This month, I’m celebrating the return to Change Logic, after a 10-year hiatus, of our employee #1: Elspeth Chasser. This is good news for our clients, as she always reminds me that I have to do more than provide the “what” and the “so what,” I also need to have a “now what.” What are we going to do to achieve the client’s desired outcomes?
In my previous article, I described a “what”: the silent killers of corporate innovation that slow, frustrate, and eliminate efforts to explore beyond the core business. The “so what” is that leaders need to neutralize these forces if they are to have any success in meeting their innovation goals.
But that’s not enough for Elspeth. I need to describe the “now what.” Here are six “now what” strategies for overcoming “silent killers of corporate innovation.”
Make the “Big Why” explicit, so that everyone understands why innovation matters
One of the biggest mistaken assumptions we make is a belief that because something is clear to us, it is clear to everyone else. Leaders often assume that because strategies make sense to them, this is the same for the rest of the organization. If they are relying on strategy plans to communicate aspirations for innovation and growth, then they are likely to be disappointed. They rarely talk about the big challenges companies face or present a point of view about how to win.
The answer is to write a Strategy Manifesto. The Manifesto can be as simple as a three- to four-page description of the company’s aspirations for the future, presented in plain text (i.e., not corporate doublespeak). I have done this with dozens of CEOs, business unit leaders, and Chief Strategy Officers. They are usually thrilled to tell the story of what the company wants to achieve, where it wants to play in the market, what sort of customer problems it seeks to solve, and how innovation can contribute.
Setting the context helps explain why an explore business is different, which gives a corporate innovator a basis for arguing why they need exemptions from corporate rules that don’t fit their needs. See my chapter in the Corporate Explorer Fieldbook, co-written with Andreas Brandstetter, CEO of UNIQA Insurance, on how to write a Strategy Manifesto.
Give innovation space to breathe
One of the most common sources of silent killers is the existing core business that imposes its logic on the explore unit. The logic of an existing business is to eliminate errors, optimize performance, and deliver results. The logic of a new explore business is to experiment by testing assumptions, making mistakes, and learning from them.
These two logics do not mix well. That means the best way to manage a new innovation project is to separate it out, giving it some protection from the existing management system. Explore units need space to run many small experiments without the expectation of delivering immediate results. They should be lean and mean with just enough resource to de-risk investments before the mother company overcommits to them.
The multi-billion-dollar Japanese chemicals and materials company AGC is an excellent case study of the benefits of this approach. AGC separates new projects from the operating business in a “BDD” group, so that these projects can be incubated without conforming to standard business rules. As of 2022, AGC was generating 25% of its profits from new ventures incubated in the BDD.
Do a “pre-mortem” for innovation projects to identify silent killers
Even when the innovation unit has autonomy, it still needs to leverage assets of the core business to help the unit scale. That exposes the unit to the many silent killers that flourish in the policies, rules, and procedures of the core business. Unless these silent killers are identified and managed proactively, the explore business risks dying the death of a thousand cuts.
The solution is to do a “pre-mortem” to root out the silent killers before they strike. In a pre-mortem, you would assemble a cross-business group of managers, give them the strategy manifesto to read, make sure they understand the explore business opportunity, and then ask them to imagine that it is five years in the future and the explore business has failed. Ask them, “why did it happen?” Dig in to find the root causes of the potential failure, and then put in place actions to prevent these problems before they occur.
I just finished a 3-day workshop with a client that has launched a major effort to move from a product to a solution business. In this case, the client was already behind its goals, so the root cause analysis was not a “pre-mortem”; it was about a real failure case. The client now has action plans to address the issues and is starting 90-day implementation sprints. These workshops are hard to perform, but they do allow an open—and on occasion contentious—conversation about what’s really getting in the way of delivering on the shared ambition.
Define KPIs that are appropriate to an explore project with high uncertainty
New ventures are a bit like teenagers. You want them to learn, mature, and become productive adults. If you expect a teenager to maximize short-term income, then they will quit school and go to get a job, so missing the opportunity to learn and grow. At the same time, if you don’t set any performance expectations, then they may wander in their career, and struggle to achieve their potential.
Do hold innovation projects accountable for outcomes, but just not to conventional ones like revenue growth and profit. Instead, define KPIs based on the validation or invalidation (remember being wrong is good!) of the key assumptions in the business model., Have we identified a high-value customer problem? Is our value proposition the one customers find more attractive than the alternatives, including non-consumption? Can we make money satisfying these needs? And so on. These KPIs should tell you whether your strategic assumptions are sound or need to be adjusted.
Many firms have started to embrace an “explore metrics” approach to measuring innovation projects. For example, the German air filtration company, Mann+Hummel have adopted a “Hunter Strategy” that adapts KPIs based on the maturity of the new business. This helps Mann+Hummel ensure that it does not impose inappropriate metrics on exploratory ventures.
Get Sales on Board Early in the Story
Corporations beat startups at innovation when they use their existing assets to scale a new venture. The most important of these assets is the customer base and the sales mechanisms for reaching these customers with a new offering. It’s the key reason why startups are 16 times more likely to get acquired by a corporate than to choose IPO. It’s obviously faster to use what exists than try to build it yourself.
Unfortunately, corporate ventures often face major barriers to leverage these same go-to-market assets to scale their offerings. Sales teams tend to defend their customer relationships, are hard to incentivize, and can be very short-term focused. In B2B, many explore ventures may need to reach reaching a different buyer inside the customer’s organization. Another thing many in sales don’t like.
There are multiple ways around these problems – setting up specialist sales teams, defining strategic accounts with a different approach, revising incentive plans, and training the sales team in a more consultative selling approach. We have had success with all of these, but the single most important step is to anticipate the problems in advance. Getting the Sales involved early by asking for their insight about unsolved customer needs it is a key point of leverage for the innovation team.
Teach leaders how to be good business owners for innovation projects
At Analog Devices, a $100B market cap tech firm, CEO Vincent Roche sets aside one or two days per month to meet with the leaders of the company’s new ventures. Roche does not directly intervene in management decisions, but everyone in the company knows that he is watching and expects these new ventures to succeed.
Roche is an exemplar. But what do you do if you don’t have a leader ready to make this level of commitment? I’d recommend that you don’t wring your hands and complain; instead, embrace the challenge and teach senior leaders what they need to do.
Over my careers, I have worked closely with dozens of CEOs. They don’t walk into the job with perfect knowledge. They learn on the job—and they learn by watching their peers, talking to advisors, and by engaging with employees who open their eyes to opportunities about which they were previously unaware. Know what you want from your CEO – other than access to resources – and don’t be afraid to tell him or her how you want them to engage, particularly when it comes to measuring performance with learning KPIs.
Of course, this is not an exhaustive set of strategies, but in my twenty-five years of consulting experience, I’ve found that these strategies are the ones that are most likely to set you up for success at neutralizing the silent killers of corporate innovation.