Bridging the Atlantic, this free and virtual German Startup Conference 2021 connects Germany’s startups preparing to enter the U.S. market with entrepreneurial and innovation hubs in Silicon Valley and throughout the United States.
Join me on October 26, 2021 – I look forward to your questions during the panel discussion of the Silicon Valley section!
The German Startup Conference 2021 / Silicon Valley section
Bridging the Atlantic, this free and virtual German Startup Conference 2021 connects Germany’s startups preparing to enter the U.S. market with entrepreneurial and innovation hubs in Silicon Valley and throughout the United States.
Join me on October 26, 2021 – I look forward to your questions during the panel discussion of the Silicon Valley section! Take a look at the speaker lineup (link).
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?
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).
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).
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 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 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 (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.
Amazon’s Kindle hardware is fueled by eBooks (image: michaelhyatt.com)
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.
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 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 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.
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.
(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).
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).
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 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.
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?
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.
Join me at the 5th Annual Pharma PPM Toolbox in Basel/Switzerland on March 5-6, 2015!
Presentation at 3pm on March 6, 2015
Come to discuss my talk about “Changing employee mindset to boost collaboration and engagement for extreme business results”
How to overcome innovation hurdles in large organizations
How to build an entrepreneurial culture within your company to respond to change quickly
Measuring success beyond money – behavior change for best practices and boosting ROI
Workshop at 3:30pm on March 6, 2015
And take my Intrapreneuring Workshop “Building an innovation framework to design, launch and execute business projects”
The workshop participants experience the role of an intrapreneur to bring a project to life using disruptive methods and collaboration.
Innovation Barriers and Assessment
Becoming an Intrapreneur
Resistance, Sponsor and Team
Prototyping, Pitching and Investor Insights
Implementation considerations
About the Conference
Pharma companies stand on a cross-road for a few years now. They can choose to stick to their old ways that will probably slowly kill their business or successfully adapt to the reality of continuously shrinking pipelines and growing obstacles.
The 5th Annual Pharma PPM Toolbox will provide you with fresh ideas and solutions from experts who work hard to keep up with uncompromising market demands.
Read this insightful “Taking the entrepreneurial approach” interview conducted by Eyeforpharma on the impact of hierarchy and how executive mindset inhibits adapting to the rapidly changing commercial landscape. It outlines how “intrapreneurs” and internal “angel investors” can get large, mature organizations moving again!
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.
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.
When we talk about disruptive innovation, we can easily agree that going from the days of dim candle light and sooty oil lamps to electric light was one of these breakthrough innovations, right? Its icon, the lightbulb serves as our symbol for a great idea today.
When you ask around “who invented the lightbulb?” the answer “Thomas Edison” first comes to mind – and the answer is wrong! Truth is that we can give credit closer to 20(!) inventors of the lightbulb! – How so?
Thomas Edison patented the first practical and commercially viable incandescent lightbulb in 1878 and a revised design in 1879. In addition, he offered the first efficient electricity supply system for households and businesses, which laid the foundation and cleared the path for mass-producing light bulbs in 1880. His design was an evolution from previous, inferior designs and enabled by improved technology.
No worries, we would not stay sitting in the dark. It appears safe to say that even if Thomas Edison was never born, the practical incandescent lightbulb would have been developed around the same time – by someone else.
Looking back in history, Humphrey Davy invented electric light in 1802; more than 75 years before Edison. His “arc light” was unsuitable for mainstream application though it found specialty uses even today. Many more designs for incandescent light and lightbulbs were developed by several inventors, but neither were they practical nor suitable beyond demonstration stage. Prominently, Joseph W. Swan built a working prototype of a “light bulb” in 1850 – well before Edison.
Entrepreneurial Competition
Edison had access to improved technology such as a better vacuum pump for his breakthrough design. This technology was not available to previous inventors. Edison also developed an efficient and economical way to distribute electricity when earlier designs drained batteries quickly. (A nice example, by the way, on how a product can go a long way when bundled with a complementing service.)
On the flip-side, Edison knew of his limitation too. He made carbonized Japanese bamboo glow as filament between two electrodes knowing that carbonized Tungsten was the superior material. However, the technology was not available at the time to produce a thin Tungsten thread. We had to wait for William D. Coolidge to produce the Tungsten filament for General Electric in 1910, which is still the preferred material to illuminate our modern incandescent lightbulbs today.
This situation is typical and comparable to many big ideas that entrepreneurs work on today. There is much competition among entrepreneurs, so every good idea usually has a handful of teams working on it independently and head-to-head at the same time. Thus, it is highly likely that, if not Edison, another inventor would have come up with the lightbulb design we are so familiar with today.
R&D as a Legacy
Perhaps, the even more impactful and lasting heritage of Thomas Edison are not his inventions, useful as they are. His products such as the lightbulb, phonograph, quadruplex telegraph, mimeograph, etc., have been replaced over time by more advanced technology.
Nonetheless, Edison has changed the way we discover concertedly today. Until his time, inventors matched the stereotypical image of a lonely genius experimenting and inventing in their lair burning the midnight oil over some ambitious idea. Edison established the first research and development (R&D) organization in his famous Menlo Park lab, where a large number of researchers worked together in an orchestrated way to find solutions to specific problems coordinated strategically and systematically concerted. Edison has industrialized research!
Until today every research-driven company or organization worldwide follows in Edison’s footsteps! What an impressive legacy!
Summary
Disruptive innovations tend to have their origin in incremental steps and competition among inventors. First working individually and now increasingly in teams or even distributed R&D organizations across country borders.
A key success factor here is building trust and incentives within the team in order for all individual contributors to share information and findings freely.
The broader, cross-functional approach to research helps to identify ideas and technologies from other disciplines that can serve as stepping stones. Edison used a better vacuum pump, which made his design possible. Later, the capability to manufacture a thin Tungsten wire allowed General Electric to take the lightbulb the next level.
As the saying goes, “innovation happens at the intersections of disciplines.” The development of the lightbulb serves as a nice example proving it to hold true once again. Thus, innovation benefits by drawing from advances in other disciplines.
So, is disruptive innovation a myth?
Back to our original question, the story of the lightbulb is a great example for a breakthrough innovation with vast ramifications that disrupted and shaped the we live and work around the globe.
It can, however, not be seen as just one big and isolated scientific step but rather a series of many little steps in combination insights from other disciplines including manufacturing, economics and marketing leading to broad adoption that changed the world.
Only when it all comes together you have a disruptive innovation like Edison’s famous design. And it was still not the end. The journey continued to evolve with a Tungsten wire and later fluorescence, halogen and LED lights.
In this light, every disruption seems as yet another incremental step, doesn’t it?
Meet me at the Intrapreneurship Conference 2014at the “Kennispoort”-building of the Eindhoven University of Technology, John F. Kennedylaan 2, 5612 AB Eindhoven, The Netherlands, from December 10-12, 2014! Contact me you are interested to attend, as I may be able to get you a discounted ticket!
Intrapreneurship is the most powerful engine for growth. With innovation being priority #1, how are you implementing and leveraging innovation from within?
Now being organized for the fourth time, the Intrapreneurship Conference 2014 is the premier global event for Corporate Innovation Managers, Intrapreneurs, Business Managers, HR-Managers and Innovation Consultants. This is not just another conference on innovation, where you will be listening to motivational speakers all day. We intentionally keep the number of available seats at a level that enables you to really connect with everyone.
Discuss the best and next practices in implementing and leveraging intrapreneurship. We have carefully curated a program for you that includes all relevant topics in the field of intrapreneurship, and invited experienced intrapreneurs and experts to co-create an impactful learning experience for you.
You will leave the conference with a clear action plan and practical tools for the next step in implementing intrapreneurship. Plus, you will meet like-minded people to connect, share and collaborate with – as most Intrapreneurs are the lone mavericks in the corporate jungle.
CURE and Yale, in collaboration with Boehringer Ingelheim, presents “Patients and Big Data in Healthcare: Deriving Value and Accelerating Innovation.” In an increasingly digital age, healthcare stakeholders can access significant amounts of data and knowledge using various platforms. Critically, this “big data,” represents a vast quantity of complex and diverse information. While payers, providers, healthcare experts and the pharmaceutical industry have the capability to analyze this data to gain insight, this information can be overwhelming to patients. This BioHaven event, moderated by Richard Foster, has convened a panel of experts to explore the topic of “big data,” the role of the patient in data analytics, the role of payers and what actionable data represents. Further discussion will explore the state of the art, including discussing national hospital systems using big data and local ones in CT and at Yale. Finally, the discussion will conclude with discussion about effectively incorporating big data into operations and where the field is headed.
Special kudos to my valued colleague Faye Lindsay, who was instrumental in pulling this event together!
Some of the topics the moderator and panelists will consider:
Defining and Exploring the topic
Tell us what “big data” means to you and why it is important. Give us one example which illustrates the best use of big data to date.
What is the role of the patient in data analytics? Does it benefit them? Do they naturally do it? How error prone are the data they provide directly?
What is the role of the payer in all of this. Can they get the data they need to better set rates? Will “big data” help or hurt the payers?
What is actionable data? What are the three major areas where we are making progress?
State of the Art
Where is the best state of the art in using data to improve outcomes in the US? How do we know that is true?
What hospital systems or MCOs are most advanced?
How are we doing in CT compared to other states? How do we know?
What is the state of the art in healthcare info tech/big data in the US. Where? Why? What do we need to do to catch up?
Unanticipated Consequences
Will all this measurement result in intense, and from time time, unproductive rivalries between docs, or hospital systems?
How can the providers use “big data” and not put at risk the effectiveness of current medical care delivery processes which have takes years to define and perfect?
Specific Subtopics
Big Data and the bottom 5%
We know we spend $1.35 T on 5% of the population. Do we know who they are and how we can best treat them. How much can we expect to reduce the cost, or improve the quality of the health care delivered to these patients?
Big Data and Quality
Integrating Big Data into Operations, effectively
What is coming?
Who is controlling the pace of advance in Big Data these days – Academia (who), the Payers (who?), the providers (who?) the Feds (who and who in HHS/CMS?) What about the role of the National Cancer Hospitals. Or other specialized (by disease/condition) providers (e.g. DaVita)
Moderator:
Richard N. Foster, PhD, Emeritus Director, McKinsey and Co; Lecturer, Yale School of Management.
Dr. Foster is an emeritus director of McKinsey & Company, Inc. where he was a Director and Senior Partner. While at McKinsey he founded several practices including the healthcare practice and the private equity practices, the technology practice and innovation practice. From 1995 to 1998 he led McKinsey’s worldwide knowledge development.
At Yale, Dr. Foster teaches “Managing In Times of Rapid Change” and serves as the Executive in Residence at the Yale Entrepreneurial Institute. Dr. Foster’s research interests are in the relationships between capital formation, innovation, and regulation. Dr. Foster has written two best-selling books: Innovation: The Attacker’s Advantage (1986) and Creative Destruction (2001), both of which were cited as among the “ten best books of the year” when they were published by the Harvard Business Review.
Dr. Foster’s work has appeared in Business Week, the Wall Street Journal, the New York Times as well as several dozen articles in research and popular journals. Dr. Foster was recognized as one of their ten “Masters of Innovation” in the past century. He was the external leader of the Concil on Foreign Relations Study Group on Technological Innovation and Economic Performance which led to the publication of Technological Innovation Economic Performance (2001, Princeton University Press).
Panelists:
Harlan Krumholz, MD, Harold H. Hines Jr. Professor of Medicine (Cardiology) and Professor of Investigative Medicine and of Public Health (Health Policy); Co-Director, Clinical Scholars Program; Director, Yale-New Haven Hospital Center for Outcomes Research and Evaluation.
Dr. Krumholz’s research focuses on improving patient outcomes, health system performance and population health. His work with health care companies has led to new models of transparency and data sharing. His work with the U.S. government has led to the development of a portfolio of national, publicly reported measures of hospital performance. These measures also became part of several provisions of the health reform bill. He is currently working with leaders in China on government-funded efforts to establish a national research and performance improvement network.
Dr. Krumholz is an elected member of the Institute of Medicine, the Association of American Physicians, and the American Society for Clinical Investigation. He is a Distinguished Scientist of the American Heart Association. He serves on the Board of Trustees of the American College of Cardiology, the Board of Directors of the American Board of Internal Medicine and the Board of Governors of the Patient-Centered Outcomes Research Institute.
Rishi Bhalerao, MBA, Director of PatientsLikeMe, a free patient network and real-time health research platform.
At PatientsLikeMe Rishi manages major relationships with industry partners. Prior to joining PatientsLikeMe, Rishi spent several years as a management consultant with the Boston Consulting Group (BCG), and more recently, as an innovation consultant, at a firm started by Prof. Clay Christensen of the Harvard Business School. He earned an MBA from the Ross School of Business at the University of Michigan and also holds undergraduate and graduate degrees in Engineering.
You Xi
Director of Business Analytics at Boehringer Ingelheim Pharmaceuticals (BI)and leads a team of analysts conducting analysis across all BI’s portfolio and communicating findings and strategic insights to internal stakeholders (Marketing, Sales, Managed Markets, Sr. Management etc.).
The key deliverables include using various data sources to measure performance, build promotional mix optimization modeling, behavior segmentation, portfolio optimization, etc. Prior to BI, You was a consultant at ZS Associates and then held various management roles in the pharmaceutical industry including Takeda Pharmaceuticals and Novartis.
Michael Matteo
Mike Matteo is chief growth officer at Optum, where he is responsible for creating and enabling growth across the company. Matteo focuses on the needs and opportunities of Optum’s customers and how the company can deliver creative, innovative solutions that meet their objectives. Prior to bringing his passion for modernizing the health care system to Optum in 2012, Matteo served for four years as chief executive officer of UnitedHealthcare National Accounts, where he expanded the company’s industry-leading position in the large-employer marketplace. Prior to becoming CEO, Matteo led business development efforts for UnitedHealthcare National Accounts, where previously he worked in product development and was instrumental in designing and launching the company’s first consumer-driven product innovations. He joined UnitedHealth Group in 1997 as a strategic account executive, helping many of the company’s largest employer clients meet their health care objectives.
Before joining UnitedHealth Group, Matteo was with Physicians Health Services, where he served the needs of major clients as an underwriting director and senior account executive. He began his career serving in multiple roles with Traveler’s Insurance Companies. Matteo graduated magna cum laude with honors from the College of the Holy Cross, and participated in the Columbia University Executive Management Program. He is on the boards of the MetroHartford Alliance, Hartford YMCA, and Connecticut Science Center, and served as chairperson of the Greater Hartford Arts Council Capital Campaign.
Why is this a billion dollar question? – The traditional business model of the pharmaceutical industry is broken. The focus shifts to incentivize patient-centric outcomes, prevention and behavior change in the global battle against a mounting wave of chronic diseases such as diabetes. In search for a new business “beyond the pill” the pharmaceutical industry joins other stakeholders in the healthcare system to align and pull in this same direction. First data-driven results are highly anticipated – well, here they are, so don’t miss this milestone event!
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.
“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):
Most change initiatives fail. Statistics from MIT research suggest that for leaders managing change the ‘capability trap’ is the single major failure mode. So, what is this trap, how is it set up and, more importantly, how to avoid it?
As a quick disclaimer, the charts and examples are schematic and simple to get my point across. This is a blog, not a textbook.
Under pressure
New leaders get appointed to solve a business problem such as improving poor results of sorts. So from the start the new guy or gal is under pressure to perform and succeed. In politics the common public expectations are to see result or bold actions within the first 100 days – and business is not known for being less demanding.
Tough Choice
So, soon enough the new leader faces a tough decision. Which choice do you favor?
“Worse before better” means doing “the right thing.” However, this approach may not deliver sustainable results fast and is a hard sell to impatient or less reasonable superiors.
“Better before worse” is a less stellar route to reap short-term benefits and lessen the immediate pressure but it comes at a price: knowing that the this choice is not sustainable and will cost more later down the road.
By the way, this is really not rocket-science but straight-forward logic yet many executives still get seduced by the low hanging fruit, namely “better before worse”… so stay with me for a moment to see what happens next.
“Better before Worse”
It starts out easy: you cut cost all over the place and look like a hero immediately. For example, you could reduce machine maintenance or cut the employee training budget. Schematically it looks somewhat like this:
Cutting costs equals savings
What happens is that not only your balance sheet looks better quickly, you also increase productivity short-term. The machines keep running and people keep on working, so in the short-term you produce the same output with less input.
After short-term gains, productivity plummets
Productivity and the Capability Inertia
The problems arrive with a delay when ‘capability inertia’ starts kicking in. So here is what happens: You didn’t maintain the machines yet the machines keep working – for while. Then, they break really bad and it takes a lot more money to get them fixed than having them maintained. It’s like not putting oil in your car’s engine and driving on – somewhere down the road the engine will die on you. You will have to spend money to fix it and live with the downtime while fixing the machines.
With a delay, the organization’s capabilities suffer and regaining them later proves very costly
At that time you find yourself in deep water and all your previous savings go up in smoke together with what else you didn’t budget for.
On the people side with employee training, for example, the effect is quite similar but often less obvious: You save the money for keeping them up-to-date with new technology, skilled, etc. and saved short-term. The real problem is your staff losing its professional capabilities to continue to perform on a high level in the face of competition or adapting to changing markets and environments. External focus comes with a cost of doing business – that you just eliminated, thereby fostering group-think and internal focus. Getting the crew back in shape later on takes effort and is expensive: not only will you have to train them but also they are unproductive during the training period.
Furthermore, shortsighted cost-cutting inhibits seizing business growth opportunities such as ‘small elephant’ projects (see also How to grow innovation elephants in large organizations), which can jeopardize the business foundation for the future.
With it comes the ‘leaky pipeline’ effect where valuable talent leaves. It is the best people who leave first (see How to retain talent under the new workplace paradigm?) if they see sweeping cost savings affecting critical investments in the company’s future capabilities and not surgically cuts. Talent does not wait it out on a sinking ship. If you are unfamiliar with the horrendous costs of turnover, check with your Human Resources person to get a sense for your burn-rate!
Despite all of this, many managers still embrace “better before worse” as the scenario of choice and believe they are “doing it the right way”.
Rewards for all the Wrong Reasons?
Unfortunately, performance and compensation frameworks in mature organizations usually support this easier approach. ‘Success’ is typically measured quarterly or yearly as a basis for bonuses, raises or promotions. The typical incentive systems don’t take long-term sustainability into account enough (other than stock options for publicly traded companies, for example) to change behavior.
Instead, rewards keep getting handed out on a short-term basis of evaluation. Research showed many times over that this approach simply doesn’t work for more challenging jobs of the 21st century. Don’t believe it? – Check out Dan Pink’s famous 18 minute TED talk “The Puzzle of Motivation” relating to the candle problem and motivation research.
As a bottom line, if don’t plan to hang around to ride out the consequences of your choice (or even have a golden parachute ready), “better before worse” appears an attractive shortcut to short-term success. Deep down, however, you know it was not the right thing to do. Your staff, your successor, and sometimes the entire company will suffer and face the consequence when you are gone. – So what could you do instead?
“Worse before Better”
There is an alternative choice: the stony road of “worse before better” by doing what is right. For leaders accepting responsibility this may be the only choice.
Right from the starts is gets tough: you increase cost to invest where things need to change most, be it people or technology. For example, invest in getting the best people to do the job and train them as well as you can for the challenges to come and step out of their way. Establish or overhaul technology, processes and managerial framework needed to deliver results reliably.
Invest in future capabilities first
This takes time and money, so as you would expect, productivity suffers at first but then, if the change is executed well, recovers and quickly exceeds the additional costs by far while you deliver outstanding results reliably.
It is important here not to address all problems at one time but to prioritize and tackle change in smaller steps. Mind that change is a development process that doesn’t lend itself to shortcuts.
After dipping down at first, productivity grows sustainably
While this is clearly the more sustainable strategy the tough part is getting your stakeholders and superiors to buy in (especially if they are looking for short-term “better before worse” results) by setting realistic expectations. After all, “worse before better” is a sustainable basis for a business model where “better before worse” is not.
You may also have to accept not receiving the short-term performance incentives for doing the right thing if your incentive system does not reward building capabilities. However, there are other kinds of meaningful rewards to consider. They range from feeling good about withstanding the temptation, doing good for the company and its employees, as well as possibly getting attention from more forward-thinking parties who may want to hire you in the future as a leader with guts and brains.
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.
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.
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.
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.
The earlier post “How you become the next Steve Jobs!” relies on an innovation ecosystem of sorts that already exists in your organization – but what if there is none?
It is not easy and takes time turning an organization’s mindset from what is into what if. It’s a great and rewarding achievement, though, if you can pull it off!
Building an Ecosystem
So, let’s continue there: If you find yourself in a company which does not provide an environment that supports intrapreneuring, you may need to build an innovation ecosystem within a large organization. Practically, you choose to become a midwife helping ideas of your colleagues getting a chance to come to life. This enables other aspiring intrapreneurs to step up, unite and act together.
A transition mechanism to feed these ideas back into the regular organization to become funded and implemented with strategic alignment to company goals
Preparing management how deal with intrapreneurs. You will need to build or teach
A set of relevant intrapreneurialskills for employees
A supportiveteam and for you to maintain
A positive attitude that you will need to persist and push on.
The “School for Intrapreneurs” (SFI)
A very powerful approach and critical puzzle piece in the ecosystem is the School for Intrapreneurs. We achieved to build this school successfully together with help from like-minded and supportive colleagues that I was fortunate to meet along my crooked intrapreneurial career path, if you want to call it that. The underlying premise of the SFI is that innovation skills can be taught, as mentioned in “How you become the next Steve Jobs!” – So, we teach them in this program.
In the end, results count or in the words I adopted from Accenture’s advertisement: “It is not how many ideas you have. It’s how many you make happen.”
Program Focus
Building intrapreneurial skills systematically, however, is only part of the deal. The real value of the program for the participants lays in experiencing the obstacles an intrapreneur faces in an organization themselves: the rocky road of rejection trying to get an idea on its feet.
We prepare our fellow employees in a process where they form supportive teams to collaborate in order to develop their ideas together and experiment. This includes ways to communicate with management in constructive and non-threatening ways on How Intrapreneurs avoid “No!”, for example. It culminates in pitching ideas to experts and potential sponsors for funding, implementation and support.
Executive sponsorship ensures strategic alignment of ideas with company interests. It also increases the chances dramatically for idea transitions into the established processes of the regular organization, i.e. the idea becoming a project to be implemented. This is why special emphasis needs to be put on preparing management how to support and benefit from intrapreneurs; after all, there are risks involved with intrapreneuring for the individual (see also The Rise of the Intrapreneur).
Building the School for Intrapreneurs together: Stephan Klaschka (left) and Gifford Pinchot III
The three courses build upon each other; we named them DOORWAY, PATHWAY and JOURNEY:
DOORWAY is a two-hour awareness course that outlines how innovation happens in large organizations, what typical obstacles are, what is an intrapreneur and already hints towards what is offered in the succeeding courses, PATHWAY and JOURNEY.
PATHWAY is in its core an incubator and accelerator over a 12 weeks with a mix of training and group work. Research suggests that approx. 5% of the workforce have the intrapreneurial spirit, which is consistent with our school’s enrollment numbers. At the end of the course, the teams pitch their developed ideas to a panel of experts and managers representing different business functions for in-depth feedback and advice how to improve the ideas. – Think “Shark Tank” but without bloody teeth. Teams with the most promising ideas then pitch to high level executives for sponsorship and support to turn their idea into an implementation project that enters the regular development processes in the organization. Receiving executive sponsorship is another level of validation that confirms strategy alignment with company interests.
JOURNEY is a six-month course designed to accompany the team implementing their ideas by providing a mix of skill-building and team-customized coaching. – Why is this needed and important?
Even with executive sponsorship the project has neither been budgeted for nor are other resources planned and available for its implementation; so, the project still disrupts the establishment and may trigger resistance.
Shaping company culture
We also ask JOURNEY participants to connect with the next group going through the PATHWAY course to network, share their experiences and help guiding the “next generation” of graduates. The goal is to achieve sustainability of the program by growing the number of like-minded, experienced and connected employees over time.
Over time, an increasing number of graduates keep the perpetualpipeline of fresh ideas open. They also grow to become a powerful, far-reaching and growing network of active change-makers across all parts of the organization as they connect and pass on their knowledge to the next class going through the School for Intrapreneurs.
These are the self-identified leaders of change that share a common innovation terminology, skill-set and experience while they help shaping the organizational culture and mindset on the way towards a sustainable environment, an innovation ecosystem.
Lessons from the School for Intrapreneurs
My key learning from this challenge in a nutshell is as follows:
The personal journey and ‘intrapreneurial experience’ is of utmost importance for the School’s participants – a theoretical training alone does not do the trick. It has to be hands-on and all the way to implementation.
This is why the participants value the safe space to operate and experiment in.
Typically, talent in large organizations is selected top-down by management. In contrast, talent self-identifies bottom-up and based on –intrapreneurial- merits though the School for Intrapreneurs.
Alumni are hardened by their experience and become part of a growing community of capable and engaged change agents.
Successful pitches to executives validate the alignment with company strategy – not only for the individual idea but also broader for the entire program of the School for Intrapreneurs.
The program allows gives more disruptive, risky and outside-the-box ideas a chance that otherwise would not have been brought to executive attention, or so our executive sponsors said.
The School for Intrapreneurs is part of a larger framework to change company culture over time by cultivating discovery and 10x innovation capabilities once again.
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.
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?
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.
OrgChanger.com 