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Innovating within Large Organisations

Betting is risky, innovation is risky. But small, regular bets on innovation are the best way to run with risk — ensuring you rapidly capture new markets and drive true impact. In fact, not investing in innovation is by all accounts the riskiest thing you can do. Guiding the portfolios of numerous global and local clients has taught us to always ask three fundamental questions before diving into any innovation investment:

Risk: How do we de-risk our decisions?

Impact: How do we increase our chances of executing successfully?

Strength of belief: How might we turn the value hypothesis into an evidence-based play?

  • a) Market size: Total Available Market, Serviceable available market, Serviceable obtainable market; and 
  • b) Value proposition: how and from whom we intend to extract value from in this market.

 2. Build stage gates:

Funding should be locked to specific stage gates / milestones. However, it’s important to have long-term committed funding so that good opportunities don’t stall at the stage gates. Getting proof by conducting experiments increases our belief and drives more robust evidence bases.

3. Use the right metrics of success:

Don’t force the teams to build / commit to a business case for the whole vision. Rather, select metrics for each phase that are 100% aligned with the essence of success for

a) the cadence for that phase (e.g., customer validation of critical parts of the model, rate of code drops, or # of target customers engaged) and

b) the essence of the business model (e.g. % of data sources along the supply chain that we can aggregate, cost of customer acquisition, revenue growth).

4. Start with a portfolio view: Is your portfolio balanced between smaller, short-term and moonshots? Split these out based on uncertainty and closeness to core. The closer to the core, the more it should be handled by existing line management.

5. Start small, stay nimble: A series of small bets will almost always trump larger bets. Large bets need big investments, and big investments need big business cases, so you end up locking in solutions too early. Big bets reduce your tolerance for mistakes, and you lose the advantage of speed-to-market. You try to perfect things before releasing them, building highly detailed project plans tracking resources and interdependencies in detail.

6. Ensure the portfolio is funded: This means the projects can rapidly embrace experimentation: they don’t have to do an annual budget for things that they have not even started innovating on yet. The annual budget cycle forces people into taking large bets too early leading to this. Because of the sheer size of the core business, there is the risk you start dealing in big numbers, taking large bets.

7. Prepare for cultural clashes: To minimise risk, the projects need to stay lean and nimble — this can mean a significant cultural shift for the organisation. Find ways to protect your innovation projects from your BAU ‘big bets’ culture: you need to establish and protect a small and nimble innovation culture. Your individual small bets will ladder sustainably up into a bigger portfolio of innovation.

The head of innovation at a major airline loosely quoted — “There are millions of parts of an aeroplane, so if I just say ‘go ahead and innovate’ I will be swamped by opportunities. So, we say that any innovation that will decrease turnaround time on the ground or save fuel will get a free kick through the innovation process”. This demonstrates a few things:

  1. Closer to the core is easier to understand and get our heads around because it requires less cognitive effort to process the decision.
  2. Having a clear strategy of innovation “battlegrounds” decreases noise and increases focus

How can we find those things that will get a free kick? Geoffrey Moore in his book Zone to Win provides a very practical model for how companies can organise themselves to innovate in an age of disruption. The core idea to start with is to only commit to building something that has a strong senior sponsor internally. Is there someone who is willing to own the innovation and drive it to market?

We often find that people do not articulate their innovation strategies well enough. You need to have a clear and concise vision and north star, based on a very strong belief of market opportunity or mega-trend. The company needs to buy into this before any experiments take place, let alone before a project kicks off. Once there is buy in, we look at how to break it up into bite size components (roadmap of experiments/MVPs) that allow us to refine the hypothesis and build from rapid evidence bases.

This means that the organisation needs to develop a strong innovation thesis — a compelling narrative of where it is and where it isn’t investing, and how it is leveraging its right to win. There is a lot of focus on the right to play — based solely on assets that can be leveraged but this is misplaced. Which disruptor started with the right to play? It is the right to win — why are we positioned to beat the rest at this game?

Your individual small bets will ladder sustainably up into a bigger portfolio of innovation. Remember, your core business is designed to operate at scale. You haven’t always got it right, but your processes are carefully designed to pick up errors before they impact the customer. That’s important, because you need to protect a brand and a portfolio of revenue sources that have taken years to build. However, doing innovation and building your business of tomorrow means turning that logic on its head.

Innovation teams operate in an environment where there are more questions than answers. The product, market and business model are still being defined and refined — things are in so much flux that it’s like running through a maze — a few steps forward, a few steps back.

Leaders who empower a culture of experimentation and enable their employees to make good decisions have a much higher likelihood of accelerating innovation, delivering continuous improvement, and sustained competitive advantage. However, leadership can’t rely on role modelling these behaviours alone. Concerted effort and investment need to be made in putting the right systems, resources and organisation design that will allow for experimentation at scale. 

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