The Funnel - Corporate Innovation Magazine | 6th Edition | Summer 2019 by The Funnel | Corporate Innovation Magazine by Spyre Group

Summer 2019

Innovation is a Journey page 10

Sisyphean innovation and the three keys to avoiding it page 14

Israelâ&#x20AC;&#x2122;s postal company: The skyâ&#x20AC;&#x2122;s the limit page 20

CONTENTS Business Title

Do’s and Don’ts when Innovating

20 Israel’s postal company: The sky’s the limit

Innovating the Chain

24 10

Where to play A new approach to innovation strategy

Innovation is a Journey

28 14

Sisyphean innovation and the three keys to avoiding it

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Escape Velocity Free Your Company’s Future from the Pull of the Past

“Love the problem not your solution”. The Lean Canvas, its Origins and its Future

32 Corporate innovation A Front row view

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EDITOR’S NOTES Dear reader, There is a tale about the Roman emperor, Tiberius, who one day gave audience to a craftsman with a special invention. The craftsman presented a beautiful glass goblet to the emperor and proceeded to throw it on the floor. To the amazement of all present, the goblet did not shatter but only changed its shape. When picked up, the goblet returned to its original shape. The craftsman proceeded to use a hammer and hit the goblet which, once again, did not shatter. “I present you with flexible glass,” said the craftsman. The emperor was visibly impressed and asked whether anyone else knew the secret of manufacturing such a miraculous artifact. “No, Your Highness. It is a secret only I possess.” To his amazement, the craftsman was unceremoniously dragged outside and executed on the spot instead of receiving praise and rewards as he expected. The emperor was simply afraid that this new material would become a competitor to existing precious metals on which commerce relied and thus disrupt the economy and devalue the empire’s treasures. This invention was simply never to become public. While the historic accuracy of this story is in some doubt, it does convey the notion that organizations have an inherent tendency to kill innovative ideas before they even had a chance to incubate. This issue offers certain tools and techniques that will allow your organization to maintain a healthier approach to innovation without disrupting ongoing operations. You will learn about the benefits of using the lean canvas as part of a corporation’s innovation practice through a fascinating interview we were fortunate enough to get with Ash Maurya, the father of “The Lean Canvas.” In this edition, you will also read about tools that promote better decisions on “Where to play” in the first place, an interview with the former EVP of Innovation for one of the world’s largest electronics companies and much more. I would also like to congratulate our partners in Brazil for releasing the first edition of “The Funnel” in Portuguese. This is a clear indicator that the value we are delivering to innovation professionals is going global. Parabéns Kyvo pela iniciativa e muito sucesso! (Congratulations Kyvo for the initiative and loads of success!) Enjoy!

Ahi Gvirtsman

Chief Editor & Duco Global Partner

The Funnel Shorts

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Food tech is one of the innovation fields that most affect our day to day lives. One of the most exciting innovations in this field, that has been making its way into more and more restaurants recently, is synthetic meat. Beyond any moral or ethical discussions, the ability to produce synthetic meat that could gain mainstream acceptance has far reaching implications on the environment and climate. In the past couple of years, more and more companies have entered the market and are now in a race to see who can offer the best product first.

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Innovative companies perform better than companies who do not put an effort into innovation (that’s why we’re all here after all), but it may surprise you how much better. According to a research by Instinet (2017), companies that invest heavily in research and development made more than a 25% return over the past year, nearly double that of the S&P 500 (SPX). These companies also show long term success rates. They have topped the broader market for the past 10, 20 and nearly 40 years. Since 1990, the Innovation Index has returned 20% on average, compared to 10% for the S&P 500 and 15.6% for the Nasdaq 100.

Generation Zers are starting to enter the workforce and companies have to start making changes to fit them. Generation Z are the people born between 1996-2010. They have never known a world without internet, have felt the fear and uncertainty of the economic downturn and have been heavily exposed to the “#metoo” movement from an early age. So what are they looking for? First of all, it is important to note that their aspirations and expectations differ from those of millenials, and in some aspects, are more similar to previous generations. They look for stability, transparency and a more linear upward route. Tech and digitization of the workplace are critical. Workplaces also need to offer a better balance of social and solitary work. Gen Z are considered more independent and competitive than their older peers. They are also lonelier and therefore looking to their workplace to offer some social aspects.

DO’S AND DON’TS WHEN

INNOVATING

Innovating is never an easy task. Becoming that person or team to come up with a great idea, that may become the world’s next Apple, doesn’t happen often. However nowadays, you don’t need to be the next Steve Jobs to be innovative, and even if you or your team simply come up with a good solution to a current problem, you may be entitled to a patent. Therefore, it is essential to be aware of certain rules during the innovation process to make sure you do not jeopardize your innovation.

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SHARONE GODESH, PATENT ATTORNEY (ISR & US) HEAD OF PATENT DEPARTMENT AT SOROKER AGMON NORDMAN, IP & BEYOND

Here are the Do’s and Don’ts an innovative person or team should adhere to during their everyday work: DON’T BE YOUR OWN PRIOR ART Be sure not to disclose to a third party (including friends and family) any information relating to an invention before it is filed as a patent application. Once you disclose information relevant to an invention prior to its filing date, your own disclosure can be used against you during prosecution of the patent application. Let alone someone from the informed party can rush and file a patent application before you do. It is advised to disclose information only under a good non-disclosure agreement. DO USE AN INVENTION NOTEBOOK Though since March 2013 the US no longer follows the ‘first to invent’ practice, it is still important for an inventor(s) to have an invention notebook at hand. In this notebook, you should describe the invention, mention the date and name your fellow inventors. These details might become important during discovery or due diligence processes, when there is a need to define the list of inventors and/ or to recall the background of the invention. It is absolutely imperative to understand that emailing a description of your invention to yourself provides no exclusive rights and may even be used against you later to demonstrate you are no longer entitled to a patent as you did nothing with that email.

YOUR OPINION DOES MATTER Your opinion matters. However, it doesn’t need to be documented. You should refrain from stating your opinion through emails or any other documented correspondence, with respect to validity of patents and patent applications of other companies, and of course of your own. If you want to discuss the details of a patent or patent application, do so in person, or via a telephone call but not through any recorded means of communication. Remember anything you say can and might be used against the company.

TO SAVE OR NOT TO SAVE Your opinion should not be documented, though any information within the company that is documented should not be saved forever. Consider the exact time during which you want documents to be saved, and after that time delete and destroy all documentation. This should be another strict policy the company is to follow. Such a policy may turn out to be especially important during patent litigation, when you do not want inside emails from the past to be used against the company and its employees. DO FILE A PROVISIONAL Once you have thought of an idea, managed to describe its essence and preferably have provided as many details as possible, it is advised to file a provisional patent application at the US Patent and Trademark office. A provisional patent application, which is not required to be drafted in the same format as an actual utility patent application, provides you with the benefit of holding on to an early filing date, which utility patent applications filed later on, could claim priority from. This can make a huge difference under the ‘first to file’ practice, since being the first to enter the ‘race’ provides great advantage. These are just a few of many aspects to consider when innovating. Creating and maintaining a safe, productive and innovative Intellectual Property environment for your employees and your company could be the main difference to being a large and successful player in today’s innovative and expanding market.

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PATENT SEARCH - YES OR NO? In some cases, before deciding to invest time and money in filing a patent application and then in R&D, a company might perform prior art search to determine whether the invention is new and nonobvious. In other cases, the company might choose to file a patent application without performing a prior art search, since the US Patent and Trademark office requires disclosure of whatever is found during such a search. This strategic decision as to whether or not employees can perform prior art patent searches, must be laid out and communicated in a clear and strict patent search policy.

INNOVATING THE CHAIN OFIR BRONHAIM, DSV INNOVATION MANAGER MANAGES INNOVATION STRATEGY AND PRACTICAL APPLICATION IN THE DIFFERENT VERTICALS. OFIR LOVES TAKING AN ACTIVE PART IN THE STARTUP ECOSYSTEM IN ISRAEL AND BELIEVES IN THE IMPORTANCE OF CULTURE FOR INNOVATION SUCCESS.

Supply chain management has been evolving continuously over the last four decades. In particular, the pace of change, in the last decade or so, has been truly rapid in every sense of the word. Consumers are usually exposed to parts of the supply chain process which are closer to the point of consumption. The changes are happening, however, across the supply chain’s entire length.

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These changing norms have upped the ante for traditional industries like shipping and trucking, long mired in bureaucracy, manual processes and heavy administration. While shipping crews may be more accustomed to updating paper charts than analyzing big data, their employers ignore innovation at their peril: The entire supply chain is in the midst of massive change, incorporating new technologies to improve operational cycles, increase efficiencies, cut costs, save time and reduce human error. DSV constantly strives to be a leader in changing this ecosystem. Because DSV is one of the largest corporates in supply chain logistics, globally, it is very familiar with this industry and understands its pain points. One of the main things we are doing to overcome/solve those pain points, is working with startups in order to bring innovation to the field. DSV’s start-up service works in partnership with small and medium sized companies to design the optimal supply chain solutions. To date, DSV has collaborated with 11 Israeli start-ups, with a pipeline of dozens more.

WHY ISRAEL? DSV’s innovation unit works mainly in three countries - South Africa, Denmark (where the company HQ is located) and in Israel. This is because the company understands that the Israeli ecosystem provides excellent, flexible, innovative solutions and is a powerhouse in the global innovation market.

WHY WOULD STARTUPS WANT TO WORK WITH DSV? As a world leader in the field of supply chain, DSV has its ear to the ground on needs and challenges in this field and knows how to best fit a technological solution to those challenges. DSV offers startups access to the best subject matter experts in the field and an opportunity for exposure in different countries. Being able to design a product and adjust it in response to DSV’s or its many customer’s needs ensures a better product. DSV can also later incorporate the startup into its offerings and help it reach a wide audience.

FOR LARGE CORPORATIONS WORKING WITH STARTUPS

1/ COMMITMENT When an organization decides to include an open innovation methodology or incorporate innovation into its ranks, the different departments have to be committed to that innovation. Managers and employees need to understand that work processes are complex and the combination of a startup and enterprise is a complex endeavor which requires time, patience and commitment from both sides.

2/ TRANSPARENCY One of the most critical points in the combination between a startup and enterprise is the allocation of resources. The amount of resources a startup has is limited and, often due to mismanaged allocation of resources, may find itself shutting down. The entreprise, that often controls the pace of product development and incorporation, needs to be completely transparent with the startups it is working with. A relationship based on transparency saves the startups unnecessary expenditure of resources and allows it to focus on the product.

3/ CULTURE

The cultural differences between startups and large organizations are vast. Some of the challenges of having open innovation is taking into account the cultural adjustments that need to be made. The eventual combination of these cultures when done correctly and together, brings positive results to both sides. Culture, open communication and work processes are all important in making sure open innovation is productive.

The pharmaceutical department at DSV manages the supply chain of several multi-national companies with very high demands regarding location, scheduling and temperature regulation. As a company that brands herself with operational excellence, we are committed to providing the best solutions to our clients. With this in mind, we make sure to integrate the relevant technologies into every step we can in the supply chain. In this project, we are working with an Israeli startup company that assists us in updating on the location and temperature of each of the products in our clients’ delivery, whether by air, sea or land - and at a low cost as well. The product development and adjusting it to the needs of the client is made possible mostly by the transparent work process and commitment, from both sides, to create the best possible product, so that it can be integrated into the current supply chain without changing it. The team work of the pharma department, the innovation teams and the startup team happens with synergy and is measured at every step using the GATE WAYS that were defined in advance. The work process is examined by external factors to check for complete suitability to and compliance with the market needs. The process of integrating external technologies as an additional layer in the customer’s supply chain necessitated adjustments in our organizational culture as deliverers and for our customers. We are currently working on several technological projects and are happy to lead the supply chain into the future.

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TIPS

In conclusion, I would like to share a bit about a project we have been working on these past few months at DSV, in cooperation with the Pharma and Innovation departments.

INNOVATION

IS A JOURNEY TALYA VAISH, INTERVIEW WITH SHAI ALBARANES VICE PRESIDENT OF INNOVATION AND VENTURES AT MEXICHEM

MANAGING GLOBAL INNOVATION I walked into Netafim’s office building on a hot day. It is not in the most glamorous part of town but as I walked in, and Shai welcomed me, the office was inviting, well-designed, colorful and full of light. This was the first sign that Netafim, and Mexichem, Netafim’s new owner, are not necessarily what you would expect from an industrial conglomerate.

WHO IS MEXICHEM A 7.2 billion dollar sales company, with 22,000 employees and a worldwide presence. The company is a world leader in five different verticals. The largest fluorine producer, which is a far more significant material than people know. Other verticals are polymers, urban infrastructure, agriculture (Netafim) and fiber optics. The company has grown exponentially over the last 15 years, mostly through M&As as well as organic growth.

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SHAI’S JOURNEY TO MEXICHEM INNOVATION Innovation managers often follow non-traditional and varied paths before putting on the innovation cap. Shai is no different. He had his first entrepreneurial experience right after the army. It was Israel’s 50th anniversary and he and a friend, not being too interested in what the job market had to offer recently discharged soldiers, designed a board game that taught kids the history of Israel. The timing worked in their favor and the game got a lot of attention from the media, large stores and organizations looked into buying it. He took the money from the game and traveled for a year. Returning to Israel, he received a scholarship to study computer science at the Interdisciplinary Center. He later joined the Zell Entrepreneurship Program at the school. The program, considered one of the best in the country, if not the world, taught him many of the skills needed for entrepreneurship. After graduating, he worked in marketing and bizdev in various startups and later went on to pursue his MBA at INSEAD, joined McKinsey in London and then in Israel. He started at Netafim in 2012, managing several projects dedicated to increasing the company’s value, then managed the product management and product marketing teams as well as the unit dedicated to strategic crops.

A 7.2 BILLION DOLLAR SALES COMPANY, WITH 22,000 EMPLOYEES AND A WORLDWIDE PRESENCE. THE STORY OF INNOVATION AT MEXICHEM Getting Started - Transformation In February, 2018, Mexichem appointed a new CEO, Daniel Martínez-Valle (who was previously a senior manager at Cisco). He had a clear vision of where he wanted the company to go and on his first week in office said “the past 15 years were great but if we want the next 15 years to be great as well we have to make significant changes.” In order to achieve this, he set up a transformation team of 15 people from around the world that touched on different aspects of the organization. Shai was a member of this team and shared that their first step was to understand and formalize the organization’s purpose and values.

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THE PAST 15 YEARS WERE GREAT BUT IF WE WANT THE NEXT 15 YEARS TO BE GREAT AS WELL WE HAVE TO MAKE SIGNIFICANT CHANGES.

BECOMING VP OF INNOVATION AND VENTURES

PURPOSE AND VALUES Daniel placed great importance on formalizing the organization’s purpose and values and saw them, among other things, as a way to unify the different companies that make up Mexichem (which were very independent). He wanted to answer the big questions: Why do we get up in the morning and come to work? Why would someone come work for Mexichem? How do we solve the world’s biggest problems? After a long and complex process involving employees from different verticals, levels and locations, they eventually came up with Mexichem’s purpose and values: • Purpose: Advance life around the world • Values: Diversity, Responsibility, Bravery Parallel to the purpose and values process, the transformation team also addressed other important pillars such as strategy, digital, talent, sustainability, internal processes and innovation. Shai was chosen to lead the innovation pillar.

Once he was chosen to lead innovation, Shai started talking to anyone who had innovation in their title or was linked to the field in one way or another (VC’s, accelerators, incubators, etc.). He tried to understand how people saw this role and their vision for innovation and then developed his own. Shai mentioned that while reading books and articles on the topic did contribute (he recommended “Beyond the Champion”, by Gina Colarelli O’Connor,Andrew C. Corbett and Lois S. Peters), his strongest recommendation was going out and talking to people in the same position. His first task was to define what innovation means, and after some consideration he formalized it as Creating something new, that addresses a need and that its economic value is greater than the cost of development. He then went on to define, together with the CEO, the role of innovation for Mexichem - establishing an environment in which innovation could systematically be created and commercialized to deliver upon Mexichem’s purpose and drive future growth. It was important to make clear to the entire organization the need to address all three levels of innovation - core, adjacent and transformational (based on the Christensen model for innovation).

The next step was to agree with Mexichem’s CEO on the main objectives of the innovation: generating new revenues, above and beyond each one of the business groups’ growth plans and creating a culture of innovation focused on looking out (and bringing in innovation from the outside) while exponentially increasing the pace of experimentation and learning. Finally he defined the four main activities that will make up the Mexichem innovation ecosystem. The structure includes:

MEXICHEM VENTURES: the corporate venture capital fund (CVC) which is the vehicle to invest in startups and enable bringing innovation from the outside in

STARTUP PARTNERSHIPS: A platform for startup partnerships (Open Innovation) which is independent of the fact of whether equity investment took place. It is important to acknowledge that the culture and velocity of a startup is completely different than the culture of a big organization. This is the reason why so many partnerships fail. We have built a dedicated team and the required processes to try and overcome those challenges.

INTRAPRENEURSHIP: An internal innovation program which was designed to allow each employee in the organization to suggest his or her idea and, more importantly, to create the right program, the right processes, the right coaching of these ideas to actually succeed and generate revenues for Mexichem

LIGHTHOUSE LABS:

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• Lighthouse Labs is Mexichem’s new innovation engine—a collaboration between IDEO and Mexichem. The vision of Lighthouse is to launch bold new ventures that address global challenges. These are the filters used when it comes to selecting Lighthouse projects: • Critical to Mexichem’s business group’s strategy. • The projects must also sit at the intersection of what the Lighthouse does best: human centered innovation, technology, and the subject matter expertise that each business group brings • Finally, and perhaps most importantly, Lighthouse projects must be focused on questions and finding solutions that will embody Mexichem’s purpose and the future vision for this company

STARTUP PARTNERSHIPS

INTRAPRENEURSHIP

LIGHTHOUSE LABS

CORPORATE VC FUND

INNOVATION IN A GLOBAL COMPANY Mexichem is made up of five business groups, each focusing on a different vertical. Shai believes that while Mexichem should have a global and unified approach to innovation, implementation programs should be tailored to the specific culture, skills and challenges of each one of the business groups.

CREATING SOMETHING NEW, THAT ADDRESSES A NEED AND THAT ITS ECONOMIC VALUE IS GREATER THAN THE COST OF DEVELOPMENT.

Shai is not blind to the challenges of his role: the long term effects, the relative suspicion this new role still receives, securing a budget and much more. He believes that receiving the CEO’s and upper management’s ongoing support is critical in order to overcome these challenges. Before we ended our meeting, Shai mentioned that his own personal challenge in this role is to bring something new to the world of innovation. As he has relied on sources and people who came before him, he would like to add a new stone to the Innovation road.

IT WAS IMPORTANT TO MAKE CLEAR TO THE ENTIRE ORGANIZATION THE NEED TO ADDRESS ALL THREE LEVELS OF INNOVATIONCORE, ADJACENT AND TRANSFORMATIONAL

SISYPHEAN INNOVATION

AND THE THREE KEYS TO AVOIDING IT AHI GVIRTSMAN IS THE FORMER VICE PRESIDENT AND GLOBAL HEAD OF INNOVATION OF HP’S SOFTWARE DIVISION, THE AUTHOR OF THE BOOK “THE PEAK INNOVATION PRINCIPLES” AND CHIEF PRODUCT OFFICER AT DUCO. HE IS CONSIDERED A GURU OF ORGANIZATIONAL INNOVATION AND HIS METHODS ARE BEING IMPLEMENTED IN VARIOUS ORGANIZATIONS INCLUDING THE TEL-AVIV MUNICIPALITY, ISRAEL’S NATIONAL FEDERAL BANK, NETIVEI ISRAEL, IDF AND IAI (ISRAEL AEROSPACE INDUSTRY). As I travel and meet innovation executives at various organizations, one of the patterns that emerges repeatedly is that of ventures struggling to get on the organization’s official work plans. In other words, there is space for experimentation and ideation but when the rubber meets the road i.e. decision makers are expected to take a potential venture and dedicate focus and resources to it - it simply doesn’t happen. I call this the Sisyphean innovation pattern.

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Sisyphus was a king who was punished by the Greek gods to eternally roll a heavy boulder up a tall hill only to see it rolling down to the bottom every time it almost reaches the top. Having to go through this endless cycle of effort and failure is called a sisyphean task.

Why do organizations with good intentions find it so difficult to make that next level of commitment to promising ventures? The truth of the matter is that while most executives tell me that innovation is extremely important to them and is actually the lifeblood of their organizations, truly innovative ideas make decision makers very uncomfortable. The combination of unusually high levels of risk and lack of clarity in ROI (Return On Investment) which characterize innovative ideas goes against everything that is taught in business schools. You either de-risk the project, thereby devoiding it from making a potential impact or simply block it from existence outright. It is very human to prefer safe projects that have much clearer ROI ratios and that existing customers are clamoring for, over the lack of clarity and high risk of innovation when push comes to shove.

Having said that, organizations that wish to thrive in the long term must put in place mechanisms that make it easier for executives to make such decisions. Those mechanisms will allow certain innovative projects to get the opportunity to demonstrate success in the real world so that related decisions can be based on facts rather than opinion and even force to a certain extent long term investments of uncertain outcomes to coexist in parallel to the mainline business.

THERE ARE THREE KEYS TO SUCH MECHANISMS THAT IF ADHERED TO WILL SET THE STAGE FOR SUCCESSFUL LONG TERM INNOVATION: 1. DELAY OF DECISION POINT

Usually, when facing innovative opportunities, executives consider the potential next step as building a PoC (Proof of Concept) or even an Alpha version of the solution. This means that the cost of the so-called experiment in this case will be expensive and that failure (which by definition is probable here) will be painful. By changing decision making about innovative ventures from high stakes big bets into a rolling sequence of merit-based guesses then the final decision about whether to build and then scale or not, is practically delayed over time. In order for this to be sustainable there must be a limit on the spending velocity for innovative ventures at every stage and just like startups with investors, so will ventures have to present findings and proof to executives in order to receive an additional round of internal resourcing.

2. CONSIDER LEARNING AS PROGRESS

One of the main messages of the lean startup movement was that action doesn’t mean progress and that building new stuff which is the natural tendency of corporations is a waste of time and resources when it isn’t preceded by rigorous validation and fact finding. And so the second key for us is to adhere to this principle. And yet, there’s a caveat that’s unique to established organizations. Even the most advanced systems of innovation have to hand over ventures to the execution functions within the business units. At that point in time, the organization’s project management practices kick into gear and such principles as validation, flexibility and merit-based decision making are thrown out the window. Therefore, it is essential that this key of continuing to invest in learning and making decisions based on this learning must be continued even when the venture is handed over for building and releasing.

3. MAINTAIN A PORTFOLIO

For a complete body of work, organizations should have, at any given moment, a collection of such innovation opportunities. It can be described as a portfolio of educated guesses kept on low flame i.e. capped spending velocity until a decision to scale is made for some of them based on merit. Once again, discipline is a must here since a human tendency would be to “scale creep” and bring a venture to scale simply due to momentum and set project milestones rather than actual results and merit.

In order for innovation to thrive in the long term, organizations must put in place the mechanisms that will allow executives to make decisions that balance the short term needs with an ability to maintain a portfolio of educated guesses about the long term. If we don’t keep such opportunities alive, we will never have the chance of seeing them materialize. Keeping them alive requires inherent practices over time rather than the heroics of individuals which is always limited in scope and short lived. Applying the keys to success described in this article at scale in your organization will bring you significantly closer to a state of innovation proficiency.

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The result is that we see a lot of activity around innovation. Be it open innovation with startups or internal processes that foster innovation from within. But whatever the process and method, these activities do not generate progress because everything that is generated never makes it into official work plans of the business units. Oh, and making it into work plans isn’t enough unless it is above the cut line because being in the plans but below the cut line is practically not being in at all.

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BOOK CLUB

FREE YOUR COMPANY’S FUTURE FROM THE PULL OF THE PAST

BY TALYA VAISH AND TATIANA GUTKOWSKI

ESCAPE VELOCITY BY: GEOFFREY A. MOORE

“What if there is some hidden force that is working against your best efforts? What if this force is operating inside your own company, with the full support of your executive team, your board of directors, your investors, and indeed yourself? What if this force is able to mysteriously redirect resource allocation so that it never quite gets deployed against new agendas? That force, I submit, is the pull of the past, most concretely embodied in your prior year’s operating plan.”

HOW TO MOVE BEYOND PAST SUCCESS AND DRIVE NEXT-GENERATION GROWTH FROM NEW LINES OF BUSINESS (EFFECTIVELY, ESCAPE THE GRAVITATIONAL PULL OF BUSINESS AS USUAL) .

The scientific term, Escape Velocity explains the speed it requires for an object to escape the gravitational pull. In his book, Escape Velocity (2011), Geoffrey Moore offers executives and innovation leaders a pragmatic plan to engage one of the most critical challenges that established enterprises face nowadays: how to move beyond past success and drive next-generation growth from new lines of business (effectively, escape the gravitational pull of business as usual) . Achieving that goal by creating so much momentum by executing within the hierarchy of powers that your company can overcome its own inertia and break free from its past.

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Dr. Geoffrey Moore is an organizational theorist, a management consultant and author. He worked as a college professor and corporate traner before opening his own consultancy firm, Geoffrey Moore Consulting and is a venture partner with Mohr Davidow Ventures and Wildcat Venture Partners.

When the author worked with senior management teams, he repeatedly found that executives were trapped by short-term, performance-based compensation schemes. The result was that critical decision-makers were placing too much importance on their legacy commitments, which led to low success rates in new-product launches, and widespread failure in sustaining next-generation business at scale. Escape Velocity provides executives and their teams a practical way to take advantage of the opportunities of an increasingly digitized industry, disruptive economy and globalization. It discusses how to analyze which markets will create your best returns and how to realign your management and resources to capitalize on them; who will design your next generation of offers, and for whom they will be designed; who are becoming your new competitors, and how you stack up against the norms they are setting; and on what basis you will be able to differentiate yourself from these competitors sustainably. The book addresses a “power deficit” (different categories of power are detailed later in this article) in established enterprises that holds them captive to their legacy core buisness and renders them unable to capitalize on next-generation opportunities. Moore traces this deficit to a performance-oriented management culture that drives accountability for financial results without establishing equivalent responsibility for replenishing competitive advantage. In this context, enterprises continually draw down their power reserves to fuel the current quarter’s results while failing to stake out future positions of power to drive next-generation growth. Moore’s analysis shows this behavior as deeply embedded in the established norms and practices of global businesses and that a new set of frameworks and disciplines are required to correct for it. The book is centered right at the intersection of strategy and execution, the crucible in which next-generation successes and failures are formed.

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The author presents a cogent strategy for generating future growth within an established enterprise. He organizes this material around a framework called the “Hierarchy of Powers”. This includes five sources of competitive power, all of which must be aligned in order to help companies recognize their strengths and weaknesses, to develop a plan and achieve overall success. They are: • CATEGORY POWER: achieved through proactively entering and exiting categories to participate meaningfully in the best growth opportunities. Ask yourself: are you in hot high-growth categories or do you have category envy? • COMPANY POWER: achieved through highly asymmetrical allocations of resources to create “unmatchable” core capabilities. Ask yourself: do customers and competitors see you as the one to beat, or is that someone else? • MARKET POWER: achieved through targeting the most strategic customer segments and skewing offers and programs to ensure winning dominant shares in each market. Ask yourself: are you winning the key “primaries” definitively, and are you winning them fast enough? • OFFER POWER: achieved through disentangling three distinct forms of innovation one from another and managing each separately to achieve differentiation, competitive neutralization, and internal productivity respectively. Ask yourself: do your flagship offers set the bar for others, or are you playing mostly catch-up, and slowly at that? • EXECUTION POWER: achieved with focus on transformational initiatives that realign the company around the next-generation capabilities required to execute its strategy.

The author suggests to: Focus on power first, then on performance. For example, you can do this by allocating resources to innovation programs rather than performance budgeting and focusing on go-tomarket resources more than on R&D. Drive accountability for power into the operational plan: by adding power metrics to performance metrics and modifying compensation plans so that power objectives matter to all. Use the Hierarchy of Power to frame the effort: it provides a common vocabulary to get everyone on the same page and structures power issues in ways that are directly addressable.

DRAWING FROM THOUSANDS OF HOURS SPENT FACE-TO-FACE WITH CEOS AND THEIR TEAMS, MOORE PRESENTS CASE EXAMPLES AND PRACTICES. WHILE HIS EXPERIENCE IS DEEPLY ROOTED IN THE HIGH-TECH SECTOR, HIS MODELS AND TECHNIQUES APPLY WELL BEYOND THIS ARENA, INCLUDING TO THE PUBLIC SECTOR.

ISRAEL’S POSTAL COMPANY:

THE SKY’S THE LIMIT AN INTERVIEW WITH MAYA CALDERON, VP OF INNOVATION AND BUSINESS DEVELOPMENT FOR THE ISRAEL POSTAL COMPANY Innovation management is a rather new type of role. What was your path in becoming the VP of Innovation for the Israel Postal Company?

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I believe in the triangle of strategic connection between technology, business and design. Throughout my career, this understanding led me to seek for early integration between understanding the full life cycle of the client journey and the business model, with technology as the enabler. Over the years, I have dealt with bringing different domains together. For example, between cities and services, cities and communities, connecting various things that do not usually belong together. I worked with multinational companies on rewriting their brand narrative, directing the customer experience towards holistic experiences that cover the full life cycle, at each touch point with the brand. In the academy, as the Head of the Design, Innovation & Entrepreneurship Masters Program, I taught a central course which was all about working with the students on real projects with national companies like Maccabi Health Care or Israel’s National Police, and designing innovative solutions for their strategic

needs. This foundation gave me a natural stepping stone to a corporate innovation role. Design thinking is a method that’s closely related to innovation. Would you say that your path to an innovation role had to do with your background in design as well? The techniques articulated in “The Design of Business” Martin published in 2009 are what we practically did during my time at the Rockwell Group in the early 2000’s, without labeling or naming it. It was actually in full practice. The construction of a narrative that is end-to-end and encompasses the experience of a customer was manifested in the projects I did for global companies in the hospitality industry and, in particular, for the Walt Disney Museum in Seattle. This led me to the understanding that, in order to create unique and sustainable outcomes, you first have to identify the real issue to be solved or the experience you want your customer to leave with. This work made me realize that innovation is closely related to customer experience and oftentimes has to start with its design.

While I was doing my Masters program at Columbia University, one of my favorite professors was teasing me that I was an ideologist. Well, I guess he was right. I find it much easier to connect to projects when I feel engaged with their mission. One of the programs that I led back in NY was developing a business model and design for a chain of hotels for TOMS that contributed a portion of what customers paid to an orphanage in Africa. I have been dealing with skepticism throughout my career and yet again, I find myself entering a role which I see as creating a social impact. People look at state-owned corporations and think that they are slow to adapt. They look at the private sector and VC’s as the sources of innovation. However, governments are actually the ones that invest the most in high-risk innovation and for extended periods of time. If you look at the early investors in Nano-technology, electric cars, green energy and so on, you will see government funding, not VC’s. The VC’s arrive later on and their goal is to make profits out of the company’s exit potential. If you look at the funding that Israel’s Innovation Authority provides researchers and entrepreneurs very early on in the process, you will notice the long-term thinking involved for the broader benefit of society and as a strategic value for the state of Israel - not just profit-seeking. Specifically, I consider the postal company to be at a pivotal point, because of the investment in infrastructure to support the transformation into a business-oriented company that can support the exponential growth of e-commerce and international trade. With its broad distribution of branches (that are due to a government mandate), the postal company has the ability to bring the spirit of innovation and economic independence to very broad audiences. Small and medium businesses that the postal company can serve across the nation are a key to economic growth. That is a challenge worth taking and it’s what attracted me to this role. Some people might see the regulations that force the postal company to have a physical presence every few kilometers as a constraint or even a

liability. I choose to turn this observation on its head and consider all of the opportunities that such a physical presence creates. Add the ability, which is unique to us, to be a gate to governmental services and act as a back office with fulfillment and financial services. We are the only non-governmental organization that has this level of integration to government IT systems. Add to that the fact that the Postal Company, with its extensive areas of activity, has a lot to gain from startup communities such as Fintech, IoT, AI, Smart city, etc., and so the sky is the limit in a thriving eco-system like the one that exists in Israel. Think of smart transportation, energy, HR etc. - these are all inspiring areas for me to innovate in as an organization. We can act as a beta site for innovation on so many levels. We have 5,000 employees with branches at more than 1,300 locations offering postal or banking services. We run the largest transportation fleet in the country. We are the largest retail chain in Israel and our logistics are by far the largest, designed to manage 100 million packages per day. We have valuable data that can assist us in developing better services for our clients: every household in Israel. We are the only brand that has access to every home in the country. We are positioned perfectly between the private sector and the government and have amazing potential for integrated services via innovation.

WITH ITS BROAD DISTRIBUTION OF BRANCHES (THAT ARE DUE TO A GOVERNMENT MANDATE), THE POSTAL COMPANY HAS THE ABILITY TO BRING THE SPIRIT OF INNOVATION AND ECONOMIC INDEPENDENCE TO VERY BROAD AUDIENCES. SMALL AND MEDIUM BUSINESSES THAT THE POSTAL COMPANY CAN SERVE ACROSS THE NATION ARE A KEY TO ECONOMIC GROWTH.

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How does one bring all of this experience and passion for the customer experience and introduce it into a state-owned corporation? What is the motivation of such an entity to innovate?

So where would you say the greatest challenges are in achieving this tremendous potential? The entire market of logistics, e-commerce, retail and banking is going through a serious period of turbulence. The line between different industries is blurred, and not all companies are capable of redefining their mission in an ongoing, evolving environment. It is far beyond digital transformation. It is about a culture change and re-inventing business models. It is easy to get drawn into conversations about technology and innovation, but I personally think that it is about the people and about shifting the focal point to platforms and integration rather than products and solutions. This is not unique to Israel. I am in contact with postal companies all over the world and what customers want are digital, transparent services that give them what they need, immediately and preferably without being asked to pay for it. In addition, the Israel Postal Company has been a monopoly for many years and such companies aren’t naturally service-oriented. This rapid transition for a monopoly is challenging for anyone who wishes to innovate. With all of the challenges, I must say that the interest within the workforce to innovate is very high. The employees realize that innovation is a great opportunity for new business. Personally, I find this to be very exciting. When people think about government employees, municipalities, state-owned corporations and so on, “innovative” is not the first attribute that comes to their minds. As someone who runs innovation for such an organization, what has been the reaction of the workforce to your activities?

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Like everything in life, it’s all about leadership. The employees of the Postal Company understand that they are working for a company that was in dire straits quite recently and that innovation is the path that can take this company into the future. I can see people’s enthusiasm for this subject in meetings and through my interactions with them. It isn’t so much about the people who work in the organization as it is about the inspiration, education and giving the team tools to design new products. It happens through new work procedures, tools, open innovation and so on and it is very meticulous work that has to be done over time. Until 2018, there haven’t been many innovation VP’s working for state-owned organizations. The sheer fact that I have been given this opportunity says a lot about the major shift that the Israel Postal Company is going through.

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WHERE TO PLAY

A NEW APPROACH TO INNOVATION STRATEGY 24 THE FUNNEL

SHARON TAL-ITZKOVITCH IS THE CO-FOUNDER AND FORMER EXECUTIVE DIRECTOR OF THE ENTREPRENEURSHIP CENTER AT THE TECHNION, AND SHE HAS VAST EXPERIENCE IN MARKETING, AS WELL AS IN STRATEGIC CONSULTING.Â

A: I work mainly with early stage ventures and do a lot of work training budding entrepreneurs and innovation managers on choosing “where to play”. Through a framework called the Market Opportunity Navigator, they go through a structured decisionmaking process to better evaluate and prioritize market opportunities for their innovation Q: Do you do this with established corporates or with startups? A: It can be startups, initiatives run by large corporations, technology transfer programs in universities or anyone dealing with bringing innovation to the market. The common ground is how to best utilize their core abilities or unique technologies and identify the best market for them, meaning the one with the highest potential to create value and least challenges in capturing this value. Q: In other words, when organizations have an advantage based on some technology or IP and would like to discover market opportunities where they can fully leverage them then you can help in achieving that. A: Correct. You can usually apply such advantages in various ways to address different needs of potential customers. This is true both for small and large companies. For example, AI abilities, robotics or drone technologies can be applied to create various applications for different types of customers. We actually begin the identification process by characterizing the strongest underlying competencies of the organization. We do expect the organization to have some idea of the competencies they’d like to leverage, but we can also introduce them to new technologies that might be relevant. At that stage, we guide them on how to combine these unique abilities and come up with different market opportunities. You can also use other techniques of creative thinking in order to generate these potential opportunities. The next challenge is to help leaders understand which opportunities are most promising for them. Q: Please describe the process A: The framework is called the Market Opportunity Navigator and it is composed of three key steps. First, you identify market opportunities for your company. Then, out of these options, assess

which ones are most attractive for you and finally, choose your strategic focus smartly. For every step of this process, we have a dedicated worksheet to guide the process in a systematic manner. Applying this framework not only allows you to make a more informed strategic choice, but it is also a communication tool that provides a shared language between various stakeholders. Innovation is a team sport and you need a team to work on this strategy.

WE ACTUALLY BEGIN THE IDENTIFICATION PROCESS BY CHARACTERIZING THE STRONGEST UNDERLYING COMPETENCIES OF THE ORGANIZATION Q: Is this process iterative i.e. will these worksheets stay dynamic over the months following this process? A: Definitely. It can actually serve as a learning companion since every time you progress with your idea and learn, you can update the worksheets, and use them to reflect and communicate these learnings across the team. Q: What other core competencies do organizations have, other than technology? A: For example, when we worked with UBS, one of its core competencies was the trust they earned over the years from their customers. It can also be a unique know-how that can be applied in different ways or strengths like outstanding service that can be appreciated by new types of customers. Q: How was this methodology created? A: My colleague, Prof. Marc Gruber, is one of the leading researchers in technology commercialization and entrepreneurship and is also VP of innovation at his university, EPFL, in Switzerland. The underlying logic of this tool is based on rigorous research which we have conducted and published in academic journals. These studies investigate hundreds of cases to better understand what increases the chances of success when managers and entrepreneurs make the decision on which markets

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Q: What sort of work do you do with organizations?

to focus on. In addition, both of us worked with startups and executives so we brought our practical experience into the process. During our studies, we realized that this issue of increasing chances of success is a real dilemma for entrepreneurs and yet they don’t have clear methods to make such a critical choice, beyond using their intuition, of course. So we realized there was a need for this kind of framework. In addition, we found that companies that identified a set of market opportunities for their innovation actually increased their chances of success. The sheer fact that you have a set of opportunities to select from is, in itself, an asset, so the motto here is “look before you leap”. Another insight was that companies need to decide not only where to focus but also how to focus, i.e. you need to make sure that while you are focusing you also maintain a level of flexibility and not get locked onto a single choice. Companies that are able to maintain this balance increase their chances of success as well. Q: What would you say are the most common mistakes that early-stage ventures make in choosing where to play? A: I can divide these mistakes into two groups. The first one is selecting the wrong market opportunity to focus on. Research that followed hundreds of failing companies showed that ‘no market need’ is the top reason for failure. This can happen due to entrepreneurs falling in love with their idea or because the decision was based on an incomplete set of considerations. For instance, think about a customer knocking on your door. Most companies will not turn him down and as a result might find themselves entering a market which is not necessarily attractive enough.

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The second group of mistakes has to do with the balancing issue between focus and flexibility. We hear a lot about ‘laser sharp focus’ but, in an extreme form, this may come at the expense of flexibility. When we select a very specific niche and focus only on it, pivoting down the road might become very difficult. The other end of the continuum is when managers don’t make tough decisions and try to run in numerous directions simultaneously. They maintain their agility but may lose focus.

Q: Can you give an example of how a capability becomes an opportunity? A: An example I like is a company called Flyability that develops self-controlling drones that have a protective cage. The idea came into the founder’s mind when he saw the disaster area in Fukushima. When we evaluated the various possible market opportunities it became clear that there were many more of them beyond nuclear power plants. As we went through the process, we identified completely different types of applications like industrial inspection of not only power plants but of oil and gas tanks; inspection of infrastructures like sewers, dams and bridges. They could also be used as part of standard police and firefighter issued equipment and so on. We then gradually went through the evaluation of the potential for each of those opportunities and measured it against the challenges in capitalizing on the opportunity. It took several months for the company to evaluate this data and feel confident enough to compare alternatives and figure out which one was most promising. The one that came out most promising- meaning with the highest potential and least challenges - was the inspection of huge boilers and heaters in thermal power plants which need to be periodically inspected in a process that is very dangerous and requires long shutdowns. Their sales went from zero to several millions within a few months and they just raised their round C and are very successful with their strategy. Q: If our readers would like to learn more about your research and methods where should they go? A: We have different resources available. First, our book, “Where to play” which is a hands-on guide on how to go through the whole process and was published in four languages. In addition, there is an online course available on edX, which is called “Find the right market for your innovation,” and is open to everyone at no cost. Finally, on our website www.wheretoplay.co you can get more information and supporting material and download the Navigator and its worksheets for free.

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“LOVE THE PROBLEM NOT YOUR SOLUTION”.

THE LEAN CANVAS, ITS ORIGINS AND ITS FUTURE

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ASH MAURYA IS A SERIAL ENTREPRENEUR, A PUBLISHED AUTHOR AND SOMEONE WHO HAS BECOME AN INSPIRATION FOR MANY THROUGH HIS INCEPTION AND PROLIFERATION OF THE LEAN CANVAS TOOL.

A: I have been an entrepreneur for many years and about five years into that experience I started questioning my methods as I launched several products that all looked great in the beginning but none of which were eventually successful. I started looking into common reasons for this recurring lack of success and, around 2009, I encountered a lecture by Steve Blanc at Berkeley. That time was the beginning of customer development principles which was later developed by Eric [Ries] into what became The Lean Startup. As I was able to witness these developments firsthand, I decided to develop tools for the purpose of serving as a means of implementation for those theories. I felt like what I was hearing from Eric and Steve consisted of principles but that it was difficult to put it into practice. For example, the notion of documenting your hypotheses and running experiments was known at the time, but in terms of tools, the best you could do was an Excel spreadsheet which was far from ideal. I started experimenting with various kinds of alternatives and my blog was actually initially called “Practice Trumps Theory”. I was trying out different alternatives and sharing them on my blog as I went along. At that point, I stumbled onto Alex Osterwalder’s business model canvas and it struck me as an interesting way of visualization. A couple of months later, I encountered an attempt to tweak that canvas format as a means of documenting one’s riskiest assumptions and that really grabbed my attention. My main observations about the business model canvas, as I tried to apply it to a startup idea, were that some of its elements were things that were too far off in the future like key resources and key partners. So I started tweaking the boxes based on my learnings. For example, it was clear to me that such a tool had to focus on customers and their problems and so I added the “Problem” box and whenever I added a box I removed something else. That’s essentially how the lean canvas came to be. As I was trying out things, I’d write blog posts about them and when I posted the lean canvas idea to my blog it rose very quickly and, even today, we still get traffic to that post. It appeared to align with what many other people were experiencing. That post turned into posters that I used in workshops which

helped me tighten up some of the boxes. It was very important to us that anyone would be able to fill a lean canvas without having to study it in depth. My background is as an entrepreneur, not an academic, so that was very important to me. Eventually the blog I was writing became the book “Running Lean.” Q: From your experience, which of the boxes is the one that people struggle with most? A: Over the years, I have been coaching and teaching Lean Canvas it seems that a box people tend to struggle with in the beginning is the “unfair advantage” as it requires a thinking that isn’t natural to most people, at least not initially. Another one is “key metrics” which isn’t trivial and, in fact, I wrote an entire book called “Scaling Lean” to address that in particular. Another thing is the instruction to start with customers and problems. Unfortunately, entrepreneurs tend to approach their idea as a solution they’d like to implement and then start looking for the problem and customers that will justify the solution they have thought of. I now regard the canvas as a way for people to articulate their ideas and then use the canvas to help them see their biases reflected in the initial canvas they create. Q: I know you also work with corporations and I’m curious about what happens when you apply the lean canvas in established organizations vs. when you do so with startups. A: I start all conversations with corporations the same way. Corporations have to innovate faster than ever before. Startups most often fail because they run out of money before they can identify their customers and find a scalable way to sell to them. Corporations err on the side of stopping their conversations with customers altogether and failing to build things their customers actually need. My implementations are usually focused on teams seeking to implement the lean startup method internally and are starting to roll out internal processes. I have recently written about the idea funnel and the principle that, instead of betting on a small number of ideas, you should maintain a portfolio of ideas and have the ability to make a higher quality selection out of those you experimented with, thus being able to make a larger number of educated guesses vs. a small number of big bets. Something we are hearing from our customers is that the canvas offers them standardization, which is valuable when you run a funnel at scale. It introduces a language that executives can understand quickly.

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Q: Can you talk a little bit about the lean canvas, its relationship to Eric Reis’s book “The lean startup” and how it came to be?

Q: I’m curious about your opinion as to what it takes to create the shift in mindset in corporations. What can we do to create the changes that will allow lean startup principles to be adopted? A: Every few years, there’s this new hot management trend that organizations “must” incorporate, like Agile or Continuous Integration, into their processes. So, naturally, when you introduce something new like lean startup, there will be some eye rolling. At the end of the day, in order to change the mindset, you have to generate results. If you are able to get opportunities explored and show results a lot faster than what they are used to, as we did in companies like Cisco and Newscorp, then you are setting the stage for that shift in mindset that you are seeking. Essentially, if people start saying “How were you able to do that?” then you know you are on the right path. Another key to changing the mindset is breaking the normal patterns with relation to the projects in the funnel. For example, instead of offering annual funding to an idea that you like, you switch from time-based funding to merit based investment, where you have to reach certain levels of validation to get the next round of internal funding. Even when you reach later stages of the project and you’re building an MVP, which could take 9-12 months, you are still basing your decisions on project progress, on its interim findings, and avoiding timeline based lock-in.

A: Exactly, and in addition, the cost is much lower than what organizations are used to spending on innovation. For example, a large bank wants to look into blockchain, which would usually entail investing millions of dollars with no real method behind it. In this case, we would come in and say: “Give us a much smaller budget, a small team of five of your employees and a few months and we can get you a lot further along in your quest compared to the original intent which would have been much more costly”. What’s interesting is that we find ourselves in situations where there are competing initiatives taking place inside the organization in parallel to us. This ability to present tangible outcomes through learning and findings allows organizations to compare you to such alternatives and realize your value, which accelerates the shift in mindset. This is differentiation based on speed, cost and the ability to make educated decisions. Q: Once internal corporate ventures get the green light and business units start building them, they tend to undo a lot of the learnings that were accumulated in earlier stages. In addition, business units don’t have the skill of taking something from 0 to 1. In your book “Scaling Lean,” you tackle this issue of how to properly scale a startup in ways that can be very relevant to organizations so I’m interested in how that came to be.

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MY MAIN OBSERVATIONS ABOUT THE BUSINESS MODEL CANVAS, AS I TRIED TO APPLY IT TO A STARTUP IDEA, WERE THAT SOME OF ITS ELEMENTS WERE THINGS THAT WERE TOO FAR OFF IN THE FUTURE LIKE KEY RESOURCES AND KEY PARTNERS. SO I STARTED TWEAKING THE BOXES BASED ON MY LEARNINGS

Q: So what I’m hearing is that you are creating a “safe” environment where you control the rules. You ask for a little bit of time and money for a certain time period and tell management “We’ll do things our way, which will generate things that excite you and then you will want to invest in these things and you’ll want another wave of such exciting things.”

A: As I was working with startups and internal corporate ventures, it became clear to me that there should be some notion of minimal success criteria. There’s this tendency to try and predict how big a product will be and that isn’t very productive because one will seldom perform an adequate estimation. It will usually just be a hockey stick fantasy. I find that it is much more productive to put a stake in

the ground and say that if in three years time we don’t reach certain outcomes (revenues, customers, deployments) then we will scrap the product and work our way backwards regarding what needs to happen now, in one and in two years in order to get to that final desired outcome. Three years is the timeline I prefer because it is a timeframe that isn’t too close, so teams have time to develop their customers and understanding of the market, while not being too far off in the distant future, or worse, with no horizon whatsoever. A technique I use is when facing an aspiring unicorn with a hockey stick Excel forecast, is that I ask about their most successful product and ask them to revisit historical data and look into their success rates three years into the project. That usually allows me to put the new project into perspective and reduce the three year goals to more practical levels.

Q: If someone reading this article is starting an internal innovation activity in their organization, what would the lean canvas and the scaling lean methods do for them? A: I could summarize years of my work with a single mantra that says “Love the problem - not your solution” and that’s what these tools will help you, as innovators, shift your mind towards. We can build things most of the time but what matters is whether we should do so and if anyone would care if we do.

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UNFORTUNATELY, ENTREPRENEURS TEND TO APPROACH THEIR IDEA AS A SOLUTION THEY’D LIKE TO IMPLEMENT AND THEN START LOOKING FOR THE PROBLEM AND CUSTOMERS THAT WILL JUSTIFY THE SOLUTION THEY HAVE THOUGHT OF. I NOW REGARD THE CANVAS AS A WAY FOR PEOPLE TO ARTICULATE THEIR IDEAS AND THEN USE THE CANVAS TO HELP THEM SEE THEIR BIASES REFLECTED IN THE INITIAL CANVAS THEY CREATE.

CORPORATE INNOVATION

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A FRONT ROW VIEW

PRITH BANERJEE IS THE CHIEF TECHNOLOGY OFFICER AT ANSYS, A LEADER IN ENGINEERING SIMULATION. THROUGHOUT HIS CAREER, PRITH HELD LEADING TECHNOLOGY ROLES AT LEADING COMPANIES SUCH AS SCHNEIDER ELECTRIC, ANSYS, ABB AND HP. WE HAD AN OPPORTUNITY TO CHAT WITH PRITH ABOUT THE INS AND OUTS OF CORPORATE INNOVATION FROM THE PERSPECTIVE OF AN INDUSTRY VETERAN.

innovation in large corporations. In addition to your current role as CTO at Ansys, you were also Executive VP and CTO at Schneider Electric, Executive VP and CTO at ABB and Senior VP at HP Labs. You sit on the board of numerous companies and have had, for many years, an insider’s view of what corporate innovation looks like. I’d like to take you straight to the hard topics. One of the things I hear when I meet innovation managers in large corporations is that, after all of the effort invested in identifying startups and innovative ideas, nurturing them, and bringing them to the business units, the business units do not take the opportunities and build them at scale. Has this been your experience? If so, what have you done in the past to deal with it?

A: This is at the core of the problems that companies

face when they try to innovate. The first aspect of this challenge has to do with investment policies. Large companies usually have a large R&D budget. As a CTO in charge of a huge R&D budget across a large corporation you have: Horizon One products being invested in such as, “I have 200KV transformers and I’d like to manufacture and sell 500KV transformers” which is incremental innovation. Horizon Two products, where you say “I’m selling 200KV transformers in North America and I’d like to create 500KV transformers for China,” which is adjacent innovation. And then there’s Horizon Three, where you say “I’m a company that sells transformers but I’d like to create a switchgear or IoT connected transformer and sell it using energy-distribution-as-a-service model” which is disruptive innovation. Companies tend to invest the vast majority of their budget in Horizon One and only a very small portion in Horizon Three. If your core market is growing, then investing in Horizon One is the right way to go. However, if your market is stable or shrinking then you must invest a higher portion of your budget in Horizon Three. To give an example, 2% of the R&D budget invested in Horizon Three when the core market is not growing is simply not enough. Budget allocation is the first barrier for decision makers who are investing in innovation for the long term. The second aspect has HR policies actually affecting innovation investment. At one company, for example, line of business leaders knew that every 18 months they would switch roles. This was an HR policy in the organization which intended to allow executives to experience multiple aspects of

the business and thus develop professionally. If you are a human being and have normal human being tendencies and you know that you will not be at your role in less than 18 months, there is absolutely no reason compelling you to invest in something that will bear fruit only for your successor. The third aspect relates to talent. You have to create an environment where people with the right talents in terms of knowledge and entrepreneurial spirit can bring these talents forward and turn their ideas into reality. Based on my experience, the only way to do that is to ringfence these people once it is decided that their ideas should be given an opportunity and allow them to develop those ideas. Yes, there’s the lean startup method and all sorts of ways to do this properly. However, the most important thing inside an established organization is to isolate these people from the constraints that a large organization poses. Just as an example, if you have a travel policy then such a simple constraint can kill an idea by preventing the team from attending a critical customer meeting because there’s a temporary travel freeze. You have to ring-fence the teams, protect them from organizational constraints and give them the support they need. Cisco did a fantastic job with this, allowing ring-fenced teams to incubate new businesses and then buying them back and having Cisco deliver them at scale. Without setting the stage properly, it will be nearly impossible for decision makers to pull the trigger on innovative opportunities.

One model that I have seen throughout the industry is that of the CTO office, which has the brightest minds in the organization, tasked to come up with Horizon Three projects which will take the company forward. What would you say are the keys to the success of such a team?

As you know, I have lived this model as a Director at HP Labs with 600 researchers, and as CTO at ABB where we had 900 people in the corporate research center. No matter the size of the group, if the people are doing completely independent things from what the rest of the organization is doing then they are perceived as wacky and disconnected so “let’s shut down the lab.” If they are doing things that are similar to what the rest of the organization is doing then the problem is that they are perceived as doing things that are too similar and so “let’s shut down the lab.”

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Q: Prith, you have an extensive background of driving

WITHOUT SETTING THE STAGE PROPERLY, IT WILL BE NEARLY IMPOSSIBLE FOR DECISION MAKERS TO PULL THE TRIGGER ON INNOVATIVE OPPORTUNITIES. The company’s senior management will shut down any central research and innovation unit if you are at either end of the spectrum (too disruptive and non-aligned, or too aligned to the business). The conditions that allowed a Bell labs model, where they were tasked with inventing whatever they could come up with, rarely exists anymore. I’m a strong believer in a lean lab team driven by the CTO where the organization’s decision makers sit on a board that provides guidance to the lab’s team. This creates a lock-step dynamic where the lab invests its efforts into what the board directs to. This way, the business units have a say in what the lab team does and when a “baby” is being developed for years and is delivered, the units are ready to receive it. This, in contrast with inventing a table with nine legs and coming to the units only to discover they wanted a table with wheels. On the other hand, the board should not be given the ability to micro-manage the lab because this will cause it to make the lab focus only on Horizon One, short-term efforts instead of Horizon Three. This balance is essential.

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New products need the cooperation of entrepreneurs, subject matter experts, legal, branding, travel policy, and so on, in order to make progress. Do you see this as something that should happen spontaneously or do you see the role of an innovation team and CTO office to sponsor and enable these connections? A: In my opinion, a lab unit should not just be about R&D but should have its own attached sales and marketing. This is because I see the role of the lab as not simply inventing things but also testing hypotheses in the field and running business experiments. Still, you must rely on certain roles that are part of the BUs and corporate functions. Once the CEO and executive committee are aligned with what you are trying to do, then those people from legal will get it and offer support by nominating a dedicated person to the role, as this is not a full time job. It is the CTO’s job to ask these support functions to dedicate one person who “gets it” to support what is happening in the lab. With regards to SME’s (Subject Matter Experts), there should be

a model where they rotate in and out of the lab on a project-based basis. There will be a core team hired especially for the purpose of innovation and that core team will be enriched by the SME’s from the BU’s (Business Units) which are rotated periodically. If someone has an innovative idea, you bring that person and rotate him into the lab for the duration of the project. Once the project is completed, these people return to their units. You need to have a concept of rotation of talent. Once new projects are created then new people are rotated into the lab. If you try to base the lab completely on hired talent then they can become irrelevant for certain projects.

When organizations wish to start an open innovation initiative - they simply talk to startups. What should be the next step? How do you internalize it into the large machine? Innovation managers can see potential, they can serve as matchmakers but they cannot control the outcome. What is the right approach? A: I am very proud of the open innovation I ran as Global Managing Director of R&D at Accenture. We decided that if a business unit leader wished to pursue a partnership with a startup then they needed to dedicate people in the BU to match the people invested by the central innovation team. This is critical to ensure that the startup gets the required attention and also to secure BU ownership for the project. At the beginning of the year, we would review the funnel and agree on how many startups we would work with assuming the BU has to dedicate a certain headcount investment to match the innovation team’s investment in this effort. One reason why open innovation was more successful at Accenture compared to my tenure at other companies is that startups saw an immediate benefit in Accenture with zero chance of being copied, since Accenture is not a product company. In contrast, product-based companies are viewed with more suspicion because, while they are a fantastic potential scaling opportunity, there’s still suspicion from the startup’s perspective that their IP will be copied or stolen by the corporation. The establishment of trust is essential.

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TO SUMMARIZE: • CORPORATIONS SHOULD HAVE A CLEAR INNOVATION INVESTMENT POLICY • INNOVATIVE PROJECTS SHOULD BE RING-FENCED AND PROTECTED FROM CORPORATE POLICIES, LIMITATIONS AND HABITS • TALENT THAT IS DRIVING INNOVATION SHOULD BE ROTATED IN AND OUT OF THE INNOVATION TEAM BASED ON THE NEEDS OF ONGOING PROJECTS. • THE INNOVATION UNIT SHOULD STRIKE THE RIGHT BALANCE BETWEEN ALIGNMENT WITH THE BUSINESS AND THINKING FOR THE LONG TERM, STAYING IN LOCKSTEP WITH MANAGEMENT. • OPEN INNOVATION IS ABOUT THE TRUST YOU GENERATE WITH STARTUPS AND THE SKILL YOU DEVELOP INTERNALLY IN ORDER TO INTERNALIZE THE STARTUP TECHNOLOGY THROUGH CORRECT INNOVATION PRACTICES.

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