Join me at Singularity University’s first Germany Summit, Berlin, 20-21.Apr.16

Join me at Singularity University’s first Germany Summit, Berlin, 20-21.Apr.16

On April 20-21, 2016, Singularity University, the most innovative and forward-looking institution, has chosen to host their SingularityU Germany Summit in Berlin—one of the most vibrant cities in the world. SingularityU Germany Summit is a local Chapter and community organization of Singularity University. It is one of the largest two-day events in Europe aimed at bringing awareness about exponential technologies and their impact on business and policy to thought leaders and executives from breakthrough companies.

What can you expect at SingularityU Germany Summit?

Leading experts from the global high-tech community will present the latest trends and cutting-edge developments in Mobility, Organization, Manufacturing, Artificial Intelligence, Computing, Robotics, 3D Printing, Machine Learning and Design Thinking. Together we strive to inspire and empower European leaders and influencers in using exponential technologies to solve today’s most pressing issues. SingularityU Germany Summit is an ideal platform to network for both alumni as well as first time attendees, leaders, government representatives, entrepreneurs, investors, NGOs.

500 attendees ranging from CEOs to young innovators from across the globe are expected to attend the event. Together we will explore issues such as: How can technological evolution be transformed into a sustainable and value-based growth for any industry? What ethical standards and responsibilities do global leaders have to account for?

 

 

 

 

Digital Transformation at ‘Life-Science meets Telco7’ on April 14, 2016

Meet me in Bonn, Germany on April 14, 2016 for the 7th installation of DeTeCon’s Life-Science meets Telco series.

This year‘s event focuses on a very special aspect of the Digital Transformation – the cross-industry collaboration and exchange.

How can digitalization be implemented to make a difference in every patient’s life? What best practices from other industries can be transferred to the pharmaceutical and healthcare industries? These and many more questions we will answer at this year’s event.

You can expect a great atmosphere for networking as well as exciting discussions on:

  • What is the role of the Digital Transformation for Pharma?
  • Importance of the collaboration between Life Sciences & ICT: current changes in ICT.

Don’t miss this opportunity! Save the date and stay tuned for more information!

 

German Innovation Insider: Catch-Up in Mobility Arena

After exploring German innovation barriers to digital transformation. As a follow-up, let’s look at an example of a successful industry already known for high-tech. And which example would be more moving than the iconic German automotive industry?

Automotive, a moving example

We explored German innovation barriers to digital transformation in German Innovation Insider: The Brakes on Digital Innovation previously.  As a follow-up, let’s look at an example of a successful industry already known for German high-tech innovation: the iconic German automotive industry.

Automotive is the largest industrial sector in Germany.  Vehicles and parts make up some 20% of total German industry revenue with auto sales and exports worth 368 billion euros ($411 billion) in 2014.  Car-making is a German strong suit with luxury cars being the most profitable segment.

Electric Vehicles? – “Nein, Danke!”

Disruptive players emerged with electric car concepts for years. They were generally ignored by the established car makers despite the high eco-consciousness of German society in general.  The new technology was not considered a threat nor as profitable as the existing businesses.  So electrical vehicles were disregarded so not to disrupt or cannibalize the traditional business with combustion engine vehicles.

The influence of the car industry remains strong and has an outspoken lobby also in Germany.  This contributes to failing the German government’s announced goal of leading the electric mobility market with “one million electric vehicles on the road by 2020” since only 8,522 new electrical vehicles were registered in German in 2014 (up from under 3,000 in 2012).

2015Q1 ihs-automotive-electric-vehicles-ranked-by-country(businessinsider_com)
Germany ranks 6th in electric vehicle (EV) registrations by country in Q1/2015. EV registrations in percent of all vehicle registrations displayed.  (image: countrybusinessinsider.com)

Innovation Catch-up by the Automotive Industry

The game changed when disruptive niche player Tesla Motors started cutting into the highly profitable luxury car segment with its high-end and high-tech electric vehicles.  Tesla also receives outstanding customer service reviews in key markets such as the United States.  Suddenly German car builders scramble to catch up to protect their stakes: everyone wants to offer at least one electric vehicle in their luxury car portfolio as a ‘Tesla Killer.’ Finally, negligent or halfhearted governmental support of the program just changed course by offering temporary tax breaks and other incentives.

Growing out of the Niche

Now, disruptive innovation may not make cars obsolete.  We still want to get from A to B, so incrementally improved cars (better safety, quality components, etc.) will remain in demand and customers will continue to pay a premium for luxury models. Take a closer look at Tesla though to see the difference of their bigger and bolder view: the Model S versions, for example, are constructed all the same except for the model sticker on the back.

The true battlefield is no longer the physical car alone.  From the steering unit to the breaking-system Tesla’s are built from pre-assembled, tried-and-tested components from quality manufacturers; including parts from some German hidden champions such as Stabilus (liftgate gas spring) and ZF Lenksysteme (steering mechanism).

tesla-suppliers-2013(insideevs_com)
Model S relies on quality parts by suppliers  (image: insideevs.com)

Software is Pivotal

Nonetheless, it’s the software configuration in the Model S that makes the difference from regulating the available battery capacity (extended range) to other features (acceleration) that become available to its passengers.  Tesla added ‘Autopilot’ functionality and a self-parking feature to its fleet just recently – simply via remote software update. Voila!

Reaching beyond the individual vehicle the software running the car became the key to future mobility.  The question becomes who will own the car operating system of the future?  Chances are it’s the exponential silicon players from sunny California who are best positioned, experienced and deeply understand both, digital integration and exponential innovation.

Mercedes meets the software threat and opportunity by aiming to control this pivotal technology, which may otherwise be seized by more avid digital players such as Google, Microsoft or even Tesla.  Mercedes made some progress when it just announced its new E-class vehicles connecting and sharing relevant information with each other.

Out for the kill?

German luxury car-makers proudly announce their future ‘Tesla Killers’ playing catch-up with high-end electric cars of their own, such as Audi’s Q7 E-TRON Quattro, BMW’s i5 or Porsche’s performance vehicle Mission E (the latter two not available before 2019).  Tesla hardware is even coming under attack with future competition getting ready; among them  Silicon Valley’ Atieva and Tesla clones from China.

In true sports car fashion, Porsche’s marketing highlights 600hp for 0-to-60mph acceleration in under 3.5 seconds. Tesla already achieves this mark today. So where is the actual ‘kill’?

Porsche unvels Tesla Killer
Porsche unveils ‘Tesla Killer’  (image: CNBC)

The Mobility Arena

The real question aims at the next step: where will the drivers of the new Audi’s, BMW’s and Porsche’s charge their batteries on the road?

Looking at future mobility as an arena rather than just vehicles, Tesla’s venture also crossed other industries such as the critical battery business in partnership with Panasonic.  In addition, Tesla offers a wide-cast net of ‘SuperCharger’ power-stations free of charge for its customers at many highway rest-stops and gas-stations positioned to allow Tesla drivers to reach most areas of the continental U.S. already today.

Tesla Supercharger ranges (reddit_com)
Tesla Supercharger station with vehicle range  (reddit.com)

Fueling the Future

Here, Tesla secured the first-mover advantage in securing the precious real-estate needed at busy rest-stops.  In the long run, it appears doubtful that rest-stops will grant additional dedicated slots with proprietary pumps to every car-maker to recharge their line of vehicles.

Tesla SuperChargers
Tesla SuperChargers  (image: teslamotors.com)

So the German car manufacturers may be forced to cut a deal with Tesla adopting the Tesla technology and paying for using Tesla’s high-speed pump space on-the-go in the future.  Tesla even announced it will not enforce patent protection for anyone who, in good faith, wants to use the Tesla technology, which may smoothen over the adoption by other car-makers.

Outlook

Looking into the crystal ball, the automotive industry is not just about introducing more electric vehicles but is morphs to become a new mobility arena as Tesla is demonstrating.  Being still at the early stage of an exponential growth curve, Teslas are certainly not cheap to buy – yet.

Looking at electric vehicles simply as sophisticated hardware components, however, we may just enter a scenario in the not-too-distant future that reminds of Amazon’s successful strategy: giving the Kindle eReader (hardware) devices away cheap. Amazon is not interested in hardware but the content, the vast library of eBooks (software) fueling the customers’ demand, which makes all the difference and holds the keys to a proprietary, digital kingdom with recurring high revenues.

kindle-fire(michaelhyatt.com)
Amazon’s Kindle hardware is fueled by eBooks  (image: michaelhyatt.com)

German Innovation Insider: Holding the Brakes on Digital Innovation

German innovation gets trapped in the very mentality focusing on building quality products ‘Made in Germany’ that the country got well known for. Holding on to vertical product improvement, however, obstructs crossing industry barriers, convergence, developing game-changing business models, and coming up with breakthrough innovations with potential for exponential growth and returns.

Germany – Land of the ‘Hidden Champions’

A recent research study of the Centre for European Economic Research confirmed Germany leading by far with 1,550 hidden champions.  Companies are commonly considered a hidden champion if they are no. 1 or 2 on the world market, make less than EUR 1.5b revenue and their name is not overly well unknown to the general public.

Note that mid-size companies comprise 80%(!) of German industry and resemble the backbone of the German economy altogether. According to the Berlin School of Economics and Law, 90% are focused on B2B.

germany-celebrates_(latintimes.com)
Champions not only in world football (image: latintimes.com)

See if you recognize a few examples of hidden champions that are leading global players:

  • Dixi / ToiToi (portable toilets)
  • Sennheiser (headphones)
  • EBM-Papst (motor and fan manufacturer)
  • Enercon (wind energy)
  • Krones (bottling machines)
  • Recaro (car and airplane seats)
  • Trumpf (laser cutters)

Inside the Vertical Tunnel View

Among the 1.500+ market leaders, only two German companies are leading software companies (Software AG and SAP).  The vast majority focuses on more tangible product innovation leaving this digital industry somewhat isolated, underdeveloped and vulnerable like an economy’s Achilles’ Heel.

You get a good sense of a vertical bias in product innovation, when you read German open job postings for innovation lead position of sorts:  As an innovator in an automotive company, you require a solid background in engine engineering, for example, or as an innovation leader in a chemical consumer goods company, you will not be hired without in-depth knowledge of adhesives, for example.  It becomes painfully obvious how the vertical product innovation fosters a mindset of inbred solutions and can miss out on transformative opportunities beyond the own domain, bridging and converging industries.

3D-printed-German-car(partsolutions.com)
3D-printed car (image: carpartsolutions.com)

Point being: Innovators are usually hired from within a vertical industry. This leaves little room for a creative influx from the outside.  Since meaningful innovation ‘happens’ at the crossroads of disciplines in a horizontal cross-pollination of different industries and domains. This inflexible German practice lends itself to incremental improvement of products rather than disruptive transformation of businesses, entire industries or even across industry arenas.  Within a vertical mindset, ecosystem cross-pollination withers and innovators are less suited, prepared, capable, or enabled to disrupt.

Digital Transformation “Made in Silicon Valley”

When it comes to digital transformation, German companies got disrupted and steamrolled mostly by large-scale digital disruptors coming out of the United States from either California or the East coast technology ecosystems with huge global impact and a different approach:

  • The world’s largest taxi service owns no taxis (Uber)
  • The most popular media owner creates no content (Facebook)
  • The largest movie house owns no cinemas (Netflix)
  • The largest accommodation provider owns no real-estate (Airbnb)
  • The largest software vendors don’t write apps (Apple, Google) and so on.

The above examples differ from traditional products not only by bold out-of-the-box thinking but also by paying close attention to the customer.  Their business models rest firmly in the digital world with a software business and an internet backbone.

Uber and Airbnb offer digital platforms – that’s it, no tangible goods.  Nonetheless, they shake up the established industries of transportation and hospitality in ways unheard of.  They also reap exponential returns by creating new digital arenas that generate highest recurring revenue in the digital space.

Digital Industry (telecitygroup.com)
Digital business has arrived (image: telecitygroup.com)

Missing the Digital Train?

Back in Germany, its 1,500+ hidden champions flourish in a robust economy, so Germany must be doing something right overall with a vertical focus set on tangible quality products within industries.  Good money is still made in Germany by holding a steady course of vertical product improvement.

This practice also goes hand-in-hand in hand with protecting and not challenging enough the traditional sales-driven business models to avoid cannibalizing the status quo for next-generation innovations.  It reminds of the Kodak-Eastman story having invented the first digital camera but rejecting the technology in order to protect the business around the existing analog film products – and we all know what happened to Kodak.

A Digital Transformation Divide

Truly putting the customer in the center and embracing digital business requires a radical transformation of the existing business and its operations.  The critical interface between IT and Marketing, for example, often is not well developed in Germany, where traditional companies lack understanding of the digital potential and struggle with developing new, digital business models in time.

It is not a question but painfully obvious that -with the current mindset and strategy- Germany misses the train on digital transformation.  While the world moves online, many companies in Germany failed or simply ignored the emerging technological opportunities to develop digital business models consequently, in a structured fashion and timely.

Failure_to_Innovate(bobmaconbusiness_com)
Germany is missing the digital innovation train. (image: bobmaconbusiness.com)

In fact, German companies practically ‘gave up’ across entire industries including media, travel, and retail.  In a recent wake-up call, the German government asked companies and industries to focus on digital transformation in a widely proclaimed initiative called “Industrie 4.0” ‑ a race to catch up internationally.  And catching up is much needed: the narrow German ‘inside focus’ presents a vulnerability to be exploited by foreign disruptive players.  The gap widens steadily as the competitors advance fast, build up huge resources and become increasingly experienced to develop and apply digital transformation with new business models.

pessimism_quote(notable-quotes.com)
(image: notable-quotes.com)

Pessimism with an Insurance Mindset

The high level of disruption and uncertainty does not come easily to a less flexible German mindset:  Having experienced hardship many times during the not-all-that-distant history, Germans tend to seek and value predictability and safety.  Anxiety and fear of the unknown forms an undercurrent in the mindset of German society, which is expressed by seeking refuge in insurance policies to prepare for unknown future events.

As an example, not only do Germans over-insure their daily lives with a myriad of insurances, Germany also holds on to one of the largest amounts of hospital beds and bunkers per capita. You find more hospital capacity in the Berlin-area alone than in all of their neighboring country, The Netherlands!

In general, start-up funding is not as easy to come by as in the U.S., for example, where venture funding is a more common practice.  When I arrived in Germany a year ago, I came across a serious government program that ‘supported’ a new start-up or entrepreneurs with grants tied to a projected positive return-on-investment (ROI) within the first year.  Now, building a profitable business from scratch within in year is an unrealistic goal.  Consequently, the desperate entrepreneur in need of funding would have to submit a bogus business plan right off the bat, which is a set-up for disappointment down the road.  So, either the government program is not meant serious (unlikely) or is designed by people not knowing the first thing about starting a business (likely).

senior-woman-confused-by-tablet-computer(sheknows.com)
Reluctance to embrace technology? (image: sheknows.com)

Techno-Fear and Over-regulation

Overall, the German mindset tends to be more critical regarding new and unfamiliar technology.  Seeking to avoid risk comes with a tendency to ‘over-regulate’ in the sense of applying regulations just because it is possible to regulate rather than because it is necessary to come up with regulation.

Since a long time, Germany has the strictest data privacy laws (that recently translated into GDPR, Europe’s new General Data Protection Regulation).  The domestic law protects the individual by granting them the right to control their personal data online and offline.  These regulations are rooted in the country’s dark experiences during its Nazi-past but are also is a reflection of the outspoken suspicion among the broader population towards digital data technologies and their application.  Thus, Germans tend to be more reluctant to share personal data on social media out of fear of exposure and losing control.

The protective (domestic) legislation means well but can only be effective in a closed system, which the (global) internet is not.  In a digital world, international boundaries are artificial.  Given the nature and proliferation of digital technology and interconnectivity of people around the globe, keeping up the aspired high standards proves increasingly cumbersome if not impossible.

The German island can hardly be defended effectively over time.  It may protect the citizens from some harm locally but in return also isolates them and denies them access to the benefits of a technology that ever progresses globally.

Losing the Entrepreneurial Spirit

Given a rather pessimistic Germany mindset that is reluctant to fully immerse in the digital world, digital-resistant citizens appear poorly prepared for ‘moonshot’ visions, embracing the opportunities of Big Data Analytics or the vast potential of the Internet-of-Things (IoT).

German innovation death(deskmag_com)
Reluctant to start up a business (image: deskmag.com)

The present German ‘generation of heirs’ inherits the wealth created by their parents’ generation during the famous post-WWII decades known as the economic “Wirtschaftswunder” boom.  Very much in contrast to the U.S. or Asia, many Germans do not share the venturing spirit anymore.  They show reluctance to trying out something new such as building a business as an entrepreneur for several reasons:

  • Firstly, Germans tend to prefer a detailed plan before actively exploring an opportunity and strictly sticking to the plan during implementation. Besides the favorable element of thorough planning, this approach also reflects a deeper fear of failure and seeking a sense of security and predictability.  Deviating from the plan is often interpreted as a failure.
    But then, which plan ever is perfect and stands the test of a dynamic reality? Sadly, the debate then quickly tends to turn to finding a culprit when things go sour rather than making adjustments to keep moving on.
  • Secondly, German hesitation and even a good amount of pessimism roots in the stigma of a business failure, which seems to stick more in German society than in the United States. More than 9 out of 10 start-ups fail, but when a startup fails in the U.S this does not automatically translate into a personal failure of the leader.  It is much more seen as a learning experience, while a German CEO gets easily branded a loser.
    Surrounded by the ‘insurance thinking’ mentioned earlier it will be hard for the former CEO finding support for a future business or even employment in Germany after a venture failed. In consequence, the German CEO is more motivated to beat a dead horse rather than cutting the losses and move on.

Summary – Brakes on Digital Innovation in Germany

For all these reasons, visions tend to be smaller in Germany.  They are more designed to control risk than seizing exponential business opportunities.  Thinking too small, not disruptive enough and too focused within an industry prohibits to compete with the digital global players that emerged with exponential business models, such as the Googles, Apples, Amazons, Airbnbs, Ubers, and so on out there.

Brake-damage(dba.com.au)
Brake damage ahead! (image: dba.com.au)

What keeps the brakes on the German innovation machine is the inbred mindset and vertical tunnel vision with a focus more on products instead of customers, and the risk-avoidance and fear of applying digital technology to its full potential.  It traps many German companies in a self-limiting disadvantage compared to American or Asian competitors, which prove more venturous, flexible and generally optimistic.

The U.S., in particular, entrepreneurs come not only with a more flexible and optimistic mindset but can also tap into unique startup eco-systems in place (Silicon Valley, Boston, and NYC areas primarily) with easy access to bright minds, cross-pollination and venture capital.

Outlook

There remains a demand for physical, quality products in the future, such as the machinery, tools or cars we value today as Made in Germany, so the 1,500+ hidden champions look into a bright future.  Their reluctance to embrace the digital age, however, and transform to embrace new digital business models, however, may steadily push them to the sidelines as industries and arenas change beyond their input or control.

Join Masterclass webinar: “Beyond-the-Pill” Disruptive Innovation within Pharma, Feb. 23, 2016

The pharmaceutical industry struggles with the fundamental changes of the healthcare systems worldwide. For many reasons, the traditional mindset and business models of the past are failing today. New approaches are needed for innovation “beyond the pill” to stay profitable and ahead of competitors.

But how to change a large organization bottom up and from within?

Sign up for the Masterclass: “Beyond-the-Pill” Disruptive Innovation within the Pharmaceutical Industry webinar hosted by the Intrapreneurship Conference at 5-7pm CET (11am-1pm ET) on February 23, 2016!

Intrapreneurship Conference

Why?  The pharmaceutical industry struggles with the fundamental changes of the healthcare systems worldwide. For many reasons, the traditional mindset and the business models of the past are failing. New approaches are needed for innovation “beyond the pill” to stay profitable and ahead of competitors.

But how to change a large organization bottom up and from within?

This session offers you a unique birds-eye and worms-eye view on pharma innovation and its shortcomings under the current paradigm, before diving into real-life case studies of intrapreneuring, disruptive transformation and strategic innovations within and beyond a Global FORTUNE 500 pharma company.

Join this masterclass and learn on how to bring intrapreneuring and transformation to life in a large pharma company.

Driving Innovation in Healthcare: New Executive Intrapreneuring Workshop

Experience the new two-day intrapreneurial journey to transform you organization with exponential results!

Don’t miss EBCG’s intense and hands-on Intrapreneuring Workshop “Building an innovation framework to design, launch and execute business projects” in the Driving Innovation in Healthcare series in the “Golden City” of Prague, Czech Republic, on April 6-7, 2016.

Sign up before December 23, 2015, to save during the special promotion period.


 

 

Read Intrapreneuring Case Study “Leading Innovation” by Ivey Business School!

The prestigious Ivey Business School of the Western University in Ontario, Canada, published an insightful new teaching case study on intrapreneuring and corporate innovation titled “Boehringer Ingelheim: Leading Innovation” in which the case writers, Professor J. Robert Mitchell, Ph.D., and Ramasastry Chandrasekhar, follow the footsteps of the newly appointed innovation director.

Meant to raise questions and serving as a learning opportunity for graduate students in academic program around the globe, this case study lifts the corporate curtain a bit to show how innovation through intrapreneuring really happens and decision points along the way.

Outline (by Ivey Publishing)

The newly appointed director of Innovation Management & Strategy at Boehringer Ingelheim, a German-based multinational pharmaceutical company, is finding his way forward in his firm’s new, first-of-its-kind role, which is central to the company’s growth rejuvenation strategy. His job has a threefold mandate: to build internal networks, to establish internal structures and to leverage internal ideas. His biggest challenge, however, may be transforming the organization’s DNA. The blockbuster business model that has characterized the company for decades is no longer appropriate. Instead, the firm needs to develop healthcare products available to end users over the counter. This shift in strategy requires innovative changes in distribution, delivery and customer focus. To accomplish this goal, he needs to institutionalize innovation so that it becomes sustainable. But in doing so, he must also identify the metrics for assessing progress. The case provides an opportunity for students to step into the shoes of an innovation leader, to develop an innovation roadmap for the organization in the face of uncertainty and to understand how to engage in innovation leadership at various levels of a global enterprise.

Learning Objective

This case has two key objectives. First, this case provides students an opportunity to grapple with the difficult decisions associated with innovation in an uncertain environment. Second, this case highlights that anyone has the ability to cultivate an entrepreneurial mindset and to lead innovation. The case divides the attributes of an innovation leader into five components: observing, questioning, experimenting, networking and associating. It shows the real-life experiences of a manager doing seemingly routine activities, who evolved into a leader who transformed the DNA of a global enterprise. The case also provides a template of the tasks, responsibilities and value-added changes as an individual moves progressively within an enterprise from an operations manager to a senior manager to an innovation leader. This case can be used either toward the beginning or toward the end of any course that addresses innovation and creative thinking in a large organization. At the beginning of a course, it illustrates the challenges of acting in the face of uncertainty in a large organization. At the end of a course, the case provides an opportunity for students to apply what they have learned about innovation, entrepreneurial thinking and innovation leadership.

Innovation drives Diversity&Inclusion 2.0

The traditional world of corporate Diversity and Inclusion (D&I) is being disrupted by a new take on D&I and combining it with innovation and talent management.  What some perceive as a threat to the D&I establishment may just be the next step of evolution that could invigorate and drive D&I to new heights.

Though not an entirely novel approach (see also How to create innovation culture with diversity!) the new thinking gains traction.  As this could play out in different ways and only time will tell what worked, here are my thought on where we are heading.

Struggles of the  Front Runner

Many traditional D&I programs, let’s call them “version 1.0” of D&I, struggle transitioning beyond a collection of affinity groups, tallying corporate demographics and competing for D&I awards to post on their webpage.  In these traditional D&I programs ‘diversity’ is often understood to be reflected by more or less visible differences among individuals at the workplace while ‘inclusion’ translates to supporting defined sub-populations of employees through, for example, establishing affinity groups.

The United States is seen as the front runner of the D&I movement.  D&I has been around in the U.S. corporate world for decades.  For historic and demographic reasons it hones in on removing obstacles for minorities at the workplace supported also by strict legislature and execution; exercising Affirmative Action, for example.

This legacy in the U.S. lends itself to an inside focus on organizations that became the backbone of the traditional D&I programs.  It comes down to the question ‘what can or should the organization do for specific groups of people’ defined by ethnicity, gender, age, sexual preference, faith, disability, war history and so on.  Apparently, it still is work in progress as, for example, Silicon Valley just recently got on the public radar, which stirred up the debate afresh along the lines of D&I 1.0; see Google releases breakdown on the diversity of its workforce.

Stuck in the ‘Diversity Trap’?

The inside focus and minority messaging of D&I 1.0, however, can be limiting when D&I erodes to a process of ‘doing things right’ by pushing for quotas, ‘checking boxes’ and inflating variations of terminology perceived as ‘politically correct’.  This can in fact be different from ‘doing the right thing’ for the company overall, its employees as well as the affinity groups and their constituency.   It should not surprise that Affinity groups can be (and often get) stigmatized and perceived as self-serving and self-centered social networks without significant and measurable business impact.

Under this paradigm these D&I 1.0 programs struggle to get serious attention, support and funding from executives beyond operating on a minor level to ‘keep the lights on’ more for public image purposes than business drive.  The fundamentals seem to get forgotten: in the end, a business exists to generate a profit, so less profitable activities are likely to be discontinued or divested.  It’s a symbiosis and to say it bluntly: without healthy business there is no D&I program and no affinity groups.  When this symbiosis get lopsided, D&I 1.0 gets stuck in the trap.

D&I 2.0

“Diversity” is catching on beyond the United States in Europe, for example, where many countries do not have share a highly heterogeneous demographic composition, for example.  Here, companies can start with a fresh approach jumping straight to D&I 2.0 – and many do!  It reminds me of developing countries installing their first phone system by skipping the landlines and starting right away with mobile phones.

The 2.0 internal focus corresponds to hiring workers that truly think differently and have different backgrounds and life experiences some of which overlaps with D&I 1.0 affinity roots.  In addition, there is also an external focus putting the staff to work with a clear business proposition and reaching even beyond the organization.  So here a candidate would be hired or employee promoted for their different thinking (2.0) rather than more visible differences (1.0).

While need remains for affinity groups to tend to their members needs within the organization, the “new” D&I 2.0 opens to shift focus to go beyond the organization.  It goes along the lines of a statement President John F. Kennedy became famous for and that I tweaked as follows: “Don’t ask what the COMPANY can do for you ask what you can do for the COMPANY AND ITS CUSTOMERS.

D&I 2.0 gears towards actively contributing and driving new business results in measurable ways for the better of the employees as well as the organization and its customers.  A visible indicator for D&I 2.0 affinity groups helping their constituency beyond company walls is affinity groups identifying and seizing business opportunities specific to their constituency.  They translate the opportunity and shepherd it trough the processes of the organization to bring it to fruition.  For example, affinity groups are uniquely positioned to extending and leveraging their reach to relating customer segments in order to identify ‘small elephant’ business opportunities; see How to grow innovation elephants in large organizations.

The D&I 2.0 approach demonstrates sustainable business value which is why D&I 2.0 sells much easier to executives. It makes a compelling business case that contributes to new business growth, the life blood of every company.

Challenging Transition

U.S. companies stuck in D&I 1.0 are hard pressed to keep up with the D&I 2.0 developments and overcome their inner struggle and resistance.  With decades of legacy, D&I 1.0 programs in many organizations lack the vision and ability to make a compelling business case, to develop a sound strategy as well as capability and skill to implement it effectively.  This is the requirement, however, to truly see eye-to-eye with senior executives and get their full support.  This can become a serious disadvantage in the markets relating to products and customers but also in attracting talent.

In the end, the saying holds true that “talent attracts talent” and all organizations compete over talent to compete and succeed.  Therefore, a D&I 2.0 program combines business focus and talent management while tying it back to the core of diversity and inclusion: Fostering diverse thinkers and leveling the playing field for all employees.  This requires a level playing field that offers the same opportunities to all employees, which is the real challenge.

How do you level the playing field effectively in a large organization?  How this will be implemented becomes the differentiating success factor for companies transitioning to D&I 2.0!

Here is a example 2.0-style for a level playing filed that has its roots in the D&I affinity group space yet opened up to include the entire workforce.  It empowers and actively engages employees while leveraging diversity, inclusion and talent management for innovative solutions with profitable business outcomes.  It may take a minute or two to see the connection between D&I, talent and disruptive innovation but it is at work right here in the School for Intrapreneurs: Lessons from a FORTUNE Global 500 company.

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Previous posts relating to innovation and employee affinity groups / employee resource groups (ERG) / business resource groups (BRG):

Shut down! Why Successful Innovations Die

Why successful innovations get shut down. WhIle we expect unsuccessful initiatives and projects to get shut down, what sense does it make to stop hugely successful ones?

Punished Despite Success

It doesn’t make sense to shut down profitable programs – or does it?  It happens all the time when the current yet wilting business model still tastes sweet.  Investing in building a disruptive, future business model appears less palatable as it takes uncomfortable transformation that comes with investment cost and lower profits initially.  The sobering reality is that short-term gains often win over long-term investments, sustainability and bold moves to explore uncertainty and white space.

Here is a quick example from the fossil oil and gas industry straight out of Bloomberg Businessweek, “Chevron Dims the Lights on Green Power” (June 2-8, 2014):  Chevrons renewable power group successfully launched several projects generating solar and geothermal power for over 65,000 homes.  Despite margins of 15-20%, the group was surprisingly dissolved earlier this year after they had just about doubled their projected profits from $15 million to $27 million in 2013, the first year of their full operation. – Why would you kill a profitable new business?

Clashing Business Models

As for reasons for the shut-down, a former Chevron employee and Director of Renewable Energy notes that Chevron’s core businesses, oil and gas, still remain more profitable than renewable energy.  This development signals that Chevron’s leadership is willing to experiment with renewable energy but does not seem fully committed – it makes Chevron’s slogan “Finding newer, cleaner ways to power the world” sound like lip-service.

Instead, Chevron continues to hold on tightly to their old business model to squeeze out the last drop of oil.  Chasing short-term profit margins may prove not only a questionable path for long-term company sustainability but also from a business model perspective.  While oil and gas prices have been on the rise for the past decades, it is well-known that these natural resources become scarce, so extraction from more challenging locations becomes increasingly expensive.  It cuts into the company’s profits and the consumers’ pockets.  To date, Chevron already pays a higher cost for extracting oil compared to competitors.

Chevron focuses on the upper tail of the S-curve of the current technology instead at the expense of preparing for the disruptive jump to the next technology platform. (See section “Technology S-curves” in 10x vs 10% – Are you still ready for breakthrough innovation?)
The risk here is to lose out on developing and acquiring new technologies that will be the make-or-break competitive advantage in the industry’s future.

Bio Fuels

Interestingly, Chevron’s competitor and largest oil company, Exxon-Mobil, takes a different approach.  Even after initial setbacks where proof-of-concept did not scale to industrial size, Exxon-Mobile now partnered with Craig Venter’s Synthetic Genomics to produce oil from micro-algae at industrial scale. Hopes are high that this bio-tech and bio-agriculture approach proves more practical, profitable and sustainable to replace fossil fuels in the future.

Sounds risky?  It sure is, but with profits from oil and gas still in the tens of billions this is the time to invest heavily in the jump on to the next technological S-curve. You may recall Craig Venter as a most successful entrepreneur and also the first to sequence the human genome, so there is no shortage of top bio-brainpower, which opens the flow also for more investment capital.

Nearsighted Decisions

Truth being told, several other bio-fuel ventures of this nature exist all around the world.  Neither made it to produce in industrial scale needed to satisfy the world demand for crude oil – yet.  There is no question, however, that the world is running out of affordable oil and gas at accelerating speed.  Disruptive technologies will emerge to fill the gap and redefine the energy sector.

Leadership is needed to prepare and transform the industry beyond short-term management of profit targets.  Not taking a bold step forward is the absence of leadership.  (More on the clashing goals in Leadership vs Management? What is wrong with middle management?)

Learnings

The learning here is that even profitable disruptive ventures get shut down at times when the leadership is comfortable and holds on tightly to the existing business model they are familiar with and doing what they always did rather than taking transformative steps to prepare the organization for the future.  Even with the writing clearly on the wall, the way of how profitability of a new venture is measured and the (still higher) margins of the established business (fossil fuels) make short-term focus attractive despite concerns over business model sustainability.  So often enough there is little patience to further develop even successful, transformative ventures of tomorrow in favor of enjoying the sweet but wilting fruits of today.

Somehow this short-term mindset painfully reminds me also of the established car industry who, obviously, had little interest to bring electric vehicles to market at scale over the past decades until a Tesla comes around to show them how it can and should be done.

As for our example, time will tell whether Chevron or Exxon-Mobil made the better choice in the long run to win the new business model race leading us into the post-crude oil era – or if they both get disrupted by an even different new technology altogether.

Balancing Risk of Innovation Project Portfolios

Risk of Disruption

Innovation projects are risky explorations.  Disruptive innovation projects even more so, and individual projects can be quite a gamble.  So, how can you limit the risk across your portfolio of innovation projects?  The goal is to increase the likelihood for the portfolio to succeed overall even if individual projects fail.

(Quick note for project management professionals: I am deliberately not differentiating terms like “portfolio” and “program” here.  My goal is to get the basic idea across.   More particular definitions don’t add value here.)

In mature organizations, incremental improvement can easily be and often is interpreted as ‘innovation’, which makes sense when optimizing a production environment, for example. Here, at the back-end of operations, big “elephant” projects tend to bind the organizations resources (How to grow innovation elephants in large organizations).  The innovation project portfolio I am referring to, in contrast, aims at the disruptive end: the “small elephant projects” with higher risk but the potential of extraordinarily high returns if they succeed.

Why to manage risk

In large organizations you hardly get a “carte blanche” to manage just highly risky projects.  With a corporate focus on predictable, short-term results there is too much concern of the portfolio easily becoming an unpredictable money pit.  You are likely to get shut down after playing around a while without demonstrating clear success in terms of return-of-investment.  Thus, you will need to come up with a strategy on how to compose your project portfolio to keep your stakeholders happy and your experimental playground open.

Risk Categories 

Managing risk across a project portfolio comes down to finding the right blend of high-risk/high-return projects and lower risk projects that come with less impressive potential for revenue or savings.  You also want to include a few projects that produce returns short-term to demonstrate you are making progress and reap some quick wins for impatient stakeholders while the longer-term projects need time to mature.

A common way to approach categorizing projects into into Core, Adjacent and Transformational based on their risk and return profiles:

  • Core projects are merely optimizations to improve the existing landscape of systems, processes, assets or products in existing markets and with existing customers.  These incremental improvements are the “safe bet” and “next small step” that, typically, comes with low risk, predictable outcomes but also limited returns.  They do not need high level sponsorship, are easy to predict and plan resources for, and so they are the favored playing field of mature, large organizations.  These can often be ‘large elephant’ projects seen as ‘necessary’ that the organization more easily buys into.
  • Adjacent projects come with more uncertainty and risks as they usually extend existing product lines into new markets.  Though not an entire novelty it is may be new territory for your company.  Sometime, ‘imitating’ a successful model in a different industry does the trick (read also: Imitators beat Innovators!).
    Adjacencies add to the existing business(es), which requires a higher level sponsorship (such as Vice President level) to move forward, to allocate resources and to accept the risk to fail.
  • Transformative projects are experimental and risky.  They create new markets and customers with bold, disruptive “break-through” products and new business model.  While the risk to fail is high, the returns could be huge when you succeed.  Highest level (C-level) sponsorship and support is crucial for this category not only to persist and get resources during the development phase but also for the mature organization to adopt and support it sustainably.

Finding the balance

When you manage a portfolio of disruptive (read: transformative) innovation projects, you should expect projects not to succeed most of the time.  Instead of calling it “failure,” see it as a learning opportunity.  As Thomas Edison put it so famously referring to his experiments leading to the invention of the light-bulb: “I have not failed. I’ve just found 10,000 ways that won’t work.”

The common rule for playing a safe portfolio is a 70-20-10 mix, i.e. 70% core, 20% adjacent and 10% transformative projects.  This way, many low-risk/low-return core projects keep the lights on while you play with few high-risk/high-return transformative projects.

Experiences

From my personal experience with the portfolio I manage, I leans towards accepting more risk, so you would expect and be comfortable with a lower success rate as a consequence but also higher returns.  To my own surprise, we completed 55% of our projects successfully and ended up discontinuing 26%.  Fortunately, also the average ROI from our “small elephant” projects is substantial and pays the bills for many years out.  Thus, for my portfolio, the 70-20-10 mix is too conservative.

As for how we select projects and fund projects, read also Angel Investing within the Company – Insights from an Internal Corporate Venture Capitalist and School for Intrapreneurs: Lessons from a FORTUNE Global 500 company.

Before re-balancing your portfolio in favor of a majority of risky transformative projects, however, make sure you have continued high-level sponsorship and alignment with strategy and organizational culture of your organization.  – If culture, strategy and sponsorship don’t align to support your innovation portfolio efforts, your risk increases for painful learning without sufficient business success.

> Interested in Project Management? – Don’t miss VASA’s historic project management lesson!

 

Angel Investing within the Company – Insights from an Internal Corporate Venture Capitalist

Breaking through the crust

One of my favorite and most successful approaches to building a powerful intrapreneuring ecosystem is internal corporate venturing!

It is an exquisite tool to cut through the crust of ‘red tape’ that bureaucracy builds up over time. Internal corporate venturing or “Angel investing” allows for nimble decision-making with a lean process to give disruptive innovation ideas a chance again in a large company.

Seed-funding promising ideas

How does it work?  Think of becoming a venture capitalist within the company: You invest in ventures within the organization and help building ‘intraprises’ in contrast to funding start-up enterprises outside the company. The difference is a you don’t venture for your own profit but for the better of your organization.

The idea here is to seed-fund promising disruptive ideas that otherwise would not be implemented or even seriously considered. These opportunities –typically‑ were rejected by the ‘corporate immune system’ previously, when an employee with an idea approached their line manager or a governance committee of sorts requesting approval to ‘try something out.’

POC over ROI

Often enough, there is no clear return-of-investment (ROI) predictable for these early ideas.  What you may be looking for is rather risky and experimental, a proof-of-concept (POC).  The metrics for payoff and ROI of disruptive ideas does not follow the same approach we are used to measure the more predictable returns of common cost reduction and incremental improvement projects. Disruptive POC projects often don’t have an ROI projection when you explore technology of sorts or its application that may become a game-changer for our future business.

In my experience, communicating the POC nature of the project over focusing on ROI can actually help!  It prevents the ‘organizational immune system’ from kicking in early on, since there is little threat to established practices.  Why?  It does not come across as competing with ‘big elephant’ projects over significant amounts of governed resources following the conventional processes of the company’s machinery.  Instead, we just try something out!  It’s a little experiment that doesn’t change anything, so it poses no threat to established practices, investments or the power-base of individuals defending their fiefdoms.

Aspired returns

Having said this, there is of course a commercial end to all projects. After all, we have no resources to waste and will have to demonstrate down the road that our ‘experiments’ pay off somehow. Our working assumption is that the disruption should lead to a ten-fold (10X) payoff – at least.

Personally, I prefer aiming at a bold 100X ROI target; two orders of magnitude, that is. It sets an ambitious target and -if things work out- a great success story. It’s a powerful point to make for disruptive innovation as part of our innovation ecosystem and shifting the mindset within an organization.  Sharing these success stories with executive stakeholders is crucial (for future support) as well as with employees (for future ideas).

Governance and authorization

Interestingly, what employees are looking for more than funds is authorization to do what is right and worthwhile for the company. Often, the obstacles are perceived and only exist in peoples’ minds. These barriers are formed by many factors over time, such as the management style they experienced and organizational silos that mold a company’s culture as well as the employees’ mindset.

In this particular company, a lean oversight board makes funding decisions. It is composed of a diverse team of more forward-thinking executives and a very lean decision process. The team acts as enabling ‘go-keeper’ for accelerated innovations instead of pushing the breaks as ‘gate-keeper.’

The little monies offered for trying something new only help smoothen the path for innovators in the company. The most important part is them feeling empowered and “authorized” to take action that overcomes complacency, inertia and organizational paralysis. On the spectrum of strategic innovation roles, the board serves as a “sponsor” and sometimes as a “coach,” when an idea aims to overcome internal barriers to increase efficiency, for example.

Dealing with Risk

The purpose of this governance board is to enable the exploration of disruptive ideas by giving internal innovators a chance. The focus is on projects that can be characterized as early stage experiments to explore transformative enabling technologies and value-adding services of higher risk or less predictable outcomes than conventional project portfolios in the mature organization would feel comfortable with.

Naturally, this approach comes with an elevated risk of failure when projects do not produce profitable outcomes or simply prove infeasible or poorly timed.  This ‘price’ is accepted as long as it generates learning.

The potential damage is low, since we are talking about swift and low-cost experimentation: try often and fail fast. Thus, these risky projects complement regular and more conservative project portfolios in the various businesses of the organization. In addition, the innovation project portfolio is somewhat risk-balanced, which avoids having too many high risk projects that may jeopardize the likelihood of profitability across the portfolio.  Reality is that also the disruptive innovation project portfolio has to demonstrate tangible returns over time, so the mature organization sees the economic benefit of experimenting and not shut down this ‘playground.’

Branding the projects as experiments with a proof-of-concept (POC) endpoint helps to calm the ‘organizational immune system’ and to argue that these risky ‘small elephant’ projects complement the other ‘big elephant’ project portfolios across the organization.

Getting Funds

Here are my experiences as an internal corporate venturer or ‘angel investor’ from the past years: First of all, I don’t have much money to spend. The budget I have for this kind of ventures is pathetically meager – and I overcommit it all the time! Nonetheless, I came in under budget once again by 46% last year. It sounds like an oxymoron, and since I don’t have a money tree growing in the backyard, how does this work?

The secret is in the psychology of acting as the “first investor.” Think of this way: when someone wants you to invest into their idea first with nobody else having made an investment before you, you are skeptical and most hesitant to put down your money, right?

All I do is to commit paying for an idea in full to overcome this initial threshold and get things started.  What typically happens next is that an executive from the business affected by or potentially benefiting from the project hears of my investment, reconsiders and wants to get on board too – as a second investor. Once the ‘innovation guys’ have put money down first, the investment in the idea appears less risky to the business executive, so either we split the bill or the business takes on the cost completely!

I’ve seen it happen many times with managers turning around 180 degrees after they had rejected the idea previously. This is how to deal with them: to save (their) face, don’t point out their earlier resistance but rather thank and recognize them for their support and foresight as valued contributors to change and success for the organization.  Celebrate them as enablers, win them over as allies and keep the connection for future collaborations!

Alignment and validation

Don’t be mistaken, funding by the business is not only crucial given the fact that my funds are few.  It is even more important because it validates that the idea makes sense to the business.  It aligns with strategy and goals of the organization but also helps implementing it once the business has ‘skin’ in the game! Otherwise, even if I funded a project alone, the intrapreneur running it would have a hard time getting it implemented without the support of a business sponsor.

So all it takes is making it easy for business executives to invest in a good ideas by making them feel comfortable not to invest first, which reduces their perceived risk and lowers their threshold to act.

Key Learnings

  • The lean innovation governance board is an instrument for reasonable oversight that benefits from diverse perspectives.
  • The “Go keeper” instead of “Gate keeper” process is crucial as is the willingness to accept risk of failure for disruptive projects.
  • The model proves highly effective to get around a convoluted “red-tape” bureaucracy as well as generating a surprisingly high return-of-investment (ROI) – even without the latter being the primary focus.
  • The “first investor” psychology validates the alignment of ideas with business needs and strategy while opening the flow of funds from the businesses and facilitating the implementation.
  • This internal corporate venturing or “angel investing” approach became a beacon of hope for employees and a very profitable innovation engine for the organization that starts to change the organizational culture to the better.

 

Meet me at HxRefactored 2014 in NYC on May 13-14, 2014

HxRefactored 2014 in NYC on May 13-14 at the New York Marriott at the Brooklyn Bridge.

HxRefactored is a revolutionary design and technology conference that will gather over 500 designers, developers and leaders in health for two days of thought provoking talks, workshops and discussions on how to improve the quality of the health experience. The conference fuses the technical and creative elements of Health 2.0’s Health:Refactored and Mad*Pow’s Healthcare Experience Design Conference.

Join me at the Pharmaceutical Multi-Channel Marketing Strategy Conference in Philadelphia, PA on April 24, 2014

Q1 Pharma Multi-Channel Marketing Strategy
Q1’s Pharmaceutical Multi-Channel Marketing Strategy

Location: Hilton Garden Inn Philadelphia Center City, 1100 Arch St., Philadelphia, PA 19107

Why mature organizations can’t innovate

Why mature organizations can’t innovate

Clayton Christensen is the icon and figurehead of disruptive innovation – after all, it was him who coined the term the first place!  (I am a big fan!)

Now, Professor Christensen concludes that large companies can’t innovate in his famous book “The Innovator’s DNA: Mastering the Five Skills of Disruptive Innovators” – and I’m out to prove him wrong!

Why? – In part, perhaps, driven by my passion for disruptive challenges but mostly out of compassion for my talented colleagues, and who deserve better; we we work hard every day to save and improve the lives of patients.

There must be a way of turning around a mature organization. After all, IBM reinvented itself several times and turned from a manufacturing to a services company, what a pivot is that!

Getting back to 10x innovation

So, can a mature pharmaceutical company adapt and pivot from within as well?  After all, innovation in ‘pharma’ is commonly understood to find, develop and bring to market new innovative medicinal drugs as the core business.  In a rapidly and fundamentally changing business environment (see “What is Digital Medicine?), however, the “selling pills” model alone runs flat, the company must find and adapt to new business models to survive and flourish.

Time will tell if “10x vs 10% – Are you still ready for breakthrough innovation?” is possible once again.  Question is, can mature organization turn around? And if so, how?

Shift from Discovery to Delivery

It starts with understanding why innovation slows down in maturing organizations (outliers may confirm the rule) but stay with me here to get the basic principle.  The answer lays in the natural business life cycle: in the start-up phase of an new company, the most important skills are around discovery, i.e. to explore a radically new business opportunity.

As the business gains traction and needs to grows, delivery skills are needed most. Management composition needs to change in order to develop and expand the business professionally; disruptive input is not in demand and can becomes rather inhibiting to the operation that needs to focus on delivering output reliably and at scale. Innovation shifts from disruption to incremental improvement and rightly so, yet it comes at a price as it leads to predictable obstacles (see Overcoming the Three Big Hurdles to Innovation in Large Organizations)

Research shows that disruptive innovators are typically not good at delivery and growing the company.  As the business matures, they need help and often move on to do what they do best: starting some new, while the company matures in the hands of management that can deliver.

Downfall

Over time, however, markets get saturated and the established business model may no longer work, profits decline. Now here comes the inflection point: the management was hired for its delivery skills.  They don’t really know how to renew the business, since they never created one.  What they do know is how to prolong the downturn by clinging to the outdated business model while squeezing out inefficiencies and saving cost.  Research confirms, little surprise, that the maturity managers are good at delivery but mediocre at best when it comes to discovery.

The company, a supertanker, became a slowly sinking ship.  Group-think, the mindset and engrained culture, prevents disruption from breaking through.  After all, no passionate out-of-the-box thinker or entrepreneur has been hired for years.  Instead, Ivy League graduates with MBAs are favored that runs the business more administratively, bureaucratically, without taking significant risks – who would ever take the risk and hire a crazy guy, right?

Turning to Intrapreneuring

So, where should the turnaround come from?  Here comes the The Rise of the Intrapreneur!

To connect things again in news ways to create and build an innovation-friendly ecosystem while chipping away the on the resistance of the “organizational immune system.”

Over the next posts we will introduce and explore intrapreneurial methods using the example of a pharmaceutical company and member of the FORTUNE Global 500 club.

Join me in Boston for the Corporate Venturing in the Life Sciences conference this week!

Join me at the Corporate Venturing in the Life Sciences conference this week!
Join me at the Corporate Venturing in the Life Sciences conference this week!

Women in Life-Sciences: Pharma Think Tank at UCSF on Oct. 30, 2013

UCSF WILS BI Think Tank announcement
UCSF WILS BI Think Tank announcement

Join me in Boston for the Corporate Venturing in the Life Sciences conference this week!

Join me at the Corporate Venturing in the Life Sciences conference this week!
Join me in Boston this week: Corporate Venturing in the Life Sciences conference

Podcast on Innovation in Large Organizations, Intrapreneurs and Corporate Venturing

Podcast Announcement 2013-09-24futurethink spoke with Stephan Klaschka, Director of Global Innovation Management at Boehringer Ingelheim, who is responsible for encouraging disruptive innovation within the firm. He spoke about creating “intrapreneurs” in large organizations by instilling an entrepreneurial mindset into employees and ways to use partnerships to get to new ideas.

Click here to get to the podcast.

Stephan will be leading the session “Reassessing the Organizational Culture to Better Engage Corporate Venturing Prospects” at the upcoming Corporate Venturing in the Life Sciences Conference November 13-14, 2013 in Boston, MA

10x vs 10% – Are you still ready for breakthrough innovation?

Google co-founder and CEO, Larry Page, continues to have big expectations for his employees:  come up with products and services that are 10 times better than their competitors, hence “10x” – that’s one order of magnitude!

10X vs. 10%

Many entrepreneurs and start-up companies, they seem to ‘shoot for the moon’!  Far more than 90% of these ventures fail within just a few years.  Few, such as Google, succeeded and grew to dominate internet giants.  The question remains though if they can maintain the innovative pace of 10x when the innovation rate tends to sink closer to 10% in matured companies.

How big dreams changed the world

This challenge effects also other visionaries that changed the face of the world and transformed society in ways nobody has imagined, such as:

  • Apple building a micro-computer at times when mainframes ruled the digital world and only few could envision a demand for personal computing
"There is no reason anyone would want a computer in their home." - Ken Olsen, founder of Digital Equipment Corporation, 1977; just a few years before the first IBM PC was sold.
“There is no reason anyone would want a computer in their home.” – Ken Olsen, founder of Digital Equipment Corporation, 1977 – just a few years before the first IBM PC sold.
  • eBay establishing a new online sales model that millions around the globe use every day
  • Google taking over the browser market through simplicity, by giving everyone control to use the most complex machine on Earth, the Internet
  • Microsoft cultivated software licensing to sell one piece of software millions of times over effortlessly at minimal cost.

Innovation downshift

As disruptive and transformative ventures grow and mature, the definition of what is perceived ‘innovate’ changes.  Both momentum and focus shifts.  With size companies struggle to continue innovating similar to their nimble start-up origins.

What happens?  With size comes a downshift from disruptive to incremental change. Simplicity makes space for adding features.  Adding features makes products more complex and ultimately less usable and appealing to the majority of customers.

Look at Microsoft’s Offices products, for example:  Wouldn’t you wish they came out with a ‘light’ version with reduced feature complexity by let’s say 75%, so the software becomes easy to use again?

It also starts haunting Google, as their established products such as Search or Gmail need to be maintained.  Additional “improvements” aka. features creep in over time.  Perhaps you noticed yourself that recently Google search results seem to be less specific and all over the place while the experimentation-happy Gmail interface confuses with ever new features?

Even the most iconic and transformative companies experience the reduction of their innovative rate from 10X to an incremental 10% or so.

Technology S-curves

Funny thing is that -at least in technology- incremental improvement quickly becomes obsolete with the next disruptive jump.  The current technology matures up along the S-curve (see graphics) and generates revenue, but the next disruptive technology emerges.  Companies hold on as long as they can keeping revenue flowing by adding features or improvements of sorts to gain or maintain a marginal competitive advantage.  Thus, incremental improvement and process optimization found their place here to minimize cost and maximize profit in a market where the product became a commodity, so the competition is based only on price.

The new technology does not yet make significant money in the beginning at the beginning of the next S-curve.  The few early units produced are expensive, need refinement and are bought by enthusiasts and early adopters who are willing to pay a steep premium to get the product first.  Nonetheless, development reached the point of “breakthrough,” becomes appealing to many and quickly takes over the market:  the big jump onto the next S-curve gains momentum.  Suddenly, the former technology is ‘out’ and revenue streams deflate quickly.

S-curve (http://www.carteblancheleeway.wordpress.com)
S-curve (http://www.carteblancheleeway.wordpress.com)

(source: http://www.carteblancheleeway.wordpress.com)

Large and matured organizations ride on an S-curve as long as possible.  They focus top-down on optimizing operations.  Little effort is made to address the underlying limitation of the current technology and seeking out risky new successors.  Maturing companies tend to transform into a ‘machine’ that is supposed to run smoothly.  A mind shift happens to avoid risk in order to produce output predictably and reliably at a specific quality level to keep operations running and margins profitable.  Incremental process improvement becomes the new mantra and efficiency is the common interpretation of what now is considered ‘innovative’.

10X has turned into 10%.  To keep up with the ambitious 10x goal, companies would have to constantly re-invent themselves to replicate their previous disruptive successes.

How Goliath helps David

Even our recent iconic ‘giants’ find themselves in a tighter spot today:

  • Google struggles to integrate a fragmented product landscape and maintain the ambitious 10X pace of innovation
  • Microsoft suffocates loaded with features that make products bulky and increasingly unusable while consistently failing to launch new technologies in the growing mobile segment successfully
  • Apple waters down their appealing simple user interface by adding features and clinging to defend their proprietary standards from outside innovations.

On top of it, all giants tend to face the stiffening wind of governmental scrutiny and regulation that influences market dynamics to protect the consumers from overpowering monopolies that jeopardize competition and innovation.

This is a fertile ground for the next wave of innovators, small Davids, to conquer markets from the Goliaths with fresh ideas, agility, and appealing simplicity.  Where does your organization stand on the S-curve, riding the current curve with 10% or aiming high at the next with 10x?

Observing the down-shift

What can you observe when the down-shift happens?  How do you know you are not on the transformative boat anymore?  Here are just some examples:

  • Small Jobs – job descriptions appear that narrow down the field of each employee’s responsibility while limiting the scope by incentivizing employees to succeed within the given frame.
  • Safe Recruiting – practices shift to playing it safe by hiring specialists from a well-known school with a streamlined career path to fit the narrowly defined mold of the job description.  They newbies are expected to replicate what they achieved elsewhere.  To risk is taken to getting the ‘odd man out’ for the job, a person who took a more adventurous path in life and thinks completely different, as this may disrupt the process and jeopardize the routine output by shifting the focus away from operations.
  • Homogenized workforce – as a consequence of hiring ‘safely’, the workforce homogenized thereby lowering the innovative potential that comes with the diversity of thought and experience.
  • Visionaries leave – with the scope of business shifting, the visionary employees that drove innovation previously lose motivation when innovation and creativity slows.  Now they are held to operate in a business space where they do pretty much the same thing as their competition.  Naturally, these go-getters move on, as it is easy for them to find a challenging and more exciting new job in a more dynamic place. – This ‘leaky talent pipeline’ gets only worse and costly when the talent management focus shifts to talent acquisition and leaving talent retention behind.
  • Complexity creeps in – the temptation to constantly add features increases the complexity and starts a spiral that is hard to leave again (see also ‘Complexity’ is the 2015 challenge! – Are leaders prepared for ‘glocal’?)
  • Procedures for everything – operating procedures regulate every detail of the job.  The new ‘red tape’ is not limited to the necessary minimum but rather by the possible maximum.
  • Short-term focus – work output becomes mediocre and focuses on short-term goals and sales targets; the next quarter’s numbers or annual results take priority over following the big dream.
  • Sanitized communications – broader communications within the company become ‘managed’, monitored, ‘sanitized.’  A constant stream of (incremental) success stories pushes aside an open discussion to target the bigger problems.  Opportunities are missed for open dialogue and creative disruption that fuels the quantum leaps forward to outpace the competition.  Peer to peer communication is monitored to remain ‘appropriate’ and can even be actively censored.  Trust in management and subsequently also among employees erodes.

Management fear of being the first

The real problem is the shift of mindset in top management that quickly works its way down:  not wanting to take the risk of being first, which includes avoiding the risk to fail while chasing to next big opportunity or technology.  Instead, they sail the calmer waters among more predictable competition fighting for small advantages and holding on to the status quo opportunistically as long as they can.  In some cases, the management even acknowledges the strategy shift from ‘leader’ to ‘fast follower’ despite whatever the company motto proudly promotes – and thereby accepting 10% and avoiding to leap ahead of their competition by bold and game-changing 10x moves.

Interestingly, these same managers still love to look over the fence to awe the iconic leaders but steer away to take charge and work to become the leader again themselves.  The nagging question remains if they could actually pull it off getting into first place.

Outside-of-the-box thinking may still be encouraged in their organization but is not acted upon anymore. Internal creativity or ideation contests become more of an exercise to keep employees entertained and feeling engaged, but the ideas are hardly being funded and executed.  Instead, company resources are concentrated to run the incremental machine predictably and reliably at 10% as long as its profitable, no matter what.  – They simply have no resources to spare and dedicate to 10x!

Business Darwinism

These businesses undergo a cycle of breaking through by successful disruption in a narrow or completely new segment, then continued growth to a size where the organization slows down to an incremental pace and somewhat stagnating innovation.  It may then get driven out of business by the next disruptor or pro-actively break up into more competitive fragments that allow for agility and risk-taking once again to become leaders in their more closely defined space of business.  This closes the cycle they are to go through next.  There is a strong parallel between evolution and Charles Darwin’s survival of the fittest.

Keeping this cycle in mind, it becomes easier to see why management undergoes the mind shift to predictable and incremental improvement during the massive growth phase of the company in the center of the S-curve.  It is also the time when the disruptive innovators have jumped ship to join the next generation of cutting-edge innovators and risk-taking disrupters that prepare to take the leap working on the next S-curve.

Which way to turn?

The question is where you want to be:  the true risk-taker or the incremental improver?  Understanding the trajectory and current location of your company helps to make the right decision for you.  It can save you from frustration and be banging your head against corporate walls and be wasting your energy in a dinosaur organization that is just not ready anymore for your ‘big ideas’ and quick moves outside its production-house comfort zone.

This leaves some of us thinking which way to turn.  If you are looking for predictability, longer-term employment (an illusion these days one way or another) and good night sleep, this is the place you will feel comfortable in.

Otherwise, dare to follow the risk-taking visionaries like Elon Musk (the brain behind PayPal, SpaceX, and Tesla Motors; see his recent great interview) to move on.

And then there is ‘intrapreneuring’ as a third direction that tries to change the company from within. (See ‘The Rise of the Intrapreneur‘)

To say it with the words of Niccolo Machiavelli, the wise and sober realist: “All courses of action are risky, so prudence is not in avoiding danger (it’s impossible), but calculating risk and acting decisively. Make mistakes of ambition and not mistakes of sloth. Develop the strength to do bold things, not the strength to suffer.”

Shoot for the moon (or Mars, if you are Elon Musk), change the world no matter what and enjoy what you do!

Top 10 Innovation posts

Here are my Top 10 posts on innovation:

Can strategic innovation rely on creative chaos?  To make a long story short, the answer is: No!  Read what it takes to consistently innovate and give you a very cool example too.

2.  How to become the strategic innovation leader? (part 2 of 3)
What is an innovation leader? Is this role similar to an innovator? (The answer is ‘no’.) – Recognize the three key roles in innovation, how to find an approach and avoid critical pitfalls.

Not everything new is an innovation and some is more renovation than in innovation.  Here is a framework that helps to distinguish an innovator from a renovator and works for entrepreneurs and intrapreneurs alike.  It is important to understand which role to play and when; it all depends on what you need to achieve and what is critical to reach your goal!
Creating value through new products is not enough. Capturing the value requires equal attention on the innovation process. Focusing on creativity and neglecting execution along the value chain is a costly mistake.

5.  Why too much trust hurts innovation
Most managers understand that trust is a key ingredient to effective collaboration and innovation.  Yet, few actively try to cultivate and nourish trust in their own organization to achieve the right mix between trust and constructive tension.

6.  Imitators beat Innovators!
You thought Facebook was the original? Or YouTube? Or LinkedIn? – Get ready for your wake-up call! Break-through innovations are over-rated! Imitators are successful by combining someone else’s innovation with the imitator’s advantage and by doing so they can become innovators themselves!

7.  Boost ‘Group Intelligence’ for better decisions!
Group intelligence can be increased and lead to better decision-making – or why not to rely on a group of geniuses!  New research breaks the ground to understand collaborative intelligence and the – but how to apply it to the workplace?

8.  Collective Intelligence: The Genomics of Crowds
Group intelligence beats individual brilliance – and businesses are willing to pay for the crowd’s wisdom in the social sphere.  The MIT’s ‘genetic’ model allows  combining social ‘genes’ to harness the collective intelligence of crowd wisdom successfully and sustainably; areas of application are scientific research or business/employee resource groups, for example.

9.  Can movies innovate with only seven stories to tell?
How innovative are movies really – if at all?  While AVATAR and THE ARTIST appear polar opposites, they share a similar story; so where is the innovation?

10.  ‘Complexity’ is the 2015 challenge! – Are leaders prepared for ‘glocal’?
What is the key challenge in the coming years and how to prepare future leaders.

Don’t miss my Top 10 posts for Intrapreneurs!