business model – Page 2 – OrgChanger.com

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.

Related: Why mature organizations can’t innovate and Overcoming the Three Big Hurdles to Innovation in Large Organizations

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.’

Related: How to grow innovation elephants in large organizations and Innovation Killers: The Corporate Immune System Strikes Back!

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.

Related: How Intrapreneurs avoid “No!”

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).

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

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.

Related: Innovation Strategy: Do you innovate or renovate?

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.

Related: How to grow innovation elephants in large organizations

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.

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

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.

Meet me at DEMO Enterprise, San Francisco/CA, April 3, 2014

DEMO Enterprise, San Francisco/CA, April 3, 2014

New Tech Solving Big Problems!

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!

Podcast on Innovation in Large Organizations, Intrapreneurs and Corporate Venturing

futurethink 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

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, for example in scientific research or business/employee resource groups.

We use collective intelligence every day

Whenever we face a big decision, we turn to our friends, our family, or our confidants. We seek information, guidance, advice, confirmation, or an alternative perspective. No matter if we make a life decision (partnership, job, picking a school, etc.), a purchasing decision (house, car, mobile phone) or a less monumental decisions (which movie to watch, which restaurant to go to), we make our decision more confidently and feeling better informed after reaching out to our personal network.

What we do is tapping into the collective intelligence, knowledge, or wisdom of a crowd that we know and trust: we are ‘crowd sourcing’ on a small scale. We do this because we instinctively know that the focused collective intelligence is higher than the intelligence of individuals.

What is collective intelligence or the ‘wisdom of the crowd’?

Wikipedia, the iconic product of global collaboration and collective knowledge, brings it to the point:

“The wisdom of the crowd is the process of taking into account the collective opinion of a group of individuals rather than a single expert to answer a question. A large group’s aggregated answers to questions involving quantity estimation, general world knowledge, and spatial reasoning has generally been found to be as good as, and often better than, the answer given by any of the individuals within the group. An intuitive and often-cited explanation for this phenomenon is that there is idiosyncratic noise associated with each individual judgment, and taking the average over a large number of responses will go some way toward canceling the effect of this noise.”

Scaling up to a ‘crowd’

When we read a movie review and rating on Netflix or customer ratings of a product on Amazon, for example, we tap into a larger and anonymous crowd. On the other end, Netflix and Amazon know how they get people like you and I to deliver them free content (reviews, ratings) that runs their business.

So, let’s take this to a level where it really gets interesting for you! How can you get a crowd to do your work? How do you build a framework in which strangers work on your business problems and deliver quality result for free.

Genetics of Collective Intelligence

MIT professor Tom Malone dissects the mechanics of collective intelligence in his groundbreaking article (MIT Sloan Review, April 2010). The MIT Center for Collective Intelligence researched to understand this matter better and identified a number of building blocks or ‘genes’ than need to come together to engage and tap into the ‘wisdom of crowds’ successfully and sustainably.

Since these ‘genomic combinations’ are not random at all, we can also combine genes to build a collective intelligence system. Depending on what it is that you want to achieve, the genes can be combined to a model that suits your specific purpose. This is ‘social genomics’ made easy, and you don’t need a biology major! 🙂

Interestingly, this social genomics can be used independently for social projects you have in mind but also in relation to Employee or Business Resource Groups (ERG/ERG). – The common link lays in the organizational design that is similar to the generic BRG/ERG business model discussed previously. Thus, collective intelligence systems need to address the same questions as a business model:

Strategy or the goal: what needs to be accomplished?
Staffing or the people: who does the work? Are specific individuals doing the work or is there collaboration within a more or less anonymous crowd?
Structure and Processes or how to organize and conduct the work? How is the product created, and how are decisions made?
Rewards or why do they do it? What are the incentives, what is the measure for success?

Motivation is Key

It is crucial to get the motivation right, i.e. why people engage and continue to come back to contribute more to the cause or project. It comes down to finding the basic drivers for human motivation. This explains why people invest much of their time and resources to crowd sourcing.

The famous $1million Netflix Prize was a 5-year open competition for the best collaborative filtering algorithm to predict user ratings for films, based on previous ratings. The winner had to improve Netflix’s algorithm by 10%. The million-dollar reward in 2006 gives a flavor of just how valuable the crowd’s wisdom is for a company! In contrast to common belief, money is not always the driver. If it was, how do you explain the popular virtual ‘farming’ on Facebook, for example, where players pay hard cash for virtual goods?

In the more clandestine intelligence community, recruiting individual operatives plays to four motivational drivers: Money, Ideology, Conscience, and Ego (easy to remember as ‘MICE’).
The drivers for attracting collective intelligence are a bit different, as Tom Malone found out. Nonetheless, there are parallels: He calls the key motivators Money, Love, and Glory.

Real-World Examples

Everyone knows Wikipedia, arguably the best-known social collaboration and crowd-sourcing project thriving from an intellectual competition over Love and Glory, no monetary incentives involved for the authors.

How powerful Glory and Honor are we see also in areas away from the mainstream where you may not expect to find crowd-sourcing and gamification: in scientific research. The following two impactful examples reflect successful implementations for large crowds collaborating and competing to solve scientific problems:

Seth Cooper’s AIDS research challenge on the “FoldIt” online platform challenged players to find the best way of folding a specific protein. We will not dive into the science behind it and its medical significance; here are the details for those who are interested to dig deeper: MedCrunch Interview with Seth Cooper at TEDMED 2012. For our purpose, we establish that a relevant scientific problem in AIDS research, which remained unsolved within the scientific community for a decade, took the crowd 10 days to solve!
You may find it surprising that there was has no monetary incentive involved whatsoever – yet FoldIt attracted over 60,000 players(!) from around the world. The winner of the AIDS-related challenge was later recognized and honored at the 2012 TEDMED. It was not a Nobel-prize laureate from an Ivy-League institution but a laboratory assistant from Britain – who, well, enjoys folding proteins and collaborating on the puzzle with think-alike from other countries. This is the power of Love and Glory!

Another example is the ongoing “Predicting a Biological Response” on Kaggle.com, a geeky online platform for people who like developing descriptive models. My friend and colleague David Thompson of Boehringer Ingelheim (a major yet privately held bio-pharmaceutical company) designed this scientific competition to compete for the best bio-response model for a given data set of scientific relevance.
The challenge offers a $10,000 prize for the winning model and lesser amounts for the models coming in second and third. The monetary award together with a time limit of three months helps to speed up the process and keep up the competitive pressure. Last time I checked, 467 teams competed and have already submitted 4,300 entries with another month to go. The quality of the model is summarized in a single number (‘log loss’), so competitors can compare their results directly and immediately, the same quantifier determines the winner.
Note that the Kaggle participation is not driven by the monetary incentive primarily; otherwise, the number of participants should correspond directly with the amount of money offered for a particular challenge, which is not the case. Thus, participants are in it more for the challenge and fun than for the cash. (If you are a participant and disagree, please correct me if I am wrong!!)
On the other hand, don’t underestimate the business value of the gamification of science either: another ongoing competition in Kaggle offers a serious $3million reward!

The bottom line

Social collaboration, crowd-sourcing, and collective intelligence all rely and depend on humans collaborating to make things happen. What holds true in the real world seems to hold true also in the virtual world: the magic formula is all in the genes…

Innovate to Implement!

Innovate to Implement!
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.

It’s all about creating and capturing value

Innovation is about new products (or services) that create value for an organization as much as it is about capturing this value. While there seems to be no shortage of ideas and even products, what differentiates successful companies from others is that they are able to capture the value of what they created.

Capturing value is a process that complements the product by looking at all aspects of the value chain seeking ways to maximize influence and revenue streams. Thus, capturing the value has to be well thought out and built it into the solution – rather than addressing it in an after-thought.

A new product may bring competitive advantage but this is temporary and will last only as long as the competition needs to catch up. To sustain, an organization needs to develop agility and differentiating capabilities to sharpen the competitive edge continuously and reliably in a fast-paced, competitive, and ever-changing environment (see also “‘Complexity’ is the 2015 challenge! – Are leaders prepared for ‘glocal’?”), while reaping the fruit of their work.

Capturing value –or- Who owns the customer?

The aim of capturing value is to ‘own the customer’, i.e. a customer who is willing to pay a premium or accept shortcomings in some areas in order to buy or use the product (or service). Only then does a company own the customer and the competition remains locked out.

Apple, for example, has perfected this customer ownership: Its loyal customer base values the customer experience with Apple products and identifies with the Apple branding. They purchase every new gadget at a premium with little regard to the actual technical specifications or product offerings from other manufacturers. (See section “Fuzzy values? – Here are some how-to examples” in my previous blog “How to become the strategic innovation leader? (part 2 of 3)”)

Apple effectively controls all aspects of the value chain and generates revenues from different streams from hardware, apps, software, and content, for example. Just to give you an idea, here is an overview on some of the revenue streams Apple has created along the value chain (from Bertrand Issard’s Blog):

Apple Value Chain (found on Bertrand Issard's Blog)

As a bottom-line, products create the value that needs to be captured just as much. Hence, it is important to focus also on the process that ensures value is captured throughout the value chain.
– So how does this relate to innovation?

Innovating the value chain

Innovating the value chain to capture value requires thinking far and wide beyond the product considering all aspects relating to the:

Business model – what is the revenue model? What partnerships add value without sacrificing too much control?
Processes – what are the core processes of the organization? What are value-adding enabling processes?
Offering – what do you offer the customer? – For example, a product concept (think: iTunes, App store), quality/cost/performance optimization (Intel or AMD chips), a product system (Google), or a supply chain (Fedex or UPS)
Delivery – how do you deliver your product or service? – For example, are you forming alliances with partners to complement the in value chain in areas outside your own organization’s competency or field of business? If so, make sure you have a well thought-out marketing strategy with win/win profit sharing that creates incentives for stable and lasting partnerships.
Examples here are the coffee distribution approaches of Nespresso or Keurig’s (single cup coffee brewing), the focus on customer experience of Harley-Davidson (motorcycles), or the brand communication of Red Bull (energy drink).

Two parts of one whole

The innovation process consists of two parts, the invention and the implementation part. Typically, the invention revolves around creativity and ideation that tends to get more publicity and attention than the implementation, which requires focus, discipline, and persistence to execute.

The creativity has the ‘Wow!’ factor – no question about it. Brain-storming of sorts and creativity techniques can be quite fun, social, and engaging. Nonetheless, new ideas are cheap and come by the dozen. That is, perhaps, why innovation literature and models seem to focus (and sell better) on the creative front-end; not so much on the back-end (execution). Yet, it is flawless execution where the rubber hits the road and the value is captured.

Even worse when the innovation process starts out with generating ideas around a specific solution for a new product or service without exploring alternative approaches and then trying to find an application and market for the product. The more mature way to start is with a focus on the problem and then develop and narrow down solutions to find the one(s) that best meet(s) the underlying needs of that problem.

Focusing on the problem first and understanding it thoroughly leads to better results, i.e. develop a product (invent) to sell it (implement).

Focus on the problem before building a solution

The point here is that both parts are equally important and require to same amount of attention for an innovation project to succeed. Invention without implementation does not help; neither does implementing something immature that and doesn’t work.

Innovation process

This is what an innovation process looks like if you break it up (left to right) into the two parts, invention and implementation, and the process steps:

Eleven “i” for Innovation (process spectrum)

A new product alone is not enough

New product development (NPD), for example, draws from both parts, typically in a series of steps with cycles between them: Ideation, Initiation, Incubation, and finally preparing the Industrialization ‑ but this is not where the implementation process ends.

It requires a few more process steps to make the solution work in the real-life production environment and deliver results reliable and consistently. A clean hand-over introduces and integrates the change into routine operations, i.e. the production environment and processes of the organization, for example. Failing here means failing the innovation project.

Unfortunately, innovation leaders on the front-end tend to be crushed or steamrolled in a rigid and back-end-heavy organization in a clash of creativity (front-end) and execution (back-end).

It requires discipline, persuasiveness, and persistence to push forward and overcome the obstacles that emerge from a production environment optimized for efficiency when innovative change knocks at their door and disrupts the rhythm of a fine-tuned process flow. It also requires courageous leadership and an intrapreneurial spirit to do what is right for the company overall and necessary for future success.

In a nutshell

What innovation comes down to is the creative part of collaboration to come up with a new product as well as the implementation that captures the value throughout the value chain with the goal to ‘own the customer’ through differentiation. Focusing on the creativity and neglecting the implementation and execution is a costly mistake that lets even the best idea fall short of its market potential.

Innovation Strategy: Do you innovate or renovate?

Innovation Strategy: Do you innovate or renovate?

Not everything new is an innovation and some are 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 critical to reaching your goal!

Innovation confusion

The word ‘innovation’ is used inflationary; few seem to understand though what they mean when they demand or offer ‘innovation’ in an organization. What adds to the confusion is that not everything new is also innovative.

Let’s continue with the generic definition of innovation from the “What does it take to keep innovating? (part 1 of 3)” post: “innovation is different from a novelty: it is the combination that translates a novelty into a marketable product (or service), so an innovation brings together the newness, the value it creates and the adoption to something marketable”.

So, where does the ‘renovation’ come in and how does it affect your role as an innovator?

Goal clarity comes first

Whether you are an innovator or not depends on several criteria and mostly along these four dimensions:

Objective – “what” is your starting point? Are you creating a totally new business or reinforce an existing business?
Scope – “where” you focus on: Are you looking into (specific) new products, processes, and services, or into (general) new business models or systems?
Intensity – “how much” you change the status quo: Are you taking incremental steps (evolution) or bringing about a radical change (disruptive)?
Boundaries – “with whom” you are collaborating: Are you using resources and partners within your organization with or without tactical out-sourcing? Or, perhaps, you collaborate with external partners to complement your internal capabilities strategically?

Innovation Strategy: a Matrix of Roles

We introduced and discussed the role of the ‘Executive Champion’ in the post “How to become the strategic innovation leader? (part 2 of 3)”. The Executive Champion fills the organizational gap to connect the Technical Champion and the Business Champion, so ideas become reality.

As an Executive Champion, you take an active part in the process – but even as the champion, there are different roles needed for different scenarios. The four dimensions (Objective, Scope, Intensity, and Boundaries) open up a matrix that points to four different roles, one of each suited for a specific scenario:

“Sponsor” – You are a sponsor when you create a totally new category of products or services. This role focuses on the bigger picture, the vision, and sees it through within the organization (which includes tactical out-sourcing). A sponsor guides this endeavor while nurturing and empowering the staff.
For example, broad usage of the MP3 format revolutionized the music industry in unforeseen ways. MP3 players where a disruptive technology that made your CD collection obsolete, which has had replaced your cassette tapes and vinyl records markets some time ago.
“Architect” – It takes an architect to build a new and never-before business model or system. The architect forms coalitions, alliances, and strategic partnerships with the big picture in mind and providing win-win incentives for all players in the business model.
While entrepreneurial examples come to mind easily, less obvious is an architect who operates within an organization as an intrapreneur. For example, the NxGen business model (as outlined in “Build ERGs as an innovative business resource!” and “Starting an ERG as a strategic innovation engine! (part 3 of 3)”) disrupted the common paradigm and mental model of “how-business-is-done” within a company by engaging and leveraging employees in new ways.
“Coach” – You need a coach to get a new-and-improved product or service on the way within an organization – just like this tough but supportive sports coach you remember from school or try to forget…
A new car model, for example, has more bells and whistles than its predecessor and may outrun the competitor’s model by a tad. In the end, however, it remains to be a car. It offers the same common way of transportation we are already used to, i.e. it is an evolutionary, an incremental improvement.
“Orchestrator” – Imagine a conductor directing an orchestra: The orchestrator brings to life a new-and-improved business model or system in concert with strategic partners outside the organization. It takes skill to interpret and continuously integrate the moving parts.
Ducati it an Italian high-end motorcycle manufacturer well-known internationally for its performance bikes that consistently win races. Very early on, Ducati outsourced nearly all company functions to focus on their core competency: design and engineering. Even manufacturing is outsourced! Ducati became the first company to offer a new motorcycle model exclusively on the internet – and sold its entire production before the first bike was even built! This does not only prove the enormous brand power and marketing skill, Ducati also proved they can be a leading and very successful motorcycle company by engineering and outsourcing.

Innovation Strategy Roles Matrix (roles) — The 4 roles in strategic innovation

So, do you innovate or renovate?

The core of innovation and entrepreneurship is around creating new businesses around completely new products or services, or even entire business models that are disruptive to the status quo. So, this points directly to the roles of the Sponsor and the Architect as strategic innovators and game-changers.

In contrast, reinforcing or enhancing an existing product, system, or business model with incremental steps is a renovation, just as you would renovate an older house to bring it up to modern standards. It is the Coach and the Orchestrator role, who fix to improve or come up with the next new-or-improved product or way of doing things.

Innovation Strategy Roles Matrix (innovate vs renovate) — Innovation strategy: innovate or renovate?

Final thoughts

Now, there is nothing wrong with being a renovator. It is most important to be clear about what it is you are trying to achieve and remain flexible, so you can deliberately assume the best role to get to your goal. Consider also that these roles are not mutually exclusive, so over-stepping boundaries at times might just be what you need to lead your venture to success!

Starting an ERG as a strategic innovation engine! (part 3 of 3)

While many companies demand creativity and innovation from their staff few companies seem to know how to make it work. – Is your organization among those hiring new staff all the time to innovate? The hire-to-innovate practice alone is not a sustainable strategy and backfires easily.

An alternative and sustainable way to tap deep into your employees’ creative potential and turning it into solid business value is by forming an employee resource group (ERG). A well-crafted ERG serves as a powerful and strategic innovation engine for your organization!

Losing the innovative edge?
It is the large companies that seem to struggle with innovation most. When companies grow they tend to become less innovative. When this happens we see great talent turning into under-performing employees. – Why is that and is there a way out?

Stuck in mental models of the past?
Remember the heavy dinosaurs that finally got stuck in the pre-history tar pits and starved, too heavy to move themselves out of the calamity? Mental models are the tar pits that companies grow to get stuck in – unless they find a way to shed (mental) weight and think nimble again to survive.

The mental models often originate from days past when the business started and flourished with initial success. The models worked when the company grew back then but models out-date easily over time. At some point the company began to work harder to standardize its processes to ensure the output is delivered reliably and predictably and costs are driven down: the focus shifted from innovation to efficiency. Specialized and refined business functions create increasingly complex and bureaucratic processes, ‘standard operating procedures’ rule the course of action. Things don’t move fast here anymore. Improvement ideas from employee on the floor hardly make it to the top executives and starve somewhere in between, probably in the famous ‘idea box’…

> For more general insight on complexity as a leadership challenge, read this: ‘Complexity’ is the 2015 challenge! – Are leaders prepared for ‘glocal’?

This focus on incremental efficiency also traps R&D departments to a point where true creativity and innovation get stifled, the innovative output drops. In short, the larger a company the less it innovates. Sounds familiar?

Many companies chose the dangerous and seemingly easy way out in buying new ideas from the outside through acquisitions and hiring ‘new talent’. The danger lays in applying this practice too broadly and becoming reliant on this practice, i.e. getting trapped in a vicious and reinforcing cycle. This practice also alienates and frustrates the more seasoned employees who feel underutilized and –quite rightly so see their career opportunities dwindling. Soon enough the sour side of the hire-for-innovation practice for employees becomes transparent also to the newer employees and drives them away in frustration. This organization just found the perfect recipe to turn top talent into poor performers!

Don’t waste your human capital
Bringing in fresh brains to an organization may justify mergers, acquisitions or hiring at times – but not as a strategy for continuous innovation and without also at least trying to tap into the innovative capacity that lays dormant within the organization.

Don’t write your staff off easily by following blindly the common yet wrong assumption that an employee loses the creative spirit after a few years and that new hires would be more innovative than whom we already have working for us. Haven’t we hired the best and brightest consistently in the past? Well, then this logic doesn’t add up, right?

Ask yourself: have you lost your innovative edge? Will you personally be more innovative once you change to another employer? – I don’t think so either. The good news is that even if you don’t believe it, changes are that managers and human resource experts of your new employer do, at least the ones who follow the outdated mental model! – But then, how long can you expect to last there before you get written off? It’s like getting on a train to nowhere.

Derailing the train to nowhere
But seriously, the seasoned employees’ intimate knowledge of the organization and its people can hold enormous potential for innovation not only under financial considerations but also as a morale booster for staff. Getting personally involved more and engaging them in driving change again actively leads the way to measurable and favorable results for the organization. These employees are the people who know your business, your markets, your customers and where to find resources and short-cuts if needed to get things done! Remember the “Radar” character in M*A*S*H who creatively procured whatever his unit needed by knowing how to play ‘the system’ and navigate the cliffs of bureaucracy on unconventional routes?

So, how can you motivate and (re-)activate your employees to come forward with brilliant ideas and getting them implemented to boost the organization’s profitability? How can you spread new hope and direct the enthusiasm to practical and meaningful outcomes for the company and the individual employee alike?

Facing organizational barriers
There is no shortage of good ideas in the heads of employees. Too few of them, however, actually get picked up and implemented since organizational barriers have many dimensions the need to be overcome first. Here are some examples:

A vertical barrier effectively disconnects employees from the executive level which hold the (financial and other) resources to make things happen. Penetrating this barrier means to connect the people within the organization closely and effectively again. > Readers of my previous post What does take to keep innovating? (part 1) will recognize that an executive champion is needed who brings together the technical and business champions. If you feel intrapreneurial and consider becoming an executive champion, check this out: How to become the strategic innovation leader? (part 2)

The horizontal barrier separates business functions and operating units that evolved to become silos or manager’s ‘fiefdoms’ of sub-optimized local productivity often with lesser concern to the overall performance of the organization. What you are up against here is often enough beyond specialized deep expertise but also defensive egos and managerial status thinking that led to a comfortable and change-adverse local equilibrium. As an intrapreneur you bring a much needed yet disruptive element to the organization. Since you are rocking the boat you can get caught up in ‘politics’ easily. Functional managers and their staff may perceive you as throwing a wrench into their well-oiled and fine-tuned machine that could jeopardize not only their unit’s efficiency but also their personal incentives for keeping operations running smoothly. > For more insight on the tension field of management vs. leadership check out Leadership vs Management? What is wrong with middle management?

Another barrier relates to the perceived value that your work creates for the organization, so let’s call it the value barrier: When you start acting intrapreneurial, you may be seen as someone wasting resources, incurring additional cost or generating questionable value (if any value at all) in the eyes of executives and other managers.

Therefore it is of critical importance to clearly demonstrate the business value your work adds to the organization. Based on an unambiguous success metrics the value proposition needs to be communicated clearly and frequently especially to executive management to gain their buy-in and active support.

These and possibly more barriers are a tough challenge. Now, I assume you are not the almighty ‘Vice President of Really Cool Stuff’ (that would be my favorite future job title!) but hold a somewhat lower rank. Perhaps you got stuck in the wrong department (the one without the Really Cool Stuff).

So, where do you start to innovate and ‘rescue’ your organization from a looming train-wreck scenario?

Breaking down barriers by innovating from within using ERGs

A vehicle I tried out quite successfully over the past years was forming an employee resource group (ERG). This grassroots approach has the power to crash right through the vertical, horizontal and value barriers while driving change effectively and sustainably through the organization as a strategic innovation engine.

> A previous post discusses the business model behind the ERG approach in more detail: Build ERGs as an innovative business resource!

Here are the first steps on the way to founding an ERG:

Identify a business need and build a business case, i.e. a clear value proposition aimed at executive management convincing them of the need and benefits of forming an ERG within the limits of company policies. Attracting an influential executive sponsor to gain buy-in is a key requirement for instituting an ERG successfully. The sponsor serves as a political and resourceful ally, an experienced advisor and advocate but also ensures strategic alignment of the ERG’s activities with the broader goals of the company.Since executives value their time more than yours, keep it short and to the point. Think executive summary style and offer details separately for those who chose to dig deeper and to demonstrate that you thought this whole thing through. If your organization already has a distinguished officer or departments with a vested interest in employee engagement for example then connect, collaborate and leverage your joint forces. > More on how to build a case study for an ERG at: Q&A – Case study for founding a business-focused ERG

Get organized! Seek voluntary members and reach out to future constituency of the ERG. Active members are needed as the driving force and source of ideas that the ERG turns into business projects aimed to innovate and energize the organization.
The first ERG I founded was “NxGen”, which stands for the “Next Generation at the Workplace”. The NxGen ERG has a generational orientation but is open to all employees regardless of their age or workplace generation. Nonetheless, from the start mostly the youngest employees (Generation Y) drove NxGen. In many cases they did not know of each other as the GenY-ers were spread thin across the various business functions of the company.The GenY-ers, in particular, found a forum in the NxGen ERG to get to know each other in the first place. We then focused on goals based on shared values or needs to build a strong support network within the company. At all times we kept the ERG open and inclusive to interested employees join from other workplace generations.

The ERG offers its members a safe environment to discuss issues and ideas. It also serves as an informal forum to find coaches and mentors for personal development or specific projects and initiatives. Active ERG membership allows less experienced employees to quickly acquire new skills and test them in real-life by running a project hands-on even in areas outside of their job description or business function to address needs close to their heart with tangible business value. Here, the ERG serves as a very practical leadership development pipeline and safe ground for experimentation within the organization.

> More on the virtues of Generation Y as I experience it in NxGen under: Generation Y for managers – better than their reputation?

Get active by launching business-focused projects. Again, you are targeting management and executives in particular to build credibility and thereby become more effective over time.Start with feasible projects of high visibility and short duration that address a significant business need with a clear and quantifiable success metrics. For each project seek executive sponsorship at the highest level you can attain from the business area that the project affects. Make sure to communicate your successes broadly and frequently to kick-start the ERG. Stick to a clear, specific and unambiguous metrics for your success; if you can tie it to a monetary ROI the better, as this is the language of business. > More on establishing a success metric under: Driving the ROI – where to start your projects metrics?

Showcasing and celebrating your successes as an ERG motivates the already active members, keeps attracting new members and builds credibility among executives to keep the ERG wheels turning as a strategic innovation engine for your organization.

On a personal note
The example of the NxGen ERG is very real. NxGen was nationally recognized as best-practices ERG within 5 months (!) of its founding and became a valued and frequent sounding board for C-level executives within one year. The ERG has no funds of its own yet runs projects and initiatives nationally and internationally that already shifted the company culture and opened it more for change.

References and additional reading

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.

Typically, the innovation leader is not the innovator but there are exceptions such as founders of innovative companies that start out as innovators and remain innovators; think Steven Jobs of Apple, for example. However, let’s focus on more common organizations that need innovation leaders often more than they are aware of…

Conquering the world from your garage?

We all heard the stories of the sole genius inventing in a garage and a few days later they run one of the most influential companies in the world like Apple or HP. However, strategic innovation cannot rely on a one-time-wonder hoping to be repeated over and over again. Organizations become too large, technology too complex and the competitive clock-speed ever faster to leave innovation to a single genius sitting in an ivory-tower coming up with all the good stuff for the rest of the organization. Nobody is an expert in everything or savvy enough to cover all necessary angles. Even more so, many people have great ideas that can contribute to better innovative products, so make use of this critical resource!

Strategic innovation requires governance and collaboration to succeed continuously. What it takes is a process, a framework, a ‘system’ that delivers innovations consistently, timely and sustainably.
‑ Unless you believe that Steven Jobs developed your iPad all by himself, right?
He understood how to turn Apple into an ‘innovation machine’ and –over time‑ how to effectively capture the value it generates.

(To get a better flavor where I’m coming from, please check out my previous post “What does it take to keep innovating?”)

Champions for innovation

What organizations need when they ‘grow up’ beyond the ‘innovation garage’ stage is many innovation leaders in different functions. You can distinguish different innovation leaders or ‘champions’ in an organization by how they contribute to the innovation process.

In general, there are three essential kinds of champions:

The technical champion holds the technical know-how for innovations.
The business champion comes up with the funding to develop an innovation into a product of sorts.
The executive champion “follows the fellow who follows a dream” as a professor of mine put it, and this is what we will focus on shortly.

The roles of the technical and the business champion need little explanation. Let’s assume for now we have identified or (perhaps more likely) unidentified technical champions in our organization somewhere (try the R&D function) and will also find a business champion (in the C-level suite) to fund a great idea that has potential to produce a significant return-on-investment.

Are you an executive champion?

As the leaders we are or want to become, let’s focus on the executive champion as the critical and most complex ingredient in the continued innovation process. Perhaps, this is where you can shine as an executive champion in your organization!

The good news is that anyone can be an executive champion and propel the organization forward! Yet few are aware of what it actually takes to be an effective executive champion. I found it surprising that even people in professional jobs with fancy ‘innovation’ job titles often simply don’t know this! So let’s move on.

Executive champions focus on the value

The executive champion understands the difference between creating value and capturing value of innovations. No worries, it took even Apple years suffering through the consequences of bad decisions to finally get it right…
Creating and capturing value are not the same. A company can create value by developing new technologies, for example. However, at this stage this novelty by itself has no value for the organization unless it can also reap the profits from the novelty.

It takes innovation leaders to ensure this crucial step is taken deliberately and effectively. They ensure the idea or prototype makes it all the way to a marketable product and the company rakes in the profit.

Steps to success

How does the executive champion operate? What does an executive champion do to succeed?

First and foremost the executive champion promotes an innovation broadly, which includes to

Articulate a clear vision
Develop an actionable strategy
Develop capabilities that power the innovative thrust of the organization such as capabilities to build and foster specific skills, behaviors, creativity, values or a mindset.
Steer execution to not only generate the newly created value but also capture it throughout the value chain. This may include analysis of the value chain and its players, initiating projects, controlling project portfolios, driving the commercialization of creative products or services, establishing entry barriers for competitors, measuring performance, etc.

Fuzzy values? – Here are some how-to examples

Do you find all this ‘value talk’ too abstract? Then let’s look at an example how ‘capturing value’ works in real life where Apple, for instance, controls each layer of its vertical value chain to a point where it ‘owns the customer’:

Let’s take the phone and data network for iPhones in the USA: iPhones come only with the AT&T network which is inferior to the Verizon network. ‑ Trust me, I know and experience it every day!

Why would Apple chose AT&T over Verizon? Because customers want an iPhone so badly that they will literally walk out of a Verizon store and straight to AT&T to get the iPhone that Verizon cannot offer. Customers don’t pick another Verizon phone and use the superior Verizon network. Instead, they are willing to swallow the (AT&T) toad because Apple owns the customer! This way Apple holds a much stronger position over AT&T than it could ever have over Verizon, i.e. Apple controls this tier of the value chain. Too bad only for the iPhone customers stuck with AT&T like myself *sigh*… the gamble worked out nicely though for Apple.

The simple rule here is that if you don’t own the customer you don’t make the money!

The message is clear: It is not enough to have an innovative product like an iPhone. You need to know how to capture the value and this goes far beyond a fancy piece of technology! This can be the most challenging task of the executive champion to consider and figure out.
And, yes, I know there are mobile phones out there with better technology and features but they don’t have the same ‘love factor’ that continuously attracts Apple customers and locks in their loyalty.

Why innovations fail

We have seen many times that when even the most promising innovation flopped, a flabbergasted management falls short to explain why. Therefore, let’s take another perspective and a quick look at what can go wrong (and did go wrong in Apple’s past too but Apple learned over time).

Innovations can fail for many reasons. Here are the basic pitfalls to look out for in reality:

1. Failure to create value that the customer recognizes.
Often the inventor or manufacturer sees a value in an innovation that is not shared by the customer because the customer does not recognize the value, i.e. the customer is not willing to pay premium for the special feature but only spend for what they clearly see and value.
This is a frequent trap for a technology champion and can lead to products with incremental improvements towards a state of perfection that the future target customers just don’t value.

Also business champions can make the mistake to get inspired too much by the technology and fund the product development without thinking through the value chain.
You have guessed it: the technology champion and the businesses champions are the ones that lack the explanation for the failure – that’s why we need the executive champion!

2. Missing to erect effective entry barriers for competitors.
Entry barriers are an interesting chapter on their own and widely discussed, so I’ll keep this short. Since Apple is such a rich source for examples, here is another one:
The iTunes store sells apps and other content like audio and video in proprietary formats. This is a great example how Apple established an effective entry barrier for its competition by establishing itself as the sole source. It can even control the content while raking in the profits. Other companies try the same approach but find it hard to compete with Apple’s dominance.
Victoria’s Secret, the successful lingerie company, took a different approach: They fended off competition by creating apparently competing lingerie stores under a different brand in the vicinity of Victoria’s Secret stores; this led competitors to believe the market was saturated and entering it was not attractive and attracted more customers to shop in either store adding to Victoria’s Secret bottom line – smart!

3. Failure to capture the value with vertical channel innovation.
Honestly, this is a complex and tricky topic that I might dedicate a future post also extending into strategic marketing. What it comes down to is this: how you can control the vertical value chain with the question to answer at each tier ‘who owns the customer?’ ‑ The right answer is: ‘it better be you!’
For now, let’s just say it requires cooperation and offering incentives for your channel partners to remain loyal and supportive to your strategy. The iPhone network example gives you a flavor or think of the apps providers for iTunes that engage in a symbiosis with Apple.

Leading without mandate

Bottom-line, more innovation leaders tend to be better for an organization than less. An organization cannot leave innovation to individuals or an ‘innovation department’ somewhere. Everyone can and should contribute to innovation! – Take your chance and drive it, it’s fun!

‑ Please share your thoughts or questions!

References and additional reading

How strategic innovation works: “What does it take to keep innovating? (part 1 of 3)”
Starting an ERG as a strategic innovation engine! (part 3 of 3)

Build ERGs as an innovative business resource!

The proposed business model for ERGs forms a foundation for continued innovation, strategic alignment and measurable results. It turns an ERG into a true and sustainable business resource for its members as well as the hosting organization.

Summary – The increasing diversity of employees at the workplace led to employees gathering along affinity dimensions like birds-of-a-feather to form networking groups within organizations. The next step goes beyond affinity and establishes employee resource groups (ERGs) strategically as a business resource and powerful driver for measurable business impact and strategic innovation bottom-up.

Limited to social?

Employee resource groups (ERGs) emerge for various reasons. They tend to start with a social underpinning that naturally unites and organizes like-minded employees. ERGs come in different flavors mostly along the traditional lines of diversity characteristics such as ethnicity, skin color, age, gender, physical (dis)ability, sexual orientation, military veterans, etc.

For ERGs, a ‘social stickiness’ is important and can be the key integrating factor of employee populations within organizations. It may also influence the choices of ERG goals and activities to a large extent. This may result, however, in possibly limiting the ERG and its members to be seen as a ‘social club’ of sorts by others. Management, in particular, may not see the direct (or even indirect) positive business impact that an ERG can have.

This is where ERGs can fall short: when they fail to tie a strong business-focused bond that ensures continued support by leadership that in return ensures the ERG can sustain and proper for the better of its members as well as the hosting organization.

Becoming a business resource

From a management perspective, ERGs can provide social ties within the workforce that are mostly seen as favorable ‑ at least as long as it does not affect the employee performance; whether perceived or real.

Better off is the ERG that demonstrates an unambiguous contribution to the bottom line. A clear business value proposition sets a solid foundation that makes it easy to communicate with and convince executives securing their continued support. The company benefits from positive business outcomes as a direct result of the ERG activities, while it engages employees broader and deeper. This uses more of the employees’ true potential to ‘maximize the human capital’ as an important element also of employee engagement, development and retention.

This approach serves not only the company but has advantages also for its employees and the ERG in return. The ERG members benefit directly in many ways such as by interesting work outside the immediate scope of their job, by developing new skills and by increasing their visibility within the organization and continued ‘employability’, i.e. their personal market value as an employee.

So what is the key to success, how do you ‘build’ an innovation-driven and business-focused ERG?

A ‘business model’ for ERGs

My proposal is to establish the ERG as a self-propelling and sustainable system, an ongoing process that continues functioning quite independently from changes in the ERG leadership and consistently delivers innovations. Individual leaders are important for operations and make valuable contributions, but the ERG must be able to continue functioning even if key players become unavailable and replaced.

The following dimensions are generic and apply to any organization. Here, we use them to describe a general business model for the ERG:

1. Strategy

2. People

3. Processes

4. Organization

5. Metrics/Rewards.

Dimensions of a business model — The five dimensions of an ERG business model

To illustrate the model and making it more tangible I use a generic example. It is based on NxGen (for Next Generation at the Workplace), a generational-oriented and business-focused ERG that I founded. NxGen was recognized in early 2010 as a best-practices approach by the National Affinity Leadership Congress (NALC).

1. Strategy

The strategy brings to the point the ERG’s goal and objectives. A well-thought-out value proposition is a foundation for the ERG.

For example, NxGen is a forum to develop leadership skills, networking and problem-solving that aims to open up cross-functional/cross-disciplinary opportunities for its active members through strategic business projects with measurable results. As a goal, NxGen aims to become a sounding board for management as a valued business resource.

2. People practices

People, active volunteers, are the life-blood of every ERG. Staffing and selection are crucial and continued activities to induce fresh ideas and prevent burn-out of established ERG members. What you are looking for are active volunteers who are passionate and energetic. You want members who become active change agents, role models, within the organization. Value a diverse set of backgrounds and capabilities that can complement another.

Rather than trying to recruit new members, focus on how to attract new members to engage and actively participate (in contrast to the ones signing up to receive email updates or a periodic newsletter, which is a passive form of membership). NxGen membership is open to all employees.

There is a broad range of benefits for active ERG members that can include (but are definitely not limited to):

Insight and work in other business functions and departments
Members lead a relevant project possibly in another business function
Experiment and learn in a safe and nurturing environment
Develop and apply skills like leadership, consulting, problem-solving
Build an open and supportive network with members coaching each other
Increased visibility within the organization
Potential to open new career opportunities
Making a measurable change in the organization here and now.

At NxGen, we see that younger employees (primarily Generation Y also called Millennial, born after 1980) tend to drive the ERG activities most. The explanations I offer is that GenY’ers, in particular, enter the workplace as well-educated professionals, optimistic and motivated to make a difference. GenY was brought up to believe they can achieve anything and are interested to explore lateral career moves. They are used to collaborating in teams to overcome obstacles and network while leveraging technology effectively to this end. At the workplace, GenY typically is not (yet) part of the decision-making bodies due to their junior positions ‑ but they do want to be heard (and should be listed to given their increasing numbers in the demographic shift of the population that has reached the workforce).

3. Processes

The ERG acts through business-relevant projects. At NxGen, the member ‘grass-roots’ identify otherwise un-addressed or under-served business needs that the ERG chooses to pursue. Based on a clear value proposition (return-on-investment, ROI) for the organization the ERG seeks executive sponsorship for each project. The executive sponsor ensures strategic alignment with the organization’s goal, expertise in the functional area, political support and funding for the project (since the ERG has no funds of its own).

The project scope often lays outside of the immediate job description of the ERG-appointed project leader allowing for broader hands-on learning opportunities. Applying professional project management methods to all projects ensures the projects deliver the specified deliverables.

The ERG core team steers and administrates the ERG project portfolio which is documented in an annual business plan and shared publicly. As resources are limited, not all imaginable projects can be conducted at once but are staged. Projects can build upon and leverage each other while making use of synergies whenever possible.

In the beginning, it might be challenging to find meaningful projects that make the best use of the ERG’s resources and capabilities with favorable business impact. It takes time and persistence to develop a trustful relationship with executive management and to gain credibility as an ERG to attracts more complex and important projects from management in return.
NxGen works and communicates openly, it acts transparently and leverages (social) media to inform and connect with its members and non-members displaying operations and result of the ERG’s work.

4. Organization

The NxGen ERG operates within a general framework set by a company’s office to ensure all ERGs abide the company policies. This office also provides an organizational home for ERGs within the company. It generally coordinates and supports the different activities across ERGs and ensures each ERG has a distinguished executive sponsor to connect the ERG with senior management.

A charter defines the basic roles and processes of the NxGen ERG in more detail and is posted publicly. A core team of active members guides the ERG activities and ensures ERG operability. The core team is lead by the ERG’s elected chair and co-chair(s); it further comprises the project leaders, distinguished role-holders, and liaisons to key functions in the organization. The core team members support and advise each other. The ERG provides a safe and social environment that relies on trust among the members to connect, to build relationships, to network and to run projects.

NxGen actively reaches out to other ERGs, innovative groups within the organization but also other operating units and companies to cooperate, share, benchmark and collaborate on common goals.

5. Metrics and rewards system

How do you measure success, i.e. the effectiveness of an ERG? An annual business plan covers the portfolio of ERG projects. It serves as an instrument to measure the ERG performance across all ERG activities that the ERG chair is held accountable for.

What are the rewards for active ERG members? Besides the benefits listed in the above section ‘People’, accountability and success for individual members derive from their projects or their input to other ERG activities that all have clear objectives and a success metrics attached. Driving the change and making a difference is a reward in itself.

NxGen and individual members received several awards and recognition for their work inside and outside the company which the ERG celebrates in public. Some members list their ERG involvement and experience proudly on their résumé which is an indicator that the ERG’s value proposition is effective for its members, i.e. the members value the ERG membership, projects, recognition and awards as means of their ‘employability’.

Building the ERG as an innovation incubator

The business model positions the ERG clearly as a powerful business resource for the organization but it can be even more. The ERG can serve as an ‘innovation incubator’ by combining an attractive system with creative space in an effective governance framework. The processes create measurable value for the individual and the organization that can significantly contribute to process innovation and also drives product innovation.

In an empowering bottom-up movement, the ERG directly connects its active members from any level of hierarchy with the decision-makers high up. This bears the potential to cut right through established or perceived boundaries such as hierarchy, bureaucracy, and red-tape or functional silos that may severely limit the effectiveness and innovative effectiveness of other units that were created top-down within the organization.

Herein lays the deeper potential of ERGs as a true business resource and going beyond possible self-inflicted limitation to social affinity. ERGs can well be the means that contribute to driving the future success of an organization for an organization that understands and value how ERGs open opportunities to tap into its workforce and unleashes hidden potential.

Additional reading

How strategic innovation works: “What does it take to keep innovating? (part 1 of 3)”
How to become the strategic innovation leader? (part 2 of 3)
Starting an ERG as a strategic innovation engine! (part 3 of 3)

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