it seems that the only challenge greater than building a new venture is to build a new venture inside an established enterprise. So although now it seems that we know a lot about hypothesis driven business development and evidence-based entrepreneurship within startups, it seems that once the same principles are applied in a large enterprise the entire process collapses on itself. Why is this the case? And what should be done to make innovation processes better? Demystifying the process of new business creation is one of the biggest challenges the large enterprises face at the beginning of the 21st century.
The Paradigm of 'One Size Fits All'
What is it that makes new venture creation within large enterprises particularly difficult? Large enterprise are well designed to execute known business models. Embedded within this culture are business practices that are aimed at homogenizing and systematizing business practices. Large enterprises tend to apply their processes, structures, KPIs and human resource management systems as one size fits all. As such, the same processes, structures, KPIs and recruitment methods that are applied to the main core business of the company are also applied to the innovation process. Such practices place a high bar and use inappropriate metrics to judge the potential success of innovation projects. It is important to reiterate Steve Blank’s notion that startups are not smaller versions of larger companies. Startups search for sustainable business models, whereas an established companies execute known business models. Interesting, in most large enterprises, the structures and processes that are used to run the mature core business are often regarded as best practice. As such, management teams are indiscriminately applying these best practices to all their products and services. This is often done with total disregard to the development stages or the real business needs of each particular product or service. Like a one size fits all baseball cap these assumed best practices do not always fit! Furthermore, large organizations tend to treat success factors from previous ventures as norms for future ventures. In volatile marketplaces, like the ones most enterprises operate in today, past
success factors cannot be regarded as validated assumptions for new projects. Indeed, previous success does not guarantee future success, especially when technology changes rapidly as the Blockbuster case illustrates. Assuming that the practices that led to success on a different product, in a different business environment can lead to success on a new product in the current business environment can be a formula for failure. Only by changing the faulty paradigm that one size fits all, can enterprises begin to engage in disruptive innovation; which will ultimately lead to growth and prosperity.
'Product-Stage Centric' Innovation What we now know and understand from evidence-based entrepreneurship is that a new product goes through various stages of development. These stages are based on the key defining feature of a startup, which is uncertainty. Within innovation, Knightian uncertainty is viewed as different from general risk which is somewhat estimable. Uncertainty is not estimable and can, therefore, not be insured against. As such, the main goal of any innovation process should be to systematically reduce risk before investing resources in scaling the product. This notion is somewhat counterintuitive to normal practice within large organizations which are geared to execute at scale. However, before uncertainty is reduced, executing at a new business venture at scale can lead to costly failure.
Similar to Eric Ries, we believe that new venture creation should be conducted within an innovation space that is somewhat separate from the day-to-day running of the core business; i.e. an innovation sandbox. In this space, the recruitment practices, business processes and KPIs will be different from those of the core business. Furthermore, each new product or business venture should be afforded its own space and the necessary resources for its current stage along the innovation process. In line with Lean Startup, we believe a product moves through three main stages; problemsolution fit, product-market fit, and later, business scaling. As a product or service idea progresses along the innovation pipeline, the processes, people, structures and KPIs need to manage the innovation process change in order to ensure the right context for the new venture to be successful.
The product-stage centric approach to innovation implies that the enterprise needs to adapt its internal environment to support and fit the needs of each product development stage in order to become efficient in bringing new products and services to market. Applying the wrong business practices to the wrong stage of innovation can ultimately lead to the discontinuation of development. While the new product is going through the early-stages of innovation, it is paramount that the innovation teams focuses on validated learning, rather than marketing or promotional activities. The innovation team needs to answer two important question in these early stages; are building something people want?; and can we deliver the product in a manner that is sustainably profitable? Only when the answer to these two questions is a validated yes, can the enterprise then focus on scaling the product.
Business Models Innovation and Sustainable Growth An important theme within this book is that even after achieving scale on a particular product, the innovation process does not come to an end. Entrepreneurial innovation within the enterprise should be an ongoing process. Validated business models that are currently achieving remarkable results have an expiration date, just like the milk carton in your refrigerator. The main challenge is that after achieving success, enterprise executives can become too focused on growth and executing efficiencies. Failing to understand and react to the expiration date of a business model creates a lot of room for disruption, especially at the low-end of the markets. As such, even with successful products, enterprise executives must continually scan the business environment for important changes that have serious implications for their current business model.
To understand the process of how established and successful business models can be disrupted you have to look no further than your smartphone. The SMS and MMS services were brilliantly executed by established enterprises such as Telefonica and Deutsche Telekom. SMS and MMS were cash cows providing a lot of revenue for these organizations. However, these companies failed to discover the opportunity before their eyes which had developed from the social and technological changes brought about by the mass adoption of the smartphone. These companies are currently being disrupted by a startup company (WhatsApp Inc.), which was able to discover and capitalize on this opportunity with ease . Rather than charge for each SMS sent, WhatsApp charges a nominal fee to download its application and then users can SMS each other free of charge. It is the same product (i.e. SMS and MMS), but the business model has be successfully changed.
Ongoing business model innovation is essential for contemporary enterprises. Any successful business model can be easily disrupted by new entrants. The only question that every executive should ponder is which business model will be disrupted next? Is it the automotive industry, the airline industry, logistics and shipping or utilities such as electricity and water supply. The companies that understand that innovation is an ongoing process; and that business modelling and discovery are at least as important as product development and execution will be able to achieve sustainable successes. Those companies that do not innovate at the business model level, will have to live with the pain of market disruption; that is if they even survive at all.
Why This Book? Almost all shareholders, regardless of their levels of risk tolerance, expect their managers to work to increase the value of the company. On stock markets, market analysts pressure enterprises to grow through their quarterly and yearly predictions. This puts pressure on the executives of these enterprises, who in turn apply pressure to their employees to grow the business faster and faster. Innovation and growing the business faster requires taking greater risks. However, the long term risks related to innovation and new product development involve the type of uncertainty that neither executives nor market analysts can stomach. As such, in a large enterprise trying to innovate and failing is viewed as being worse than not trying at all. Managers would rather grow the business by focusing on known business models, cutting costs and improving margins.
Enterprises are design to create value for the shareholders and are expected to deliver the rate of growth predicted by the market analysts in order to maintain a certain stock value. Anything that is below the analysts predictions will result in a stock price plunge. Given this market context, somewhere on the way from startup idea to the ‘Forbes 500’, the entrepreneurial spirit gets lost in complex structures and hierarchies, tedious processes and procedures, and misleading KPIs. This is especially strange, since most enterprises begin their lives as startup companies. Founders like H. Ford, F. Porsche, R. Bosch, J. A. Bombardier, B. Gates or T. A. Edison had an innovator’s mindset and an entrepreneurial spirit when they setoff to build the products and services that later became the companies we now know as Forbes Global 500 corporations While it is possible to grow a company through cost-cutting and improved margins, there is now relatively common consensus that sustainable company growth can only be achieved via innovation. In a recent innovation survey of over 1700 board level executives, PriceWaterhouseCoopers found that the companies that were the leading innovators had a growth rate that was 16% higher than the least innovative companies over the last three years. Almost all of the executives interviewed in this survey viewed innovation as a competitive necessity within their organization. Furthermore, the 20% most innovative companies in the PWC survey had a projected five-year growth rate that was almost double the global average for other firms. In the contemporary business environment large enterprises must innovate or die. Indeed, never has the need for innovators in the enterprise been greater than it is today. At first glance the corporate environment and the world of startups seem very different. However, if one were to take a closer look at the challenges facing both types of organizations, a lot of similarities would be observed. For one, regardless of what type of organization you are in, whenever you are launching a new product you are faced with signif icant levels of
uncertainty. The size or previous history of your organization can often mean very little in such circumstances. This means that for both types of organization there is the need to have a 'fail soon, succeed sooner' mindset and a high degree of tolerance for failure. Such a business practices are paramount for developing and launching new products/services. This book is necessary because, making a large enterprise innovate is no minor feat. It requires individuals with nerves of steel, strong determination to see tasks through and a complex skill set. Given the cultural differences between the execution of known business models and exploring for new sustainable business models, the intrapreneur faces a dilemma of how to navigate these often contradictory business practices. Whether the task is to bring a new service to market, iterate toward product-market fit or perform business model innovation on a declining product; an intrapreneur needs to know what tools to use and how to adapt them as the product moves through its various stages. Steve Jobs is quoted as saying that; 'It's more fun to be a pirate than to join the navy'. The intrapreneur's dilemma concerns how to be a pirate within the navy!
Is this book for you? If you fall into any of the following categories, this books is definitely a must read for you: • an intrapreneur, innovation manager or enterprise incubator manager, looking to apply modern entrepreneurship methodologies in an enterprise but facing challenges of where to start and how to do it; • an entrepreneur looking to 'pivot' your career to the enterprise in your quest for even greater challenges, but not knowing what to expect and what challenges you would face in the corporate world; • a Lean Startup and customer development enthusiast and/or practitioner, looking to learn if the methodologies can be implemented within a large enterprise; • an SME (small and medium enterprise) executive looking for ways to ensure future growth of your company. In this book, we will endeavour to answer the following questions. • What are the challenges the large enterprises faces when attempting to launch new ventures? • What are the hallmarks of the ambidextrous organization, that is simultaneously involved in executing efficiencies and disruptive innovation? • How can large enterprises apply modern entrepreneurship methodologies and techniques such as the Lean Startup, Customer Development and Design Thinking to their innovation processes? • What are the characteristics of sustainable disruptive innovation within the corporate startup? • What is product-stage innovation, and what are the necessary tools, structures, processes and metrics for each
product stage? • What structural changes need to be made in an enterprise to ensure sustainable growth rates? • What is an intrapreneur and how do the enterprises recruit and motivate them? • What is the process for implementing and maintaining business model innovation? After reading this book employees and managers will have the knowledge and tools necessary for new venture creation within the large enterprise. We hope you enjoy reading it, and that you find it useful in your own work.
About the authors Dr. Tendayi Viki wears many hats as an academic, author, entrepreneur and consultant. He holds a PhD in Psychology and an MBA. He teaches Organizational Psychology, Entrepreneurship and Research Methods at the University of Kent (UK). During his early academic career, Dr Viki researched various topics in social and organizational psychology including social identity, dehumanization, mergers and acquisitions, attitudes towards criminal justice and perceptions of hip-hop music. He has also been a Research Assistant at Harvard University (USA), a Visiting Scholar at the University of Queensland (Australia), a Visiting Scholar at the University of Cape Town (South Africa) and a Research Fellow at Stanford University (USA). He has published over 30 scientif ic papers and several book chapter. Follow Tendayi on and .
Coming from an entrepreneurial background - having been involved with Hi-Tech & Internet start-ups across the world and being a entrepreneurship community leader in Europe Dan Toma has a clear understanding of the challenges involved in building sustainable businesses from the ground up. In the years following his graduation from a top MBA program, he started focusing more on enterprise innovation management, specif ically on how disruptive new ventures can be build in a corporate setting. Follow Dan on and .