Strategic Innovation ManagementIn Mature Enterprises

Tendayi Viki Dan Toma

● Blockbuster has now disappeared from our shopping malls.

● It failed to respond to the threat from Netflix, Lovefilm and Redbox.

● Similar stories can be told of several other companies including Kodak, HMV, Borders and Nokia.

Digital Disruption

Entrants &Upstarts ● The ongoing narrative about how corporations

cannot innovate like startups do.

● It appears that as corporations grow, they become more bureaucratic and slow moving.

● In contrast, startups are generally smaller, less bureaucratic and fast moving.

A Paradigm Shift

This challenge is accentuated when there is a significant paradigm shift in technology and

ways of doing business.

The rapid change from analog to digital caught most large enterprise by surprise, and

left them unsure of how to respond.

Why is this the case?

Climate Change Deniers ● In most companies, there are people in

management who will deny that an important change is happening.

● Disruption on day one always looks like a toy.

● The very nature of Black Swan events is that they often blindside companies with traditional

business models.

Don’t Kill The Cash Cow● Most companies will apply their efforts to

milking their cash-cow legacy products.

● Kodak invented the digital camera in 1975, but failed to benefit from the technology.

● The irony of this particular story is that the cash-cow business was killed anyway.

● By the very digital camera Kodak invented being exploited by other companies!

Misreading Signals● There will be managers that will recognize the

changes in technology that are happening

● But will misread what the change represents for their organization.

● Many large enterprises misread the digital revolution as simply a change in the means of production and marketing channels.

New Business Models ● Significant paradigm shifts often represent a change in

business models and innovation principles.

● It is much more than just transforming analog products to digital products.

● The ITunes store was not just about turning CDs, tapes and vinyl into digital music.

● When paradigms shift, business models matter.

Tristan Kromer, 2014http://grasshopperherder.com/lean-enterprise-innovation-ecosystems/

Competing & Staying Relevant● So how can large enterprises compete in

this ever-changing environment?

● Is it possible to be a large enterprise that executes well operationally; and a nimble innovation machine at the same time?

● What are the characteristics of an ambidextrous organization?

The Right Lens● Large enterprises are not startups.

● A startup is a temporary organizations set up to search for a sustainable business model.

● Large enterprises focus on executing known successful business models.

● This distinction between searching and executing was first highlighted by Steve Blank.

On the one hand we don’t want to kill the cash cows providing important resources; so execution and operational excellence are important.

On the other hand, we want to keep the organization nimble and responsive by continually searching for innovative new products and business models.

A War on TwoFronts

Executing Searching

Searching and executing require different cultures, behaviours,

resources, KPIs and governance.

In other words, large enterprises have to develop ambidextrous

capabilities, resources, KPIs and

governance tools

Nagji & Tuff, 2012

Core ProductsThese are existing

products that are optimized for existing customers

Adjacent Products These represent incremental innovation

targeted at adjacent markets

Transformational Products

These represent breakthrough innovation in which the company

develops new products for new markets

An Ecosystem of Products● Rather than view themselves

as startups:

○ It is better for large organizations to view themselves as ecosystems containing different types of products and innovation.

Managing The Core Product Portfolio● The key focus when managing the core product portfolio is

execution and operational excellence.

● Remember that a product enters the core portfolio after a sustainable and profitable business model has been found.

● There is also some trading history which allows for reliable financial projections to be made.

● Revenues, Profit-Margins, ROI, ARR, NPV, Market Size, Entry Barriers, PESTLE.

The Bed of Procrustes● Revenues, Profits, ROI, ARR, NPV

● These are the wrong metrics for managing innovation.

For every one of our failures, we had spreadsheets that looked awesome.

“”

Making Little Bets● With transformational innovation it is impossible to predict

which ideas are going to win on day one.

● As such, the culture, processes and KPIs used for core product management do not apply.

● Large enterprises need to fill their innovation funnel with a lot of small bets and search for sustainable business models.

● Innovation Accounting, Customer Discovery, Lean Analytics, Pirate Metrics, Mom Test, Lean UX, Design Thinking, Lean Startup, Agile Development.

Innovation Accounting

● * Innovation Accounting system should be flexible

● * 2 degrees of flexibility:

ii.business model maturity (p-s fit, p-m fit, scalability)

ii. use (reporting, governance, global)

Reporting KPIs● Designed to communicate the day-to-day

progress of the incubated ventures from ideation to prod market fit

● Mainly used as communication tool between product team and 'sandbox manager'

● Example: knowledge-to-assumption ration, cost per learning, experimenting velocity.

Governance KPIs● Designed to ensure the right ideas get

adequate financing.

● Used as diagnostic tool for investment boards.

● Example: BareBones NPV, knowledge to assumption ration

Global KPIs● Need to ensure transparency of sandbox's

profitability

● Used in shareholder communication & help to make mid course corrections in correlation with the global corporate strategy

● Example: cohort performance, innovation contribution, innovation conversion

The combination of these metrics can

then be used by an ambidextrous organization

to manage a product portfolio through the

entire lifecycle

Thank You